Notes on the term "Delay" in Construction Contracts: Regarding the publication of Opinion No. 006-2024/DTN.

The physical activities leading to the execution of the work must be carried out within the time frame established in the contract, but sometimes there may be a delay in the process. However, sometimes there may be a delay in this process. What can the expression "Delay" refer to? Find out below:

"Delay in the execution of items that make up the Critical Path":

All works must have a Critical Path in the Work Execution Program.

The Critical Route is defined as "the programmed sequence of the items of a work whose variation affects the total term of the execution of the work" (Annex 01 of the Regulation of Law No. 30225, approved by Supreme Decree No. 344-2018-EF).

If during the course of the physical execution of the work, circumstances occur that affect the Critical Path (which imply that those items that compose it are being executed late with respect to the time foreseen in it), which are not attributable to the contractor; this delay in the execution of "critical items" constitutes an event that generates the contractor the right to request an extension of the deadline.

In the event that the Entity declares the extension of the term to be justified, the delay will be implicitly considered as justified and the contractor will have the right to: (i) not be charged those days for the purpose of an eventual application of the penalty for late payment, and (ii) be recognized for the higher variable overhead and direct costs related to the extension of the term granted.

In short, a time extension granted has the effect of implicitly qualifying as justified a delay in the execution of the critical items of a work, as well as generating the modification of the contract term and the recognition of the corresponding higher variable overheads and higher direct costs.

"Delay in the execution of the progress foreseen in the Valued Work Progress Schedule":

Section 203.1 of Article 203 of the Regulations of the Procurement Law correlates the unjustified delay consisting in the fact that the accumulated value of the work executed as of a certain date is below 80% of the amount of the accumulated value as of said date, with the legal consequence of requiring the presentation of an accelerated work progress schedule. In accordance with the aforementioned paragraph of the Regulations, it is the construction supervisor or inspector who must assess this delay as unjustified.

In this circumstance, the contractor may request in due time and in a duly substantiated manner (before the supervisor) that the delay observed be qualified as justified, indicating that it is the result of an event or circumstance that is not attributable to the contractor.

"Delay in the completion of the physical works of the project":

When the execution of the works is not completed within the term established in the contract, the automatic application of the penalty for delay is generated, unless those days of delay in the completion of the execution of the works are justified by the approval of a term extension or by the sole qualification of the delay as justified, in accordance with the provisions of paragraph 162.5 of Article 162 of the Regulations of the Procurement Law.

The common element between the "extension of time" and the "qualification of the delay as justified" supposes the existence of a delay and they are aimed at justifying it because it occurred as a consequence of an event not attributable to the contractor.

The difference between both figures is that the "extension of the term" is a contractual modification that affects the "term" element contained in all construction contracts. It implies an increase in the term of the work with respect to that initially foreseen, which also implies the recognition of higher variable general expenses and higher direct costs related to the extension granted.

As for the sole justification of the delay, this is not a contractual modification (the contract term is not increased). It is only the qualification as "justified" of the delay, by the Entity, in the completion of the works, which avoids the application of the penalty for delay. Consequently, it does not imply the recognition of higher variable overheads or higher direct costs.

IN SUM:

• Section 203.1 of Article 203 of the Regulations of the Government Procurement Law refers to an unjustified delay in the execution of the work programmed in the Schedule of Work Progress, which requires the contractor to submit an accelerated work progress schedule.
• Article 162 of the Regulations of the Government Procurement Law refers to an unjustified delay in the completion of the work within the contractual term, which generates the application of penalties. The sole justification for the delay contemplated in numeral 162.5 of Article 162 of the aforementioned Regulations is not a contractual modification (the contract term is not increased). It is only the qualification as "justified" of the delay, by the Entity, in the completion of the works, which avoids the application of the penalty for delay. It does not imply the recognition of higher variable overheads or higher direct costs.