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:
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
Delay is one of most
common problems in construction projects resulting in construction disputes and
claims. Basically delay is the time overrun either beyond the completion date
specified in the contract or beyond the agreed-upon date for delivery of the
project. Most large projects are
completed later than these agreed-upon dates for a number of reasons. These delays can have severe financial impact
on the project. Basically delays are a
net loss situation: All the parties lose
one way or the other and there are no real winners. Reputations are at stake as well.
When disputes erupt, delay
claims may be filed, unless compromises are reached. To recover the damage caused by delays,
both the delays and the parties responsible for them should be identified. However, delay situations are complex in
nature because multiple delays can occur concurrently and can be caused by more
than one party, or by none of the principal parties (force majeure, etc.). As a
result contract schedule and payment dispute are becoming two most common items
of dispute during the construction phase.
What is Delay Analysis?
Delay Analysis is an investigation (usually forensic)
into what has caused the project to run late and who is responsible for the
delay events. Delay analysis is
performed in three steps:
1. Investigation Phase
(evidence collection);
2. Description Phase
(analysis of facts collected during phase one);
3. Presentation of the
case to an arbitrator or jury to prove the claim
Most of these delay
claims reach the expert after completion of the project. The analysis of the delay impact with the
causes and effects of the delaying activities is one of the most complicated
types of claims analysis. It requires an
expert with extensive knowledge of construction projects, means and methods,
scheduling and the ability to develop a sound methodology to conduct the
analysis. This results in interviews
with the parties, a detailed intensive review and research of the documents to
verify schedules, events, sequence of work, changes during construction and the
delay impact.
Organizational Chart
This article will
address these challenges and the various delay analysis methods.
Common Causes of Delays in Construction Projects
Below is a list of
common delay causes encountered on construction projects. One of the complications of a delay analysis
is that the delays can be caused by few of these listed causes or by concurrent
causes or a complex mix of these causes running concurrently or in sequence. The time of their occurrence and who caused
what delay add to the difficulty of the analysis.
Errors and omissions
in the contract documents:
·
Missing
information.
·
Not
having a phasing plan in the bid documents when the site work has to be done in
phases.
·
Conflicting
information that need design revisions.
Contractor caused
delays for reasons under their control:
·
Not
having enough labor force on site.
·
Contractual
problems between the prime contractor and subcontractors.
·
Cash
flow issues.
·
Lack
of proper planning and management of the project.
Delays for reasons
beyond the contractor or owner’s control:
·
Strikes
·
Out
of state manufacturer’s shut down.
·
A
subcontractor going out of business in the middle of the project.
·
Unusual
weather conditions.
Owner caused delays
for reasons under their control:
·
Scope
changes.
·
Limiting
contractor’s access to parts of the site.
·
Cash
flow.
·
Late
processing of contractor’s requests for clarifications and change orders.
·
A
higher level political factor that impacted the project’s progress.
Personality conflicts
between the project’s team.
·
Unfortunately,
sometimes this factor results in the team making things difficult on site that
cause delays. In this case each party blames the other for the delay.
One of the main steps
in the owner delay analysis is to research the project’s documents to identify
causes like the ones listed above that delayed the project. The methodology used to determine the impact
of these factors is the heart of the difficulty of this type of analysis. To better understand the level of difficulty
involved, please note the following basic concepts that have to be factored in:
Construction delay analysis
Types of Delays
Construction project delays can be classified according
to their origin into four groups:
1. Excusable
compensable (caused by the owner): For example, owner initiated changes in
work; architect or engineer supplied designs which are defective; work site is
not available to the contractor in timely manner, etc.
2. Excusable but not
compensable (neither the contractor's nor the owner's fault): For example, force
majeure; unusually severe weather conditions, etc.
3. Neither excusable
nor compensable (caused by the contractor or its subcontractor): For example, failure
of the contractor to mobilize work crews and start the work in timely manner;
improperly allocating labor, material, and other resources; lack of
coordination of subcontractors, etc.
4. Concurrent (delay
caused by multiple factors)
Excusable and
Non-Excusable Delays
Excusable delays
simply mean delays that are unforeseeable, beyond the control of the contractor
and they occur at no fault to the contractor. In this case a time extension is owed to the
contractor or a compensation if the delay caused him money. Excusable delays can be further classified
into compensable and non-compensable. Non-excusable
delays are delays due to the contractor’s fault and are within the control of
the contractor. The distinction
between these two is significant in that it determines which party is liable
for the delay. Similarly, it also
dictates whether or not a contractor would be entitled to a time extension and
possibly if the contractor would be entitled to compensation for that time
extension. A Non-Compensable
Delay normally encompasses such things as strikes, unusually severe
weather, acts of God, fires, floods, etc.
