HOW TO MANAGE CONSTRUCTION DISPUTES TO
MINIMIZE SURETY AND CONSTRUCTION CLAIMS.
PART 4: Acceleration or
Compression of the CONSTRUCTION Schedule Claims
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Construction is a
business fraught with risk. Disputes
over even the smallest of issues can quickly escalate, with crippling
consequences to the project and the parties.
Over the years, the construction industry has developed various methods
of contractually allocating the risk of project delay and disruption. Some of these methods include liquidated
damages provisions, "no damages for delay" clauses, mutual waivers of
consequential damages, provisions that limit liability, claims notice
provisions, “waiver of damages clauses”, acceleration clauses, “time is of the
essence” clauses, and provisions addressing responsibility for the adequacy of
the construction plans and specifications.
Parties frequently litigate the sufficiency of these risk-shifting
efforts in conjunction with the underlying merits of delay and disruption
disputes.
Construction Claims
& Disputes
In Part I of our
series of how to manage construction disputes to minimize surety and
construction claims, we addressed the construction delay claims and the methods
typically used to analyze them.
1. We indicated there
that the most frequently encountered claims include:
2. Construction Delay
Claims
3. Disruption and Loss
of Labor Productivity Claims
4. Design and
Construction Defect Claims
5. Force Majeure
Claims
6. Acceleration or
Compression of the Schedule Claims
7. Suspension,
Termination and Default Claims
8. Differing Site
Conditions Claims
9. Change Order and
Extra Work Claims
10. Cost Overrun Claims
11. Unacceptable
Workmanship or Substituted Material Claims
12. Non-payment Claims
(stop notice (or Notice to Withhold) claims, mechanics’ lien (only for private
construction projects) and payment bond claims)
Part IV of this
series discusses item 5 above: Acceleration or Compression of the Schedule
Claims
Definition of Acceleration
Acceleration is the
speeding up of the work process in a construction project by either the general
contractor or property owner. An example
of acceleration is when a contractor, working a school seismic upgrade, is
ordered to stop work while the school district makes major changes to the
plans. The delay associated with the
stoppage and changed plans makes it impossible for the contractor’s scheduled
work force to complete the project on-time. However, the school district needs
the project completed by the original completion date so that students can use
the classrooms. As a result of this conflict, the school district requires the
contractor to complete the project before the commencement of the school year.
The acceleration of
a project typically results in the general contractor or sub-contractor having
to increase the number of work hours or shifts, hire additional labor or crews,
providing for additional supervisory personnel, and increase resources such as
equipment and supplies, all of which increase the costs associated with the
project for the contractor. Calculating the acceleration cost of a construction project
is not simply related to the direct and indirect cost of the project. Working under compression creates an
environment that increases the chance of mistakes and redoing that work. Accelerating a project implies more work on a
critical path and reducing project float times. Accordingly, project risk will increase, and
therefore potential for more losses. It
is not unusual for 25% or so of the labor hours to be inefficient. Overtime also causes stress and reduces
morale of the labor force.
These added labor
costs are typically direct payroll costs (factoring in labor burden) as well as
equipment costs associated with operating the equipment (especially if it is
owned equipment) for longer hours or renting additional equipment to be
utilized by the additional manpower or crews and for rushed delivery times of
the construction material. In addition,
acceleration can result in inefficient labor hours because manpower is now
working longer hours, new manpower is added and there is a learning curve
associated with new manpower that is not familiar with the work, and the labor
is potentially working under re-sequenced conditions and in congested locations
with other trades. Thus, just because the contractor takes reasonable efforts
to accelerate does not mean that it is incurring efficient / productive labor
costs or that its acceleration efforts are substantially improving the
completion date of the project.
Acceleration can be
classified as either directed acceleration or constructive acceleration. Another category that also has been litigated
is voluntary acceleration, if the contractor volunteers to complete the project
per the actual or revised completion date, the contractor will not, generally,
be entitled to recover the additional cost associated with the acceleration Acceleration may occur from the other party's
express or constructive order to increase the rate of production. An express order to accelerate does not have
to be written or use the word "accelerate", although it must direct
the contractor to increase its rate of production and reflects an intention or
understanding that the increased effort will result in additional compensation.
