Construction Delay Claims – Critical Path Method Scheduling

Critical Path Method (“CPM”) is the most readily accepted method of measuring construction project delays. This scheduling technique is used to plan and manage a construction project.  The CPM schedule calculates the completion time for a project with discrete start and finish times for the construction project’s work activities.

The CPM schedule represents the set or sequence of predecessor and successor work activities including earliest start dates, latest start dates and completion dates for each activity.  The start of a discrete construction activity on the critical path is dependent on its predecessor work activity being completed based on estimated time durations in the CPM schedule.  For example, excavation for a building foundation is quite often a predecessor work activity to its successor work activity of pouring the concrete foundation. 

In our example, pouring the concrete building foundation is the work activity dependent on its predecessor work activity (foundation excavation) being completed in a reasonable time duration set forth in the CPM schedule.  Timely completion of the concrete foundation is dependent on timely completion of the foundation excavation to avoid delay to these two discrete work activities and the construction project as a whole.  Delays along the critical path may require additional time to complete the project and/or require accelerating work activities to make up for lost time.  Increased costs are often the direct result of delays and acceleration to make up for delays. 

Many project owners insist that liquidated damages be assessed for failure to timely complete interim milestone(s) and failure to meet the overall completion date.  Most courts and arbitrators recognize the CPM schedule as a tool for measuring construction project delays and calculating liquidated damages as well as other time related damages.  It is important for everyone involved in construction including owners, general contractors and subcontractors to understand how CPM scheduling is used to plan and execute construction work in addition to using CPM scheduling in proving or defending delay claims.

If you are experiencing delays, increased costs and damages on your construction project, please contact Milo D. Miller Law Group, P.C. at (720) 306-7733 to assist in navigating the often complex arena of CPM Scheduling and delay claims.

The materials contained at this site have been prepared by Milo D. Miller Law Group, P.C. for informational purposes only.  This information is not intended to create, and receipt of it does not constitute, an attorney-client relationship.

Actual Cash Value and the Delay/Denial of Contractor’s Overhead and Profit

If you own property you likely have a property owners insurance policy. The policy likely contains a replacement cost clause. The policy will also likely define what is a covered loss and how replacement costs are calculated. Examples of typical covered losses are hail damage, fire, and other perils.

Pursuant to the Colorado Division of Insurance Bulletin No. B-5.1, the actual cost value of replacing a dwelling or portion of a dwelling (i.e. roof), when a contractor is used to perform the work, is the full cost of replacement including overhead and profit less appropriate deductions for depreciation. It is important to realize, bulletins are the Division’s interpretation of existing insurance law or general statements of Division policy but these bulletins are neither binding nor final determinations of issues or rights. However, these bulletins are persuasive and can be indicative of rights under an insurance policy.

Typically, these insurance policies will contain language similar to “Insurer will pay the actual cash value of the damage to the dwelling, up to the policy limit, until actual repair or replacement is completed.” Based on a simple reading of this policy clause an owner may assume, for example, a hail damaged roof should be covered under the policy and entitling the owner to have the roof replaced. (Additionally, a property owner would need to hire a contractor to perform the work.) A contractor would provide a bid to replace the roof and the bid would include overhead and profit (generally a 20% markup is customary). The work performed by the contractor will be paid for by the Insurer under the property owner’s insurance policy.

However, some Insurers interpret the very same policy clause very differently and use a different calculation to determine the actual cash value to replace the roof. This interpretation has led to many property owners being denied coverage for the actual cash value of their claims. Insurers have interpreted such language to exclude contractor’s overhead and profit, as well as depreciation from replacement cost when calculating the actual cash value. Essentially, Insurers would pay for the construction repairs excluding any amounts for overhead and profit of the contractor who will be performing the work. If the Insurer’s interpretation of the clause was accurate a property owner would be hard pressed to find a contractor willing to complete a construction project without entitlement to overhead and profit.

Insurers may not deduct overhead and profit when calculating the actual cash value to replace or portion of a dwelling.

If your insurance claim has been delayed and/or denied or you would like more information about this insurance issue contact Milo D. Miller Law Group, P.C. at 720-306-7733.

The Role of the Budget as a Tool to Prove Damages and Promote Improvement

Many commercial, public works and industrial construction projects involve competitive bids in which the successful bidder subsequently converts the work items or categories of work in the bid to a construction budget for the project.  On a complex construction project the budget may contain dozens of categories of work with hundreds of cost codes.

Budgetary overruns in cost codes or categories of work lead some construction managers to “dump costs” into cost code(s) that are otherwise under-budget.  This is problematic for a number of reasons including: 1) minimizing/degrading the integrity of the budget as a means to track the accuracy of the bid/estimate for the project; and 2) it can lead to potential problems in proving damages where the cost increases are due to causes other than bidding/estimating errors.

