As any other given contract, construction contracts will inevitably have a series of deadlines stipulated. One of the most important deadlines is substantial completion. When a project reaches substantial completion it means that work that was set out to do has reached a point where now the owner can rent, sell, or live in the property. Substantial completions is also an integral point to reach in order for third-parties to complete certain obligations such as government requirements for completion by a specific date, availability of public incentives, or refinancing of a construction loan. Here are some areas we will go over to ensure that you are well-versed when drafting a construction contract when it comes to deadlines and delays regarding those deadlines:
Identify the Deadline
Setting a clear deadline is undoubtedly the first step before starting any project. There’s two ways of establishing a deadline. You can choose a specific date and time, like Thursday December 17th, 2015 at 5:00PM local time of the project site. Another way is to specify a length of time that runs after a specific date, like 365 days after the City issues the first building permit for the project. The second option can lead to some controversy, so make sure you are clear about the start time and you ensure holidays and weekends don’t affect the set length of time.
Most projects run into delays, and most of the time those delays will be determined by the complexity of the project. The three major factors to take into consideration when dealing with delays are: who and what caused the delay, does the delay mean postponing the set deadline, and will there be additional compensation for the additional costs imposed by the delay. Two kinds of delays worth discussing are excused delays and owner-caused delays (which could in fact fall into the excused delay category, depending on the circumstances).
In order to avoid controversies later on, it is imperative that the contract you draft or agree to defines what qualifies as an excused delay. Typically an excused delay is a delay caused by unforeseen events that could not have been predicted by any party before entering into the contract, but again being as clear as possible about what will be considered an excused delay and whether that will guarantee an increase in price will free you up from any potential controversies.
Owner-caused delays are delays that for example, are imposed by an owner who changes the needs or wants on a project once the work on the project has already commenced. Similar to excused delays, it is very important for a contract to spell out what exactly is an owner-caused delay. For example, is the delay solely caused by the owner or just part of it? Does it involved an excused delay? Usually owner-caused delays, because they are typically imposed by owner, mean that there will naturally be an increase in price to cover for overtime and any other additional costs.
Contracts should require delayed contractors to give notice to the counterparty that they are in fact delayed. Delay notices are designed regulate the authenticity of such delays and they are usually accompanied by a deadline. If the contractor does not meet the deadline, then he or she waives his or her right to increase the price and postpone deadlines.
Most of the time delays will usually result in some kind of damage, either owner delay damages or contractor delay damages. On the owner side, a delay may mean the loss of tenants, sales, public incentives and financing opportunities. On the contractor side, a delay may mean additional costs and losing the opportunity to work on other project because they are still busy working on a delayed one. A solid contract should cover both kinds of damages and detail how each potential scenario will be negotiated and worked out.