How To Draft a Contract Clause Dealing With Delay in Performance

Delays in performance come up a lot in construction contracts.Multiple stages that must be completed on time are involved in a construction project.It’s crucial that the parties agree on the consequences of delays before work begins, as a delay at any point can mushroom into larger and more costly problems later on.

Step 1: There are deadlines for all stages of the agreement.

If you don’t have a specified end date or deadlines for each phase of the project, courts will not award you damages for delay.In the absence of specific dates of completion, contract law requires work to be completed in a reasonable amount of time.What is considered reasonable could be different from person to person.You should give a description of what you expect to be finished by the deadline.You have hired a contractor to build your dream home.The first thing he needs to do is clear the lot and pour the foundation.The materials for the framing of the house are due June 1 and he must be finished by May 30.It is not necessary for a phase to be completely finished before another begins.Make sure you define what constitutes substantial completion for the purposes of your contract if this is the case.Plumbing and electricity need to be completed before interior doors and trim can be installed.While the doors and trim are being installed on the second floor, he can finish up his first floor work.When you have a project with multiple phases, the most important thing is to make sure that later phases aren’t pushed back because an early phase takes too long to complete.You could include a sentence requiring the contractor to use specific scheduling methods to track his progress and ensure deadlines are met, or to provide weekly or monthly status reports.

Step 2: Material breeches of the contract can be caused by delays at any stage.

If the schedule isn’t met, the contract might not even exist.This type of clause is called a “time is of the essence” clause.You are saying that the deadlines and schedules included in the contract are very important to its existence by saying time is of the essence.If you include a provision that time is of the essence, the contractor will be responsible for all damages caused by a delay even if the delay was not his fault.

Step 3: Define what types of delays are included.

You don’t want to include delays that are caused by third parties, by events outside the control of either the owner or the contractor, or by theowner changing his mind about something.Unless excluded elsewhere in the contract, all delays are included in a “time is of the essence” provision.It is possible to draft other clauses to deal with different types of delays that may come up over the course of the contract.”Time is of the essence” doesn’t have to be complex.Your clause might say: “Time is of the essence with respect to all provisions within this Agreement.”Any delay in performance by either party will constitute a material violation of this Agreement.

Step 4: Who’s performance falls under the clause?

It is possible to apply a time is of the essence clause to both the contractor and the owner.

Step 5: In the event of a delay, you should give as much notice as possible.

If there is an excusable delay, all parties should be notified.How much notice should be given depends on the reason for the delay.If the owner learns that key building materials have been back-ordered and won’t be delivered for three weeks, he should alert the contractor as soon as possible.The owner needs as much time as possible to find a different supplier or pull the order.If the contractor has to suspend work for an afternoon but plans to come back the next morning, a phone call to the owner is probably enough.If a contractor fails to give the owner proper notice, they will lose any damages or right to ask for an extension of time under the contract.If the owner’s actions caused the delay, a court may refuse to award the contractor damages.It’s possible that the owner didn’t notice that he was causing a delay, and he has not been given the chance to fix the problem.Contractors should keep a daily log of project conditions and events so they can alert the owner of any potential delays as soon as possible.

Step 6: There are a number of events included in a force majeure clause.

If a major event changes the circumstances of the agreement in a way neither party could have anticipated, this clause excuses performance.Natural disasters, earthquakes, or tornadoes, wars, riots, government orders, and trade embargoes are examples of force majeure events.Strikes and labor shortages can fall into a force majeure clause.Performance under the contract would be impossible due to the catastrophic and unavoidable consequences of the events listed.In Virginia, force majeure clauses are required in all construction contracts.For example, your force majeure clause might state that a party will not be responsible for any failure of or delay in the performance of this Agreement for the period that causes beyond its reasonable control, including but not limited to acts of God, war, strikes or labor.

Step 7: Decide what will happen if there is an event.

