HOW TO MANAGE CONSTRUCTION DISPUTES TO MINIMIZE SURETY AND CONSTRUCTION CLAIMS

HOW TO MANAGE CONSTRUCTION DISPUTES TO MINIMIZE SURETY AND CONSTRUCTION CLAIMS

https://sites.google.com/site/metroforensics3/construction-disputes-and-claims 

Construction Claims & Disputes

Owners and contractors who realize the potential for construction disputes and conflicts rely on construction claims consultants who are experienced construction managers and engineers, such as Metropolitan Consulting & Engineering.  Because in construction industry “time is money”, the clients typically want a firm to efficiently and cost effectively prepare and analyze claim issues to promote timely and favorable resolution.  Metropolitan specializes in addressing and resolving disputes involving public work projects, business/commercial disputes, complex construction defect, environmental health and safety issues, construction delay and contractual matters, partnerships, homeowners association, retail centers, and real estate issues.

The most frequently encountered claims include:

1.    Construction Delay Claims

2.    Disruption and Loss of Labor Productivity Claims

3.    Design and Construction Defect Claims

4.    Force Majeure Claims

5.    Acceleration or Compression of the Schedule Claims

6.    Suspension, Termination and Default Claims

7.    Differing Site Conditions Claims

8.    Change Order and Extra Work Claims

9.    Cost Overrun Claims

10. Unacceptable Workmanship or Substituted Material Claims

11. Non-payment Claims (stop notice (or Notice to Withhold) claims, mechanics’ lien (only for private construction projects) and payment bond claims)

         Once claims have begun to manifest, it is critical to implement a systematic plan to address them at once.  Our Metropolitan Claims Management Group identifies, analyzes and evaluates the issues to determine responsibility.  We conduct a number of construction delay analyses to pinpoint the effect of any action or omission on time and cost issues and determine if increased costs are reasonable.  Finally, we offer invaluable support in any defense, negotiation, arbitration, dispute resolution or litigation.

We will address these claims in the following blogs.

 

1.  Construction Delay Claims

Construction delays are costly.  Construction defect related delays can be even more costly due not only to protracted litigation but also for their tendency to exert a magnified impact over time.  It is crucial that you surmount your construction defect challenges with rapid yet thorough expertise.  Construction delay claims, or disputes related to schedule impacts, are one of the most common types of disputes in the construction industry.  Yet, delay claims have a propensity to be some of the least understood and frequently complex disputes in the construction field.

Delay claims typically relate to unanticipated project events and/or circumstances which extend the project and/or prevent work from being performed as originally planned.  They can be owner-, design professional, supplier or contractor/subcontractor-caused delays.  Construction delays can be caused by many factors, which include, but are not limited to, mismanagement and maladministration; site access restrictions; differing site conditions; defective material or workmanship; delay in obtaining permits and approvals; financial problems; defective or incomplete plans and/or specifications; changes in the work; labor productivity issues; strikes and labor disputes, document review/approval; testing/inspections; inclement or unusually severe weather; and force majeure events.

We will examine why construction delay claims are brought, how to effectively analyze them, what some of the important contractual clauses are in the analysis, and how design professionals can defend against them.

Three common points of contention relative to schedule delay claims are

·         whether an issue impacted the critical path of the project,

·         what is the delay quantification, and

·         what is the root-cause of the delay and entitlement to a time extension and/or additional compensation.

One must review the contract to understand the basis of the agreement and determine who accepted particular risks and what constitutes compensable or excusable delays.  Consequently, a clear understanding of the basic elements necessary to substantiate delay claims is invaluable.  Metropolitan Consulting & Engineering’s construction claims consultants have advanced hands-on knowledge of CPM schedule analysis and extensive practical experience in the contract claims environment involving construction delay claims.  Our consultants prepare and analyze claims, present in mediations, and testify in litigation and arbitration proceedings on matters concerning CPM scheduling, schedule delay/disruption, and acceleration.

We provide contemporaneous and forward-looking CPM schedule analysis to facilitate the early resolution of time extensions, as well as forensic delay analysis for the preparation and/or defense of construction delay claims. Our construction claims consultants specialize in CPM schedule analysis by means of the following industry-recognized methodologies:

·                     Windows Analysis or Contemporaneous Period Analysis

·                     Time Impact Analysis (TIA)

·                     Collapsed As-Built

·                     Impacted As-Planned

·                     As-Planned vs. As-Built

A detailed evaluation of the various methods used to analyze the delay claims can be found here:

https://sites.google.com/site/metroforensics3/construction-delay-analysis-methods

  It should be noted that the selection of a particular schedule analysis methodology depends on the project facts, the nature of the events being analyzed, the nature and extent of available as-built information, and the available progress data, and may vary from project to project. Each of the above-referenced schedule analysis methodologies has inherent advantages and disadvantages. It is important to collect all available proofs required to establish a compensable delay claim.

Reasons for Delays

Reasons for Owner-caused delays include: inadequate project financing; failure to pay; limitation to site access;  slow response to contract signing or document reviews and approvals; changes to the original work scope; poor coordination of several prime contractors, and several other factors. 

Reasons for Design Professional-caused delays include: defective or incomplete drawings and specifications; slow performance of tests and inspections; excessive RFIs and/or failure to timely resolve; failure to promptly respond to contractor’s RFCs, and several other factors.

Reasons for Contractor-caused delays include: shoddy workmanship;  failure to properly evaluate site conditions; failure to properly evaluate the contract documents, specifications and design drawings; inadequate resources;  problem workers;  and several other factors.

Analysis of Delay Claims

At a minimum, the following documentation is required to effectively analyze delay claims:

·         Claim notice

·         Time tickets

·         Schedules, narratives & updates

·         Meeting minutes

·         Daily logs and diaries

·         Correspondence

·         Change order logs

·         Inspection & progress reports

·         Cost accounting records

·         Invoices

·         Purchase orders

·         Estimates and bids

·         Equipment-use logs

·         Financial statements

·         Reports to sureties 

When reviewing and analyzing the construction contracts, the following clauses and other provisions are crucial:

·         Time of the essence

·         Contract commencement date

·         Performance period

·         Extensions

·         Substantial completion

·         Notice & quantification of claim

·         Scheduling provisions

·         Changes clause

·         Differing site condition clause

·         Suspensions

·         Termination (for cause and/or convenience)

·         Liquidated damages

·         No damage for delay

A very important clause in most contracts is the Notice of Claim requirement.  This written notice must be filed within five days of delay-causing event (condition precedent).  The purposes of such notice are to bring the parties together to try to resolve or mitigate without going to arbitration or litigation.  This is an opportunity to air the disputes and continue with a clean slate.  If such notice is not given, and the owner has not waived the notice provision, the contractor may forfeit its claim for a time extension and assume liability to the owner for damages attributable to the delay.

Another important clause of the contract is the “No Damages for Delay” clause.  A “no damages for delay” clause in a construction contract can cause a contractor to lose its claim to delay damages even before performance begins. As the name indicates, “no damages for delay” clauses contractually obligate the contractor to forgo claims against a party liable for damages incurred by the contractor due to delays.  The advantages of such clause are that it provides certainty as to the overall cost and avoids costly litigation.  The disadvantages are the contractor may cut corners to compensate for contingencies and so on.  There are some court enforced exceptions to this clause, including: unreasonable duration of the delay; intentional interference from the owner; fraud, bad faith, and so on.

Another important contractual clause is the requirement that the bidder performs a site inspection prior to submitting his bid.

·         Permits contractor to conduct tests (e.g., borings, test pits)

·         No representations or warranty re site conditions

·         Contractor assumes risk of latent site conditions

·         Contractor must present evidence of all efforts to comply with clause prior to submitting bid

·         Owner gives complete and open access to all geotechnical materials

Compensable Delays

          A delay that is compensable to a contractor is one that was not anticipated when the contract was made and is due to some inaction or action for which the owner or those working under him or her are responsible. In such a situation, the contractor can recover money damages from the owner to cover the extra costs incurred as a result of the delay, and also receive a time extension.

         Most construction contracts do not set out all of the owner’s obligations in helping the contractor complete the project on time, but there are general implied duties imposed on the parties to a construction contract. Absent contractual provisions negating such duties, an owner generally has (a) a duty to coordinate and schedule the work of all contractors with whom it has a direct contract, and (b) a duty not to delay, hinder, or interfere with the work of the contractor. 

        Contractors have often recovered delay damages against owners whose actions or inactions obstructed the progress in the project based on this general rule of law.  For example, an owner has been held in breach of its general duty not to interfere with the contractor’s progress when: (a) it failed to provide suitable access to the construction site; (b) its plans were defective, resulting in delays; (c) it failed to ready the construction site in time for the contractor to begin work; (d) it failed to make timely payments; (e) it failed to provide a written order for additional work requested; (f) it did not approve drawings necessary for the job within a reasonable time; and, (g) it ordered a hold or suspension of the work.

In legal terms, the proofs required to establish a compensable delay claim must establish the following:

1.    Excusability;

2.    Compensability;

3.    Criticality;

4.    Concurrency;  A concurrent delay occurs when two or more unrelated delays affect the work at the same time. These delays may originate with a number of sources (the same party, two or more parties or by no party — inclement weather). Typically, the delays are of different types. For example, an owner should not be liable for a compensable delay arising from the failure to timely provide the contractor with plans or specifications during a period of severe flooding that independently delays the project. When concurrent delays are experienced, the owner and the contractor each bear their own costs resulting from the delay and may not seek recovery against each other.

5.    Causation – establish link between delay-causing event and cost increase; delay is caused by owner, was unreasonable, caused damages to contractor, and so on.

Inexcusable and Excusable Delays

         There are two general categories into which construction delays typically fall. First, there are inexcusable delays, where the delay is the fault of the contractor or third parties such as subcontractors or material suppliers for whom the contractor may be responsible under the contract.  Essentially it covers situations where the risk is contractually assumed or assumed by course of performance.  Second, there are excusable delays, where the delay is attributable to circumstances beyond the contractor’s control and, importantly, where the delay is not caused by the fault or neglect of the contractor or third parties for whom the contractor is responsible. Depending on the type of delay, the owner will be entitled to different relief.

Inexcusable Delays

        In the instance of an inexcusable delay, the owner may demand that the contractor accelerate its performance to meet the schedule, recover actual or liquidated damages from the contractor and, in extreme cases, terminate the contract based on the contractor’s default.

        Inexcusable delays may be divided into compensable delays, where the contractor may recover damages for the extra costs it incurs as a result of the delay, and noncompensable delays, where the contractor is entitled to time but no money. 

Excusable Delays

        With respect to excusable delays, an extension of the time for performance is justified, and, in some cases, the contractor may be entitled to recover delay damages from the owner. Excusable delays usually include delays for which the owner or architect is responsible as well as delays specifically excused by the contract.  Examples include: no fixed turnaround time; the drawings were not submitted in compliance with the submission schedule; contractor was provided with incomplete or faulty drawings.

Construction Delay Analysis Methods

https://sites.google.com/site/metropolitanenvironmental/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. 4^th 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.

HOW TO MANAGE CONSTRUCTION DISPUTES TO MINIMIZE SURETY AND CONSTRUCTION CLAIMS.  PART 3: FORCE MAJEURE CLAIMS.

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, 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.

We indicated there that the most frequently encountered claims include:

1.            Construction Delay Claims

2.            Disruption and Loss of Labor Productivity Claims

3.            Design and Construction Defect Claims

4.            Force Majeure Claims

5.            Acceleration or Compression of the Schedule Claims

6.            Suspension, Termination and Default Claims

7.            Differing Site Conditions Claims

8.            Change Order and Extra Work Claims

9.            Cost Overrun Claims

10.         Unacceptable Workmanship or Substituted Material Claims

11.         Non-payment Claims (stop notice (or Notice to Withhold) claims, mechanics’ lien (only for private construction projects) and payment bond claims)

Part III of this series discusses item 4 above: Force Majeure Claims

Third Party / Force Majeure

Those engaged in construction or other closely related fields know that the wording of a contract can make or break your entire business.  Some contractors will create their own agreements to bind themselves and clients together while some will utilize a standard industry form contract purchased from a third party. Either of the scenarios can yield unfavorable results if due care isn't taken in ensuring that certain clauses are included and are written correctly.

When contractors and other construction professionals hear "force majeure," many think of an "act of god" or visions of lightning strikes or an earthquake. But force majeure can mean so much more. A well-drafted contract or agreement will define exactly what a force majeure is and what will happen if such circumstances arise.

The direct translation of force majeure is “greater force”, or in other words a force that is out of the hands of any party to the contract.  Typically, these clauses are inserted into contracts to excuse a party from liability if an event which could not be foreseen prevents that party from fulfilling its contractual obligations.  See Pacific Vegetable Oil Corp. v. C.S.T., Ltd. (1991) 29 Cal.2d 228).  Examples of typical force majeure events include natural disasters, insurrections, war or “Acts of God”.  The Supreme Court of the United States has indicated that a force majeure event is one that is “…unexpected, something beyond reasonable foresight and skill.”

Force Majeure are those unforeseen events with causes beyond the contractor’s control, for which the contractor is deemed excusable in their failure to perform within the required time limits.  Force Majeure schedule impacts are commonly known as unforeseen events, causes beyond the contractor’s control, and events without fault or negligence.  Contracting Common examples of delays that are beyond the control and without the fault of the contractor include but are not limited to:

•Acts of God or of the public enemy

•Acts of the Government in either its sovereign or contractual capacity

•Fires

• Epidemics

• Quarantine restrictions

• Strikes

• Freight embargoes

• Unusually severe weather.  See Wickwire, J.M., T.J. Driscoll, S.B. Hurlbut , and S. B. Hillman (2003), “Construction Scheduling: Preparation, Liability, and Claims, Construction Library Law”, 2nd ed., Aspen Publishers, USA.

Under such provisions, the contractor is entitled to an extension of time to complete work if the delay is deemed excusable.  An Act of God typically refers to a natural occurrence caused directly and exclusively by natural forces without any human intervention, which could not have been reasonably foreseen or prevented by the contractor or any other party to the contract.  This category includes earthquakes, landslides, tornadoes, hurricanes, lightning, and floods.  Liquidated damages are not to be assessed during this extended performance period, provided the delay is not directly or indirectly the fault of the contractor.

Abnormal weather conditions can greatly influence the execution of activities, in turn affecting completion of the project on time.  Most contract documents state that the only weather that should impact the completion of the project within schedule is “unusually severe” weather conditions. Weather can have both a direct and indirect impact on construction. For example, if unusually severe rainfall amounts stop all earthwork activities, there is a direct effect and stoppage of work.  In addition to the days that the rain has taken place, the indirect effect of the rain is that the earthwork activity cannot be started until the soil has dropped to a workable moisture content.

