Tag Archives: Contractor

Construction Delay Claims – Critical Path Method Scheduling

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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

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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.

Colorado’s Construction Trust Fund Statute – What is it and Who does it Protect?

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Colorado’s Construction Trust Fund Statute – What is it and Who does it Protect?

Construction lawyers often receive calls from property owners, subcontractors, sub-subcontractors, vendors, and suppliers about difficulties related to obtaining payment on construction projects. Prudent owners, contractors, subcontractors, and material vendors are constantly attempting to allocate risk, obtain payment and maximize profit margins. Colorado’s Construction Trust Fund Statute can be a useful tool for Owners, Subcontractors and Suppliers to obtain relief for non-payment on construction projects. 

The statute requires funds distributed under a construction contract be held in trust for the subcontractors, sub-subcontractors and vendors.  If a contractor does not distribute funds received from the owner due to a subcontractor or supplier, the owner, subcontractor or supplier may use Colorado’s Construction Trust Fund Statute to obtain payment.

For example, an owner distributes funds to a contractor for work on the owner’s project. The contractor, being a contractor on multiple projects, uses those funds to pay obligations unrelated to the owner’s project. The contractor in turn does not pay the roofing subcontractor for the work performed because the funds were used elsewhere. Under this scenario, the owner and the roofing subcontractor would have a claim against the contractor for a violation of the Trust Fund Statute. The roofing subcontractor may not need to resort to filing a mechanic’s lien on the owner’s property for the contractor’s failure to pay. A variation to this example would produce a similar outcome. For example, once the general contractor pays its roofing subcontractor for the work performed the subcontractor has an obligation to disburse the funds owed to any of its sub-subcontractors.  Here, the sub-subcontractor may have a claim against the subcontractor for a violation of the Trust Fund Statute.

There are exceptions to the statute’s enforceability.  A contractor may withhold funds if there is a “good faith belief” that a subcontractor or vendor claim to payment is not valid due to the conduct or lack of proper performance entitled the contractor to a set-off.  There are additional potential exceptions for consideration.

When successful, the statute allows the claimant to recover its attorney fees, costs and three times the amount of damages.  Additionally, officers, directors, owners, managers and others who control funds subject to Colorado’s Construction Trust Fund Statute, and fail to pay pursuant to the statute, are exposed to personal liability.  It is important to also note that where a judgment is obtained against an individual for violation of Colorado’s Construction Trust Fund Statute, the judgment is not the type of debt typically subject to relief in bankruptcy proceedings.

Trust Fund Statute, C.R.S. §38-22-127

For more information about construction law and construction claims, contact Milo D. Miller Law Group, P.C. at 720-306-7733.