Construction costs should be properly allocated to the appropriate construction category and/or cost code in the budget.  This allows construction professionals to make adjustments where the estimate/bid did not include realistic projections on production, time and costs  (i.e. improve on future projects).  Conversely, proper construction cost tracking allows construction professionals to rely on past bids and budgets where accurate estimates proved profitable for the construction company (i.e., improve on future projects).

From a legal perspective, proper construction cost tracking is also essential to assist in calculating damages.  When construction managers “dump costs” into inappropriate cost codes it can make it very difficult to accurately track and determine damages for cost increases not caused by the contractor, and for which the contractor may be entitled to compensation. Additionally, when events arise, such as changed conditions, it is critical to create a new budget line item for the changed condition. Creating a new budget line item for the changed condition segregates the costs resulting from the change and allows for accurate cost tracking, defensible documentation, and clearer claims to entitlement.  It is also important to take steps to avoid the inclusion of cost increases independent of the changed condition due to the contractor’s own inefficiencies.   A budgetary overage may not mean the estimate/bid is unreliable or inaccurate.  Rather, it could mean that something arose that could not have been reasonably anticipated at the time of bid.

For more information on how proper construction budgets affect damages and project improvement, contact Milo D. Miller Law Group, P.C. at 720-306-7733.

Preserving Miller Act Rights to Obtain Payment on Federal Construction Projects

Unlike private construction projects, construction professionals may not file or enforce mechanic’s lien rights on public construction projects. The Miller Act is a federal law designed to afford certain subcontractors and suppliers rights to obtain payment on a federal construction project when the prime contractor fails to pay them. The mechanism to recover payment is the prime contractor’s payment bond which is required on federal construction projects that exceed $100,000. The VA hospital in Aurora is an example of a federal construction project in the Denver area where subcontractors availed themselves of their Miller Act rights.

The Miller Act only provides remedies to certain subcontractors or suppliers depending on their position in the interrelated network of construction contracts. First-tier subcontractors and second-tier subcontractors and material suppliers may make a Miller Act claim. First-tier subcontractors and material suppliers are parties who have contracts directly with the prime contractor. Second-tier subcontractors and material suppliers are parties who have contracts directly with first-tier subcontractors. Lower tiered subcontractors and suppliers cannot assert a Miller Act Claim.

Miller Act Claims may be waived only in a writing signed by the party waiving its rights and only after the party waiving the right has provided labor or furnished material in the performance of the construction contract.

A Miller Act claim is governed by specific notice, timing and perfection requirements and if not followed strictly, can work to prevent a recovery and payment. However, when the requirements are met, the Miller Act can serve as an excellent method to obtain payment on a federal construction project. An experienced construction lawyer can assist in evaluating the validity and viability of a Miller Act Claim.

For more information, contact Milo D. Miller Law Group, P.C. at 720-306-7733.

Construction Scheduling

Enhance margin through proper planning.   

The majority of successful commercial, industrial and public works construction projects contain scheduling clauses in contracts that require adherence to a Baseline Schedule that properly connects the scope of work and duration to predecessor and successor activities.  A Baseline Schedule that does not contain appropriate logic ties can expose the prime contractor and other subcontractors to increased costs in the form of delays, acceleration, trade stacking and other inefficiencies.

Construct the Project Schedule as Part of the Procurement Process

Surprisingly, those involved in the procurement for some construction companies have little to no practical experience in managing a construction project or putting together a construction schedule.  It is important that those responsible for bidding a project, building a project and scheduling the project, to coordinate their expertise to make sure that the underlying assumptions involved in the bid are validated through a realistic lens.  This is especially the case when examining construction work that is seasonally dependent.

The person responsible for building the schedule for a project should be involved with the estimator and the project personnel to understand the competing perspectives and the various assumptions both make when bidding and building a construction project.  Reliance on invalid assumptions concerning activity duration during the bidding process can result in disastrous cost increases for responsible party(s).  The negative consequences include, but are not limited to, liquidated damages, actual damages and consequential damages.

Conversely, integration between the procurement and the project team prior to bid can allow for more realistic assumptions about the work and accuracy in terms of costs and potential profit margins.  This translates to reliability and confidence from those involved including owners, prime contractors and subcontractors.

For more information, contact the Milo D. Miller Law Group, P.C. at 720-306-7733.

Minimizing Risk And Protecting The HOA in Capital Improvements and Construction Defect Repairs

Construction projects, whether construction defect repairs or capital improvements, pose many risks to HOAs.  Among these risks is the risk that the reconstruction project can result in construction defects.  Universally, HOAs desire to avoid having construction defects arise during any construction project.  Although these defects do occur in reconstruction work, a carefully managed contracting process can properly allocate risk among the parties. Too often, HOAs involved in major repair or capital construction projects simply execute the vendor’s contract without revision.  Executing a vendor contract without careful examination can result in an HOA unnecessarily forfeiting rights and accepting unfavorable terms.  Ultimately, the HOA is the customer and should not simply accept the contract that is offered.