Not all unexpected events or conditions, however, are situations that will excuse performance of a contractual obligation.  To obtain relief under the force majeure clause the contractor must generally clear three hurdles: First, something unexpected must occur.  Second, the risk of the unexpected occurrence must not have been allocated to either party by the agreement.  Finally, the unexpected occurrence must render performance commercially impracticable.  If a contractor fails to protect itself from a foreseeable contingency, it has assumed that risk.  Furthermore, a contractor is expected to take measures to prevent the harmful effects of uncontrollable events whenever reasonable - known as "mitigation."  Reasonable weather protection measures should be employed even if the contractor has no notice of a "freak" storm brewing.

If no Force Majeure Clause, then the Contractor bears the Risk

When there is no force majeure clause in the contract, the risk of loss for any unexpected or unforeseen event generally falls on the contractor.  Since force majeure events are generally acts of nature (or God), it is said "because the same rain falls on the owner's head as on the contractor's" both parties share the risk; therefore, the contractor is entitled to a time extension, but not compensation.  Therefore, if the event causes a delay in performance, a contractor could be allowed to raise the doctrine of force majeure to obtain an extension of time without penalty and as a defense against assessment of liquidated damages.  Nevertheless, the contractor will not normally be permitted to recover losses or damages resulting from that delay.  Moreover, contractors typically bear the costs to demobilize and remobilize, or repair work caused by an "Act of God" event.

It is not uncommon, therefore, for parties to include a force majeure clause in their contracts to limit the risk that a future event will prevent them from performing and subject them to liability.  Force majeure provisions serve two purposes: allocating risk and providing notice to the parties of events that may suspend or excuse performance.  If an event that triggers a force majeure clause occurs, theoretically, the burden will be borne by the party that assumed the risk. 

Parties seeking to limit their exposure to a force majeure event should be careful, however, to use specific and detailed language in defining the scope and effect of a force majeure clause.  Sun Operating Ltd. P’ship v. Holt, 984 S.W.2d 277, 283 (Tex. App. Amarillo 1998, pet. denied); see also Maralex Res., Inc. v. Gilbreath, 76 P.3d 626, 636 (N.M. 2003); R&B Falcon Drilling Co. v. Am. Exploration Co., 154 F. Supp. 2d 969, 973 (S.D. Tex. 2000).  The traditional boilerplate language contained in most force majeure clauses is too general and vague for modern circumstances because courts tend to narrowly interpret such language and limit its application to the events specifically listed.    

Even if a force majeure clause properly and adequately describes the types of incidents that are covered by the clause, problems could still exist if the clause is not completely clear.  For example, if a contractor is laying a building's foundation, and a flood would be considered a force majeure, if a flood occurs, what is the course of action for the contractor to take?  And what happens to his contract? Does it terminate, or does the contractor have the ability to continue work?  If additional work is needed how much compensation is due to the contractor?  These provisions should also address important questions, such as: What are all the events or conditions that are considered force majeure?  Who is allowed to invoke the clause?  What is the appropriate remedy where the clause is invoked?  Which contractual obligations are covered by the clause?  How should the parties determine whether the event creates an inability to perform?

A properly written force majeure clause will address these questions and more to protect the contractor from exposure to unexpected liability.

Much of the jurisprudence surrounding the interpretation of force majeure clauses is rooted in the cases addressing the doctrines of impossibility and commercial impracticability (including Section 2-615 of the U.C.C.).  More importantly, these doctrines often set the default rules around which the parties to a contract may bargain for more or less protection.  In dispute resolution, courts evaluate weather delays on a case-by-case basis, considering such factors as the job site’s geographic location, the nature of the work performed, the contractor’s previous experience in the area, and the contractor’s reasonable anticipation of weather conditions [Wickwire et al. 2003].  Anticipating weather can be done by looking at historical data for typical “rain days” in the same geographic location, accounting not only for the time of year, but also for that specific location.

Weather impacts are not strictly limited to rain and the rainy season; also included but not limited to abnormal humidity, frozen earth, winter weather, extreme heat, severe weather outbreaks, wind, and hurricanes.  See Bramble, B.B. and Callahan,  M.T. Construction Delay Claims. Third Edition. New York: Construction Law Library, Aspen Publishers, 2000; Bramble, B.B., D’Onofrio, M.F., and Stetson, J.B. Avoiding & Resolving Construction Claims. Kingston, Massachusetts: R.S. Means Co., 1990.

What is not a force majeure?

Often, if a contract defines force majeure events, unless language expands that list by stating “including without limitation,” then an event not specified in the clause may not excuse nonperformance.  For example, if the contract defines force majeure as a flood or hurricane, then a lightning strike may not excuse nonperformance unless a phrase such as “including without limitation” is in the force majeure clause.

Most force majeure clauses only provide relief in the form of an extension of time without penalty or without assessment of liquidated damages for a period equal to the force majeure. Clauses seldom provide any compensation for the costs to demobilize and remobilize; to repair work; for the escalation of material and labor prices; or the premium demanded by transporters still operating in the affected areas. However, the contractor should review the changes or claims clause to see if it may still be able to recoup costs.

The majority of jurisdictions hold that a force majeure event discharges the party’s performance even if there is no force majeure clause because the party did not assume the risk of performance under any and all circumstances. A minority of jurisdictions hold that, in the absence of a force majeure clause, the party prevented from performing will be held liable for nonperformance consistent with the terms of the contract addressing default or nonperformance

Classifying Schedule Impacts

Once recognized that an event has occurred in the as-built completion of a project that differs from the established schedule of record, which potentially has an impact on the schedule and is attributable to a party, the next step is to classify the delay, so that a schedule impact technique can be applied. Delays are classified into one of the following four categories:

1. Excusable, Non-Compensable Delays

2. Excusable, Compensable Delays

3. Non-Excusable, Non-Compensable Delays

4. Non-Excusable, Compensable Delays

Identifying the category of each delay is essential before applying a schedule impact analysis technique.  Each of these four categories is attributable to the owner, contractor, or third party / force majeure , and will be explained in further detail.

In the northern part of the United States, the start of spring after a long cold winter is traditionally a welcome event.  However, in recent years, the start of spring has become synonymous with another, less welcome event: flood season.

This spring, several areas of the United States are dealing with record high water levels and many areas of the Province have faced difficulties with flooding.

For the construction industry, flooding and other adverse weather events may have severe impacts on project schedules and costs.  If you’re faced with a situation where your work will be impacted by causes outside of your control, you will want to consult the force majeure provisions in your contract.

Aside from being an occurrence which is truly unforeseen, a force majeure event must be of such significance that the failure to perform in accordance with the contract could not be overcome by the reasonable efforts of the party claiming relief.

The essential purpose of the force majeure clause is to allocate the risk for unexpected events between the owner and contractor (or contractor and sub-contractor or supplier).  Generally speaking, an owner will want a tightly worded force majeure clause which limits the events considered to be force majeure to specifically enumerated events like natural disasters and wars.  On the other hand, a contractor will generally be looking for a more inclusive (or loosely worded) clause which would leave the definition of force majeure open to other events, including the failure of third parties to perform services or supply materials.

Apart from the issue of agreeing as to what constitutes a force majeure event, parties to a contract should also ensure that their agreement includes specific provisions on what happens if a force majeure event occurs.  Is the contractor entitled to an extension of time and additional costs?  Just an extension of time - or just additional costs?  If an extension of time and/or additional costs are to be awarded, do the parties use a change order procedure or is there a separate procedure to account for these claims?  Are there specific notice requirements for a party advancing a force majeure claim?  All of these questions should be answered in a good force majeure clause.

Parties should be aware that even where a force majeure event occurs, parties are not released from their obligations completely - they remain under a positive duty to take reasonable steps to mitigate the damage caused by the event.

So if you find yourself on the wrong side of Mother Nature, fires, epidemics, embargos and so on and need guidance as to whether you’ve got a valid claim for additional time and/or costs, look to the force majeure provisions of your contract. 

ASSISTANCE IN DEVELOPING A CONSTRUCTION CLAIM

Metropolitan provides valuable guidance in developing, analyzing, defending, and negotiating construction claims.  In the highly competitive engineering and construction industry, construction claims management has become an increasingly integral element to maintaining project profitability.  Our construction experts have successfully resolved a broad range of construction claims on a variety of projects located throughout the United States and internationally.

Although there are many programs available on the legal aspects of construction claims, few of these focus sufficiently on the practical aspects of claim entitlement, documentation, preparation, analysis, and negotiation.  .

Successful assertion of a construction claim depends on first establishing entitlement, then properly pricing the claim by assessing both direct and indirect costs.

Our construction experts guide and assist our clients in identifying and developing a basic claim "theme" that is consistent with the contract, the facts and established construction practices.

The experts at Metropolitan Forensics will:

·         provide leadership and support by analyzing contract requirements

·         provide assistance in assessing actual costs, project delays, and impacts when reviewing a claim

·         help identify and develop necessary documentation and data on the project to accurately express the client's claim "theme"

·         provide guidance in assessing claim options and counterclaims

·         assist clients in calculating the costs incurred by pursuing a claim

·         prepare claim text and exhibits and provide continuing support

 

ASSISTANCE IN CONSTRUCTION CLAIMS ANALYSIS

Metropolitan project review and construction claims analysis will provide an objective, independent appraisal of the strengths and weaknesses of a construction claim.

Our construction experts provide clients with significant insight as to their potential liability and accordingly, a recommended course of action. We help clients develop and implement effective strategies for either asserting or defending construction claims.

NEGOTIATING AND RESOLVING A CONSTRUCTION CLAIM

Metropolitan provides valuable guidance in the negotiation of construction claims so that clients may avoid costly litigation and still obtain an equitable claim settlement.

·         Our construction experts proven negotiation techniques facilitate active pursuit of the claim without creating excessive adversary positions

·         We assist in the development and pursuit of successful claim negotiating strategies

·         We lead claim negotiations as authorized by our clients and participate in settlement negotiations on behalf of our clients

HOW TO MANAGE CONSTRUCTION DISPUTES TO MINIMIZE SURETY AND CONSTRUCTION CLAIMS.  PART 2: DISRUPTION AND LOSS OF LABOR PRODUCTIVITY CLAIMS.

https://sites.google.com/site/metroforensics3/disruption-and-loss-of-labor-productivity-claims

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.

We indicated there that the most frequently encountered claims include:

1.    Construction Delay Claims

2.    Disruption and Loss of Labor Productivity Claims

3.    Design and Construction Defect Claims

4.    Force Majeure Claims

5.    Acceleration or Compression of the Schedule Claims

6.    Suspension, Termination and Default Claims

7.    Differing Site Conditions Claims

8.    Change Order and Extra Work Claims

9.    Cost Overrun Claims

10. Unacceptable Workmanship or Substituted Material Claims

11. Non-payment Claims (stop notice (or Notice to Withhold) claims, mechanics’ lien (only for private construction projects) and payment bond claims)

Delay and disruption often occur together. However, there is a difference between a disruption claim and a claim for pure delay. Disruption of the contractor's planned sequence and method of construction typically causes a loss of productivity. This loss of productivity, however, does not necessarily mean that the overall contractual completion date will be delayed as a result of the disruption.  Understanding these claims not only will help clients avoid litigation but will also encourage clients to transform their contracts from those that increase client vulnerability to litigation to those that can foster a construction environment that is resilient in the face of the confusions and setbacks of a construction project.

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, 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.

The conditions that erupt into delay and disruption claims do not occur in a vacuum. When the owner or the owner's agents-such as the construction manager, architect, and engineer, among others-ostensibly delay or disrupt the contractor, the actual cause may be that the owner breached one or more of its obligations to the contractor. These obligations include providing adequate plans and specifications, providing site access, cooperating with the contractor when difficulties or problems are encountered, and making timely progress payments.

Part II of this series discusses item 2 above: Disruption and Loss of Labor Productivity Claims

Disruption and Loss of Labor Productivity Claims

In general, disruption can be described as the result of being forced to perform contracted work in a manner different and less efficient than originally planned.  When a contractor bids a project, the bid costs for the work are based on assumptions concerning construction procedures, levels of manpower, and sequences of work activities.  Any deviation from these planned factors may result in an increase in the costs required to perform the contracted work.  This could result in a loss of efficiency claim against the owner.

Although the distinction sometimes is blurred, courts have generally recognized the distinction between damages caused by disruption (loss of efficiency) and damages caused by delay. See L & A Contracting Co. v. Southern Concrete Servs., Inc., 17 F.3d 106, 112-13 (5th Cir. 1994) (holding a subcontractor liable for damages even though the contractor completed its project on time: “[Contractor] is entitled to recover those costs regardless of whether it timely completed its own obligation….”); Id. at 966-67. In John E. Green Plumbing & Heating Co. v. Turner Constr. Co., 742 F.2d 965, 966-67 (6th Cir. 1984), the Court distinguished lost productivity damages from delay damages by awarding the subcontractor damages for interferences despite a no damages for delay clause.

The important thing to remember is that while delay claims are time related and contain time related damages such as extended overhead or increased direct costs related from the delay, disruption claims (which may arise from the same event justifying delay claim) generally involve losses based on lost labor and equipment efficiency.

A contractor's request for damages due to loss of labor productivity relates to the additional labor costs incurred when work is disrupted or delayed.  The following are examples of events or interferences that could cause a loss in labor productivity.  Whether an interference with the contractor’s work is a breach of contract depends on the circumstances of the case:

·         Adverse weather conditions; when a contractor is forced by owner delays to perform in a season different from the one scheduled or to perform a greater amount of work than originally scheduled in an adverse season, any decline in efficiency will entitle a contractor to compensation.

·         Adverse job site conditions (owner’s failure to provide a suitable work site)

·         Restricted access to a jobsite; circumstances that inhibit a contractor’s access to its work area often result in labor productivity losses. These losses can include those costs associated with the “idling” of its work force or the lost labor hours caused by the work force’s efforts to overcome site access limitation.

·         Excessive safety and technical inspections

·         Excessive testing

·         Excessive change orders

·         Overtime on an extended basis

·         Out of sequence work; a common cause of labor inefficiency is work performed in a manner out of sequence with the contractor’s original schedule.  A contractor has a right to perform according to a reasonable plan of operations and can recover for the loss of efficiency caused by disruption to his schedule. Here, care must be taken to provide the causal connection between non-sequential performance and loss of productivity

·         Out of scope work; change orders can have a negative impact on labor productivity because they often force a contractor to alter its plan for completing its scope of work, resulting in a need for additional supervision or a reduction in learning or experience curve gains.

