Delay Claims and Liquidated Damages on Construction Projects

What kinds of delay are there?

Construction contracts and courts sort delay into three types, and the type decides the remedy.

• Excusable, compensable delay is caused by the owner or someone the owner is responsible for: late drawings, slow responses to submittals, directed changes, site access problems, differing site conditions the owner bears. The contractor gets more time and, absent a clause to the contrary, its extended costs.
• Excusable, non-compensable delay is caused by neither party: unusually severe weather, labor disputes not of the contractor's making, events the force majeure clause lists. The contractor gets time but not money.
• Inexcusable delay is the contractor's own: poor planning, undermanning, subcontractor failures. The contractor gets neither, and the owner may recover its delay damages, often as liquidated damages.

Most contracts require written notice of a delay within a set number of days of the event as a condition to any extension or compensation. Those notice clauses are enforced, and a contractor who keeps working without giving notice usually loses the claim before the facts are heard.

Can an owner bar delay damages by contract?

Largely yes. A no-damages-for-delay clause says the contractor's only remedy for delay is an extension of time. Texas enforces these clauses, but the Supreme Court of Texas held in Zachry Construction Corp. v. Port of Houston Authority (Tex. 2014) that such a clause cannot be enforced to shield an owner from the consequences of its own deliberate, wrongful interference with the contractor's work, and reaffirmed the recognized exceptions: delay not contemplated by the parties, delay from the owner's fraud, misrepresentation or bad faith, delay of unreasonable duration amounting to abandonment, and delay from the owner's active interference. The Court treated the bad faith and intentional interference exceptions as a matter of public policy that the contract's wording cannot override.

In practice that means an owner who was merely slow or disorganized keeps the protection of the clause, while an owner who knowingly withheld approvals or directed the contractor into a method it knew would fail does not. The contractor must prove the owner's conduct, which usually requires the owner's internal communications obtained in discovery.

How does a contractor prove a delay claim?

With a schedule analysis that ties the owner's acts to the critical path. The elements are:

1. Liability: an event the owner is responsible for under the contract.
2. Causation: that the event delayed the critical path, not merely a non-critical activity with float. A delay that did not push the completion date is not compensable.
3. Notice: that the contract's notice and claim procedures were followed.
4. Damages: extended general conditions, extended equipment, escalation, inefficiency, home office overhead, and unabsorbed costs, each supported by job cost records.

Concurrent delay is the owner's best defense: if the contractor's own problems would have delayed completion over the same period, Texas courts and arbitrators typically award time but not money for the overlapping days. A contemporaneous schedule updated monthly is worth more than any expert analysis prepared after the fact.

When are liquidated damages enforceable?

When they are a genuine estimate of loss rather than a penalty. The Supreme Court of Texas set the test in Phillips v. Phillips (Tex. 1991) and reaffirmed it in Atrium Medical Center v. Houston Red C (Tex. 2020): a liquidated damages clause is enforceable if, judged at the time of contracting, (1) the harm caused by the breach was incapable or difficult of estimation and (2) the amount is a reasonable forecast of just compensation. The party resisting the clause has the burden of proving it is a penalty, and whether a clause is a penalty is a question of law, though facts may need to be found first.

Under Atrium, a clause that passed both prongs at contracting can still be unenforceable if, as applied, the liquidated amount turns out to be grossly disproportionate to actual damages; the challenger must then prove what the actual damages were. Per-day amounts tied to a real estimate of lost rent, financing costs or extended inspection and administration costs tend to survive. A round number chosen to motivate the contractor, or a schedule of amounts that escalates without relation to loss, does not.

Example

Suppose a Plano developer's contract with its general contractor sets liquidated damages of $3,500 per day for completion after a fixed date, based at signing on the developer's projected lost rent and extended loan interest. The project finishes 60 days late. The contractor shows that 25 of those days came from the owner's late selection of elevator finishes, for which it gave timely notice, and that the rest were its own. The owner may assess liquidated damages for 35 days, $122,500, and must grant a 25-day extension that wipes out the rest. Had the owner's contract also waived the contractor's delay damages, the contractor's extended costs for those 25 days would be unrecoverable unless it could prove the owner's conduct fell within a Zachry exception.

Can the owner collect liquidated damages if it caused some of the delay?

Only for the days the contractor is responsible for, and only if the contract's mechanism for extensions was followed. An owner that caused delay and refused to grant the extension the contract required may lose the right to assess liquidated damages for that period, and in some circumstances the owner's own delay can make the completion date unenforceable, leaving the owner to prove actual damages instead. Owners protect the clause by processing time extension requests promptly and documenting the reasons for any denial.

What should each side do when the schedule slips?

• Contractors: send the contract's delay notice within the deadline for every owner-caused event, update the schedule monthly and keep the native files, segregate delay costs in the job cost system, and request time extensions formally even when the owner's representative says a letter is unnecessary.
• Owners: respond to every notice and extension request in writing within the contract's time, document the reasons for denials, keep the architect's submittal logs current, and compute liquidated damages from the adjusted completion date, not the original one.
• Both: treat the recovery schedule as a negotiation document. Acceleration ordered by the owner to recover owner-caused delay is itself compensable.

For the general rules on when a per-day or lump-sum clause is a penalty, see are liquidated damages clauses enforceable in Texas; for the record that proves or defeats a delay claim, documenting a construction dispute; and for the standard form provisions most of these disputes arise under, disputes under AIA and other standard form contracts. Tina Wysk represents owners and contractors in delay and liquidated damages disputes in Dallas–Fort Worth courts and arbitration.