MEC&F Expert Engineers : 10/15/14

Wednesday, October 15, 2014

CONSTRUCTION DELAY ANALYSIS METHODS

Construction Delay Analysis Methods


Delay is one of most common problems in construction projects resulting in construction disputes and claims. Basically delay is the time overrun either beyond the completion date specified in the contract or beyond the agreed-upon date for delivery of the project.  Most large projects are completed later than these agreed-upon dates for a number of reasons.  These delays can have severe financial impact on the project.  Basically delays are a net loss situation:  All the parties lose one way or the other and there are no real winners.  Reputations are at stake as well.
When disputes erupt, delay claims may be filed, unless compromises are reached.  To recover the damage caused by delays, both the delays and the parties responsible for them should be identified.  However, delay situations are complex in nature because multiple delays can occur concurrently and can be caused by more than one party, or by none of the principal parties (force majeure, etc.). As a result contract schedule and payment dispute are becoming two most common items of dispute during the construction phase.

What is Delay Analysis?



Delay Analysis is an investigation (usually forensic) into what has caused the project to run late and who is responsible for the delay events.  Delay analysis is performed in three steps:
1.    Investigation Phase (evidence collection);
2.    Description Phase (analysis of facts collected during phase one);
3.    Presentation of the case to an arbitrator or jury to prove the claim
Most of these delay claims reach the expert after completion of the project.  The analysis of the delay impact with the causes and effects of the delaying activities is one of the most complicated types of claims analysis.  It requires an expert with extensive knowledge of construction projects, means and methods, scheduling and the ability to develop a sound methodology to conduct the analysis.  This results in interviews with the parties, a detailed intensive review and research of the documents to verify schedules, events, sequence of work, changes during construction and the delay impact.

Organizational Chart

This article will address these challenges and the various delay analysis methods.

Common Causes of Delays in Construction Projects
Below is a list of common delay causes encountered on construction projects.  One of the complications of a delay analysis is that the delays can be caused by few of these listed causes or by concurrent causes or a complex mix of these causes running concurrently or in sequence.  The time of their occurrence and who caused what delay add to the difficulty of the analysis.
Errors and omissions in the contract documents:
·         Missing information.
·         Not having a phasing plan in the bid documents when the site work has to be done in phases.
·         Conflicting information that need design revisions.
Contractor caused delays for reasons under their control:
·         Not having enough labor force on site.
·         Contractual problems between the prime contractor and subcontractors.
·         Cash flow issues.
·         Lack of proper planning and management of the project.
Delays for reasons beyond the contractor or owner’s control:
·         Strikes
·         Out of state manufacturer’s shut down.
·         A subcontractor going out of business in the middle of the project.
·         Unusual weather conditions.
Owner caused delays for reasons under their control:
·         Scope changes.
·         Limiting contractor’s access to parts of the site.
·         Cash flow.
·         Late processing of contractor’s requests for clarifications and change orders.
·         A higher level political factor that impacted the project’s progress.
Personality conflicts between the project’s team.
·         Unfortunately, sometimes this factor results in the team making things difficult on site that cause delays. In this case each party blames the other for the delay.
One of the main steps in the owner delay analysis is to research the project’s documents to identify causes like the ones listed above that delayed the project.  The methodology used to determine the impact of these factors is the heart of the difficulty of this type of analysis.  To better understand the level of difficulty involved, please note the following basic concepts that have to be factored in:

Construction delay analysis
 
Types of Delays
Construction project delays can be classified according to their origin into four groups:
1.    Excusable compensable (caused by the owner): For example, owner initiated changes in work; architect or engineer supplied designs which are defective; work site is not available to the contractor in timely manner, etc.
2.    Excusable but not compensable (neither the contractor's nor the owner's fault): For example, force majeure; unusually severe weather conditions, etc.
3.    Neither excusable nor compensable (caused by the contractor or its subcontractor): For example, failure of the contractor to mobilize work crews and start the work in timely manner; improperly allocating labor, material, and other resources; lack of coordination of subcontractors, etc.
4.    Concurrent (delay caused by multiple factors)