·         Untimely response to RFIs

·         Untimely approval of submittals

·         Failure to meet express contractual obligations

·         Numerous stop-and-go activities

·         Interference with other trades; many trades required to work together in an area when it is not large enough to accommodate these activities will result in labor inefficiency.

·         Failure to coordinate and/or supervise properly other contractor’s activities

·         Over or under-manning; here, inefficiency can result from crowding, diluted supervision, lack of engineering support or diminishing the level of crew experience.

The first and most common source of disruption is delay. Delays often cause damages not only by preventing the contractor from working or completing its work timely, but also by impacting the contractor’s efficiency. In Luria Bros. & Co. v. United States, 369 F.2d 701 (Ct. Cl. 1966), the court found that the owner’s changing of specifications delayed the contractor’s performance. The contractor recovered delay damages, including additional home office overhead, idle equipment, wage and material escalations, and additional insurance premiums. Id. at 709-11. But the court also found that the delays caused the contractor to work under unanticipated winter conditions, with a resulting loss of productivity. Id. at 711-14. Therefore, the contractor recovered disruption damages associated with the loss of its productivity. Id.; see also Net Construction, Inc. v. C & C Rehab and Construction, Inc., 256 F. Supp. 2d 350, 354 (E.D. Pa. 2003) (recognizing a distinct claim for lost productivity arising out of a delay, although holding that contractor failed to prove properly lost productivity damages); Williams Enter., Inc., 938 F.2d at 236 (allowed contractor both delay and loss of productivity damages against subcontractor which delayed the project);

Deviation from planned sequence or levels of manpower can also damage efficiency and productivity.  Virtually any task has an optimum sequence, and a level of manning that will provide the most cost-effective performance.  Exceeding that level reduces productivity due, for example, to shortages of workspace, trade stacking and resulting confusion.  Under-manning the optimum level may destroy the efficiencies of crew specialization and the learning effect, and wastes time in worker “transition” between activities.  Any factor, therefore, which prevents a contractor from working at planned optimum sequence or staffing levels may deteriorated productivity and raised the cost of performance.

Similarly, a deficiency in other construction resources, such as tools, equipment or construction materials, can retard the rate of production.  Crews working without the required level of support from the equipment and materials required to perform the work cannot achieve planned rate of production.

When a contractor is forced to perform work in an out-of-sequence manner due to an act or omission of the owner, the contractor's costs for loss of labor efficiency may be recoverable through disputes and claims for equitable adjustment.

Disruption and Loss of Labor productivity claims are some of the most contentious and more difficult to prove claims in the construction industry.  This is based, in part, on the fact that labor productivity losses are often difficult to distinguish contemporaneously, as opposed to many claims which are related to direct monetary costs.  Additionally, labor productivity rates and other related data are often not tracked on construction projects with any degree of precision.  As a result, substantiating a cause-and-effect relationship between issues and resulting labor productivity losses and establishing entitlement to recovery for lost labor productivity can be a difficult process.

Construction labor productivity is typically measured as labor hours per quantity of material installed.  Labor productivity loss is experienced when a contractor, or a particular crew, is not accomplishing the anticipated or planned production rates. In other words, a loss of productivity is when it takes more labor and equipment to do the same amount of work, thereby increasing project costs. There are many common causes for labor productivity impacts on a construction project, stemming from owners, contractors, and construction managers.  Common causes include, but are not limited to, mismanagement and maladministration, site access restrictions, differing site conditions, defective plans and/or specifications, changes in the work; labor availability, turnover, rework, testing/inspections, overtime and/or shift work, interferences, changes in construction means and methods, overcrowding, out-of-sequence work and inclement weather.

Primary challenges associated with labor productivity claims are identifying the root cause of labor productivity issues, quantifying associated labor productivity losses, corroborating the cause-and-effect relationship, and establishing entitlement to damages. One must review the contract to understand the basis of the agreement as certain productivity issues may have been foreseeable and therefore possibly accounted for in the contract commercial terms. The contracts may also identify if a party accepted certain productivity risks, and what contractual rights may exist to recover labor productivity damages.  Metropolitan Consulting & Engineering’s construction claims consultants have in-depth knowledge of productivity tracking methods and quantification techniques and extensive experience evaluating labor productivity issues, performing root cause analyses, and quantifying damages.  Our consultants prepare and analyze labor productivity claims, present in meditations, and testify in litigation and arbitration proceedings on issues concerning labor efficiency and productivity loss.

Metropolitan Consulting & Engineering has in-depth knowledge of labor productivity tracking and controls, impacts, industry studies, and quantification techniques. While each project has its own unique challenges and issues, Metropolitan Consulting & Engineering’s labor productivity analyses typically consider our experience in the field as project/construction management professionals, testimony and interviews of key project personnel, contemporaneous project documents (e.g., progress reports, daily reports, time sheets and labor records, etc.), our education and specialized training, as well as recognized industry labor productivity studies and reports. Our construction claims consultants specialize in labor productivity analysis and typically utilize the following industry-recognized methodologies, where appropriate: 

Listed below, in outline form, are various identified methods for estimating lost productivity.  These methods are listed in order of preference.  The recommended order of preference of the applicability of the studies and methods set forth below is based upon the weight of published literature.  That is, Project Specific Studies are preferred to Project Comparison Studies.  Project Comparison Studies are likely to be given greater weight than Specialty Industry Studies.  Specialty Industry Studies are generally considered more reliable than General Industry Studies, and so on and so forth.  Within each category, we have likewise placed the methodology in order of preference.  For example, properly performed measured mile studies are preferred to earned value analyses which, in turn, are considered more credible than work sampling or craftsmen questionnaires.

Project Specific Studies

·         Measured Mile Analysis

·         Earned Value Analysis

·         Work Sampling Method

·         Craftsmen Questionnaire Sampling Method

Project Comparison Studies

·         Comparable Work Study

·         Comparable Project Study

Specialty Industry Studies

·         Acceleration

·         Changes, Cumulative Impact and Rework

·         Learning Curve

·         Overtime and Shift Work

·         Project Characteristics

·         Project Management

·         Weather

General Industry Studies

o    U.S. Army Corps of Engineers Modification Impact Evaluation Guide

o    General and Specialty Industry Studies (Mechanical Contractors Association of America [MCAA], 

o    Construction Industry Institute [CII], Business Roundtable, etc.)

o    National Electrical Contractor’s Association

o    Other Estimating Guides

Cost Basis Methods

·         Total Unit Cost Method

·         Modified Total Labor Cost Method

·         Total Labor Cost Method

·         Time and Motion Studies

Productivity Impact on Schedule

·         Schedule Impact Analysis

It should be noted that the selection of a particular productivity analysis methodology depends on the project facts, the nature of the events being analyzed, the nature and extent of available labor data, and may vary from project to project.  Each of the above-referenced productivity analysis methodologies has inherent advantages and disadvantages.  Metropolitan Consulting & Engineering has extensive experience handling construction labor productivity claims and our construction claims consultants are skilled at tailoring our productivity analysis approach to suit a project’s needs and constraints.

The burden of proof is on the claimant

In an action for damages, the contractor bears the burden of proving both the existence and the amount of the damages incurred.  Where the existence of damages is clearly established, a contractor’s inability to prove the precise amount of those damages does not preclude recovery.  This concept is particularly applicable to major construction disputes involving such elements as substantial labor inefficiency claims.  The general rule is that the injured party must establish the extent of its damages with “reasonable certainty.”

Case Law on the burden of proof

The burden is on the party claiming the benefit of the adjustment. Wilner v. United States, 24 F.3d 1397 (Fed. Cir. 1994); Lisbon Contractors, Inc. v. United States, 828 F.2d 759, 767 (Fed. Cir. 1987) (moving party “bears the burden of proving the amount of loss with sufficient certainty so that the determination of the amount of damages will be more than mere speculation”); B&W Forest Prod., AGBCA Nos. 96-180, 96-198-1, 98-1 BCA ¶ 29,354.

2. What must the claimant prove?

a. Entitlement (Liability)—the government did something that changed the contractor’s costs, for which the government is legally liable. T.L. James & Co., ENG BCA No. 5328, 89-2 BCA ¶ 21,643.

b. Causation—there must be a causal nexus between the basis for liability and the claimed increase (or decrease) in cost. Hensel Phelps Constr. Co., ASBCA No. 49270, 99-2 BCA ¶ 30,531; Stewart & Stevenson Servs., Inc., ASBCA No. 43631, 98-1 BCA ¶ 29,653, modifying 97-2 BCA ¶ 29,252; Oak Adec, Inc. v. United States, 24 Cl. Ct. 502 (1991).

c. Resultant Injury—that there is an actual injury or increased cost to the moving party. Servidone Constr. Corp. v. United States, 931 F.2d 860 (Fed. Cir. 1991); Cascade Gen., Inc., ASBCA No. 47754, 00-2 BCA ¶ 31,093, 2000 ASBCA LEXIS 138 (holding that a contractor claim was deficient when it failed to substantiate what specific work and/or delays resulted from the defective government specifications).

A typical discussion of the procedure used by boards of claim review is provided below:

The excerpt below from the Appeal of The Clark Construction Group, Inc., CAB No. 2003-1, Contract Appeals Board, 2004 GAOCAB LEXIS 2 (GAOCAB 2004) , illustrates the burden of proof required to recover loss of labor productivity.

It is a rare case where loss of productivity can be proven by books and records; almost always it has to be proven by the opinions of expert witnesses. However, the mere expression of an estimate as to the amount of productivity loss by an expert witness with nothing to support it will not establish the fundamental fact of resultant injury nor provide a sufficient basis for making a reasonably correct approximation of damages.  The support commonly relied upon for identifying and measuring labor inefficiency is a comparison to some accepted standard. Herman B. Taylor constr. Co., GSBCA no. 15421, July 21, 2003, 03-2 BCA P 32,320 at 159,503-04; DANAC, Inc., ASBCA no. 33394, July 31, 1997, 97-2 BCA P 29,184, at 145,152, Recon. Denied, 98-1 BCA P 29,454. Where a claim of labor inefficiency is based on assumptions that are not supported by reliable empirical data, the claim of labor inefficiency will be denied for insufficient proof.   Herman B. Taylor Constr. Co., Supra, at 159,504.  Iron provided no expert witness testimony or a comparison to some accepted standard for its claimed labor inefficiencies, and we therefore reject its inefficiency claims because no probative evidence has presented that would support recovery.

A mere estimate of labor inefficiencies will not suffice.

Once again, we address Government liability and the extent of that liability for asserted labor inefficiencies identified when a Contractor finds its labor expenditure to be in excess of the amount of labor it anticipated that it would expend. Claims of labor inefficiency are recognized to be both difficult to prove as to entitlement and even more difficult to quantify; the claims we confront here are no exception.  The parties ably and efficiently presented their positions in both the hearing and the briefs; however, their presentation has not lessened the difficulty of our task.

We have had recent occasion to discuss claims for inefficiency or impact claims in detail in Centex Bateson Construction Company, Inc. We stated there:

Impact costs are additional costs occurring as a result of the loss of productivity; loss of productivity is also termed inefficiency.  Thus, impact costs are simply increased labor costs that stem from the disruption to labor productivity resulting from a change in working conditions caused by a contract change.  Productivity is inversely proportional to the man-hours necessary to produce a given unit of product.  As is self-evident, if productivity declines, the number of man-hours of labor to produce a given task will increase.  If the number of man-hours increases, labor costs obviously increase.

Thus, our inquiry will focus on the evidence to determine whether the VA’s actions (or inaction) changed the working conditions such that PKC’s labor productivity was adversely impacted. Centex Bateson Construction Company, Inc., VABCA Nos. 4613, et. at, 99-1 BCA ¶30,153, 149,257.

Rule 703 of the Federal Rules of Evidence permits an expert witness to base his or her opinion on facts or data that are not admissible into evidence if such facts and data are “of a type reasonably relied upon by experts in the particular field in forming opinions or inferences upon the subject . . .” Under this Rule, information supporting, for example, loss of labor productivity need not be admitted or admissible in order to be relied upon for an expert’s opinion. Federal Rules of Evidence 703, however, is not a hearsay exception and may not be used as a means of admitting inadmissible evidence.  More importantly, Federal Rules of Evidence 703 may not be used to circumvent the claimant’s obligation to admit evidence such as source documents establishing the factual bases for its damages.  Although Federal Rules of Evidence 703 may be useful in presenting expert testimony, a much more potent means of presenting the information contained in source documents lies in Federal Rule of Evidence 1006 concerning summaries.

Federal Rule of Evidence 1006 permits parties to present voluminous documents or data in a summary format. The Rule reads as follows:

The contents of voluminous writings, recordings, or photographs which cannot conveniently be examined in court may be presented in the form of a chart, summary or calculation. The originals, or duplicates, shall be made available for examination or copying, or both, by other parties at a reasonable time and place. The court may order that they be produced in court.

Proving Causation

An important element of a loss of productivity claim is proving causation.  This requires the contractor to prove that the loss of productivity was caused by an unreasonable act or omission by the Owner or the Government.  The Owner or Government may argue in defense to a labor inefficiency claim that the contractor is responsible for its labor losses by failing to estimate the job properly, by failing to properly schedule the work or by failing to coordinate the work.

Be Careful When Agreeing to Releases

Often, the Government will ask the contractor to sign a waiver or release when executing a change order.  This may preclude a contractor from claiming labor inefficiencies based on the changes’ impact on unchanged work, i.e. ripple effect.  It is therefore imperative that the contractor reserve its right to labor inefficiencies when signing a change order.  Be very specific when reserving your rights to avoid a dispute later over the scope of the release.

Interference from the owner or third parties

The impacts from interference will vary greatly depending on the type and extent of such interference.  When the contractor loses control over the construction task that he has contracted to perform, then there is an interference with his work.  The interference could be caused by the Owner, Government, or third party.  Most modern contracts contain provisions that the Owner must schedule and coordinate the work so that the contractors will not actively interfere with each other.  They also include an exception to the “no damages for delay clause” which will allow the claimant to recover for delays caused by acts of the Owner or third party constituting active interference with the contractor’s performance of the work.  Active interference typically is not defined in the contracts and this has created quite a few issues in the past.