In
a recent decision, a contractor sent a letter to a subcontractor requiring that
it increase its rate of production to meet the contractor's revised schedule. A
hand-written note on the letter stated that "all costs for the above will
be negotiated at close out." The
contractor argued that the letter was not an order to accelerate because the
subcontractor had caused the delay and the revised schedule gave the
subcontractor more time to perform its work than the original schedule. The
court held that the letter was an express order to accelerate because it
directed the subcontractor to increase its rate of performance at a time when
the weather conditions were less favorable than the original schedule and
manifested an intention to pay the subcontractor additional sums for such
increased performance.
For
a contrary decision where the contractor caused its own delays, see United Constructors,
LLC v. United States,
No. 08-757C (Oct. 18, 2010) (denies Type I Differing site Conditions claim
because conditions were reasonably foreseeable at time of bidding; denies
constructive acceleration claim because contractor's own delays contributed to
the delay)
Directed Acceleration
Directed
acceleration occurs when the owner directs the general contractor (or when the
general contractor directs the sub-contractor) to expedite the work process of
the project to finish the job in advance of the completion date. In this type of acceleration, the owner is
considered responsible for the contractor’s increased costs (acceleration
costs) to complete the project prior to the contracted completion date. It is not uncommon for construction law firms
to include a provision that allows the owner or general contractor to
accelerate the project, with the understanding that the owner will need to
compensate the contractor for the acceleration efforts.
Constructive Acceleration
The second type of
acceleration that is more likely to result in disputes because it centers
around entitlement and quantum is the constructive acceleration. Constructive refers to something that is not
expressly required, but something that is inferred from the actions of a party
or implied. When faced with an excusable
delay, which is generally outlined within the contract, the general contractor
or subcontractor is entitled to compensation for the increase in costs incurred
as a result of the delay and a reasonable time extension to complete the project. The owner may not explicitly ask the
contractor to accelerate the project, but it may require the contractor to
fining as agreed upon the contract despite the delays.
Constructive
acceleration occurs when the owner denies the contractor’s request for a time
extension to complete the project, which forces the contractor to accelerate
the work process to complete their contractual obligations within the original
timetable despite the presence of an excusable delay so that he avoids the
imposition of liquated damages. This
results in an increase in costs for the contractor and typically leads to an
acceleration claim. To ensure that the
contractor is fairly compensated for a constructive acceleration claim, the
contractor must include the appropriate provisions in the construction
contract.
Another
common scenario is when the owner’s agent tells the contractor that it will
consider the time extension request at the end of the job. This places the contractor in the predicament
of not knowing what to do. If it waits
until job completion for the owner agent’s decision, then it runs the risk of
exposing it to liquidated damages or other damage claims by the owner if the
time extension request is rejected. If
it chooses to accelerate, it will normally be entitled to recover its costs on
a constructive acceleration claim, provided it notifies the owner it is
accelerating the work.
Acceleration Claims
A claim of
acceleration is a claim for the increased costs that result when the owner
requires the contractor to complete its performance in less time than was
permitted under the contract. The claim
arises under the changes clause of a contract; the basis for the claim is that
the owner has modified the contract by shortening the time for performance,
either expressly (in the case of actual acceleration) or implicitly through its
conduct (in the case of constructive acceleration), and that under the changes
clause the owner is required to compensate the contractor for the additional
costs incurred in effecting the change..
A claim of
constructive acceleration ordinarily arises when the owner requires the
contractor to adhere to the original performance deadline set forth in the
contract even though the contract provides the contractor with periods of
excusable delay that entitle the contractor to a longer performance period. Although different formulations have been used
in setting forth the elements of constructive acceleration, the requirements
are generally described to include the following elements, each of which must
be proved by the contractor (See Fraser
Construction Co. v. United States, 384 F.3d 1354 (Fed. Cir. 2004)):
(1)
that the contractor encountered a delay that is
excusable under the contract and that impacted the schedule;
(2)
that the contractor notified the owner of the delay and
made a timely and sufficient request for an extension of the contract schedule;
(3)
that the owner either expressly denied the contractor's
request for an extension or failed to act on it within a reasonable time;
(4)
or that the owner insisted on completion of the
contract within a period shorter than the period to which the contractor would
be entitled by taking into account the period of excusable delay, after which
the contractor notified the owner that it regarded the alleged order to
accelerate as a constructive change in the contract; and
(5)
that the contractor was required to expend extra
resources to compensate for the lost time and remain on schedule and the
contractor did in fact incur costs in accelerating its performance.