Excusable and Non-Excusable Delays
Excusable delays simply mean delays that are unforeseeable, beyond the control of the contractor and they occur at no fault to the contractor.  In this case a time extension is owed to the contractor or a compensation if the delay caused him money.  Excusable delays can be further classified into compensable and non-compensable.  Non-excusable delays are delays due to the contractor’s fault and are within the control of the contractor.  The distinction between these two is significant in that it determines which party is liable for the delay.  Similarly, it also dictates whether or not a contractor would be entitled to a time extension and possibly if the contractor would be entitled to compensation for that time extension.  A Non-Compensable Delay normally encompasses such things as strikes, unusually severe weather, acts of God, fires, floods, etc.   A detailed revision of the contract’s terms and conditions is critical to properly classify the type of each delay identified in the analysis.
Compensable and Non-Compensable Delays
Compensable delays are delays where the delayed party is owed money to compensate for the loss due to the delay.  Normally a compensable delay is caused by the owner. It may be caused by a direct change, it may be caused by a suspension of work, or it may be caused by any of the constructive changes. For a contractor to request both a time extension and compensation for that time extension, he must demonstrate that the owner was the cause of that delay. 
Non-compensable delay is a delay where a time extension is owed but no compensation is owed to the delayed party.  For example, some contracts specify that delays due to reasons beyond the control of the owner and the contractor are delays where a time extension is granted but no compensation is paid to the delayed party.  The theory is that neither the contractor nor the owner has control over the Non-Compensable Delay. Therefore, both parties assume their own additional costs. The contractor absorbs his delay costs for being out on the project longer and the Federal owner absorbs its cost normally in the form of the liquidated damages by granting a time extension to the contractor and extending the contract. One might consider it a form of a non-fault approach to delays. Neither party can control them and both parties accept any extra cost resulting from them. A good understanding of the contract terms is critical to the expert analyzing the delay claim.
Concurrent Delays


Concurrent, Owner and Contractor Delays

Some analysts simply list the delays, calculate the number of days for each delay, add them up and claim the total as the total number of delay days.  This is far from being an accurate analysis. The timing of each of these delays is important.  We may have three delay causes that occurred during overlapping time periods or within the same period.  The schedule and the actual site events have to be examined at the start date of each one of these delays to analyze its impact.  We may find that only one of the three concurrent delays had an impact on the critical path of the project.  After plugging that in the updated schedule, we can find out the new completion date of the whole schedule.
Critical Path Method; Critical, Non-Critical Delays and Float