Recently, the Connecticut Supreme Court clarified the “active interference” meaning in the case C&H Electric, Inc. v. Town of Bethel, 312 Conn. 843, 2014 Conn. LEXIS 263 (Aug. 5, 2014).  In that case, the parties’ contract included a “no damages for delay” clause, limiting the defendant’s liability for delays it caused on the project.  The no damages for delay clause specified that an extension of time would be plaintiff’s “sole remedy” for “(1) delays in the commencement, prosecution or completion of the work, (2) hindrance or obstruction in the performance of the work, (3) loss of productivity, or (4) other similar claims whether or not such delays are foreseeable, contemplated, or uncontemplated . . .”  The contract included a single exception to the no damages for delay clause, which allowed the plaintiff to recover for delays caused by acts of the defendant “constituting active interference with [the plaintiff’s] performance of the work.”  While the contract did not define “active interference,” it did specify that the defendant’s exercise of its contractual rights, including its right to suspend, reschedule or change the work, would not constitute “active interference.”

The Supreme Court of Connecticut addressed the standard for the “active interference” exception to the contract’s no damage for delay clause.  The Court first explained that in White Oak, it adopted four common law exceptions to no damage for delay clauses: (1) delays caused by the owner’s bad faith or its willful or grossly negligent conduct, (2) uncontemplated delays, (3) delays constituting intentional abandonment of the contract, and (4) delays from the owner’s breach of a fundamental contract obligation.

The Court then analyzed contractor’s two claims for active interference: (1) that the Town of Bethel concealed the abatement work from the contractor while knowing that it would cause contractor delays and lost productivity and (2) the Town of Bethel’s coordination and failure to update the specifications interfered with contractor’s ability to complete the work.

On the first claim, the Court concluded that evidence reflected that the town did not conceal the abatement work from contractor and that it did not know the abatement work would interfere with contractor.  The Court identified evidence suggesting that the Town of Bethel repeatedly discussed at public meetings the ongoing abatement work and that the Town of Bethel believed that the abatement work was sufficiently advanced for the contractor to commence its work.  The Court explained that the Town of Bethel’s decision to start contractor’s work, “supported by an environmental consultant, later proved to be erroneous does not transform the Town’s mistake or error in judgment into active interference.”  Likewise, the court explained that the Town of Bethel’s failure to affirmatively disclose to contractor the remaining abatement work was a result of a “mistake or oversight [which] is not enough to satisfy the active interference exception in the contract.”

For contractor’s second claim, the Court explained that the parties contract “categorically excluded from the meaning of ‘active interference’ any rescheduling or suspension of the work by the Town, irrespective of the extent and frequency that the Town of Bethel exercised these rights.”  The Court concluded that the Town of Bethel’s “less than fastidious” coordination of the work and project did not actively interfere with the contractor’s work.

Anticipated or Excluded Conditions

Constructions projects are in general complex and difficult endeavors, full of surprises, changed weather or site conditions, and so on.  A certain level of inefficiency is common to most construction activities and should be provided for in the contractor’s bid.  Sometimes the contract will expressly exclude claims for lost productivity due to site conditions, changed weather conditions or other anticipated events or conditions.  The contractor is therefore put on notice of such conditions and he will be able to file a claim for loss of productivity due to these conditions.

Recordkeeping

Sufficient quantity of high quality data is of paramount importance in preparing and analyzing the loss productivity claim.  In order to establish entitlement on a “lost” productivity claim, quantify the impacts, and calculate damages, a contractor will need to maintain very good contemporaneous records related to its labor and equipment productivity.  It is important to regularly compare actual productivity of labor and equipment resources with the planned levels.  As deviations occur and negative trends are established, the contractor’s written, calculated, and visual project recordkeeping should document the causal link between issues and events and the adverse impacts to its productivity. A widely accepted method of “lost” productivity calculation is a measured mile analysis. This approach makes use of contemporaneous project records to establish a baseline ‘un-impacted’ productivity period to which the “impacted” productivity period is compared and the “lost” productivity is established.

To be admissible as evidence in a court proceeding, documentation must generally be prepared in the normal course of business, at or near the time, by a person having knowledge of the events.  Specifically, courts will not admit as evidence reports prepared by project personnel -­ or anyone else -­ after the fact.

Some of the documents commonly found on construction sites are:

·         The Schedule (The Updated Schedule)

·         Revised drawings

·         Marked up drawings and other documents

·         Receipts for materials and equipment, including delivered quantities/quality

·         Productivity Reports

·         H&S monitoring records

·         Work plan and contract documents

·         Deviation Reports

·         Foreman's Daily Time Card

·         Foreman's Diary and Daily Quantities

·         Daily Site Diary/Report

·         Videos and Photographs

·         Correspondence

·         Meeting Minutes

·         Change/Work Order Files

At a minimum, the only truly effective ways for a contractor to prove legal entitlement to delay and loss productivity damages are to:

·         Prepare and submit a reasonable, accurate, and detailed construction schedule, either with the bid or quotation or submitting it prior to starting construction on the project. Original, as-planned schedules that don’t show dependencies and relationships between the various work tasks to be performed by the contractor, its subcontractors, and accompanying trades are almost worthless in proving the exact effects of delays that later occurred.

·         Prepare and submit cost estimates for as-bid man-hours, labor, equipment utilization, and materials prior to the start of construction. These estimates should be included in the schedule described above and should be accurately itemized for the various schedule activities.

·         Regularly submit daily construction record reports to the owner once construction begins. These daily records should contain a listing of all schedule activities worked on a specific day, including the manpower and trades, materials, and
equipment utilized for each activity being performed. Work stoppages and delays encountered by the contractor should also be listed by all schedule activities directly or indirectly affected. A written description of the nature and extent of the work
stoppage or delay in hours and minutes should be provided. For example, if equipment and manpower are idled, that occurrence should be accurately described according to the number of hours and minutes they were idled. If manpower and equipment had to be transferred to another schedule activity because of the work stoppage or delay, the time and money lost in shutting down and starting up again on a different task should be quantified in writing.

·         Maintain productivity records on a routine basis for all construction schedule activities being performed. Where possible, this should be included in the daily construction record reports. Delays often have hidden effects on construction productivity that are not readily apparent until the actual productivity rates are carefully examined. Time and cost records are worthless unless an accurate measure of what was being produced is recorded simultaneously.

The preceding four practices provide a basis for accurately comparing as-bid expectations with as-performed realities. If followed correctly, these practices should help detail the causes (entitlements) of even a minor delay. However, major delays or a series of minor, consecutive delays have other, less obvious and often more expensive effects on both time and cost. Some of these effects include:

·         Under-utilization of project and home office overhead;

·         Increased scheduling and modification costs;

·         Failure to meet contract completion dates, resulting in extended overhead costs, hindrances to the bonding capacity (inability to maintain efficient workloads for the manpower and equipment available), and work being "pushed" into inclement weather or off-seasons;

·         Owner failure to grant time extensions due to delays, followed by enforcement of or the threat to enforce liquidated damages for late completion;

·         Constructive acceleration by the contractor to avoid enforcement activities;

·         Low morale of workers and significant productivity loss due to stop-start construction operations and the inability to perform scheduled work in a logical and efficient sequence; and

·         Owner-ordered acceleration to complete on time, in spite of major delays.

Metropolitan’s Construction Consulting professionals have extensive experience working with both owners and contractors in preparing, evaluating, and resolving complex “lost” productivity claims.  Metropolitan’s independent, objective, fact-based approach to “lost” productivity claim preparation and analysis has proven successful with all types of subcontractor trade work.  Our professionals are seasoned contractors, engineers, and project managers.  Our senior construction consultants have been qualified as experts on the topics of “lost” productivity, disruption, and inefficiency entitlement analysis; quantification of impacts; and calculation of damages by state, district, and federal courts, and various government boards.

Our services, encompassing entitlement, quantification of impacts, and damages, include:

·         Preparation of contractor change order requests for “lost” productivity issues and events

·         Preparation of contractor claims for “lost” productivity issues and events

·         Development of contractor record-keeping systems for documentation of adverse productivity impacts 

·         Analysis of contractor change order requests for “lost” productivity issues and events 

·         Analysis of contractor claims for “lost” productivity issues and events 

·         Development of recordkeeping systems for owner documentation of contractor-alleged productivity impacts 

·         Expert witness services

Measured Mile Approach

When contractors seek additional compensation for changes, differing site conditions or other delays, they must convince the Owner or the mediator or the court of the amount they are entitled to be paid.  Whenever these types of events occur on larger highway or infrastructure construction projects, there is usually a substantial loss of productivity.  Yet, contractors are frequently unable to prove the appropriate amount.

When done properly, the preferred method of calculating loss of labor productivity is the “Measured Mile” approach.  It is the comparison of the differences in productivity between affected and non-affected conditions (i.e., time periods, work areas, or work activity) using project specific studies.  This method first analyzes work that was performed in an area that did not experience delay or disruption.  For example, if it took 100 labor hours to install 100 feet of conduit in a non-impacted area, the efficient rate of installation would be 1 ft. per hour. This measured mile can then be compared to the rate of conduit installation in disrupted areas.  The difference represents the loss of productivity.  The more detailed and accurate the contractor’s labor expenditure records, the more reliable and persuasive will be the results of loss of productivity damages quantified using project specific studies.

The Court of Federal Claims and Boards of Contract Appeals have upheld use of the Measured Mile technique.  The Measured Mile calculation is favored because it considers only the actual effect of the alleged impact and thereby eliminates disputes over the validity of cost estimates, or factors that may have impacted productivity due to no fault of the owner.

The Measured Mile methodology cannot be used if the contractor never performed the work efficiently and therefore does not have a baseline to compare to.  Courts and Boards of Contract Appeals have allowed the use of industry studies as an alternative means of calculating labor inefficiency.

Steps that Contractors Need to Take.   Applying the measured-mile method is straightforward if the contractor has kept productivity records by location, type of work and crews.

• Identify and define impacted work, including the unit of measurement for the work. For example, certain aggregates designated by the agency as suitable for use in the concrete may not be suitable if the soils contain large lumps of clay.  Under this first step, you need to identify and define the impacted work.

• Identify the impacted and unimpacted time periods and project locations for the analysis. Selecting the unimpacted (measured-mile) period and location for the project is crucial. Most common tasks on projects are constructed in different phases, at different times of the year and in different locations. In the above example, the contractor may be able to achieve a higher production after identifying and approving a different aggregate source.

• Carefully evaluate the difference between the two periods and select a representative unimpacted period. Remember that a potential challenge to this approach is the argument that the unimpacted selection is not representative of the project. This is because the measured-mile method assumes all work on the project would have been performed at the same rate as the unimpacted segment.

• Locate and assemble job-cost records, identifying man-hours, equipment and material used. Record keeping is critical to calculate and support any lost productivity claim. On highway construction projects, contractors must break the work down by location, activity and event. Review records for all unimpacted work periods. Field personnel need to maintain the records in generally the same manner for the impacted and unimpacted sections.

• Determine whether you will base the analysis on hours or dollars. Then develop an unimpacted benchmark productivity measurement. An hourly approach is based on the total crew hours required to complete a work task, such as yards of concrete paved. A dollar approach is based on the total cost to complete a task, including labor costs, equipment rental, operating costs and consumables that vary with time. Once you have developed the productivity factors and crew costs, simply apply these to the impacted work quantities.

A measured mile analysis is generally acceptable if based on reasonably similar work to the impacted work. The impacted and unimpacted work activities should draw on labor from the same labor pool, and both activities should involve similar skill level and effort. Identify and evaluate possible other causes for the claimed impact. Be prepared to explain why these do not apply.

As contractors, you will face lost productivity when there are changes, differing site conditions or delays. How well are you prepared to show the Owner or the mediator or court the amount of your lost productivity?

MCAA Manual as a Means of Measuring Labor Inefficiency

Courts and Boards of Contract Appeals have allowed the use of industry studies as an alternative means of calculating labor inefficiency.  In the Appeal of the Clark Construction Group, Inc., VABCA-5674, 2000-1 B.C.A. (CCH) P30,870 (April 5, 2000), the Board of Contract Appeals accepted the Mechanical Contractors Association of America (MCAA) Manual as a means of measuring labor inefficiencies:

Quantification of loss of efficiency or impact claims is a particularly vexing and complex problem. We have recognized that maintaining cost records identifying and separating inefficiency costs to be both impractical and essentially impossible. Therefore, we have found percentage estimates of loss of efficiency to be an appropriate method to quantify such losses and that is how we will calculate the amount of equitable adjustment due PKC here. Centex Bateson, 99-1 BCA ¶30,153; Fire Security Systems, Inc., VABCA No. 3086, 91-2 BCA ¶23,743.

We will utilize the productivity factors from the MCAA manual as the best method to arrive at the percentage estimates of PKC's and USM's undeniable productivity losses. We find no other basis in the record on which we could better calculate the amount of PKC's productivity losses in this appeal and, as we previously recognized in Fire Security, the MCAA productivity factors are a reasonable starting point to estimate efficiency losses. Despite the inherent subjectivity of the MCCA factors, the record here demonstrates that the MCAA factors are a widely used industry standard method of accounting for the impact of inefficiency on mechanical work. We will utilize the MCAA manual's direction and descriptions of the percentage inefficiency factor to be applied to the inefficiency element for which entitlement has been proven. As contemplated by the MCAA manual, we will use our reasonable judgment of how the factors apply to this contract and the two contractors.  Fire Security Systems, Inc., 91-2 BCA ¶23,743; Stroh Corporation, GSBCA No. 11029, 96-1 BCA ¶28,265.

The MCAA manual lists sixteen (16) factors   affecting labor productivity. The factors are stated as percentages to add   onto labor costs for the contract man-hours of labor. The individual MCAA   factors are ranked as Minor, Average or Severe.Percent Loss if Condition Exists
Factor	Minor	Average	Severe
1. Staking of trades.	10%	20%	30%
2. Morale and attitude.	5%	15%	30%
3. Reassignment of manpower.	5%	10%	15%
4. Crew size inefficiency.	10%	20%	30%
5. Concurrent operations.	5%	15%	25%
6. Dilution of supervision.	10%	15%	25%
7. Learning curve.	5%	15%	30%
8. Errors and omissions.	1%	3%	6%
9. Beneficial occupancy.	15%	25%	40%
10. Joint occupancy.	5%	12%	20%
11. Site access.	5%	12%	30%
12. Logistics.	10%	25%	50%
13. Fatigue.	8%	10%	12%
14. Ripple.	10%	15%	20%
15. Overtime.	10%	15%	20%
16. Season and weather change.	10%	20%	30%

Thus, if in the event all of these factors were present on a job in the "Severe" category, an add-on mark up for loss of productivity would be 413% on the direct labor hours.

