Vernon Howerton | Texas Construction Law Blog | November 15, 2017
Construction lawyers routinely deal with delay claims. I have presented or defended more of them than I can remember. That is why I was curious when, earlier this year, I received a series of email invitations to presentations on the use of “concurrent delay” as a defense to contractor or owner claims for delay damages on construction projects. I’ve written about the subject in the past and wondered what, if anything, had changed.
Generally, “concurrent delay” refers to a situation where both the owner and the contractor cause a critical delay at the same time, either one of which would have delayed project completion standing alone. As originally conceived over 100 ago, a finding of concurrent delay precluded both the owner and contractor from recovering delay damages – i.e. no liquidated damages for owner and no extended performance costs for contractor. This was called the “rule against apportionment.” The modern rule, however, allows for “apportionment” where delays are not truly concurrent.
R.P. Wallace, Inc. v. United States, 63 Fed. Cl. 402 (2004)
This case contains an excellent discussion of this topic. Wallace entered a contract with the Navy to, among other things, replace the windows on an historic building. The specifications required that the new windows have historically accurate, “true” muntins. The windows were also required to withstand wind loads of almost 160 mph. The contract allowed 165 days for completion and specified liquidated damages of $200 per day. Originally, Wallace anticipated that the windows could be fabricated in six to eight weeks and installed in 28 days. The completion date was in 1994.
After several months of searching, it became apparent that windows meeting all of the project specifications could not be had. No window with true muntins met the wind load requirement and vice versa, which was finally explained to Wallace by a supplier. According to the court, Wallace “was charged with the sisyphean task of seeking the window equivalent of a square circle” (on looking up the word in my dictionary, I learned that “sisyphean” is a reference to Sisyphus, a legendary king of Corninth, condemned to forever role a heavy rock up a hill in Hades, only to have it roll down on him as he neared the top).
The Navy ultimately acknowledged that the window specifications were defective and changed them. It also granted a 36 day time extension, which was the length of time between the date of Wallace’s first window submittal and the date Wallace obtained an approved submittal based on the revised specification. Wallace, however, claimed a greater impact. Also, Wallace’s problems were not done.
Once the specification was changed, it took some five months to manufacture the windows. Wallace claimed that the manufacturing delay was beyond its control, although Wallace made no effort to replace the supplier. Rather than install the windows in 28 days as planned, actual installation took 113 days. This was explained by the installation subcontractor’s failure to adequately man the job. Wallace was charged with 250 days of liquidated damages ($50,000). Wallace sued for their return, as well as payment of extended performance costs for the period of Navy caused delay.
The Court’s Findings
In evaluating Wallace’s claim, the court first pointed out Wallace was entitled to recover the liquidated damages, if it could show an excusable delay beyond the time extension allowed by the Navy. To do so, Wallace was required to prove that an excusable event proximately caused an actual, critical delay to completion of the work
Wallace claimed the Navy was not entitled to any liquidated damages, based on the “rule against apportionment,” because the Navy caused some of the delay. The rule against apportionment is as follows: “where delays are caused by both parties to the contract, the court will not attempt to apportion them, but will simply hold that the provisions of the contract with reference to liquidated damages will be annulled” (citation omitted). The court then contrasted the cases applying the rule against apportionment with other cases that required apportionment or separation of government caused and contractor caused delays. In these latter cases, the government was allowed to recover liquidated damages for contractor caused delays, but not for owner caused delays.
The court attributed the differing treatment to confusion between concurrent and sequential delays. Concurrent delay occurs where both parties are responsible for the same period of delay. Sequential delays occur when one party and then the other cause different delays to completion during different periods of time. When delays are concurrent, the result is an excusable but not compensable delay. However, when delays are sequential and can be segregated such that a new reference point for calculating liquidated damages can be determined (i.e. a new completion date), apportionment is required.
Applying this rule, the court rejected prior cases that refused to apportion, except in the context of true, concurrent delays. In other words, the fact that an owner and a contractor both cause some delay to a project does not automatically invalidate the provisions of the contract related to liquidated damages (or recovery of extended performance costs).
So What Happened to Wallace?
The court found that Wallace was entitled to an additional 21 day time extension for the period of time it spent looking for a manufacturer of the specified windows. However, because Wallace had not turned in other, critical submittals while it was being delayed, the court found that this additional Navy caused delay was concurrent with Wallace caused delay. Wallace was therefore entitled to time, but no money.
The court also found the balance of the delay to project completion, caused by the extended manufacturing and installation periods, was Wallace’s fault. After 10 years of litigation, Wallace was awarded $4,200, which the court correctly labeled a Pyrrhic victory (on looking up this second mythological reference, I learned that “Pyrrhic victory” generally means victory at an excessive cost and refers to Pyrrus, a late king of Epirus, who sustained great losses in defeating the Romans).
Has Anything Changed Since Wallace Was Decided a Decade Ago?
Not really. A party asserting an excusable delay still has to prove it. Some jurisdictions will also require proof by a party asserting excusable or concurrent delay as a defense that the party followed any applicable notice and claim procedures contained in the Project contract documents. In Texas, proof of timely notice may not be required if the delay was caused by a breach such as a defective specification or failure of payment – though this approach is fraught with danger and we advise against it.
What Should You Take Away From This Post, Besides Sysyphus and Pyrrrus?
The rule against apportionment is still more myth than truth. Except for actual, concurrent delays, it will not automatically void liquidated damage assessments when an owner causes some delay to a project. Prudent contractors therefore need to be prepared to document and apportion responsibility for all project delays among those actually responsible, after giving timely notice of delay and timely submission of any request for extension of the contract time.