The project activities in a schedule are 2 types, critical and non-critical. The non-critical activities have certain number of days (called “float”) where the activity can be delayed without delaying the whole project.  For example five days float means that the activity can be delayed up to five days without delaying the whole project. 
The critical path can be defined as the series of activities with the longest extended duration representing the shortest time within which the project can be completed if the construction proceeds as planned.  The critical activities have zero or less float which means that each day of delay will delay the whole project by one day. 
A schedule normally shows a list of construction activities and durations for each activity, joined together by "logical relationships." An activity can be any portion of the planned work. Clearing, excavation, foundation, framing and roofing would be examples. The duration is the expected length of time required for each activity. The logical relationships between activities would identify "predecessor activities" that must be complete before another activity can begin and "successor activities" that must follow other activities
Determining which activities are critical and non-critical depends on the durations and logic of the sequence of activities.  Rebuilding the schedule after the fact, determining which activities are critical and which ones are non-critical and establishing the logic, which usually changes through the project, takes a highly technical research of the documents. Some assumptions and judgments may have to be taken during the analysis.
Application of the CPM to the Delay Dispute or Claim
Over the years, the courts have rendered a number of decisions that clearly indicate that CPM based scheduling delay analysis is the preferred method to analyze delay claims and assign each parties responsibility for the delay. The California courts have held that a bar chart can be used, but it must include some form of critical path analysis. (See Howard Contracting v. MacDonald Contracting (1998) 71 Cal. App. 4th 38) In addition, the better drafted construction contracts dictate that a CPM based schedule is the only evidence that will be accepted to establish a delay.
As earlier article have stated, four tests must be satisfied before recovery for delay costs will be allowed— a contractor must prove that the delay was (1) excusable, (2) compensable, (3) critical, and (4) non-concurrent. The third and fourth tests require some form of CPM based schedule analysis.
In Wilner v. United States (23 Cl. Ct. 241, 245 (1991)) the U.S. Court of Claims discussed in detail the necessity for, and value of, critical path analysis in order for plaintiff to prove a delay claim. The Court stated:
Each subproject is identified and classified as to the duration and precedence of the work. (E.g., one could not carpet an area until the flooring is down and the flooring cannot be completed until the underlying electrical and telephone conduits are installed.) The data is then analyzed, usually by computer, to determine the most efficient schedule for the entire project. Many subprojects may be performed at any time within a given period without any effect on the completion of the entire project. However, some items of work are given no leeway and must be performed on schedule; otherwise, the entire project will be delayed. These latter items of work are on the "critical path." A delay, or acceleration, of work along the critical path will affect the entire project.
In the another U.S. Court of Claims case, (G.M. Shupe, Inc. v. United States, 5 Cl. Ct. 662, 728-30 (1984)) the Court stated:
A requisite for government liability for the consequences of a critical path delay is fault on the part of the Government. Courts will deny recovery where the delays [of the Government and the contractor] are concurrent and the contractor has not established its delay apart from that attributable to the government.
There are four primary methods of analyzing a delay claim using a CPM schedule. All four methods rely on some comparison of the as-planned schedule to the actual as-built schedule or events. Two methods are primarily used after the project is completed and two methods are used during the course of construction.
The first approach requires a determination of which events the other party is responsible for and then removing them from the as-built schedule by manipulating the scheduling software. In essence, delays caused by the owner are removed from the schedule then a comparison is made to the as-planned schedules completion date. This method is used after the project is completed. If the collapsed as-built completion indicates that the collapsed project completion date is equal or less than the as-planned schedule the owner is responsible for the delays. This method is referred to as the “collapsed” as-built schedule method.
The second method involves a selection of specific time periods when major delays occurred for an “as-planned” versus “as-built” comparison.  Rather simply collapsing out the owner caused delays, this approach involves a more in depth analysis of how each delay period impacted the critical path activities. Once an analysis of the first major delay is made, then those conclusions become the baseline for determining how the subsequent delays impacted the project.  This approach is used after the project is completed.
The third method involves modifying the “as-planned” schedule. The method involves either modifying the as-planned schedule by modifying the schedule to reflect the critical delays for which the owner is responsible or alternatively by modifying the schedule to reflect the critical delays for which the contractor is responsible. A comparison of the original “as-planned” schedule to the modified schedule should indicate the number of additional days that are attributable to the owner. This method is typically used before a project is completed. It should be noted that the courts have questioned the validity of such an approach since it fails to accurately measure the impact of the delays on the critical path.
The fourth method involves the use of fragnets, which are fragments of a CPM network. In essence, new partial CPM networks are created for the periods or events that are being evaluated. Once the fragmented portion of the schedule is completed, it is then added into the current “as-built” schedule. At which point, an evaluation of the delay can be made in relationship to the ongoing activities. The fragnet approach is typically used during the course of construction.
Before a court will accept whatever method is chosen, the proponent of the analysis method must be able to establish that the approach identifies how the delay impacted the actual completion of the project.  By definition, only those delays which delay the actual completion of the project are on the critical path.
Using Critical Path Method scheduling (CPM) provides analysts the needed tools to conduct a proper analysis.  To understand the tremendous advantage of having CPM technology, please allow me to give you a brief idea about basic principles of CPM scheduling.
Prior to CPM scheduling, owners, contractors and any other businesses that needed schedules like large manufacturers used scheduling techniques where activities were listed and the sequence identified but the activities were not tied by logical relationships. Therefore, any delay or change of schedule needed reconstruction of the whole schedule. So, if we have a large schedule with hundreds of activities, you can imagine the cumbersome process of updating the schedule, say at 75% of the project or identifying the impact of a delay on the schedule.
The CPM method and the relevant software give the user the ability to tie the schedule’s activities by logic relationships. For example:
·         Activity B shall start when activity A is completed.
·         Activity C can start only when A and B are completed.
·         Activity D will start 5 days after activity A starts.
A scheduler builds a schedule by performing the following basic steps:
·         Define the activities.
·         Assign durations for each of the activities.
·         Identify the predecessor and successor activities.
·         Allocate the proper relationships similar to the described above.
·         The software automatically performs the CPM calculations, displays the schedule, gives you the completion date and identifies the critical and non-critical activities.
The CPM scheduling method helps the user do the following:
·         Update the schedule and clearly note the change of the completion date.
·         Manipulate the relationships and duration of activities to change the logic of the schedule to recover a delay and bring back the completion date to a desired date.
·         Insert a delay factor to an activity and immediately read the new completion date.
·         Identify the critical activities. These are the activities that don’t have any room (float) for any delays. A 3 days delay on a critical activity delays the whole project by 3 days unless the revised logic of the schedule dictates otherwise.
·         Identify non critical activities. These activities have different amounts of float. A float of 20 days means that this activity can be delayed up to 20 days without impacting the whole schedule.
When the first submitted schedule is approved, it is considered a base schedule for future updates and delay analysis. That means the project manager needs to carefully review the schedule and the critical path prior to approving the schedule. Some of the elements that need careful review are:
·         Verify that the start and completion dates of the whole project match the contract dates.
·         Check that the assigned durations are realistic.
·         Review the logical ties between the activities.
·         Look through the critical path and check what activities are critical.
·         If the schedule show the phasing required.