MCAA Bulletin Labor Inefficiencies (2011)

Quantifying Damages using the Cumulative Impact Method

Quantifying a cumulative impact claim caused by a multiplicity of changes on a construction project is a challenge.  Generally, liability is established showing the breach of contract, by the project owner who generated the changes and evidence of the consequent disruption caused by the multitude of changes.  Causation requires that the contractor prove that the inefficiency was proximately caused by the owner's changes.  Damages do not have to be proved with mathematical certainty; the contractor must demonstrate a reasonable estimate of the loss of productivity caused by the changes to carry the evidentiary burden.  Often, the very factors that produce the loss of productivity can preclude the accurate and precise record keeping that would allow damages to be calculated with evidentiary certainty.

Like most contract and tort claims, the contractor claiming cumulative impact must prove (1) liability, (2) causation and (3) resultant injury :“In looking at [contractor's] cumulative impact claim, we must keep in mind the fundamental triad of proof necessary to sustain a contractor's recovery for a constructive change giving rise to cumulative impact costs: liability, causation, and resultant injury.”

Elements of proof for a cumulative impact claim are: (a) a significantly large number of changes; (b) the changes impact on productivity (performance time and efficiency); (c) the impact flows from the synergy of the number and scope of changes; (d) the contractor was unable at time of pricing each change order or directive to foresee the ripple-type effect of the multiplicity of changes; and (e) the contractor did not knowingly waive the right to assert cumulative impact claims when negotiating changes.

When denying claims, courts and boards often focus on the issue of causation.  Cumulative impact claims “are routinely denied because there were an insufficient number of changes, contractor-caused concurrent delays, disruptions and inefficiencies and/or a general absence of evidence of causation and impact.”  Appeals of J. A. Jones Const. Co., ENG BCA No. 6348, 2000 WL 1016846 (Eng. B.C.A., July 7, 2000).

Courts and boards tend to rely justifiably on the expert to establishing various aspects of the cumulative impact claim.  It is recommended that counsel for the contractor have the qualified construction expert focus on several factors. Where multiple changes in working conditions overlap, resulting in an established loss of productivity, the expert should determine how much of the loss was caused by or attributable to the changes. When the contractor confronts both compensable and non-compensable changes in working conditions which overlap an established loss of productivity, then the expert should focus upon determining what portion of the loss was caused by or attributable to the compensable changes versus the noncompensable ones.  Finally, where there are compensable and non-compensable change orders overlapping an established change in working conditions, the expert should focus upon determining what portion of the changed working conditions was caused by or attributable to the compensable change orders versus the non-compensable ones.

Loss of productivity claims, by their nature, do not allow for precise determination, however, by using the following accepted methods of damages computation, once the resultant injury is demonstrated, that is that damages are shown, as long as the damages are reasonably computed, (that neither the judge, jury nor arbitration panel has to guess at what the damages are) the cumulative impact can generally be demonstrated.  There are a number of accepted methods of computing the productivity losses, and these methods were listed earlier.

Earned Value Analysis.

The difference between the actual hours expended and the earned hours for the impacted period are used to calculate the inefficiency experienced (or alternatively, the revenue per man-hour in the unimpacted period is compared with the revenue per-man hour in the impacted period) to arrive at an earned value or "financial measured mile."  A number of variants of the measured mile/earned value analyses combine earned value and measured mile in hybrid approach. 

EVM involves calculating three key values for each activity in the work breakdown structure (WBS):

1.    The planned value (PV): formerly known as the budgeted cost of work scheduled (BCWS) – that portion of the approved cost estimate planned to be spent on the given activity during a given period;

2.    The actual cost (AC): formerly known as the actual cost of work performed (ACWP) – the total of costs incurred in accomplishing work on the activity in a given period. The actual cost must correspond to whatever was budgeted for in the PV and earned value (EV) (e.g. all labor, materials, construction equipment and indirect costs).

3.    The earned value (EV): formerly known as the budget cost of work performed (BCWP) – the value of the work actually completed.

These three values are combined to determine at that point in time whether or not work is being accomplished as planned.  The most commonly used measures are the cost variance and the schedule variance:

Cost variance (CV) =  EV-AC

Similarly the cost of impact of schedule slippage, the schedule variance in terms of cost, may be determined.

Schedule variance (SV) =  EV-PV

The same data can be expressed as ratios that give an indication of value for money. If work is proceeding to, or better than plan, these ratios will be equal to or greater than 1.0. Conversely unfavorable variances will be less than 1.0.

1.       How are we doing on money?

Cost performance index (CPI) = EV/AC

2.       How well are we doing on time?

Schedule performance index (SPI) = EV/PV

The EVM approach provides a most powerful control tool.  The data generated should enable senior management to identify the performance of the project as a whole, or within any part of the project, at any point in time.  Furthermore monthly trends can be easily identified by comparing the monthly cost performance index (CPI) and schedule performance index (SPI) figures.  In addition, the EVM approach enables the forecast of the out-turn situation.

In the following cases the contractors prevailed using the earned value analysis:

James Corp. d/b/a James Construction v. N. Allegheny Sch. Dist., et al.   In this case a number of subsurface differing site conditions delayed and impacted the job.  The District argued that the contractor's earned value analysis was nothing more than the disfavored "total cost" approach.  The expert however had divided the project into different time periods and analyzed each period on its own merits, including applying a conservative factor to account for the contractor's own problems.

Bell BCI Co v. United States.  The owner had surplus funds and decided to add a new floor during construction of the project which delayed the job by 19.5 months and increased the contract price substantially.  This variant starts with identifying a "reasonable labor-hour level" as the ratio of the actual and planned labor-hours for the planned quantity installed in the unimpacted period.  It then identifies reasonable labor-hours for the impacted period and compares them with the actual labor-hours.

Appeal of P.J. Dick, Inc.  Here there was no period without owner caused disruptions available for the same work.  Therefore, similar work with an undisrupted period was identified on the same project (or similar project).  Productivities were not compared directly to find the loss of efficiency as in the measured mile analysis with similar work, instead, an "efficiency factor" was determined as the ratio of actual labor-hours and budgeted labor-hours for the similar work in the undisrupted period.  Realistic budgeted labor-hours for the disrupted work were calculated by multiplying the budgeted labor-hours by the efficiency factor. 

Examples of the Measured Mile Method

Case #1

During construction of a new CIA building (cast in place concrete), in response to the Oklahoma City federal building tragedy, the GSA changed the structure to include blast walls.  The concrete subcontractor’s forming and stripping of concrete walls was drastically affected by the change.  The contractor was able to successfully employ the measured mile method to prove that the productivity loss of construction caused by the design changes.  The predesign productivity rate for forming and striping of concrete slabs and columns was shown to be only 77% as efficient after the design changes were made when compared to the predesign production rates.  Measured mile analyses generally require identical or substantially similar work for productivity comparisons.  In this case, the repetitive concrete work in a high-rise office building, where the floors are identical or substantially similar, lent itself well to a measured mile comparison.  If the affected work is unique, or the contractor did not keep good contemporaneous records, often times no measured mile exists, in such situations, the earned value analysis is more conducive to productivity loss computation.  

Case #2

A measured mile analysis compares work performed in one period not impacted by events causing a loss of productivity with the same or comparable work performed in another period that was impacted by productivity affecting events.  Contractor’s measured mile analysis was accomplished by the collaboration of two of Metropolitan’s experts.  We evaluated the original contract drawings and Contractor’s labor reports to establish the lineal feet of different piping installed and the man-hours necessary for the installation (i.e. the productivity rate).  The actual lineal feet of piping was determined by Contractor’s personnel doing detailed take-offs from the Contract drawings and providing that information to Metropolitan.  The analysis compares productivity rates for installation of four piping systems (domestic water, interstitial heating hot water, medical gas and cast iron drain, waste and vent) on the first floor with the installation productivity rates for sixth or seventh floors of the main hospital structure.  The productivity rates are expressed in the number of feet of the various piping installed per man-day.  The Contractor also compared the underground piping work for the hospital with the underground work for the nursing home which was adjacent to the construction site.  Another contractor was awarded a separate contract for construction of the nursing home and our client Contractor was also the mechanical subcontractor for that project.  The underslab utility work for the nursing home was similar to (although less complicated or extensive than) the work on the site.

The nursing home underslab work was performed according to plan since site de-watering problems had been resolved by the time the construction took place and the nursing home site was at a substantially higher elevation than the site. The first, sixth and seventh floors were chosen because installations on the first floor were accomplished in a period allegedly substantially affected by water and RFIs while the sixth and seventh floor installations were relatively unaffected by water or RFIs. The underground piping analysis compared productivity rates for installation of such work at the site with rates for installation of underground piping in the nursing home built adjacent to the site, a project separate from the site. This comparison was made because the nursing home underground piping installation was not impacted by de-watering problems and the nursing home was immediately adjacent to the main hospital building.

Overall, however, there was no unimpacted area or time on the project to establish a baseline for the measured mile analysis; therefore, the Contractor used a lesser-impacted area (sixth and seventh floors) as the baseline.

The Contractor selected the first and seventh floors for its measured mile analysis because, in Metropolitan’s second expert’s assessment, the first floor is representative of the relatively heavily impacted basement through fifth floor portion of the project and the seventh floor is representative of the relatively unimpacted sixth through ninth floor portion. For one piping system analyzed (heating hot water), Metropolitan’s second expert compared the first and sixth floors because he found that PKC had improperly coded its seventh floor work which prevented him from determining the number of man-hours actually expended to install the heating hot water system on that floor. Metropolitan’s second expert also “adjusted” the first floor actual man-day per lineal foot rates. The adjustment was made because the installations on the first floor involved more and larger pipe and fittings and the adjustment was necessary, in Metropolitan’s second expert’s view, for accurate comparison of productivity rates between the floors. The record contains neither Metropolitan’s second expert’s adjustment methodology or calculations. Metropolitan’s second expert determined a percentage inefficiency factor for the first floor installations dividing the difference of the lineal feet/man-day productivity rate between the first and sixth or seventh floor by the sixth or seventh floor productivity rate. The underslab utility inefficiency factor was determined by applying the same methodology as that used for arriving at the inefficiency factor in the main hospital and comparing main hospital underground productivity rates to the rates for the Nursing Home Rate. Adjustments to the nursing home productivity rate were made in reaching the underground piping inefficiency factor. Metropolitan’s second expert’s analysis yields the following results:

System Inefficiency Factor

Domestic Water                           28%

Interstitial Heating Hot Water          53%

Medical Gas                                27%

Cast Iron                                    20%

Underground Piping                      25%

Metropolitan’s first expert utilized the second expert’s analysis to extrapolate an overall estimated productivity loss of 44,500 man-hours for the site.  Metropolitan also used the MCAA Manual for quantifying loss of productivity retrospectively.

The Owner’s expert, questioned the utility of the MCAA Manual for quantifying the loss of productivity retrospectively.  He based his opinion on the ambiguity of the MCAA factors and the ambiguous instructions in the MCAA Manual as to how the factors are to be applied.  The Owner’s expert has previously indicated, however, that use of MCAA factors for quantifying loss of efficiency claims may be appropriate if a proper measured mile analysis is not possible.

Cost-Based Methods (“Total Unit Cost,” “Modified Total Unit/Total Cost,” and

“Total Cost”)

Cost-based methods use a contractor’s estimate and job cost records to quantify loss of productivity damages by comparing a contractor’s actual costs to its estimated costs.  To demonstrate causation, claimants using cost-based methods commonly rely on a citation of project circumstances using project documentation and testimony by fact or expert witnesses rather than by using one of the more reliable methods described above to establish a causal link between these circumstances and loss of productivity. For these reasons the cost-based methods are the least reliable. The Courts however are willing to accept these methods provided the claimant meets certain tests.

Application of the Modified Total Cost Method

Metropolitan also performed a “modified total cost” analysis for the purpose of establishing the amount of Contractor’s lost productivity attributable to the Owner.  In this analysis, Metropolitan reviewed the reasonableness of the Contractor’s bid, Contractor’s record keeping, the quality of Contractor’s performance including the reasonableness of the labor costs incurred, and the impact of the various circumstances affecting productivity during the course of the project.  This review included the project records, interviews of the Contractor’s personnel, testimony of Owner personnel and witnesses in deposition and other discovery material submitted by the Owner and the testimony in the instant hearing. Metropolitan opined that Contractor’s bid was reasonable based on Contractor’s status as large mechanical and HVAC subcontractors and the fact that Contractor’s bid was within 3% of the other proposers on the project.

Drawing on his experience both as an employee of a large mechanical contractor charged with productivity analysis and as a consultant on productivity, Metropolitan concludes that Contractor’s record keeping on the project relating to labor productivity was better than the industry standard and that there is no practical way to create or maintain records to track labor productivity by a specific cause. Metropolitan found Contractor’s performance and actual incurred labor hours to be reasonable, a conclusion based in large part on the VA’s consistent expression of its satisfaction with Contractor’s performance throughout the project. Metropolitan evaluated the circumstances affecting labor productivity during the project and estimated that one third of the Contractor’s labor overrun was due to the actions of Prime Contractor and other non-Owner caused factors.

The non-Owner factors affecting productivity considered by Metropolitan in making his allocation were: 1) Prime Contractor’s failure to create a project schedule with proper logic and to use the schedule for progression of the job; 2) Late window and exterior wall installation and “dryingin” of the building; 3) Late layout and coordination by the Prime Contractor and its subcontractors; 4) Late installation of stairs by Prime Contractor; and, 5) Prime Contractor‘s late roofing submittal and installation. Although he did not quantify how he arrived at his percentages, Metropolitan assesses that the Contractor is entitled to recover for 66% of its 84,808 man-hours of labor overrun (55,973 man-hours) and the Contractor, using the same allocation, is entitled to recover for 8,439 of its total 12,786 man-hour overrun. Using the composite labor rates, Contractor would thus be entitled to $1,523,938 for its unproductive labor.

Factors to consider when preparing a disruption claim

Disruption claims are routinely made during the course of a construction project yet they remain notoriously difficult to prove. One of the main reasons for this is that productivity losses are often extremely difficult to distinguish, as opposed to other money claims which are more directly concerned with the occurrence of a distinct and compensable event, such as an instruction for a variation during the progress of work or a properly notified compensation event.

Most claims for disruption are dealt with retrospectively and the claimant is forced to rely on contemporary records to try and establish a causal nexus for identified losses (cause & effect), which are inadequate for evidencing a loss of productivity claim.

When this happens the claimant is often forced into the situation where it advances a weak global or total cost claim to try and recover its losses. The claimant must first establish that the factor causing the disruption is compensable risk under the contract.

To do this, the contract needs to be reviewed to understand the basis of the agreement as certain productivity issues may have been foreseeable and therefore accounted for within the claimant’s productivity allowances. The contract may also identify if a party expressly accepted certain productivity risks. Common causes of disruption on projects that may lead to a loss of production include site access restrictions, unforeseen site conditions, late or incorrect design, changes in the work, labor availability, remedial/corrective work, testing/inspections, client and third party interference, changes in construction methods and adverse weather.