See Armour
of America v. U.S.,
96 Fed.Cl. 726, 757 (Fed.Cl. 2011) (“To
prove a constructive acceleration claim, and entitlement to an equitable
adjustment, which Armour [contractor] did not attempt to do during the
proceedings before the court, a contractor must show (1) that the contractor
encountered a delay that was excusable; (2) that the contractor requested from
the government an extension of time due to the delay; (3) that the government
denied the contractor’s request for an extension of time; (4) that the
government demanded completion of the contract in a shorter amount of time than
the contractor was entitled to, given the excusable delay; and (5) that the
contractor was required to expend additional resources to adhere to the
schedule on which the government insisted.”). See also Norair Eng’r Corp. v. U.S.,
666 F.2d 546 (Ct. Cl. 1981).
Excusable Delays
As
a general rule, parties to a construction contract can include anything in
their agreements they want. When disputes arise, courts or arbitrators
initially refer to the contract the parties signed as a memorial of their
agreement and attempt to enforce the agreement as the parties intended. Whether
or not a delay in the performance of the work is excusable or inexcusable
depends to a large extent upon whether or not the owner and the prime
contractor agree in the contract that certain delays are considered the risk of
the owner or the contractor. General
Condition 8.3 of AIA Document A-201 (2007) is a good example of a contract
clause that addresses excusable delay.
8.3 DELAYS AND
EXTENSIONS OF TIME
8.3.1 If the
Contractor is delayed at any time in the progress of the Work by an act or
neglect of the Owner or the Architect, or by any employee of either, or by any
separate contractor employed by the Owner, or by changes ordered in the Work,
or by labor disputes, fire, unusual delay in deliveries, unavoidable
casualties, or any causes beyond the Contractor’s control, or by delay
authorized by the Owner pending mediation and arbitration, or by other causes
that the Architect determines may justify the delay, then the Contract Time
shall be extended by Change Order for such reasonable time as the Architect may
determine.
8.3.2 Claims
relating to time shall be made in accordance with applicable provisions of
Article 15.
8.3.3 This
Section 8.3 does not preclude recovery of damages for delay by either party
under other provisions of the Contract Documents.
As
the clause indicates, the contractor’s relief in the event of excusable delay
is only an extension of time for completing the work. While the delays are
excusable because they are not the fault of the owner, no additional expenses caused
by these delays are awarded the contractor.
Therefore, these delays are also referred to as “non-compensable” delays,
as the contractor is not compensated for the additional costs of the delay. Note that paragraph 8.3.3 of the clause does
not exclude recovery of damages for delay by either party under other
provisions of the contract.
Example
As a basic example,
assume a project was to be completed December 31, 2014. This marked the date
the owner needed to use the project for its intended purpose. However, due to
excusable delays (assume many owner-directed change orders and/or design-related
issues), this completion date is postponed a year to December 31, 2015. Encountering a differing site condition,
unexpected consequences of a weather condition or unexpected productivity
problems related to unique design details in the project often invoke disputes
about whether the delay is excusable. Murdock
& Sons Constr., Inc. v. Goheen Gen. Constr., Inc., 461 F.3d 837 (7th
Cir. 2006).
The contractor
notified the owner of the delays and impacts to its schedule and requested an
extension of time to complete the project. Most standard construction contracts contain
clauses requiring requests for time extensions be submitted to the owner or
general contractor within a prescribed time.
E.g. AIA A201 – 1997, paragraph 4.3.3. Further, many, if not most, governmental
contracts have mandatory notice provisions for contractor claims in procurement
manuals, statutes or regulations. It is
always best to make all requests for an extension of time in writing. This document may become the centerpiece of
proof when calculating the damages for acceleration.
For whatever
reason, the owner refused to grant additional time and implicitly demanded that
the contractor complete the project on schedule. The contractor, as the result
of the owner’s refusal to grant additional time, accelerated its performance to
finish the project earlier than December 31, 2015 and to avoid the consequence
of the owner assessing liquidated damages (i.e.,
the contractor accelerated to mitigate the impact of the delay). Based on the
contractor and its subcontractor’s efforts, the project was completed on May
30, 2015–5 months after the original completion date, but 7 months before the
contractor should have been complete considering the excusable delays. In this
basic example, the contractor’s acceleration efforts mitigated the overall
delay by approximately 7 months (the difference between May 30, 2015 and
December 31, 2015) even though the contractor finished 5 months later than the
original schedule. The contractor will
need to prove the costs associated with these acceleration efforts.