Delay Analysis Methods
Having introduced all these basic concepts related to delay analysis, please note below the different methods that are commonly used to analyze delays:
·         As-Planned vs. As-Built method;  this is a retrospective and actual fact-based analysis;
·         Impacted As-Planned method; this is a perspective method and is a theory-based one;
·         Collapsed As-built or “But for” method; this is a retrospective method, also theory-based;
·         Window analysis method; this is a retrospective and actual-fact based method;
·         As-Built method
·         Contemporaneous method; this is a retrospective and actual-fact based method;
·         Time impacted analysis method; this is a perspective and actual-fact based method;
·         As planned but-for method; this is a perspective and theory based method;
·         Net impact method; this is a retrospective and theory-based method;
·         Global impact method; this is a retrospective and theory-based method
The Global Impact and Net Impact approaches are considered completely illegitimate techniques, and if used to claim a time extension, should be rejected on grounds that they make conclusions on the effect of delays without considering any project logic.  The remaining six techniques all use the CPM approach to scheduling, although some techniques use it more efficiently than others do.

As-Planned Vs. As-Built Method

The analyst compares the dates and durations of selected activities shown on the as-planned schedule with the actual dates and durations on an as-built schedule and considers the difference to be the delay on the job.  The main advantage of this method is that it is simple to understand, easy to use, simple and inexpensive.  However, this is a very simplistic view of the delay claim because it ignores the following important factors:
·         The cause of the delays.
·         The timing of the individual delays and their impact on the schedule to be able to attribute the correct amount of delay days to the right responsible party.
·         It ignores the impact of concurrent delays; it cannot handle complex delay situations.
·         It ignores the fact that the logic and sequence of the as-planned schedule may have changed through the project due to numerous delaying factors.