The primary challenges the claiming party faces in preparing a disruption claim are to identify the root cause of the loss of productivity and quantifying the associated labor and equipment productivity losses. Many methods exist to quantify a disruption claim such as the measured mile; the modified total cost approach; a time and motion study or a comparative work study.

Alternatively research data published by the Mechanical Contractor Association or the National Electrical Contractors Association on the effects of disrupted working may be utilized but care must be exercised because no one size fits all.

Productivity is normally measured as production per unit of effect or output divided by input (i.e. units/hr) or it may be expressed as input divided by output (i.e. hrs/unit). A loss of productivity occurs when it takes more labor and equipment to do the same amount of work, thereby increasing project costs. A common error made by a claiming party when preparing a disruption claim is to confuse productivity with efficiency.

Efficiency is a measure of productivity as a ratio or percentage during the affected periods. If target production is 50 units per day and actual production is 25 units per day then given the same input the efficiency of the operation would be 50%. If actual production was equal to the target production efficiency would be 100%. The efficiency formula must take into account the variable input (resources) as well as variable output (production).

For instance it is possible to increase productivity but reduce efficiency. A decrease in efficiency is often associated with one or more secondary factors unrelated to the original excusable event but which are implemented to negate or mitigate the effects of the root cause. These secondary factors include out of sequence working, multiple work fronts, new learning and unlearning curves, fatigue (overtime/shift working), dilution of supervision and stacking of trades in confined spaces.

So when preparing a disruption claim for a loss of productivity it is very important to consider not just immediate effects on the rate of production but also the inefficiencies of some of the secondary factors.

Disruption claims are routinely made during the course of a construction project yet they remain notoriously difficult to prove. One of the main reasons for this is that productivity losses are often extremely difficult to distinguish, as opposed to other money claims which are more directly concerned with the occurrence of a distinct and compensable event, such as an instruction for a variation during the progress of work or a properly notified compensation event.

Most claims for disruption are dealt with retrospectively and the claimant is forced to rely on contemporary records to try and establish a causal nexus for identified losses (cause & effect), which are inadequate for evidencing a loss of productivity claim.

When this happens the claimant is often forced into the situation where it advances a weak global or total cost claim to try and recover its losses. The claimant must first establish that the factor causing the disruption is compensable risk under the contract.

To do this, the contract needs to be reviewed to understand the basis of the agreement as certain productivity issues may have been foreseeable and therefore accounted for within the claimant’s productivity allowances. The contract may also identify if a party expressly accepted certain productivity risks. Common causes of disruption on projects that may lead to a loss of production include site access restrictions, unforeseen site conditions, late or incorrect design, changes in the work, labor availability, remedial/corrective work, testing/inspections, client and third party interference, changes in construction methods and adverse weather.

The primary challenges the claiming party faces in preparing a disruption claim are to identify the root cause of the loss of productivity and quantifying the associated labor and equipment productivity losses. Many methods exist to quantify a disruption claim such as the measured mile; the modified total cost approach; a time and motion study or a comparative work study.

Alternatively research data published by the Mechanical Contractor Association or the National Electrical Contractors Association on the effects of disrupted working may be utilized but care must be exercised because no one size fits all.

Productivity is normally measured as production per unit of effect or output divided by input (i.e. units/hr) or it may be expressed as input divided by output (i.e. hrs/unit). A loss of productivity occurs when it takes more labor and equipment to do the same amount of work, thereby increasing project costs. A common error made by a claiming party when preparing a disruption claim is to confuse productivity with efficiency.

Efficiency is a measure of productivity as a ratio or percentage during the affected periods. If target production is 50 units per day and actual production is 25 units per day then given the same input the efficiency of the operation would be 50%. If actual production was equal to the target production efficiency would be 100%. The efficiency formula must take into account the variable input (resources) as well as variable output (production).

For instance it is possible to increase productivity but reduce efficiency. A decrease in efficiency is often associated with one or more secondary factors unrelated to the original excusable event but which are implemented to negate or mitigate the effects of the root cause. These secondary factors include out of sequence working, multiple work fronts, new learning and unlearning curves, fatigue (overtime/shift working), dilution of supervision and stacking of trades in confined spaces.

So when preparing a disruption claim for a loss of productivity it is very important to consider not just immediate effects on the rate of production but also the inefficiencies of some of the secondary factors.

What You Should Look For In Your Claim

1. Productivity on projects carried-out under cost reimbursable contracts generally experienced productivity losses of 30% to 40%. He does not address whether he believes that time and material change order hours would inherently include such productivity losses. What has been your experience with the efficiency of time and material work?

2. Change should not include unproductive labor hours reimbursed through change orders, and other items such as support labor, overtime premiums, and site supervision. Recent experience has shown that contractors have included unproductive hours in their calculation of the percent of “change.”

3. When the contractor’s bid is more than five percent below the average of the other bids, Metropolitan adjusted the plaintiff contractor’s bid upward to equal the average of the other bids. How did the plaintiff contractor’s bid compare to the other bids on your job?

4. Prior to calculating lost productivity, Metropolitan agrees that the contractor should exclude unproductive and non-compensable hours associated with contractor inefficiencies, rework, labor disruptions and inclement weather. Has the plaintiff contractor in your case acknowledged any bid error or non-compensable costs? If not, he may have miscalculated his claim.

5. The number or quantity of change orders is NOT an accurate indication of the number of delays and disruptions.  Contractors have made the mistake of quoting the number of changes as somehow being related to the amount of delay or lost productivity.

6. Metropolitan’s document should only be used to “predict” loss of productivity when change order hours (adjusted downward per the above parameters) exceed 10% to 15% of the earned contract hours. Has your contractor used earned hours or total contract hours, or some other calculation?

7. Predictions obtained from Metropolitan’s document are approximations, which do not account for the specific circumstances of a particular job. Courts require strict proof of causation or connection between cause and effect. Based on Metropolitan’s recent experience, an increasing number of contractors are basing their loss of productivity claims solely on these studies, at the expense of proper causation analyses.

The reported purpose of this study was to quantify the cumulative impact of change orders on the labor efficiency of electrical and mechanical contractors. The research team consisted of representatives from the electrical and mechanical contracting community and other members of CII. Contractors submitted survey data from projects that were “perceived” to be over budget as a result of change orders, rather than from factors such as low estimates, unforeseen weather conditions, or poor field planning.

What to Look For In Your Claim

1. Industry experts agree that this document was prepared in such a way as to produce biased and unreasonable results, and to encourage the document’s misuse. In addition, industry experts agree that asking contractors to participate in the preparation of a document that might be used in the future by those same contractors in an effort to “validate” their claims against owners is patently unreasonable.

2. One of the fundamental bases of this document is that the respondent contractors submitted survey data to CII from selected projects that were “perceived” by the contractors to have experienced man-hour and cost growth as a result of changes and change orders, without due regard for the other potential causes of labor overruns such as bid error, mismanagement, etc. Therefore, this document appears to be based more on subjective perception than objective analysis.

3. Upon review of this document, defendant owners and their counsel will quickly discover that the single largest component used to calculate “%Delta”, or percent of lost craft labor productivity resulting from change orders, is called the “Constant.” This Constant is likely to equal 37 percent in your contractor’s claim, which means that the contractor believes that, just by handing you the claim document, you owe him an additional 37 percent of total incurred man-hour dollars. This “constant” is a product of an unreasonable and subjective data collection process.

SUMMARY

Based on our experiences in cases where we have represented both owners and contractors, combined with recent discussions and interaction with the authors of these studies, we are unaware of any state or federal law that recognizes, or relies on, these studies. In this regard, owners and their counsel should not be unduly influenced by the fact that the plaintiff contractor’s claim is based on, or relies on, such industry reference documents. Rather, counsel should insist that the plaintiff contractor support his claim with persuasive causation analyses, linking and providing the nexus between the owner’s actions or inactions and the contractor’s damages.

Contractors should not become reliant on industry studies as the basis of labor productivity claims. Rather, commercial and industrial contractors should implement labor management systems in the field, and track productivity throughout the project. Contractors should provide the owner with notice of events affecting productivity, and should work with their attorney or consultant to include the appropriate reservation of rights language in change orders. If possible, the contractor should periodically quantify compensable productivity losses and report those losses to the owner.

Perhaps more importantly, contractors should strive to understand these industry studies and confirm that the study they rely upon is consistent with the circumstances of their project. Regardless of the study, an objective assessment of the percentage of “change” should exclude change orders that could be readily incorporated into the work, and change orders issued after substantial completion.

Owners also should become familiar with labor productivity topics. Prior to issuing a change directive or change order, the owner would be advised to ask the contractor about the anticipated impact of the extra work.  Depending on the contractor’s response, the owner could elect to award the extra work to another contractor, and the owner could also confirm that all time and material change order billings include productivity losses. Finally, unless there is a compelling financial reason to the contrary, the owner would be advised to consider granting valid time extension requests, in lieu of paying related acceleration and labor productivity losses.

   
Metropolitan Engineering, Consulting & Forensics (MECF)

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HOW TO MANAGE CONSTRUCTION DISPUTES TO MINIMIZE SURETY AND CONSTRUCTION CLAIMS.  PART 4: Acceleration or Compression of the CONSTRUCTION Schedule Claims
https://sites.google.com/site/metroforensics3/acceleration-or-compression-of-the-construction-schedule-claims

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 (7^th 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. 4^th 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 (5^th 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.      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

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HOW TO MANAGE CONSTRUCTION DISPUTES TO MINIMIZE SURETY AND CONSTRUCTION CLAIMS.  PART 5: Differing Site Conditions CONSTRUCTION Claims

 

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, 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.

We indicated there that the most frequently encountered claims include:

1.    Construction Delay Claims

2.    Disruption and Loss of Labor Productivity Claims

3.    Design and Construction Defect Claims

4.    Force Majeure Claims

5.    Acceleration or Compression of the Schedule Claims

6.    Suspension, Termination and Default Claims

7.    Differing Site Conditions Claims

8.    Change Order and Extra Work Claims

9.    Cost Overrun Claims

10. Unacceptable Workmanship or Substituted Material Claims

11. Non-payment Claims (stop notice (or Notice to Withhold) claims, mechanics’ lien (only for private construction projects) and payment bond claims)

Part V of this series discusses item 7 above: Differing Site Condition Claims

The Problem

A construction bid package typically contains plans, specifications and possibly a geotechnical report.  When contractors put together bids based upon the information in the bid package, they typically have limited time to investigate site conditions and assume that the site information reflected in the bid package is generally correct and that the project can be constructed pursuant to the plans and specifications. Everyone knows, however, that construction does not always proceed as planned. All too frequently contractors encounter subsurface conditions that differ from the information contained in the geotechnical report, or other conditions in the field that differ from what was expected or shown on the plans, in ways sometimes minor and sometimes significant.

Who Bears the Risk?

As between an owner and a contractor, who bears the risk of the additional costs associated with differing site conditions? Generally, a court will first look to the contract documents; and, if they are unambiguous, the Court will assign the costs associated with the differing condition to the party to whom they are assigned by the contract. In the context of fixed price contracts, the general rule, with some exceptions, is that a contractor assumes the risk of additional costs associated with differing site conditions of which neither party was aware. In some jurisdictions, and particularly with respect to publicly-owned projects, the traditional allocation of differing site conditions risks may be altered by an owner’s misrepresentation of site conditions or concealment of site information from the contractor.

In many construction contracts, attempts to alter the common law allocation of risks are made by a variety of contract terms. Consider the possible impacts of the frequently encountered contract clauses discussed below.

Geotechnical Information Disclaimers

Some owners attempt to avoid responsibility for unexpected site conditions by including in the contract exculpatory clauses disclaiming liability for the accuracy of site condition and subsurface data presented in the contract documents or in geotechnical data made available to the contractor. For example, a standard geotechnical disclaimer might read as follows:

Subsurface information shown on these drawings was obtained solely for use in establishing design controls for the project. The accuracy of this information is not guaranteed and it is not to be construed as part of the plans governing construction of the project. It is the bidder’s responsibility to inquire of the [owner] if additional information is available, to make arrangements to review the same prior to bidding, to conduct whatever site investigation or testing may be required, and to make his own determinations as to all subsurface conditions.

Such broad exculpatory clauses are increasingly common in construction contracts. In some jurisdictions, these exculpatory clauses have been enforced by the courts to the detriment of the contractor encountering unknown site conditions. In other jurisdictions, courts have been less willing to give unqualified effect to such clauses, especially if the contract also contains a differing site conditions clause allowing for the recovery of unanticipated costs. Nevertheless, the contractor encountering such an exculpatory clause must consider at least the following:

·         A possibly contingency in its bid;

·         A pre-bid letter to the owner requesting all site information available to the owner; and

·         A site inspection which goes beyond the traditional “sight” inspection conducted by most contractors.

 

DIFFERING SITE CONDITIONS

Perhaps the most commonly occurring claims at construction sites are the so-called “differing site conditions” (DSC) claims.  There are Type I and Type II DSC claims, mostly applicable to federal government contracts.

In federal government contracting, a Type I DSC is defined as follows:

1.  The contract indicated a particular site condition;

2.  The contractor reasonably interpreted and relied on the indications;

3.  The contractor encountered latent or subsurface conditions which differed materially from those indicated in the contract; and

4.  The claimed costs were attributable solely to the differing site conditions.

As an example, the contract boring logs may indicate that the excavation for a building foundation will be entirely in overburden soil, above bedrock.  If instead the contractor encounters a substantial quantity of rock excavation, a Type 1 differing site condition was encountered.  The key element in establishing a Type 1 DSC hinges on to what extent pre-bid subsurface representations were made.  As another example of an unforeseen condition in an existing structure would be the discovery of asbestos that must be abated before the work proceeds.  Differing underground conditions are classified as either Type I or Type II.  Type I conditions are subsurface or latent conditions which differ from those on the plans or in the contract documents.  Type II conditions are unusual physical conditions which differ materially from those ordinarily encountered.

A Type I differing site condition is typically defined as subsurface or latent physical condition at the site which differs materially from conditions indicated in the contract. As its definition suggests, contractors typically expect Type I differing site conditions to be physical in nature. For example, a contractor may encounter unexpected subsurface rock formations on the project, which should have been but were not disclosed in the contract documents. Or a contractor building a road on the side of a mountain may encounter an undisclosed geological thrust fault, which requires the contractor to spend additional money installing anchors and bolts to stabilize the fault zone to prevent it from collapsing on the road.