The construction contract can help prevent defects by integrating execution of the work with well-timed quality control inspections by an independent party such as an owner’s representative.  It is imperative that the HOA manage risk by requiring adequate insurance coverage and policy limits in the event a loss.  Additionally, it is critical that the construction contract contains a well drafted indemnity clauses to address claims that may arise associated with liens, regulatory compliance and a host of other issues.

If you are dealing with construction defect repairs or capital improvement projects, the attorneys at Milo D. Miller Law Group, P.C. can assist you in risk mitigation and management before, during and after your project. Contact the attorneys at Milo D. Miller Law Group, P.C. at 720-306-7733.

Earthwork: Do your homework to avoid the “Muck”

Residential, commercial and government projects involve assessing the types of soils associated with the project.  Failure to adequately understand the physical characteristics of site geology can lead to disastrous financial consequences for owners, general contractors and earthwork contractors.    

Some soil types are suitable for construction and provide the opportunity to use the existing soils in the construction process thereby minimizing soils import and/or export resulting in potential cost savings for the project.  Often times however the existing soils are not suitable for foundations, roads or bridges.  For example, a site that requires significant muck excavation will likely require removal of the unsuitable material and import of suitable soil material for construction.  Similarly, if the Contract Documents including the soils report fail to identify the existence of rock in a cut-and-fill project the owner and/or general contractor may be faced with the earthwork contractor requesting significant monies in the form of a change order for rock excavation which may require ripping the rock with a bulldozer or blasting which is significantly more costly than excavating other types of soils.

Whether you are an owner, general contractor or an earthwork contractor, if you find yourself dealing with legal issues associated with increased costs due to earthwork, contact the law firm of Milo D. Miller Law Group, P.C. as our attorneys have over two decades of experience addressing earthwork claims in litigation and arbitration.  Contact the Milo D. Miller Law Group, P.C. at 720-306-7733.

The Construction Contract: Payment-for-Stored-Materials Provisions

Whether you are acting as owner, prime contractor or a subcontractor, payment issues associated with stored materials can arise.  For example, certain equipment or materials (i.e., HVAC equipment, custom counter-tops and commodities such as copper) may require long-lead procurement, or may offer significant cost savings to purchase early in the construction process.  Once acquired, however, these materials must be stored.

Who pays to store the material or equipment after procurement?  This question is one that typically requires an examination of the operative contracts and the contract documents as a whole.  Failure to adequately analyze the bid documents in addition to the contract documents can result in an unsuspecting subcontractor ordering materials or equipment under the mistaken belief it will receive payment for storage costs.  These contractors or  subcontractors may ultimately pay the entire cost of storage without reimbursement.  These types of errors can eliminate the cost-savings obtained by acquiring materials early, disrupt the construction process, and turn a profitable job in to a losing proposition.

In addition to being at risk for not getting paid for stored material costs, failure to obtain the right type(s) of insurance, or insurance in adequate amounts, can put contractors and subcontractors at further risk in the event of fire, theft or other perils that may arise on construction projects.

If you are confronted with stored material payment issues whether as an owner, prime contractor or subcontractor, please contact the Milo D. Miller Law Group, P.C. at 720-306-7733, to aid you through the payment and risk mitigation processes.

Pay-if-paid vs. Pay-when-paid in Construction Contracts

Frequently, subcontractors in the commercial, residential, industrial and government contracting arenas are  confronted with pay-if-paid clauses or pay-when-paid clauses in construction contracts.   Understanding the distinctions between pay-if-paid and pay-when-paid clauses and how the two contract clauses are typically enforced can mean the difference between getting paid within a reasonable time or forfeiting your rights to payment entirely.

In general, an owner’s failure to pay a general contractor does not relieve the general contractor from paying its subcontractor.  However, a general contractor can shift the risk of non-payment by the owner to its subcontractor.  This type of clause is often referred to as a pay-if-paid clause.  A pay-if-paid clause must be clear, express and free from ambiguity to relieve the general contractor of its obligation to pay its subcontractors for their work.

If the contract language the general contractor relies on to deny payment to its subcontractor is not express or is ambiguous, the clause may be treated as a pay-when-paid clause.  A pay-when-paid clause does not relieve the general contractor of its obligation to pay its subcontractors.  Rather, a pay-when-paid clause will most likely require the general contractor to pay its subcontractor within a reasonable amount of time regardless of whether the general contractor ever receives payment from the owner.

A well-drafted subcontract, including payment provisions, can mean the difference between getting paid and litigation on a construction project.

Milo D. Miller Law Group, P.C. has significant experience drafting, arbitrating and litigating construction matter involving pay-if-paid clauses. For more information, contact Milo Miller of Milo D. Miller Law Group, P.C., at 720-306-7733 or [email protected]