Impacted As-Planned Method

In this method the analyst lists the excusable delays (or delays where time extension is owed to the contractor) and inserts the extended duration to the relevant activities.  The analyst reads the revised completion date and calculated the days between this date and the as-planned completion date and determines that these are the number of days owed to the contractor.  This method can be used to show the potential delaying effect of the owner’s delay, or contractor’s delay, or both together.  It can also be used for what-if analysis to predict possible delays.
The sources of error in this method are:
·         It ignores the actual as-built schedule and events on site.
·         If the delay events are added to the planned schedule in a different order, different conclusions can be drawn.
·         It assumes that the logic of the as-planned schedule reflect the reality on site.
·         It requires an accurate and realistic as-planned baseline schedule.
·         It ignores the inexcusable delays that may have been concurrent to some of these inserted delays which impacts the number of days owed to the contractor.
·         Since the analyst is only using the as-planned schedule, this method doesn’t incorporate changes in logic and out of sequence work.
Global Impact Method
This method requires planned schedule (not necessary based on Critical Path Method), list of delay events caused by one party (owner, for example) with known durations.  It is a retrospective schedule impact analysis technique that plots all delays on an as-built bar chart, equating the total delay to be the sum total of the durations of all delaying events.  The application procedure is as follows: the owner-caused delay periods are simply added to the end of the planned completion date, and then the actual completion date is compared with a calculated date.  If the latter is equal or later than actual completion date, the contractor is entitled to full extension of time.
The advantages of this method are that it is simple to use and no CMP is required.
The disadvantages are that concurrent delays are ignored in this method; the types of delays are also ignored; and it assumes that all delays affect project completion.
Net Impact Method
This method is the same as Global Impact Method except here we are also considering the issue of concurrency of delays.  It is a retrospective schedule impact analysis technique that attempts to justify time extension by showing all delaying events on an as-built bar chart, claiming total project delay is the claim for time extension.  The method requires planned schedule and a list of delay events caused by one party.  If two or more listed events happened at the same time, only the longest one is considered. Calculations procedure is the same as for Global Impact Method.

As-planned “But-For” Method

Set of delay events related to one party is added into the planned baseline program, and then the impacted completion date is compared with the as-built completion date, and the difference is said to be how much earlier the project could have finished but for all other events (imposed by the other party) but which have not been analyzed.

Advantages:
      No need to consider actual progress of works (only completion date);
      Can be used to show delaying effects for different types of delay;

Disadvantages:
      Requires an accurate and realistic As-planned program;
      Requires all information to be analyzed at one time;
      It is a theoretical investigation;
      Drawn conclusions are different depending on perspective of analysis


Collapsed As-Built “But For” Method


In this method the analyst takes the actual as-built schedule and takes out the duration of all the excusable delays (delays rightfully owed to the contractor). This revision forms the collapsed as-built schedule. The analyst reads the completion date on the collapsed as-built schedule and considers this date to be the completion date of the project had the contractor not been delayed. The analyst calculates the days between the collapsed as-built and the completion date from the as-built schedule and considers these days to be the days owed to the contractor. The sources of error in this method are:
·         It depends on the as-built schedule to be accurate.
·         The excusable delays removed from the as-built schedule are assumed to be excusable without a complete analysis of these delays, the causes and concurrencies. That means subjective assumptions and judgments have been taken and need to be examined.
·         It doesn’t factor in how the sequence of operation changed, any acceleration that took place, any recovery that took place because the as-built schedule is a representation of what really happened on site without addressing causes and effects of delays along the way.
·         In some cases, where an as-built schedule does not exist, the analyst recreates the as-built schedule based on his/her research. This product does not reflect the planned logic of activities or the planned critical path.
Window Analysis Method


The method follows the same basic philosophy as the as-planned versus as-built method.  This method is based on analyzing the delay over the entire schedule dividing it to windows with a selected duration, most commonly used is monthly. The analyst looks at the activities within the selected window, updates the activities incorporating the delays within the selected window. Updating the selected window changes the as-planned schedule to an as-built schedule up to the end date of the selected window and becomes the basis for projecting the remaining activities from the end of the window to the completion of the project. The sources of error in this method are:
·         Need to have accurate as-built information on the start and finish dates of the windows.
·         The original base schedule has to be accurate.
·         There may be delaying activities outside the selected window that have an impact.

Time Impact Analysis

Time Impact Analysis

This method is a combination of the window technique and as-planned impact method. It concentrates on delay events and applies them to as-planned model on window by window.  The major distinction between the windows/snapshot and the time impact analysis is that the former is a retrospective analysis looking back at what actually happened and the latter is a prospective analysis looking into the future and assessing what might have happened in terms of delay.   The Window and Time Impact Analysis share almost same advantages and limitations.