It is important to remember, however, that Type I differing site conditions do not always have to involve these types of physical conditions. A Type I differing site condition may arise from incomplete and unfinished work by a previous contractor. Regardless of which type of physical condition gives rise to a Type I differing site condition, the terms of the contract will be the most important factor in determining whether a contractor who has encountered a Type I differing site condition is entitled to additional time or money.

If a contractor is given an opportunity to view the project site, it should do so.  If the contractor fails to visit the site before submitting its bid, it runs the risk of bearing the cost of performing additional work that was not in the plans and specifications but reasonably ascertainable on a site visit.  If you undertake a site inspection and the owner refuses to provide access to critical portions of the prospective project site, the contractor should confirm such limitations by so informing the owner.

If positive representations made proved inaccurate, the recovery potential is high. Additionally, such representations need not only be affirmatively expressed in the contract documents. If a logical deduction can be drawn or inferred from the entire contract document, such inference will in fact be construed as a positive representation.

In connection with this “inference” criteria, the issue of quantity variations potentially giving use to a DSC is worthy of note.  Although a variation from the owner’s bid estimated quantity is in itself not a DSC, if it materially deviates from what was reasonably foreseeable, a DSC may well exist.

On the other hand, in the same setting, a Type II DSC occurs where

1.  the contractor did not know about the actual condition found during performance at the site;

2.  the contractor could not reasonably have anticipated the actual condition at the site from inspection or general experience; and

3.  the actual condition varied in a material way from the norm in similar contracting work.

An example of a Type II DSC is the encountering of a high water table, when no one was expected or known, requiring very active dewatering.

Typically, to establish entitlement to recovery for a Type I differing site condition, a contractor must prove, by a preponderance of the evidence, that: The conditions indicated in the contract differ materially from those actually encountered during performance;

The conditions actually encountered were reasonably unforeseeable based on all information available to the contractor at the time of bidding;

The contractor reasonably relied upon its interpretation of the contract and contract related documents; and

The contractor was damaged as a result of the material variation between expected and encountered conditions.

Failure to prove these elements will likely result in the denial of a contractor’s differing site condition claim, which could have significant cost impacts on the contractor and result in the contractor bearing the liability for delays on the project.

It is imperative for the contractor performing work on a project to be intimately familiar with the contract documents. If a suspected differing site condition is encountered, prompt written notice is essential. If a dispute arises over whether the conditions that were encountered at the site constituted a Type I differing site condition, the board or court will resolve the issue by scrutinizing the contract documents. If those documents show that the encountered site conditions were foreseeable, the contractor’s differing site condition claim will likely fail. To the extent the contract documents are not clear in informing the contractor about the site conditions that could be expected on the project, the contractor should attempt to resolve any ambiguities before submitting its proposal. Encountering differing site conditions that could arguably be foreseeable under the contract documents may not only result in the contractor not being compensated for the extra work performed as a result of those site conditions, but it could also possibly subject the contractor to liability for causing delays on the project.

 

The AIA, state governments and private contracting entities have similar contract clauses, as the Federal Acquisition Regulations (FARs) tend to set the standard.

All federal construction contracts contain some form of a so-called equitable adjustment clause.  This clause is designed to do financial equity for contractors should they meet (for example) a DSC during contract performance. Realizing that contractors who, under the contract would otherwise be held responsible for all costs of completing the contract, even those of which no one has knowledge at bid time, would compel inclusion by bidders of large contingency figures in the bids driving up bid costs needlessly where no problems ultimately exist, the government began employing the clause in 1927.

Numerous non-federal contracts, and many subcontracts have no DSC clause, nor even an equitable adjustment clause.  Because of this, subcontractors are at financial risk and frequently contingencies are added to bids to cover the risk.  In order to reduce the extent to which contingencies are priced in the bid, subsurface conditions expected to be encountered are incorporated into the contract.  While a step in the right direction, an owner’s representing subsurface conditions will give rise to liability for incorrect data.  Make sure you include such a clause in the contract to avoid the risk of suspension, delay and disruption caused by the DSC be shifted to you.

In a contract which does not contain a DSC clause, an increased level of complexity regarding a contractor’s potential recovery for “changed conditions” exists. In general, a contractor will not have an implied right to extra costs because of a differing site condition if there is no specific contract clause addressing DSC or changed conditions.  In a case in which the owner provides subsurface information and a contractor actually encounters materially different conditions, the legal basis for recovery is along the lines of either breach of contract, misrepresentation, superior knowledge or breach of implied warranty.

In addition, just because the problem issue meets the precise tests for a DSC does not mean the contractor will prevail in a claim for a DSC.  Most of the time the owner will vigorously defend based on a number of reasons, largely consisting of failings of the contractor.  At least one scholarly paper sounds a cautionary note for contractors claiming DSCs.  In a study done at the University of Florida in 2002 entitled

“Analysis of a Type I Differing Condition Claim:  An Empirical Study to Determine Which Proof Element is Most Frequently Disputed and Which Party Interest Most Often Prevails”, found at http://www.tamu.edu/faculty/choudhury/articles/9.pdf

In that study, 101 federal court cases were analyzed.  Based on the data findings and analyses, the following conclusions are proffered.  The majority of differing site condition complications regarding a contractual dispute between the owner and contractor occur during the bidding phase.  The issue regarding whether the contractor acted in a reasonably prudent manner when interpreting the contract was the most occurring dispute element.  The proof element, contract documents contain indications of conditions to be encountered, was the second highest litigious matter to appear in the study sample, followed next by the contractor must have reasonably relied on the contract indicates. As can be concluded, the most occurring or recurring proof element disputes occur at and result from the bidding phase of a construction project.  Two of these proof elements, namely: a) acted in a reasonable manner, and b) reasonably relied on contract indicates, are concerned with a contractor processing of bid document indicates.  The fourth most frequently recurring proof element at issue is: failure to investigate site. Here again, being a bidding phase process failure, more particularly having a strong contractual relation to the disclaiming language within the contract. The fifth most disputed proof element is actual condition encountered must be reasonably unforeseeable. This proof element bifurcates into both a bidding phase analyses and an actual construction phase question.

Use of DSC clauses has spread well beyond just federal contracting. The Engineers Joint Contract Documents Committee, which had previously employed a Standard Form 23A type of DSC clause, has evolved even further. For instance, the extent to which an owner may be held liable for subsurface facilities has been altered by distinguishing between such facilities from other physical conditions.  In the case of underground facilities which were not disclosed or represented in the contract, the contractor may recover monetary compensation.  On the other hand, if the underground facility is indicated in the contract but is inaccurately indicated, the risk shifts to the contractor.

A Type I differing site condition need not always involve project site’s geotechnical conditions. Something as simple as a previous contractor’s failure to build the preceding work in accordance with the applicable building codes, which in turn prevents or hampers another contractor’s performance, could be considered a differing site condition entitling that contractor to an adjustment in the contract price. Regardless of which type of condition is encountered, it is imperative for the contractor performing work on a project to be intimately familiar with the contract documents.

If a dispute arises over whether the contractor is entitled to additional money as a result of a condition that was encountered on the project, the court will resolve the issue by scrutinizing the contract documents. If those documents show that the encountered site conditions were concealed or unforeseeable, as they were in this case, a contractor’s differing site condition claim may well succeed.

 

Significant Decision by the Federal Circuit Court of Appeals in 2014

As was stated above, the contractors lose about two thirds of these DSC claims.  A recent case law may change this trend and make it easier for the contractor to prove his case.

A recent decision by the Federal Circuit Court of Appeals represents a major triumph for contractors pursuing certain types of claims against the Federal Government. In Metcalf Construction Co. v. United States, 742 F.3d 984 (Fed. Cir. 2014), the Federal Circuit reinforced the principles underlying the Government’s implied duty of good faith and fair dealing, reversing a trial court decision that would have made it exceedingly difficult for contractors to show that the Government had breached that duty. The Federal Circuit in Metcalf also clarified that a contractor’s duty to investigate site conditions after contract award will not prevent a successful differing site conditions claim that arises from the Government’s pre-award representations.

Background

The project in Metcalf required the prime contractor to design and build 212 military housing units at the Marine Corps base in Oahu, Hawaii. The Request for Proposal ("RFP") included a geotechnical report that indicated that the soil at the site had “slight expansion potential.” The RFP indicated that the information in the soils report was “for preliminary information only,” and it required the successful bidder to conduct its own post-award site investigation. The Government stated during pre-bid questions and answers that the contract would be modified if unforeseen soil conditions were encountered.

After Metcalf Construction Company (“Metcalf”) was awarded the contract, it hired a soil consultant to investigate the site. The consultant concluded that, contrary to the RFP, the soils exhibited “moderate to high” – as opposed to merely “slight” – expansion potential. Because this heightened expansion potential could adversely affect the stability of the constructed units, the consultant made several recommendations for mitigating the soil conditions.

Metcalf immediately notified the Government of the differing condition and requested permission to follow its consultant’s recommendations. However, the Government insisted that Metcalf follow the contract’s original construction requirements. Discussions continued for over a year. Although still without an approved contract modification, Metcalf pursued its consultant’s recommendations by over-excavating and replacing the soil with imported fill. Subsequently, the Government determined there was no differing site condition and refused to pay Metcalf for the majority of the added costs associated with the issue.

Besides mitigating unanticipated expansive soils, Metcalf had to remediate certain contaminated soils at the Project site, despite the Government’s pre-award assurances that no such remediation would be necessary. Although the Government ultimately issued a change order concerning the contaminated soils, Metcalf claimed the compensation was inadequate and failed to address the costs it incurred. Metcalf also faced other disruptions and hindrances before completing the Project several months past the contract completion date.

Metcalf subsequently submitted to the Contracting Officer a claim seeking its costs associated with the expansive soils and the other issues it encountered during performance. In its claim, Metcalf argued that the Government had materially breached the contract and the implied duty of good faith and fair dealing by failing to timely investigate the findings of Metcalf’s soils consultant and interfering with Metcalf’s work. After receiving the Contracting Officer’s Final Decision denying its claim, Metcalf sued in the United States Court of Federal Claims. The Government asserted a counterclaim for liquidated damages due to Metcalf’s failure to meet the contract completion date.

Although the trial court ruled in Metcalf’s favor on certain claims, it awarded the Government more than $2.4 million in liquidated damages due to late completion of the Project. The court also ruled that the Government had not violated the implied duty of good faith and fair dealing, because the Government had not undertaken “specifically targeted action” to gain the benefit of the contract or intended to delay or hamper performance of the contract. The trial court also stated that unless at least one factor is present, “incompetence and/or the failure to cooperate or accommodate a contractor’s request do not trigger the duty of good faith and fair dealing.”

Regarding Metcalf’s differing site condition claim, the trial court ruled that the RFP’s representations regarding swell potential and contaminated soils were excused by Metcalf’s obligations to conduct a post-award site investigation. According to the court, Metcalf was entitled to rely on the Government’s representations only “for bidding purposes” and not “in performing the...project.” Metcalf therefore assumed the financial responsibility for any differing conditions encountered at the site.

The Federal Circuit Reverses

Implied Duty of Good Faith and Fair Dealing

The Federal Circuit reversed, holding that the trial court applied the wrong standard in analyzing Metcalf’s good faith and fair dealing claim. The Court held that to prevail on this claim, a contractor need not show that the Government “specifically targeted” the contractor. Rather, the contractor need show only that the Government “interfere[d] with the [contractor’s] performance” and “destroy[ed] the [contractor’s] reasonable expectations...regarding the fruits of the contract.” The Federal Circuit emphasized that “a breach of the implied duty of good faith and fair dealing does not require a violation of an express provision in the contract,” and the Court sent the case back to the trial court to determine whether these standards had been met.

Differing Site Conditions

The Federal Circuit also rejected the trial court’s conclusion that Metcalf’s post-award duty to investigate site conditions shifted the risk of any differing site conditions to Metcalf, finding that this rationale misinterpreted the contract:

Nothing in the contract's general requirements that Metcalf check the site as part of designing and building the housing units, after the contract was entered into, expressly or implicitly warned Metcalf that it could not rely on, and that instead it bore the risk of error in, the government's affirmative representations about the soil conditions. To the contrary, the government made those representations in the RFP and in pre-bid questions-and-answers for bidders' use in estimating costs and therefore in submitting bids that, if accepted, would create a binding contract. The natural meaning of the representations was that, while Metcalf would investigate conditions once the work began, it did not bear the risk of significant errors in the pre-contract assertions by the government about the subsurface site conditions.

The court examined the purpose of the standard differing site condition clause, Federal Acquisition Regulation (FAR) 52.236-2, which the court noted was intended to “take at least some of the gamble on subsurface conditions out of bidding” by enabling contractors to obtain contract modifications if they encounter differing subsurface conditions. In that regard, the Federal Circuit confirmed that provisions requiring a pre-bid site investigation (such as FAR 52.236-3(a)) have been interpreted “cautiously,” and that even those provisions do not preclude a successful differing site condition claim, as long as a reasonable pre-bid site investigation was actually performed. Similarly, the Court held that the Government could not avoid liability simply because its RFP indicated that the information was “preliminary.” The RFP and other pre-bid information had advised bidders that they would be entitled to a change order if they encountered differing conditions, and the fact that Government-provided information was “preliminary” did not shift the risk of differing conditions to Metcalf.

Metcalf’s Impact for Federal Contractors

The Metcalf case represents an important victory for federal contractors for at least two reasons. First, it reversed the Court of Federal Claims’ narrow reading of the Government’s duty of good faith and fair dealing. As a result, Metcalf opens the door for potentially viable claims based on the Government’s failure to cooperate or failure to properly administer the contract, even where the Government has not breached an express provision of the contract or “specifically targeted” the contractor.

Second, Metcalf reaffirms previous case law regarding the federal differing site conditions clause and the contractor’s duty to investigate. After Metcalf, contractors may pursue successful differing site conditions claims even when their contract contains provisions that seem to bar recovery.  For example, contracting officers will often use FAR 52.236-3, which generally requires contractors to investigate the site pre-bid, to shield the Government from liability. As Metcalf and its cited cases clarify, however, those clauses do not create a duty by the contractor to investigate conditions beyond a reasonable degree, nor do they completely shift the risks associated with differing conditions to the contractor. 

Example Case where the Court found for the Owner and Against the Contractor

A 2010 decision from the Ohio Court of Claims sets forth a dispute over whether a differing site condition claim was adequately proven, and whether the contractor had followed the contract’s notice requirements for making a differing site condition claim.  The case is Central Allied Enterprises, Inc. v. The Adjutant General’s Department (June 18, 2010), Court of Claims of Ohio No. 2007-Ohio-07841, 2010-Ohio-3229.

