An Introduction to Liquidated Damages, Delay Claims and the Project Schedule
by Frank V. Reilly, Esq.

The Owner - Contractor agreement usually includes the basic ingredients necessary to formulate the contractor's original baseline schedule. It establishes the Scope of Work, the starting date, and the date for Substantial Completion. Unfortunately, many contractors mistakenly believe that they don't need a project schedule unless expressly required by the contract. This is wrong for several reasons:

Bidding:  Because the industry is so competitive, construction estimators can easily drift into the land of wishful thinking if they are not careful. Many times, the Owner's project duration is based on when they need the project done, not when it can be built.  When determining whether to bid a project, special attention should be paid to the liquidated damages provisions of the contract. If a project cannot be completed in the time required under normal circumstances, it may become necessary to explore the costs associated with running multiple crews, losses of efficiency, and acceleration costs.  It may even become necessary to provide for liquidated damages in the project estimate. When there is no set rate, the contractor may be responsible for the Owner's actual damages. This can sometimes be difficult or impossible to determine with certainty during the estimating process. Establishing a draft schedule during the bidding process can help highlight these potential problems before the bid is submitted to the Owner.

Planning:   The project schedule can be an essential project management tool. In order to properly plan for timely performance, the contractor should establish a detailed baseline project schedule before starting work in the field.  Many contractors allow themselves to be lulled into a false sense of security, never realizing the project completion date is slipping away. Without a clearly defined critical path, it can be extremely difficult to meet project deadlines.

Tracking Costs:  All contractors know the saying "Time is Money". If the contractor does not properly notify and track schedule violators, he may wind up paying for delays that would otherwise be recoverable. In the event of litigation, the contractor will be required to prove his damages and identify which parties are responsible.

Notice and Opportunity to Cure: If the Owner or subcontractors continually fail to follow the project schedule, it may be necessary for the contractor to take corrective action. This may oftentimes involve "de-scoping" some subcontractors, resequencing or accelerating work along the critical path, increasing crew sizes, etc. Most construction contracts require that the responsible party be put on notice before these measures are taken. A sophisticated project schedule can forecast these problems before they actually happen in the field. In order to put the proper parties on notice, it is sometimes advisable to attach copies of the updated schedule to each Payment Requisition and hold periodic scheduling meetings.

Change Orders:  When estimating change orders, the impact on the critical path should be carefully examined. Many times, this cannot be determined with certainty and may even be impossible to quantify. When in doubt, the contractor should remember that extra work always takes extra time. The only question is whether the work will be on the critical path, and therefore extend the project completion date. Some Owners will allow the contractor to reserve the right to seek an equitable adjustment to the project schedule once the impact can be determined.