Are You Being Ordered To Complete Your Work Earlier Then Scheduled?
Are You Being Ordered To Complete Your Work Earlier Then Scheduled?
An Overview of Acceleration Claims
by William C. Last, Jr.
As a project draws to a close, it is not uncommon for an owner to demand that a contractor increase the number of workers on the project or work overtime. When the owner makes such a demand, the question arises as to what rights the contractor has to recover the additional cost associated with accelerating the completion date. This article will provide an overview of acceleration claims.
When does acceleration arise?
Acceleration occurs when a project has been delayed by the owner or the owner’s agents (e.g. the project architect, project engineer or owner’s construction manager), yet the owner demands that the contractor complete the contracted for scope of work before the contract completion date, or agreed-upon changed completion date. Essentially, acceleration occurs whenever the owner is responsible for delaying the completion of the contract, but refuses to extend the completion date and demands that the project be completed by the contractually agreed-upon completion date.
An example of acceleration is when a contractor, working a school seismic upgrade, is ordered to stop work while the school district makes major changes to the plans. The delay associated with the stoppage and changed plans makes it impossible for the contractor’s scheduled work force to complete the project on-time. However, the school district needs the project completed by the original completion date so that students can use the classrooms. As a result of this conflict, the school district requires the contractor to complete the project before the commencement of the school year. In order to complete the project on-time the contractor must have its work force work overtime and add more workers.
The primary elements of an acceleration claim are: (1) project delays that are not the contractor’s responsibility, (2) timely notice to the owner of the delays, (3) a timely request to the owner for an extension of the project completion date, (4) the owner refusal to grant a time extension, (5) the contractor actually incurs acceleration costs, and (6) the contractor properly documents the acceleration costs.
While this article generally refers to general contractors and owners, it is also possible for a subcontractor to have an acceleration claim against a prime contractor. So long as the same elements required for a general contractor for an acceleration claim exist between the subcontractor and the general contractor, then a subcontractor can make an acceleration claim. A subcontractor’s acceleration claim may have a valid acceleration claim even if the general contractor does not have an acceleration claim against the owner.
Is the acceleration constructive, voluntary or actual?
Acceleration can be voluntary, actual or constructive. If the contractor volunteers to complete the project per the actual or revised completion date, the contractor will not, generally, be entitled to recover the additional cost associated with the acceleration. Actual acceleration occurs when the owner demands that the contractor complete the work by the contractually agreed-upon completion date. A constructive acceleration occurs when the owner refuses to grant additional time to complete the project.
Constructive acceleration requires: (1) the contractor is not responsible for the delay, (2) the contractor requests an extension of time in accordance with the contract change order and time extension provisions, (3) the owner refuses to grant an extension of time, (4) the owner still demands that the project be completed per the contractually agreed-upon completion date, and (5) the contractor incurs additional costs as a result of the acceleration.
What additional costs are associated with an acceleration claim?
When acceleration occurs the contractor typically will incur additional direct and indirect costs. While direct costs are relatively easy to quantify, indirect costs are difficult to identify and quantify.
Direct costs include: (1) Additional equipment rental costs and equipment ownership expenses (measured through rate manuals, depreciation, taxes and insurance) during the acceleration period; (2) additional field labor if the contractor increases crew size and/or adds extra shifts as a direct result of the acceleration and resulting additional supervision costs; (3) increased labor costs due to work inefficiencies that result from the acceleration (e.g. trade stacking); and (4) additional material costs resulting from rushed delivery times.
There are number of studies that recognize that there is loss of worker efficiency when workers work overtime. There also are studies that conclude that as crew sizes increase above the optimum crew size for a given work area, the worker’s productivity decreases significantly. Loss of productivity can be calculated using several methods. Generally, a productivity claim seeks the increased labor cost. Typically, each area of lost productivity is determined by comparing the bid to the actual cost. Once, the area of lost productivity is determined, the damages are calculated for each individual item of work or task where productivity is lost. Some contractors attempt to calculate the claim on a total overrun cost basis, but such an approach is disfavored. It is therefore very important to keep detailed time records when the project is disrupted. The increased labor factors can be obtained through the following: use of learning curves and other similar models, time motion studies, expert witnesses, scientific models, and comparisons to industry unit pricing standards.
Indirect costs include job site overhead (e.g. project supervision costs), extended general conditions or extended or unabsorbed overhead, job shack, portable toilet, telephone, insurance, and job site power and water that can be tied to the acceleration.
Constructive acceleration may not be readily identifiable. As a result, on-site project personnel should be aware of the events that lead to an acceleration claim.
If those events occur, the contractor must immediately review the contract to determine what contractual notification deadlines exist. Most contracts have change order and time extension clauses that are applicable when there are project delays. The failure to comply with these contract notification clauses constitute the owner’s primary defense to this type of construction claim.
The contract also must be reviewed to determine whether the delay is an excusable delay as to the contractor. In the case of an excusable delay, the contractor is entitled to an extension of time and/or compensation for costs associated with the delay. If the delay is solely caused by the contractor, then the contractor generally will be unable to recover acceleration costs.
The first notice that must be given to the owner is the delaying event(s). The second notice that must be given is in the form of a written request for a time extension that sets forth the cause of the delay and that acceleration costs will be incurred if no extension is granted.
Finally, if the owner refuses to grant an extension, the contractor must thoroughly document all of its acceleration costs. Ideally, the costs should be tracked as they are incurred. Contemporaneous project diaries and other reports should indicate the impact of the acceleration on the workers productivity.
©2002, William C. Last, Jr. wrote this article. Mr. Last is an attorney who has been specializing in Construction Law for over 20 years. In addition to belonging to a number of construction trade associations, Mr. Last holds a California “A” and “B” license. He can be contacted at 415-764-1990 or 650-425-7679. A number of his past articles can be found on his website (lhfconstructlaw.com). This bulletin is published periodically to provide general information about current legal issues. The articles are not intended to be a substitute for the advice of an attorney as to a specific problem. If you have a specific legal question or need legal advice, you should contact an attorney.