Advantages:
·         Methods are dealing with changes in project planning and execution;
·         Can be used during the currency of the works as well as for retrospective analysis;
·         Consequential delays, concurrency, criticality, and acceleration are taken into account;
·         The paucity of activities in each “window” makes analysis easier and results more convincing;

Conditions and Disadvantages:
·         As each “Window” must be updated regularly complete detailed records are needed;
·         Choosing the impact period is subjective;
·         Complexity.

Window Analysis Method
As-Built Method
This method is used in the absence of reliable schedules on the job. In this case the analyst recreates a schedule based on actual information. The analyst determines the logical ties between the activities to form a retrospective schedule which becomes the basis for analyzing the effect of the delays. Durations are given to the activities based on reasonable time to finish the various activities. The delays are then inserted in the newly created schedule and then compared with the actual as-built durations to calculate the number of delay days. The sources of error in the method:
·         The analyst has to be very experienced in construction means and methods.
·         There is a lot of judgment calls by the analyst that need to be examined.


As-built but-for schedule analysis

Contemporaneous Method
This is usually the preferred method of analyzing delays. In this method, the analyst takes a look at the schedule and actual site progress on the starting date of each delay, and then inserts the delays in the schedule.  The new completion date is compared to the original completion date to determine the delay days. This way the impact of concurrent delays is incorporated, the new critical path reflects reality on site and effect of the delaying causes. The sources of error in this method:
·         Having good documentation to reflect the actual site progress.
·         Accurate schedule updates.
As a conclusion, the analyst has to select the method to use.  Each one has its advantages and problems.  Sometimes the nature of the case, available time, documents availability or budget consideration influence the method selection.
Required Evidence to Prove the Claim
Delay claims are based in part on cost accounting concepts. Construction costs can be either direct or indirect. Direct costs can be tied directly to a project (e.g. labor) while indirect costs e.g. home office overhead) maybe allocated to several projects. Construction costs can also be described in cost accounting terms as either fixed or variable. Variable costs can generally increase or decrease in relationship to amount of work (e.g. on site supervisor). Fixed costs remain the same even though the amount of work may fluctuate (e.g. home office overhead).
In a case entitled Howard Contracting, Inc. v. G.A. Macdonald Construction Co., Inc., the California Supreme Court has effectively held that a subcontractor can recover damages for cost overruns caused by delays and disruption even though a City's prime contract barred the recovery of such claims. The case is significant for several reasons. First, it emphasizes the statewide public work contract prohibition against "no damage for delay" clauses. Second, the Court's holding also emphasizes that in every construction contract, the law implies a covenant that the owner will provide the contractor timely access to the project site to facilitate performance of work. Third, the courts have concluded that, as a matter of law, a general contractor can prosecute a subcontractor's "pass-through" claims against the project owner. Fourth, a contractor can recover extended overhead for the delay, and the Eichleay Formula for determining allocation of home office overhead in contractor delay claims has been legitimized by the courts. – The Eichleay formula derives its name from a United States Board of Contract Appeals case entitled Appeal of Eichleay Corp., (CCH) (1960) ASBCA 5183, 60-2 B.C.A.
A delay claim is proved, in part, by comparing as-planned schedules against as-built schedules. The damages for a delay claim also consider as-bid costs versus actual costs.
The Measure of Damages Depends On the Nature of Your Relationship to the Project
The measure of damages depend on your relationship to the project. Simply stated the project owners delay damage will be different from those sustained by the general contractor.
Typical Project Owner Delay Claim Components Include:
When the contractor delays the project the owner can recover one of two types of damages: liquidated damages or actual damages.
Liquidated damages are typically used when a determination of actual damages would be difficult if not impossible to ascertain. The amount of and application of liquidated damages are normally set forth in the contract. Some subcontracts incorporate the liquidated damage clauses in the prime contract. The liquidated damage amount for a specific time period are determined before the breach occurred. In California liquidated damages are generally enforceable. Some contracts attempt to include both liquidated damages and actual damage clauses. When both clauses are included in the contract the liquidation damage clause maybe invalid. If the owner caused the delay the liquidated damages provision will not be enforced. If there are concurrent causes to delay which are attributable to the owner and the contractor the courts will generally not enforce the clause. However, there are cases where the court has attempted to apportion the damages.
When there is no liquidated damage provision in the contract the owner will be able to collect its actual damages. If the owner has any direct involvement in the project its actual damages can include: (1) additional supervisorial expenses, (2) other additional expenses actually caused by the delay, (3) overhead expenses incurred during the delay period, (4) if project is intended to be leased reasonable value of loss of use and the lost rents which could not have been reasonably avoided, (5) if the project is not intended to be leased reasonable value of loss of use, interest expense, interest expense during the delay period and (6) any other reasonably foreseeable damages the owner may have incurred including lost profits from a business.
Typical Contractors Delay Damage Components Include:
The components of a contractors delay claim include: (1) indirect costs that occurred during the extended performance period, (2) home office overhead that was incurred during the extended performance period, (3) increased (material escalation) material direct costs that occur during the delay (4) lost productivity caused by the delay and (5) other damages directly related to and attributable to the delay.
Indirect costs include job site overhead (e.g. project supervision costs), extended general conditions or extended or unabsorbed overhead, job shack, portable toilet, telephone, insurance, and job site power and water.