The contractor won’t have to pay the owner any damages for the delay, and may be entitled to a reasonable extension of time to complete the project.The parties are left at the mercy of common law rules that only excuse performance under a narrow set of circumstances.

Step 8: Including other delays is excusable.

Provisions for delays that occur through no fault of the contractor should be included.If the contract doesn’t mention anything at all, courts will only consider a delay if it was caused by circumstances beyond the control of the parties.Unforeseen weather events that don’t rise to the level of a catastrophe, strikes, design errors, or material shortages are examples of excusable delays.It may be appropriate for the owner to compensate the contractor for any costs he incurred as a result of the delay, if it is caused by something in theowner’s control.

Step 9: If the event continues past a specified period of time, provide for the cancellation of the contract.

A brief delay in construction can be caused by a Hurricane that only impacts a small coastal area.The area would be flooded for months due to a massive Hurricane.The clause should allow the parties to walk away from the contract if there is a force majeure event.

Step 10: There is a clause that allows performance to be accelerated despite delays.

This clause would allow you to force the contractor to work more hours if they cause the delay.If an owner forces a contractor to complete a project despite excusable delays for which the contractor was entitled to a time extension, the owner can be sued for damages.The last phase of the project may require two more laborers to be hired by the contractor.

Step 11: The performance is delayed and deadlines aren’t met.

It is difficult to predict what damages will be caused by delays in the project, so many construction contracts include pre-set damages for delays.Damages for delay are difficult to prove, and so a liquidated damages clause is often favored.Unless there is a liquidated damages clause, some contractors don’t believe they are liable for delays.They are still liable for damages caused by a delay that was foreseeable when the agreement was made.If an apartment building was supposed to be completed in 500 days, but it took the contractor 600 days due to rain, the building owner would be responsible for the damages caused by the delay.It would not be reasonable for him to think that it wouldn’t rain for 500 days.Liquidated damages clauses are only valid if they are impossible to estimate.The amount set forth in the clause cannot be used to punish the other party for delay.A contractor can be hired to build a new restaurant by a certain date.The restaurateur and the contractor don’t know how much business the new restaurant will have, so they should be held responsible for any delay.An owner can’t recover damages from a contractor who delays his performance.Increasing costs of a delay that lasts for an extended period of time can cause liquidated damages to be increased.”If the Contractor fails to complete the work within the contract time, the contractor agrees to pay the owner $300 per day as liquidated damages to cover losses, expenses and damages, not to exceed $10,000.”

Step 12: If there are excessive delays, allow a party to end the agreement.

A clause that allows the owner to escape the contract in a worst-case scenario is something that should be included in any contract.

Step 13: The owner can suspend or delay work without paying compensation.

If delays are anticipated for business or other economic reasons, a suspension-of-work clause allows the owner to temporarily pause construction.Depending on how long construction is put on hold, suspension-of-work clauses can provide for payment to the contractor during the down time or adjustment of the final contract price.A suspension-of-work clause might say that the owner may order the contractor to suspend, delay or interrupt the work in whole or in part for a period of time.The clause would be followed by any changes made to the schedule as a result of the delay.

Step 14: Make sure the “no damage for delay” clause is in your state.

Some states, such as California and Virginia, have laws that limit the enforceability of these clauses.In states where these clauses are not banned, courts dislike them and give little latitude to the party trying to enforce them.If the cause for the delay was unforeseeable when the contract was made, courts will not enforce them.If your contract also includes a time is of the essence clause, courts often throw out the “no damage for delay” clause.If an owner requires a contractor to complete a project as quickly as possible, he shouldn’t be able to deny liability for expenses the contractor incurs because of his own actions.

Step 15: If actions by the owner cause the project to be delayed, the contractor cannot file a claim for additional costs.

A requirement that the contractor give notice to the owner that his progress is being hindered and request more time to complete the job is typically included in this statement.If the owner causes delays through actions that are particularly malicious or done in bad faith, contractors can still get around these clauses and file a lawsuit.