Contractor must Prove that Acceleration
Increased his Costs
Proving that the
acceleration resulted in increased cost to the contractor is critical to the
success of any acceleration claim. There
are a number of methods to prove damages due to acceleration. One method of calculating the damages for the
acceleration is the Total Cost Approach. The Total Cost Approach compares the total
actual costs of the project to the estimate or original bid for the
project. The problem with this method is that there are variables such as
whether the contractor’s estimate or original bid was reasonable and whether
the contractor contributed to the increased costs that can invalidate the
resulting cost increase. This concern has led some courts to refuse to
allow the Total Cost Approach to be used when calculating acceleration damages. See Amelco
Electric v. City of Thousand Oaks, 27 Cal. 4th 228, 115 Cal.
Rptr. 2d 900, 38 P.3d 1120 (2002).
Another method for
proving damages for acceleration is to use Industry Standards to show damages. Industry standards from industry groups like
the National Electrical Contractors’ Association (NECA), the Mechanical
Contractors’ Association of America (MCAA), R.S. Means and the Business
Roundtable produce standards and handbooks containing standard productivity
rates. These industry productivity standards can be used as a baseline
benchmark and used for comparison against actual productivity on a job.
The difference would be the basis for acceleration damages.
Another method of
measuring damages is called the Measured Mile Approach. This approach compares the level of labor
productivity during the accelerated work period to labor productivity during a
normal period, the difference being the basis for acceleration damages. See for example James Corp. v. N. Allegheny Sch. Dist.,
2007 WL 4208589 (Pa. Commw. Ct. Nov. 30, 2007). In
this case, the Commonwealth Court of Pennsylvania held that the trial court
properly measured acceleration damages sustained by a general contractor under
the “measured mile” theory of recovery.
In a multi-phased construction project entered into by the school
district and James Corporation, the district delayed James’ performance by failing
to obtain permits in a timely manner, by requiring extra work which interfered
with the planned sequence of work, by relocating fencing and reconfiguring the
erosion and sedimentation pond, and by requiring removal of asbestos (which was
not in the contract). Amidst the delay,
the district abandoned the contract schedule, refused to consider the time
impact on the contractor’s planned sequence, and then terminated the contractor
after substantial completion. The trial
court awarded James damages for acceleration/compression of work, unpaid
invoices, prevailing wages withheld, attorneys’ fees and expenses. The district’s reliance on the standard “no
damages for delay” clause was overcome by court findings that the district had
affirmatively interfered with the contractor’s work. Extra work claims were accepted by the court
as a matter of fact, because the district was fully aware that it had requested
the extra work and performed under the district’s direction. The Commonwealth Procurement Code authorized
damages as sanctions for the district’s bad faith, and interest on untimely
progress payments and attorney’s fees were ordered.
Ina addition to these
issues, overtime introduces additional problems including: fatigue, low morale,
a higher cost per unit (typically a time and a half wage rate), a higher
accident rate, increased absenteeism due to workers reaching 40 hours earlier
in the week, and a phenomenon first described by the U.S. Army where workers
tend to pace themselves to adjust for a longer work day or week. This phenomenon emerges because workers expend
effort and energy at a rate established by a long period(s) of adaptation. When work hours are extended, it has been
noticed that workers tend to adjust their pace (subconsciously) as to accomplish
the same amount of work as would be completed in a typical eight hour day.
The most common
response by contractors to an accelerated or compressed schedule is the
implementation of over manning. Over manning
is preferred because it can produce a higher rate of progress without the
fatigue problems of overtime and the coordination problems realized with shift
work. However, over manning introduces
additional problems including: site congestion, stacking of trades, the
dilution of supervision, a higher cost per unit hour (a result of additional
crew members being inadequately trained), a higher accident rate, and supply
chain inefficiencies (due to materials and tools being consumed at a much
faster rate). The aforementioned problems confront contractors with a
significant increase in total costs since they act to reduce productivity per
man hour. When schedule acceleration or compression occurs, and over manning is
used, the contractor is entitled not only for the direct costs of the extra
workers but also for the impact costs caused by the productivity losses present
with over manning.
No matter how
damages are arrived at, the contractor should not forget to include profit and
overhead in the acceleration claim.
Additional 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 that can be tied to the acceleration.
Contractor must Comply with All Requirements
It is very
important that the contractor complies with all the above elements to be able
to prove a constructive acceleration claim.
