Construction Labor Strikes: Compensable Delay

This is the third blog post in a five-part series about construction labor strikes and contractors’ potential recovery of delay and damages, along with case examples on the subject. The first post provides a brief history of the formation of labor unions and types of labor strikes, and the second post discusses entitlement and excusable delay. This post focuses on compensable delay. The fourth post will address inexcusable or non-compensable delay, and the final post will offer recommendations for contractors facing labor strikes.

Excusable delays are (1) beyond the control of the contractor and (2) unforeseeable. For a delay to be considered “beyond the contractor’s control,” not only must the event itself have been out of the contractor’s control, but also the contractor must have been unable to overcome the effects of the event. A reasonable economic approach is applied to determine if the contractor was in control or should have mitigated the impact of a delay event. For example, in one case, a contractor whose supplier went on strike was not required to procure the supplies elsewhere at “excessive cost.”¹ A labor strike does not constitute an excusable delay if the strike was ongoing at the time the contract was signed and was therefore “foreseeable.”²

Once a delay is determined to be excusable, the next inquiry is whether the contractor is entitled to compensation and a time extension for the delay period. Excusable delays entitle the delayed party to a time extension if the delay affected the critical path to project completion. Compensable delay entitles a contractor to a time extension as well as recovery of time-related costs for the extended period.

An excusable delay is compensable to the contractor if (1) the delay resulted from actions or inactions of the owner or another party (i.e., the causes of the delay were within the control of another party) and (2) the contractor incurred increased time-related costs because of the delay. For example, delay due to unusually severe rain is typically excusable and non-compensable, so the contractor receives a time extension but no compensation. However, if the owner did not provide a contractually required shelter that would have allowed the work to proceed despite the rain, the delay affected the then-critical path, and the contractor incurred increased time-related costs, then the delay may be compensable because the owner had control over the potential delay. The delay in the second example is caused by the owner, not the weather, and is therefore compensable.

Another element that bears on compensability is whether the owner delayed the contractor into a bad weather period—for example, if an owner-caused delay required the contractor to work beyond the planned time for completion, and during the extended time the contractor encountered unusually severe weather, resulting in additional delay. Although unusually severe weather is generally an excusable, non-compensable delay, it may be compensable because the owner’s delay pushed the contractor’s work into a period of severe weather.³

In T. C. Bateson Construction Co. v. U.S.,⁴ a contractor claimed compensable delay under a Suspension of Work clause because of a strike at a United States Air Force (USAF) base. The USAF utilized civil service personnel for the operation of a heating plant, and according to the contract operating agreement, the subcontractor would train these personnel to operate the plant. Both parties agreed that the subcontractor would temporarily operate the boilers on a price-per-week basis until all boilers were ready for the USAF.

According to the USAF, it was cheaper for the USAF if civil service personnel, rather than the subcontractor’s union personnel, temporarily operated the boilers. The USAF stated that boilers 1 and 2 were substantially complete and were its property, and that the contractor and its employees had no further connection to the boilers.

Union plumbers, steamfitters, and electricians stated that they would not work with nonunionized civil service personnel under the same roof. The union claimed that only union operators should operate the boilers until all boilers were complete, according to their collective bargaining agreement. New York labor relations advisers said the unions would not “stand for” the USAF’s takeover of boilers 1 and 2 with civil service operators before boilers 3 and 4 in the same building were completed.

The USAF, however, had civil personnel take over the operation of boilers 1 and 2 before completion of the entire plant. The union called a strike, and picket lines were established, causing a total construction shutdown at the base. The general contractor was powerless to act. Both before and after the strike began, the general contractor and its subcontractors repeatedly attempted to discuss settlement with labor, but the union refused settlement, stating that its dispute was with the USAF.

The court decided that “responsible government officials” knew that a strike was likely to happen because of government actions, so the work stoppage was foreseeable and probable. Hence, the court ruled that the strike constituted a compensable delay, and the contractor was entitled to a time extension as well as compensation.

¹         See Unicon Mgmt. Corp., ASBCA No. 10,196, 65-1 BCA ¶4778 at 22,680 (1965). Because supplies were purchased to meet the contractual requirement, the contractor was entitled to recover damages.

²         See Chas. I. Cunningham, IBCA No. 242, 60-2 BCA ¶2816 (1960) (finding that a steel strike that was in progress at the time the contract was signed could not be considered “unforeseeable” and therefore did not constitute an excusable delay).

³         See Time Contractors, JV, DOTCAB No. 1669, 87-1 BCA ¶19,582 (1987).

⁴         T. C. Bateson Construction Co. v. U.S., 162 Ct. Cl. 145 ¶ 172,173 (1960).

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