How To Draft a Contract Clause Dealing With Delay in Performance
Delays in performance come up most often in construction contracts.A construction project includes multiple stages that must be completed on time.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 done 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.Sometimes it is not necessary for a phase to be completely finished before another begins.Make sure you define what substantial completion is for the purposes of your contract if this is the case.Plumbing and electricity need to be completed before the 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 that requires 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 regarding something like a schedule of events or a type of material.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 complicated.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 be a material violation of this Agreement.
Step 4: Who's performance falls under the clause?
A time is of the essence clause can apply to both the contractor and the owner.
Step 5: In the event of a delay, you should give as much notice as possible.
If an excusable delay occurs, all parties should be notified.Depending on the reason for the delay, how much notice should be given.If the owner learns 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, and he may want to 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 has 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 correct the problem.Contractors should keep a daily log of project conditions and events so they can notify 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 transforms 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 all 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 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 it is due to 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: Consider including delays that are excusable.
Provisions for delays that occur through no fault of the contractor should be included.If the contract does not mention anything specific, courts will only consider a delay if it was caused by circumstances beyond the control of the parties.Unforeseen weather events that do not 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 was 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 affects a small coastal area.It would be impossible to perform if the area was flooded for months.If a force majeure event renders performance impossible, the clause should allow the parties to walk away from the contract.
Step 10: Performance can be accelerated to meet the schedule despite delays.
The 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 event 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 have 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 actual 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, he would be liable to the building owner for the damages he caused.It would not be reasonable for him to believe 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 must be a reasonable estimate of what actual damages might be, and can't be intended to punish the other party for delaying.A contractor may 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 bring in, so they should be compensated for any delay.An owner can't recover damages from a contractor who delays his work.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 a day as liquidated damages to cover losses, expenses and damages, not to exceed $10,000."
Step 12: The agreement can be terminated if there are excessive delays.
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 can allow 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 can order the contractor to suspend, delay or interrupt the work for a period of time.The clause would be followed by any changes made to the schedule or payment as a result of the delay.
Step 14: Make sure the "no damage for delay" clause is in your state.
California and Virginia have laws that limit the enforceability of these clauses, while Ohio has banned them entirely.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 won't enforce them.If your contract also includes a time is of the essence clause, courts often throw out the "no damage for delay" clause.The owner shouldn't be able to deny liability for expenses the contractor incurs because of his own actions if he requires a contractor to complete a project as quickly as possible.
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 usually included in this statement.If the owner causes delays through actions that are particularly malicious or done in bad faith, contractors can still try to get around these clauses.