Many times the claim fails because the contractor failed to comply with
the requisite notice requirements. These
notice requirements also serve the following purposes:
·
They
warn the other party that it is incurring an additional obligation;
·
They
permit the other party to take alternative action in order to avoid or reduce
the cost of schedule acceleration;
and
·
They
establish that the contractor is not performing the schedule acceleration
voluntarily.
If those events
occur, the contractor must immediately review the contract to determine what
contractual notification deadlines exist. Most contracts have change order and time
extension clauses that are applicable when there are project delays. The failure to comply with these contract
notification clauses constitute the owner’s primary defense to this type of
construction claim. The contractor’s
entitlement to construction schedule acceleration is sometimes valid in the
absence of notice on those occasions where the contractor can show that the
owner could not or would not have granted a time extension, even with
notice. In other situations where the
contract documents do not require notification, the contractor can still prove
his claim even if he did not notify the owner of the acceleration. See SNC-Lavalin America, Inc. v. Alliant
Techsystems, Inc., 858 F. Supp. 2d 620 (W.D. Va. 2012). This dispute involved a construction
acceleration claim. The U.S. District Court for the Western District of
Virginia ruled that where a contract did not expressly require a contractor to
provide notice of acceleration, that contractor could still maintain its
acceleration claim based on an owner’s demand for completion by a date certain.
The Court held that, unlike contracts with the federal government that include
the standard Federal Acquisition Regulations changes clause, the contract in
question did not require that the prime contractor notify the owner that it
believed an owner’s completion demand required acceleration. Accordingly,
despite the contractor’s lack of notice, the court permitted the contractor to
recover on its claim for damages resulting from constructive acceleration.
Although there may
be some cases (as the above) in which the contractor is not required to request
a time extension, it is highly recommended for the contractor to make the
request to avoid the defense of voluntary acceleration. To minimize disputes, the contractors are
advised to notify their contract partners at the time of submission of a
recovery schedule that: (1) delays previously encountered are understood to be
excusable; and (2) performance to a submitted recovery schedule is understood
to be accelerated work at the owner’s request. This request for a time extension should
include a specific date by which if no time extension is granted or no response
from the owner is received, the contractor will assume that the owner has
denied the request and will be forced to accelerate the project to meet the
contracted completion date. This type of
notice may encourage the owner to take action and may help avoid an
acceleration claim.
For owners, to the
extent that accelerated performance is sought, express direction relative to
the recovery schedule should be provided to the contractor. Owners should explain the rationale for
determination of unexcused delay or why performance to the compressed schedule
may not actually result in acceleration damages.
Some additional
case law discussing the acceleration claims is:
Nat Harrison
Associates, Inc v Gulf States Utilities Co., 491 F.2d 578 (5th
Cir. 1974) and Johnson
Controls Inc. v. National Valve & Manufacturing Co., 569 F.Supp.
758 (1983
Submission of and
performance to a recovery schedule may also give rise to legal issues between a
prime contractor and its subcontractors. Disputes are particularly likely where
the subcontractor’s performance arguably contributed to the necessity of a
recovery schedule. Where subcontractor performance (or lack thereof) is a point
of contention, prime contractors are advised to review and protect their rights
vis-à-vis both subcontractors and project owners at the time of recovery
schedule submission. In fact, failure to do so may result in the legal waiver of
rights.
Notably, in the
case of McLain Plumbing & Electrical
Service, Inc. v. United States, a prime contractor placed in default agreed
with its owner to perform to a recovery schedule. 30 Fed. Cl. 70, 75 (1993). As
part of the recovery schedule performance, the prime contractor terminated an
alleged underperforming subcontractor. Subsequent to its termination, the
subcontractor pursued arbitration with the prime contractor and prevailed on a
theory of wrongful termination. The prime contractor later attempted to recover
the cost of the subcontractor judgment and associated costs from the
government, asserting that the government “forced” the prime contractor to
terminate the subcontractor. The Court of Federal Claims ruled against the
prime contractor, holding that the prime contractor’s written agreement with
the government pledging performance to the recovery schedule and wherein the
prime also agreed to terminate the subcontractor, amounted to accord and
satisfaction. Accordingly, by failing to reserve its rights in the recovery
schedule agreement, the prime contractor was deemed to have relinquished its
right to recover the subcontractor damages. Id. at 77-84.
While the above
fact pattern is layered, it again underscores the importance of notice and reservation
of rights at the time of performance to a recovery schedule. Prime contractors
especially must be wary of the sometimes competing legal interests of project
owners and subcontractors.