Home office overhead for the extended performance period can be calculated using several formulas. The Eichleay formula is one method for calculating overhead. The Eichleay formula resulted from a federal Board of Contract Appeal case against the Eichleay Corporation. The formula is calculated as follows:
Overhead allocable to the contract equals contract billings divided by total billings for the contract period times total company overhead for the contract period. Daily contract overhead equals allocable overhead divided by days of performance. Amount of company overhead equals daily contract overhead times number of delay days.
The formula cannot be applied to every claim. There are cases which limit its application when there is not a total suspension of work. The formula is best used where home office overhead incurred and other jobs did not absorb the overhead. Other methods include modified versions of the Eichleay formula which are modified to fit the contractors particular delay circumstance such as: (1) segmenting costs to the delayed project, (2) using the same overhead percentage as that included in the bid and (3) applying industry published overhead averages.
Direct costs include: (1) Equipment rental costs and equipment ownership expenses (measured through rate manuals, depreciation, taxes and insurance) during the delay period (2) Field labor if the scope of work is increased as a direct result of the delay or if the hourly labor rate increases during the delay period (e.g. demobilization and re-mobilization expenses), and (2) Increased material costs if the scope of work is increased or if the material cost increases during the delay period the contractor will be entitled to that increased cost.
Delay damages can also include a contractors increased labor hours resulting from a loss of the on-site labors efficiency. Disruption occurs when a contractor cannot achieve the productivity that was originally anticipated. Productivity can also be impacted by a delays ripple effect. Loss of productivity can be calculated using several methods. Generally, a productivity claim seeks the increased labor cost. Typically, each area of lost productivity is determined by comparing the bid to the actual cost. Once, the area of lost productivity is determined the damages are calculated for each individual item of work or task where productivity is lost. Some contractors attempt to calculate the claim on a total overrun cost basis, but such an approach is disfavored. It is thus very important to keep detailed time record when the project is disrupted. The increased labor factors can be obtained through the following: Use of learning curves and other similar models, time motion studies, expert witnesses, scientific models, and comparisons to industry unit pricing standards.
Other damages that may be recovered include: (1) interest on the claim, (2) lost profits on other jobs if it can be established that due to the delay the contractor couldn't get other jobs during the delay period, typically, this occurs when a contractor bonding capacity restricts further contracts until the existing work is completed.
Attorney fees are not recoverable unless there is an applicable attorney’s fees provisions. If there is an attorney's fees provision the prevailing party recovers the fees, but in discretion of the judge. AIA documents attorney’s fees provisions may not always allow the prevailing party to recover attorney’s fees.
If the party who has been damaged fails to mitigate damages it may not be able to recover those damages which could have been mitigated. Thus it is important for the contractor to make reasonable efforts to minimize the damages it sustains as a result of a delay.
Delay claims require significant documentation. Once a delay is identified the effected contractor should earmark those costs which are due to the delay. Separate files with copies of the delay related expenses should be set-up and maintained. If there is a loss of productivity the project supervisorial personnel should maintain accurate of record of what caused the disruption and how much time was lost as a result. Generally, the more accurate and complete your delay related documentation is the more likely you will prevail when you make a claim. It is difficult and expensive to reconstruct a delay claim when there is little or no contemporaneous records which set-forth how the contractor was damaged.
When claims arise in projects, the party with the most complete documentation will have a tremendous advantage.  It is difficult and sometimes impossible to establish and prove a claim without good documentary evidence. It is certainly easier to defend a claim with good documentary evidence.
·         Correspondence.  A claims expert will often want to look first at correspondence files, as the best way to see how the project unfolded chronologically and find notices between the players of events, impacts and costs. When delays or other problems occur, notice should normally be in writing, through letters or electronic mail. Written notices also are normally required pursuant to most construction contracts in order to preserve rights to time extensions or additional funds.
·         Daily Reports.  Daily reports, log books, journals, equipment logs or labor logs are very helpful to determine chronology of events, progress of work, manpower and equipment on site. Regularly kept daily reports will corroborate the circumstances surrounding the problem, show the men and equipment impacted, help establish the impact on the schedule as planned and evidence the costs incurred.
·         Payroll Records and Delivery Receipts.  Payroll records also are reliable evidence of manpower on site at various times in the project. Obviously, to be helpful, payroll records must show which job personnel were working on each day. It also is important to know which personnel were available, as well as their specific capabilities or experience. Delivery receipts will similarly show the availability of materials and equipment throughout the project.
·         Requisitions.  Requisitions or pay applications will typically show work completed at specific times on the project. These are reliable indications of progress asserted by the contractor and agreed upon by the owner and architect as of those specific dates.
·         Schedules.  Baseline or "as planned" schedules are particularly important to show what the owner and contractor really planned as a schedule for the project. Updated schedules and time impact analyses can show the occurrence of events and the impact on the project.
·         Bid Documents, Estimates and Job Cost Accounting.  Bid documents, including estimates, will show costs expected by the contractor. Job cost accounting records created during the project can show the actual costs incurred at various stages of the project for comparison to bid estimates or change order estimates.
·         Photographs.  Photographs and videos should be taken regularly on any project as an easy and accurate way to record conditions and progress of the work. It is important, of course, to establish when photos were taken, who took them and where. Constant and consistent photographing is invaluable as an easy, inexpensive and thorough method of describing conditions.


