Sometimes there are forces beyond your control that keep the work under a contract from being completed on time. The parties to the contract might disagree about who or what is at fault.
Delay damages, a specific type of liquidated damages, are provisions in a contract that compensate the owner for delay. The money can take the place of other damages that might apply when a project takes longer than the contract specifies. Some contracts may establish an agreed amount of damages per day of delay. Generally, there are two types of delays: excusable and nonexcusable.
Excusable delays
A force majeure clause is a contract provision that relieves parties from contractual obligations because of circumstances outside their control. Examples of these excusable delays are:
- Natural disasters like hurricanes, tornadoes and flooding
- Acts of war, riots or terrorism
- Action by government entities
- Labor strikes affecting the industry
The contract should specify which delays are excusable. Having these delays made clear may absolve a party of fault or negligence and avoid costly damages.
Nonexcusable delays
Nonexcusable delays are avoidable delays that both parties should consider when signing a contract. These delays are often within the control of the contractor or owner. Nonexcusable delays may include:
- Personnel shortages
- The need to repair or replace faulty work
- Late performance by subcontractor or supplier
- Failure to meet a milestone where there is no excusable delay
Negotiating excusable and nonexcusable delays and damages in a contract should be done with thought about whether the project schedule is critical. Critical schedule delays affect the project’s delivery date and may mean loss of money for the owner, contractor, subcontractor and suppliers.