What to document
Once it's apparent
that the project is in distress, you must document everything that happens on
the job. Supervisors should be aware of how important their daily job log will
be when it comes time to recover lost monies due to inefficiencies. The burden
of proof will be on you. Your documentation will build a chronology that will
tell the story of what happened and when. Trying to reconstruct what happened
after the project is complete will be virtually impossible. A project file
should be organized to support a claim for a loss of labor efficiencies that
include 10 essential items.
Estimating and bidding files
These files should
include the original estimate with all related backup sheets. Because most, if
not all, bids are done on a computer, a backup disk should be made and stored
with the job file. Include any quotes from subcontractors and vendors. These prices
may be different than the actual dollar amount spent due to excessive changes
or having to expedite material fabrication and delivery.
Contract documents
Maintain copies of
all contract documents, including addenda, change-orders, and correspondences that
were associated with the contract negotiations.
Schedules
Start with the
original project schedule and include all updates and revisions. The schedule
should show a date of implementation. If it doesn't, make sure the date is
handwritten on a hard copy.
Cost records
Keep a weekly cost
record of all expenditures on the project. Be sure to include deliveries,
payments, and requisitions.
Correspondence and similar communications
Include all
correspondences, internal and external memos, letters, e-mails, notes of phone
conversations, meeting minutes, and any other documentation that shows proof of
key events that took place.
As-built information
Include daily
reports, inspection reports, time sheets, job logs, professional inspections,
and diaries. These records will show the conditions of how the work progressed.
The daily job logs are probably the most import documentation that will go into
this file.
Standard form correspondences
Include any and all
correspondences with all project participants, such as notes of phone
conversations, requests for information (RFIs), field clarifications,
transmittals, submittals, and changes.
Photographs
A picture is worth
a thousand words — and perhaps dollars — in this case. When filing a claim, you need to show the
conditions in which the work was installed. Make sure pictures are dated and
time-stamped. The value of the picture will be determined by how well it is
documented.
Other subcontractors' files
Manpower and
location of the work others are performing are also important factors to
document. Out-of-sequence work and slow progress may not affect you
immediately, but they could cause problems down the road.
Completion documents
Documents, such as
punch lists, certificates of substantial completion, certificates of occupancy,
or certificates of final acceptance, should go into this file.
Looking at the big
picture, the three most important things to remember are documentation,
documentation, and documentation. When
in doubt, document. Remember, it's your
responsibility to show entitlement when filing a claim. The better your documentation is, the easier
it will be for you to recover your claim.
The
Claim Presentation
To be successful, a
claim for delay, disruption and/or acceleration must persuasively set forth the
facts underlying the claim and the technical and legal justification for
compensation. As general rule, the claims is structured to present clearly and
concisely a discussion of information regarding:
1. the contractual
relationship;
2. a description of the
project and of major installations of various trades;
3. key physical
characteristics and keys to successful construction;
4. an overview of
planned verses actual performance;
5. an analysis of items
causing increased costs;
6. a detailed schedule
impact analysis of major substantive claim items;
7. a discussion and
analysis of the relevant legal principles; and
8. a statement and
analysis of damages.
We could not
emphasize enough the importance of carefully tracking and documenting the
project schedule and all relevant delays and costs, as a finding of excusable
delay is the first step in proving a constructive acceleration claim. For example, in the case of Fluor
Intercontinental, Inc. d/b/a J.A. Jones International v. Department of State
(May 24, 2013), the U.S. Civilian Board of Contract Appeals awarded Fluor
$1,253,710 for constructive acceleration costs incurred in constructing a new
embassy in Haiti.. Here, although the parties entered a firm,
fixed-price, design-build contract – which the government argued was the end of
the story – Fluor was able to recover for constructive acceleration based on
the contract, actions by the government and its detailed tracking of the
schedule, excusable delays and acceleration costs.
One of the most
important parts of the claim is the proper identification and quantification of
the damages. Items of damages can
include escalation of labor and material costs, idle labor, idle equipment,
home office overhead impact, increased insurance costs and bond premiums,
increased costs of performing during adverse weather conditions, loss of
productivity, subcontractor's claims, demobilization/ remobilization, lost
profit, interest, increased equipment and material costs, overheard, extra
shifts and crews, added supervision, added equipment, expedited material, and
delivery costs, etc.