Summary
Construction projects are, by nature, difficult to control because of their dynamic and complex environment, resulting in frequent changes, delays, and cost overruns. The ability to assess the impact of site events on construction projects is vital in the preparation and settlement of claims. None of the commonly recognized methods of delay analysis, including windows delay analysis and but-for method, is able to assess the impact of resource allocation on delay analysis. In addition, the effects of actions taken by the contractor to accelerate the project and minimize potential delays are usually ignored in delay analysis.
Delay claims are now a major source of conflict in the construction industry and also one of the most difficult to resolve.  Inspired by this, academic researchers and practitioners alike have made numerous attempts by way of developing methods and good practice documents for guiding practitioners on the proper analyses and resolution of the claims.
In view of the differences between the various methods, the general view amongst practitioners regarding use of the delay analysis methods is that no single technique is suitable for all delay claims situations and that the most appropriate one for any case is dictated by a number of factors or criteria.  The need to determine and make use of this appropriate technique is increasingly becoming a crucial issue.  Availability and accuracy of project records have a major influence on the suitability of a technique since the various techniques employ different programming information sources.  If a good as-planned network program exists but has not been updated with progress due to lack of as-built records, etc., then impacted as-planned analysis may be appropriate.  Conversely, where there are good as-built records but no as-planned program or the as-planned program is not adequately prepared, then the collapsed as-built method may be appropriate.
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