Each time the government changes or delays an existing contract, the contractor can submit a Request for Equitable Adjustment (REA) to receive compensation for costs incurred due to the change. Sometimes contract completion is delayed simply because of planned contract performance as the result of the government’s improper actions or lack thereof prior to, and even during contract performance.
Delays are either excusable or compensable and depending on how they are classified, not only is time lost, but profits can be lost too.
Excusable Contract Delays
Excusable delays do not entitle the contractor to recover costs associated with the delay but do allow for an extension or adjustment to the contractual delivery dates. These contractual delivery date extensions protect the contractor from any late performance sanctions such as termination for default for not delivering on time or liquidated damages assessed due to late deliveries. Excusable delays are defined both contractually and legally and include such things as:
- Acts of God (i.e., tornadoes, earthquakes, and hurricanes)
- Financial difficulties resulting from a lack of financing caused by wrongful government action (i.e., failure to provide progress payments)
- Fire experienced by a contractor or subcontractor
- Floods, defined as the flow of water over the banks of a river, stream, or channel (Surface water caused by rainfall is not considered a flood.)
- Labor strikes, as long as the contractor can prove that is acted reasonably in trying to prevent the strike and took reasonable efforts to mitigate its damages
- Sovereign acts of the government that could not have been realistically anticipated by the contractor (i.e., declaration of war).
- Subcontractor or supplier delays that: (a) are beyond the contractor’s control; (b) were not the fault of the contractor, and (c) did not arise from negligence on the part of the contractor
- Unforeseeable, total unavailability of materials, especially if the government contributed to the materials unavailability
- Weather, which at the time of year it occurred, is, unusual for the place it occurred
Those experiencing any of these types of delays should promptly contact the government to have impacted contractual delivery dates properly adjusted.
Compensable Contract Delays
Compensable delays, on the other hand, do allow the contractor to recover both the cost of the delay and receive an extension of the contractual delivery dates. Common instances of were contractors are compensated for delays are:
- Acts of over inspection by the government
- Delays caused by the government’s interference with the contractor’s work
- Delays in:
- issuing the Notice to Proceed within a reasonable time
- making the work site available that are the fault of the government (i.e., failure of the government to exercise due diligence in keeping preceding work on schedule)
- processing required security clearances
- providing government-furnished data/materials
- Failure to allow timely access to government facilities, and/or a failure to cooperate
- Government shut-down and/or a delay in providing contractually established funding
- Providing defective contract specification
- Unreasonable delay in inspecting the work (i.e., failure of the government’s implied duty to cooperate), in issuing changes orders and/or in obtaining government approvals
Those subject to any of these potential delays are entitled to recover any costs incurred resulting from the delay as well as an adjustment to the contractual delivery dates.
The contractor is also entitled to recover costs associated with any delays unreasonable in duration. The contractor usually has the responsibility for proving a delay is unreasonable, but when the evidence concerning the reasons for the delay is in the sole possession of the government, the burden of proof is on them to prove the delay is reasonable. Whether the delay is considered reasonable or unreasonable is determined on a case-by-case basis. Where the contractor has the ability to mitigate the impact of the delay, even a lengthy delay by the government may be considered reasonable, but in other cases, even delays of one hour may be considered excessive.
If the delay is the government’s fault, recovery for the entire delay period is possible, but if the delay results from the government’s exercise of a contractual right, the contractor is entitled to compensation only for the unreasonable portion of the delay. Costs incurred from concurrent delays that are the fault of both the contractor and the government cannot be recovered It is, however, possible for a contractor to accelerate performance to meet the contractual completion date(s) despite the government’s delays. In this case, all performance acceleration costs incurred to compensate for the government’s delay, whether successful or not, can be recovered. A contractor that completes a task late is entitled to recover for government-caused delays from the time that he could reasonably have expected to complete performance of the task, even if that time occurs earlier than the date stated in the contract.
Document planned early completion plans of a contractual task upfront since the costs of government caused delays are recoverable even if the task is complete prior to the contractual completion date. Costs associated with compensable delays also need to be documented as soon as the delay is identified through the recording of costs in separate cost accounts, retaining all associated documentation and correspondence leading up to and during the delay, and should notify the cognizant contracting officer immediately when a compensable delay occurs.
Delayed contract completion already incurs a huge loss of time and should not have to lose profits too. Ensure contract completions arrive on time and under budget. Check with your financial advisor on the latest government contracting regulations, or contact PBMares to see if recent contract delays are excusable or compensable.