Both the contractor's
attorney and claims consultant will work closely together to fashion a
presentation which is persuasive both in factual analysis and law. From the
legal standpoint, it is important for the attorney to understand relevant
issues, including notice issues, contractual issues, state or federal
regulations where applicable and delay issues. The claims consultant must
obtain a clear understanding of the contractor's as-planned schedule, must
confirm and develop the as-built schedule, compare the as-planned with as-build,
develop a "what would have been" schedule, and provide a persuasive
analysis of the delays or other factual issues.
Example Case
In a recent case, HPS Mechanical, Inc. v. JMR Construction Corp. et al, 3:11-cv-02600,
No. 156 (N.D.Cal. Aug. 1, 2014), the subcontractor
(HPS) seeked damages from the general contractor (JMR Construction Corp.) and
its surety in the amount of $21,456 for costs of accelerating its work in August
of 2008 to meet the milestone deadline of August 22, 2008. The disputes in this case arose during the
construction of the San Ramon Valley Recycled Water Project −
Pump Station R200A and Pipeline,
located in the City of San Ramon, California. JMR directed HPS to have its crew work
overtime and on weekends. The contemporaneous
evidence showed that at the time, JMR acknowledged having ordered HPS to work
an accelerated schedule. Nevertheless,
JMR was entitled to accelerate HPS’s work under section 6.3 of the Subcontract,
which provides:
Whenever,
in the Contractor’s opinion, the Subcontractor fails to maintain its part of the
Schedule of Work, the Contractor may direct the Subcontractor to take all
steps, such as overtime or shift work, until the Subcontract Work is in accordance with such
Schedule.
Such
steps shall be without additional cost or compensation from the Contractor.
The
Court found that section 6.3 of the Subcontract affected the “measure of
recovery” under the Miller Act because it simply precludes HPS’s recovery for
costs of acceleration when HPS has fallen behind its schedule of work. HPS was responsible for the delay prior to
the August 22, 2008 milestone deadline. Even
without installing the valves and laterals in the first phase of the Project,
HPS was unable to complete installation of the full length of the mainline by
August 22, 2008. This was largely due to
HPS’s safety violations, failed compaction tests, and failure to pothole to
avoid obstructions.
The
Court rejected HPS’s contention that it was unreasonable for JMR to accelerate HPS’s
work when, due to the delayed delivery of the valves, it was impossible to meet
the August 22, 2008 milestone deadline. Complete
installation of the valves and laterals by August 22, 2008 was a contractual
obligation to which JMR and HPS were bound notwithstanding the delayed delivery
of the valves. Moreover, even though HPS could not install the valves and
laterals by August 22, 2008, it was still important to complete installation of
the mainline by August 22, 2008. The encroachment
permit allowed HPS to work with a permanent lane closure on Bollinger Canyon Road
until the permit’s expiration on August 22, 2008. After August 22, 2008, the lane closure needed
to be opened to ease traffic congestion at the start of the school year. While installation of the mainline required a
permanent lane closure, “the laterals and the valves and the T’s, … [by]
contrast, could be isolated.
The claim
presentation must provide the decision-maker---whether it be contracting
officer, judge or arbitrator---with a complete package and will all necessary
supporting data. While the presentation should portray the conditions in the
best light to the contractor, the presentation should admit and take into
account the contractor's own problems that had significant effect on the
project. The alternative could be a disaster if the contractor's credibility is
shattered at a hearing or trial. Finally, the presentation should reflect
pricing which is based upon actual cost records and which could survive an
audit.
The contractor is
best served by involving an attorney and claims consultant from first notice of
problems because, historically, early involvement of these professionals has
prompted quick and favorable settlements. This is particularly important with
issues of notice and time restrictions applicable to filing a claim, which if
not properly followed will defeat the claim. If professionals become involved
earlier rather than later, even if settlement does not result, the contractor
is in much stronger position and can prepare the claim at reduced cost.
SCHEDULE ACCELERATION OR COMPRESSION
TECHNIQUES
Owner Project
Management
1. Promote a positive
attitude among owner personnel and all project team members.
2. Prepare a
formalized project execution plan.
3. Promote and enforce
a win-win relationship between owner and contractor organizations.
4. Conduct
cross-training and rotate personnel assignments in order to promote the
integration of plant construction with plant operation.
5. Reduce or eliminate
layers of management.
6. Create incentives
by tying personnel salaries and bonuses to plant operating profits and/or
construction cost savings.
Engineering and
Design
1. Formalize
design/construct-ability reviews.
2. Establish a common
purpose between engineering and construction organizations.