A state agency was having a helicopter apron rebuilt. The agency had an engineering firm assess the soil composition and prepare a report that determined that the soil was suitable for construction when brought to proper moisture conditions. The contractor read the report and walked the site prior to submitting a bid for the lump sum contract. The plans required the removal of the existing asphalt and excavation of the soil to a depth of twenty inches, to be replaced with twelve inches of aggregate topped with eight inches of new asphalt to accommodate heavier helicopters.

During construction, the contractor encountered areas of unsuitable soil which required the contractor to excavate several additional inches to reach stable soil, and replace the excavated soil with more aggregate. The contractor also layered geo-fabric with the aggregate to achieve suitable soil strength. The contractor and the owner’s engineer were unable to reach an agreement as to payment for the additional work. The contractor chose to proceed with the work to avoid delaying the project. Both the contractor and the engineer agreed that the additional costs would be reconciled by a final change order to be submitted upon completion of the project.

After substantial completion, the contractor requested the engineer to verify final quantities for the change order. The engineer did not do so, and the contractor completed its own calculations and requested the engineer to submit the proposed change order to the owner. The engineer did not respond to the request. The contractor then sued the state agency for breach of contract, unjust enrichment and constructive change order.

The Court of Claims quickly dispensed with the Type II differing site condition premise by holding that there was insufficient evidence to establish that the actual nature of the soil differed from the type of soil normally encountered during excavation in that part of Ohio. The court relied upon the engineer’s soils report which stated that all soil values were typical of glaciated deposits found in the area.

With respect to a Type I differing site condition claim, the court held that the conditions encountered by the contractor were not materially different from those outlined in the contract, and that the actual conditions were reasonably foreseeable.  The court based its conclusion on the soils report, the presence of standing water in various areas of the apron on the day of the pre-bid meeting, the engineer’s inclusion of catch basins and a detention pond to facilitate drainage, and the inclusion of geo-fabric in the design.  These factors provided notice to the bidders that there were excessive moisture and drainage problems in the subsoil.

Notice for a change order

According to legal precedence, when a construction contract provides that altered or extra work must be ordered in writing, the provision is binding upon the parties to the contract. The contractor cannot recover for such work unless a written directive (change order) is executed in compliance with the contract, unless waived.

The contract in this case provided a Change Order Procedure which prohibited the contractor from proceeding with any change in the work without written authorization. Whenever the contractor seeks additional compensation for causes arising out of or related to the project, the contractor has to follow the contract procedures, including providing timely notice. Under this contract, the contractor was required to make a written claim with the engineer prior to contract completion and no more than 10 days after the initial occurrence of the facts giving rise to the claim for additional costs. When it comes to notice provisions, the contractor should always follow the letter of the contract.

The court found that the contractor failed to submit a written change order to the engineer or to the owner prior to the contractor’s completion of the project. The court rejected the contractor’s argument that the notice provision was waived when the engineer agreed with the contractor’s decision to proceed with the work and to submit a final change order at the completion of the project. There must be a clear and unequivocal act demonstrating the owner’s intent to waive the contractual notice, change order and claim review requirements.

Constructive change order

A claim for a constructive change order may have been sustained by the court if the owner had independent knowledge of the condition complained of and had oral notice of the contractor’s complaint, and the owner was not prejudiced by lack of prior written notice. In this case, however, the contractor had communicated only with the engineer regarding the differing site conditions, and had not documented these communications. The contractor had failed to submit a formal written change order to the engineer or to the owner within the time permitted by contract or even within a reasonable period of time.

When a contractor has missed a contractual notice deadline, the contractor should continue written communications to the owner and the owner’s representative addressing the disputed issue. Even when there has been no response from the owner or owner’s representative, the contractor should not remain silent.

Central Allied Enterprises, Inc. v. The Adjutant General’s Department (June 18, 2010), Court of Claims of Ohio No. 2007-Ohio-07841, 2010-Ohio-3229.

Tips and Misc. Case Law on DSC

A common mistake to avoid is appealing denial of a claim for contract interpretation that does not include a separate monetary claim for consideration by the contracting officer. The Board lacks jurisdiction over any request for monetary relief found in the complaint for an appeal. See Dick Pacific/GHEMM, JV, ASBCA No. 55829, 08-2 BCA ¶ 33,937 (portions of complaint stricken as claim did not include a request for release of withholdings or liquidated damages).

Liquidated Damages Construction Claims. When the government asserts liquidated damages against you, a question arises as to whether you must obtain a contracting officer’s final determination. The government does not have to “certify” its own claim against a contractor. An experienced government construction claims appeal lawyer should assert that there is sufficient jurisdiction because  the contracting officer made a final decision on the government construction claim asserting liquidated damages and you filed a timely appeal from that final decision. See  Placeway Construction Corp. v. United States, 920 F.2d 903, 906-07 (Fed. Cir. 1990); cf. M. Maropakis Carpentry, Inc. v. United States, 609 F.3d 1323 (Fed. Cir. 2010) (contractor’s separate claims for time extensions and  related contract modifications had to be certified); Sikorsky Aircraft Corp. v. United States, 102 Fed. Cl. 38, 47-48 (2011).

When the government assesses construction claims against you, you want to also present facts that any causes of damages were not due to a situation that is your fault or within your control.

Project Solutions Group v. DOT, CBCA 3411 (Oct. 23, 2013) (nonprecedential; excessively high relative humidity levels at installation site for new flooring were not differing site condition but likely were caused by fact that contractor repeatedly watered the area to keep down the dust)

Drennon Construction & Consulting, Inc.. v. Dept. of Int., CBCA 2393 (Jan. 4, 2013) (defective specifications and differing site condition made resulting period of suspension of work unreasonable per se)

D&M Grading, Inc. v. Dept. of Agr., CBCA 2625 (Apr. 24, 2012) (upholds Default termination because conditions encountered by contractor under roadway vegetation maintenance contract did not amount to Type I or Type II Differing Site Condition)

JRS Management v. DOJ, CBCA 2475 (Mar. 1, 2012) (dismisses appeal for lack of jurisdiction (no contract) because contractor responded to government order for services by announcing it was substituting different individual from the one specified in the order, thus making a counteroffer the Government refused to accept)

Beyley Constr. Group Corp. v. Dept. of Veterans Affairs, CBCA 5, 763 (July 23, 2007) (differing site conditions, constructive change)

Instability of a highway embankment was held to be an unusual soil condition entitling the contractor to an equitable adjustment under the Differing Site Condition Clause. Paul N. Howard Co. v. Puerto Rico Aqueduct Sewer Authority, 744 F. 2d 880 (1st Cir. 1984)

Additional Practical Tips

An assessment of the contractual allocation of risks should be performed before a bid is submitted to answer questions such as:

Is there a DSC clause in the contract?

Are the boring logs (and other geotechnical data) part of the contract?

Are there exculpatory clauses wherein the owner denies responsibility for incorrect subsurface conditions?

These are but a few of the questions a prudent contractor will address in the course of bid preparation.

Site Inspection

In the process of establishing the basis of recovery for a DSC, a contractor should show that a site inspection would not have disclosed the conditions encountered. Regardless of the representations (or lack of) made in the contract, the necessity to perform a reasonable site inspection is vital. Quite obviously, a contractor will not be held responsible to perform numerous borings (or other investigations) during the usual short bid period. However, a contractor will be expected to ascertain, to the extent possible, subsurface conditions from a reasonably conducted site visit. If conditions are discernable from the site visit (particularly if they contradict the “represented data”), the contractor should take such information into account. This relates back to whether (or not) a site investigation would have allowed the contractor to ascertain the actual conditions encountered. If the actual conditions could not be reasonably discovered, the contractor stands a better chance to recover.

Even in situations where the owner includes all subsurface information in the bidding documents and makes no attempt to disclaim responsibility for the information provided, contactors cannot rest easy. In Foster Construction C.A. and Williams Brothers Company, A Joint Venture v. The United States the U.S. Court of Claims ruled that:

“The contractor is unable to rely on contract indications of the subsurface only where relatively simple inquiries might have revealed contrary conditions.”

For example, in a highway project where the subsurface investigation report contains 30 borings to a depth of 45 feet (and the deepest cut on the drawings is approximately 25 feet) all of which show no groundwater, bidders may not be able to rely on the lack of indication of groundwater.  If the contractor could have, for example, reviewed and determined from the local Soil Conservation Service office that groundwater records show that at certain times of the year groundwater levels rose to within three meters of the surface, then bidders cannot rely upon the bidding information when preparing their bids.

Similarly, if a pre-bid site walk would have revealed the condition, even though it was not shown in the geotechnical report, then the contactor cannot rely exclusively on the bidding information.

Timely Notification

The most substantial roadblock to recovery of a DSC claim is failure to provide notification. Contracts often contain a notification requirement, particularly with regard to DSC, and have even required that the uncovered unknown subsurface conditions remain undisturbed until investigated by the owner. Failure to strictly adhere to these notice requirements can foreclose a contractor’s recovery for an otherwise valid DSC claim. This procedure is necessary to afford the owner the opportunity to modify and alter the design or performance requirements and thereby minimize and mitigate the actual effects of the DSC.

Root Causes of Most Construction Claims

·         Lack of Communication

·         Misinterpretation of plans, specs or directions

·         Plan errors / Poorly coordinated contract drawings

·         Poor Project Management

·         Lack of Familiarity with Specifications

·         Impacts of Third parties (damage to your work, delays, utilities, etc.)

·         Changes in work scope

·         Unknown / Differing Site Conditions

·         Work Interruptions (Loss of Productivity)

·         Project Acceleration / Delay

Steps to Avoid Construction Claims

1.    Thoroughly Review Your Contract / Plans

2.    Properly Plan / Manage your Project

·            Including detailed schedules with critical dates, constraints and critical tasks

·            Be able to show how you planned to do work, equipment needed, man-hours, etc.

3.    Track your own work Progress

·            Are you On Schedule, ahead, or already behind, etc.?

·            Have you documented any delays/impacts to your schedule?

4.    Keep Good Records

·         Document, Document, Document

·         Photos, time logs, foreman reports, engineers' inspection records, etc.

5.    Constant Communication

·         Confirm things in writing, respond to communication promptly (one way or the other)

·         Never Assume things when it comes to contract work

·         Ask questions before starting extra work, confirm scope and payment in writing.

6.    Always attempt to Resolve Disputes Early

·         Average time to resolve a claim is often over 15 months.

Avoid Five Costly Mistakes Made By Government Construction Contractors

Although not intentional, contractors tend to make the following mistakes which can cost them thousands or millions in construction projects.

Failure to understand how the various FAR clauses impact your ability to have equal footing with the agency.  Federal contracts are primarily written for the benefit of the agency.  Having your people trained in the various clauses can save the company a substantial amount of money.

Not understanding the difference between a Request for Equitable Adjustment and a CDA claim.  There is a difference between the two. Having a government construction lawyer to guide you around the lurking pitfalls can also save you thousands in unnecessary attorney fees.

Failures to submit a construction claim that meets the CDA requirements. Both small and large contractors make fatal procedural and substantive errors then submitting their claims. See information on Contract Disputes Act and Pass Through Claims. There are statutory requirements that you must meet including getting the contracting officer’s final decision. Failure to meet them can create delays and even rejection.

Not understanding what constitutes a Contracting Officer’s final decision. Your construction claim must have a CO’s final decision before you can appeal to the Court of Federal Claims or Board of Contract appeals.

Failure to properly address cure notices. When a contracting agency believes that you are a performance risk, a cure notice is forthcoming.

Prepare, Negotiate and Litigate Construction Claims in Federal projects allow contracting officers (COs) great latitude in resolving disputes. However, you may often find your company trying to negotiate a claim that you know has merit.

Avoid Costly Pitfalls With Requests for Equitable Adjustment Claims: An important part of the government construction claims process is understanding the nuances between a CDA claim and a Request for Equitable Adjustment. Develop Internal Policies and Controls: Given the mandated increased oversight on federal contractors, both small and large companies are targeted for audits and investigations.

Get Help With Government Construction Proposal Writing: Bidding on government contracts is very tough business. Whether you are writing proposals for Army Corps Projects, Navy projects or for another agency, you want to strengthen your technical proposals, construction bid bond submissions and management approaches.

Federal Construction Contracting for Small Businesses: The laws associated with government contracting include a wide array of complex regulations that dictate how you perform. For example, small businesses are restricted to certain guidelines under teaming agreements and joint venture contracts.  Issues arise concerning SBA size standards and limitation in subcontracting requirements. At the law office of Watson & Associates our government construction law attorneys provide legal advice on matters pertaining to:

·         Prime and subcontracting agreements

·         Size standard disputes

·         Subcontracting plans

·         Teaming agreements

·         Joint venture agreements

·         Filing construction claims

·         Addressing construction defect disputes

 

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/

We are happy to announce the launch of our twitter account. Please make sure to follow us at @MetropForensics or @metroforensics1

Metropolitan appreciates your business.

Feel free to recommend our services to your friends and colleagues.

Metropolitan has been engaged by design-build engineering firms, general contractors, and specialty subcontractors to prepare and substantiate differing site conditions claims and has been engaged by project owners and public agencies to evaluate claims submitted by contractors.  Metropolitan has in-house multidisciplinary expertise of engineers, geologists, construction management professionals, and schedulers to analyze all aspects of DSC claims.  The results of our development and evaluation of DSC claims have been presented in discussions with our clients, written reports, and testimony at review board hearings, arbitrations, mediations, and trials.

In general, Metropolitan has expertise to evaluate issues related to:

·         Entitlement (technical merits of claim)

·         Cost analysis 

·         Delay impacts

·         Disruption

·         Productivity Loss

·         Acceleration

·         Design defects

·         Construction defects

In Metropolitan’s evaluations of entitlement, our engineering and construction professionals have used their education, training, and expertise to address issues related to the following types of site conditions: 

·         Excavation and trench failure 

·         Embankment failure 

·         Pile-driving refusal  

·         Rock suitability for drilled shafts 

·         Import fill suitability 

·         Borrow source characterization 

·         Unsuitable material 

·         Subgrade suitability 

·         Embankment/subgrade R-value 

·         Construction equipment mobility  

·         “Pumping” and “rutting” of subgrade 

·         Expansive soil 

·         Collapsible soil 

·         Liquefiable soil 

·         Cobbles and boulders (particle size) 

·         “Running ground” 

·         Sinkholes 

·         Excessive ground moisture 

·         Groundwater and seepage 

·         Groundwater pumping rates and volumes 

·         Rock rippability 

·         Back-cut slope stability 

·         Unmapped landslides 

·         Faults  

·         Ground fissures 

·         Hazardous materials (naturally occurring and man-made)