Evaluating Government Contracts for Delays, Delay Damages, and Levy of Compensation Provisions

Management of delays is one of the critical issues in construction contract management. To fix responsibility and avoid disputes in construction projects, delays attributable to the client or contractor and those beyond the control of either party need to be appropriately identified and accounted for in the contract document. The present study critically examined construction contracts for different government organizations in India for various provisions concerning delays, delay damages, and levy of compensation; improvement measures are suggested. In this study, a mathematical framework for calculating the levy of compensation for delays attributable to the contractor, incorporating various relevant factors, was proposed. The findings were based on a detailed study of standard contract documents, manuals, and standard operating procedures for three government organizations—Central Public Works Department (CPWD), Delhi Metro Rail Corporation (DMRC), and National Highway Authority of India (NHAI)—and on subsequent interviews with senior construction professionals working in these organizations. The study found that existing contract provisions for calculating delay compensation are sometimes flawed and biased. Moreover, the prevalent methods for determining the levy of compensation do not consider many relevant factors, such as delays that occurred due to the client and total delay. The proposed framework can help construction practitioners calculate the compensation levy for delay damages in a fair and balanced manner.

Delays in construction projects are a chronic issue worldwide. Different contract documents have specific provisions to deal with the delays, delay damages, and the levy of compensation. This study evaluated these provisions in the contract documents used by three large public sector Indian organizations. The fixed percentage–based approach to calculating the levy of compensation in standard contract documents fails to acknowledge many relevant delay factors attributable to different stakeholders and, consequently, often results in an unfair allocation of delay damages to contractors, leading to contractor financial problems, contract disputes with clients, and further project delays. The proposed framework for calculating the levy of compensation offers a rethinking of the scope and coverage of levy of compensation calculation clauses in standard construction contracts, which may protect the financial interests of different stakeholders and reduce conflicts and disputes. Practitioners can use the framework to appropriately account for different categories of delays and other relevant factors while determining the levy of compensation.