3. Require the EPC
project team and start-up managers to plan the start-up sequences in detail.
4. Produce fast-track/semi-detailed
engineering packages that will allow early field start. Engineering should be
“package-driven” and focused on the schedule critical path.
5. Standardize plant
designs to the greatest extent possible.
6. Optimize
modularization and pre-assembly of selected components.
7. Enforce a strict
change control procedure.
8. Promote engineering
performance excellence with financial incentives.
9. Expedite small,
critical projects through “construction-based engineering.”
Planning,
Scheduling and Job Control
1. Establish an
aggressive integrated CPM-based schedule for the engineering, procurement and
construction organizations.
2. Involve the vendors
in defining the schedule milestones for engineering/fabrication/installation of
major equipment.
3. Make full use of
advanced CPM scheduling and resource management software systems such as
Primavera Project Planner.
4. Develop
hierarchical schedules with progressive levels of greater detail.
5. Enhance the
achievability of schedules by examining the number and size of crews, worker
densities and other factors affecting productivity.
6. Hold the
contractors and vendors to scheduled early start dates.
Contracts/Specifications/Procurement
1. On union jobs, give
deference to local rather than out-of-town contractors that may face issues
with the local union hall.
2. Motivate
contractors by awarding lump-sum contracts and minimizing the amount of Time
and Materials (T&M) work.
3. Consider
procurement of packaged equipment units.
4. Avoid excessively
restrictive specifications.
5. Consider
availability of management personnel and past schedule performance in selecting
contractors and vendors.
6. Require fabricators
to fabricate strictly according to the erection sequence.
7. Include significant
financial incentives and penalties for schedule performance of both contractors
and vendors.
8. Guarantee delivery
dates of owner-furnished equipment.
9. Accelerate purchasing and contract negotiations with the use of electronic data interchange.
9. Accelerate purchasing and contract negotiations with the use of electronic data interchange.
9. Make use of a
dedicated expeditor for vendor drawings and materials.
10. Conduct monthly
progress/status meetings with major equipment suppliers.
11. Contracts should
explicitly address system turnover dates.
Field Craft
Management
1. Aggressively
monitor craft labor productivity.
2. Use a detailed,
accurate, efficient system for determining percentage of completion based on
earned value using craft labor hours.
3. Start difficult
field activities as soon as possible.
4. Use overtime
judiciously.
5. Consider the use of
multiple shifts when appropriate.
6. In strong organized
labor regions, plan for labor productivity incentives as man-loading and
overtime are reduced.
7. Take daily photos
of job progress and look for ways to improve work sequencing.
System Turnover and
Start-up
1. Transition from bulk
commodities to a systems or startup-based schedule, as early as possible.
2. Maintain tight
control over an expedited start-up schedule.
3. During start-up
ensure that owner field personnel possess both adequate authority and technical
capability.
4. Train system
operators in advance of plant start-up.
As experts, Metropolitan
utilizes a time-tested methodology for analyzing and evaluating
acceleration-related construction disputes. Our analysis may include, but is
not limited to, the following:
·
Review
the contract for relevant information including provisions relating to
acceleration, notice, and entitlement issues.
·
Research
the facts through a review of contemporaneous project documentation and
interviews with key project personnel.
·
Evaluate
key project data including project schedules, as necessary, and project cost
information.
·
Perform
a critical path schedule analysis, as necessary.
·
Establish
what acceleration efforts were made and determine the method most suitable to
quantifying the related disruptions and loss of productivity.
·
Quantify
costs associated with the acceleration efforts.
In our analysis, Metropolitan
typically considers several factors including the following:
·
Whether
the delay was excusable or compensable
·
Whether
proper notice was provided, if required by the contract
·
Whether
an allowable schedule extension was or was not granted
·
Whether
the owner directly or constructively accelerated the contractor’s work
·
Whether
the contractor made reasonable attempts to accelerate, resulting in additional
project costs
Metropolitan Engineering, Consulting & Forensics
(MECF)
Providing
Competent, Expert and Objective Investigative Engineering and Consulting
Services
P.O. Box
520
Tenafly,
NJ 07670-0520
Tel.:
(973) 897-8162
Fax:
(973) 810-0440
E-mail: metroforensics@gmail.com
Web
pages: https://sites.google.com/site/metropolitanforensics/
https://sites.google.com/site/metropolitanenvironmental/
https://sites.google.com/site/metroforensics3/
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