Date: November 8, 2023Attorney: Boris Peyzner

Time extension provisions, liquidated damages clauses, and dispute resolution mechanisms are just some of the important ways that skilled construction attorneys can help address delays that inevitably occur on almost every construction project. 

Construction projects can often encounter unexpected delays that can lead to significant financial and legal consequences.  Delays can result from a variety of factors, including weather conditions, regulatory approvals, unforeseen site conditions, design changes, labor disputes, or material shortages.  Delays can lead to increased costs which impact the overall project budget.  Delays can also result in missing milestone completion dates which can impact a variety of factors including labor and material necessary to complete the construction project. 

To determine if project delays have legal ramifications for owners, project managers, and contractors, the first place to start is to review the contract documents for the project.  It is therefore important for construction contracts to include provision that address delays. Such provisions can include time extensions, liquidated damages or dispute resolution mechanisms which assist in avoiding protracted and expensive litigation. 

Time Extensions

Time extensions are helpful because it sets the parties’ expectations at contract inception which helps avoid disputes when there is a delay, and one party needs additional time to move the project forward.  Typically, construction contracts permit for time extensions when delays are caused by factors beyond the parties’ control.  An example could be governmental approvals which result in requests for design changes.  Contracts that are well negotiated should have provisions provide a mechanism for equitable time extensions. 

Liquidated Damages

Liquidated damages provisions are often used because they account for a parties’ intangible or hard-to-define losses.  The purpose is for parties to agree on a reasonable estimate of damages in the event of a delay for which the contractor is responsible that might otherwise be difficult or impossible to quantify.  These types of delays could include but are not limited to delays caused by the primary contractor’s failure to properly coordinate the subcontractors, labor shortages, project mistakes, or simply lack of good communication.

The parties therefore agree to a per diem monetary amount that the party causing the delay would be responsible to pay.  The importance of a liquidated damages clause is that it is a way for the parties to allocate and define their risk in the event of a delay.  Liquidated damages could but are not required to have a cap.

Dispute Resolution Mechanisms

Dispute resolutions mechanisms are a preplanned method for resolving disputes in a timely and cost-effective manner. Dispute resolution mechanisms available include mediation, arbitration, and litigation. 

Mediation is a non-binding process where a neutral third party, often a retired judge or a skilled attorney, assists the parties in reaching a mutually acceptable resolution.  Mediation is often a cost effective and efficient way to resolve a dispute early before the parties incur substantial litigation costs or further delays in the construction project.  It is therefore usually recommended that a construction contract include a mediation provision as a pre-requisite requirement for binding dispute resolution.

Arbitration is a binding dispute resolution mechanism which, often comes with a higher upfront cost as compared to litigation but is quicker and less formal than litigation.  Although less formal, arbitration may, if the contract says so, result in a binding non-appealable final determination.  Typically, but not always, arbitration is a preferred method for dispute resolution once mediation has been exhausted. 

Unless a construction contract provides otherwise, litigation is always an available tool parties can use to seek legal redress.  Litigation can be costly and lengthy but may be the only legal recourse a party can have if a construction contract does not include mediation or arbitration provisions. 

Construction projects can have significant legal and financial implications.  Therefore, it is important to seek guidance from an experienced construction attorney who can draft a contract that addresses the parties’ needs while offering necessary protections. 

The Construction Law Group at Mandelbaum Barrett PC is here to help. For more information about our group, click here.