A detailed revision of the contract’s terms and conditions is critical
to properly classify the type of each delay identified in the analysis.
Compensable and
Non-Compensable Delays
Compensable delays
are delays where the delayed party is owed money to compensate for the loss due
to the delay. Normally a
compensable delay is caused by the owner. It may be caused by a direct change,
it may be caused by a suspension of work, or it may be caused by any of the
constructive changes. For a contractor to request both a time extension and
compensation for that time extension, he must demonstrate that the owner was
the cause of that delay.
Non-compensable delay
is a delay where a time extension is owed but no compensation is owed to the
delayed party. For example, some
contracts specify that delays due to reasons beyond the control of the owner
and the contractor are delays where a time extension is granted but no
compensation is paid to the delayed party. The theory is that neither the contractor
nor the owner has control over the Non-Compensable Delay. Therefore, both
parties assume their own additional costs. The contractor absorbs his delay
costs for being out on the project longer and the Federal owner absorbs its
cost normally in the form of the liquidated damages by granting a time
extension to the contractor and extending the contract. One might consider it a
form of a non-fault approach to delays. Neither party can control them and both
parties accept any extra cost resulting from them. A good understanding
of the contract terms is critical to the expert analyzing the delay claim.
Concurrent Delays
Concurrent, Owner and Contractor Delays
Some analysts simply
list the delays, calculate the number of days for each delay, add them up and
claim the total as the total number of delay days. This is far from being an accurate analysis.
The timing of each of these delays is important. We may have three delay causes that occurred
during overlapping time periods or within the same period. The schedule and the actual site events have
to be examined at the start date of each one of these delays to analyze its
impact. We may find that only one of the
three concurrent delays had an impact on the critical path of the project. After plugging that in the updated schedule,
we can find out the new completion date of the whole schedule.
Critical Path Method;
Critical, Non-Critical Delays and Float
The project
activities in a schedule are 2 types, critical and non-critical. The non-critical
activities have certain number of days (called “float”) where the activity can
be delayed without delaying the whole project.
For example five days float means that the activity can be delayed up to
five days without delaying the whole project.
The critical path can
be defined as the series of activities with the longest extended duration
representing the shortest time within which the project can be completed if the
construction proceeds as planned. The critical
activities have zero or less float which means that each day of delay will
delay the whole project by one day.
A schedule normally
shows a list of construction activities and durations for each activity, joined
together by "logical relationships." An activity can be any portion
of the planned work. Clearing, excavation, foundation, framing and roofing
would be examples. The duration is the expected length of time required for
each activity. The logical relationships between activities would identify
"predecessor activities" that must be complete before another
activity can begin and "successor activities" that must follow other
activities
Determining which
activities are critical and non-critical depends on the durations and logic of
the sequence of activities. Rebuilding
the schedule after the fact, determining which activities are critical and
which ones are non-critical and establishing the logic, which usually changes
through the project, takes a highly technical research of the documents. Some
assumptions and judgments may have to be taken during the analysis.
Application of the CPM to the Delay Dispute or Claim
Over the years, the
courts have rendered a number of decisions that clearly indicate that CPM based
scheduling delay analysis is the preferred method to analyze delay claims and
assign each parties responsibility for the delay. The California courts have
held that a bar chart can be used, but it must include some form of critical
path analysis. (See Howard Contracting v. MacDonald Contracting (1998)
71 Cal. App. 4th 38) In addition, the better drafted construction
contracts dictate that a CPM based schedule is the only evidence that will be
accepted to establish a delay.
As earlier article
have stated, four tests must be satisfied before recovery for delay costs will
be allowed— a contractor must prove that the delay was (1) excusable, (2)
compensable, (3) critical, and (4) non-concurrent. The third and fourth tests
require some form of CPM based schedule analysis.
In Wilner v.
United States (23 Cl. Ct. 241, 245 (1991)) the U.S. Court of Claims
discussed in detail the necessity for, and value of, critical path analysis in
order for plaintiff to prove a delay claim. The Court stated:
Each subproject is
identified and classified as to the duration and precedence of the work. (E.g.,
one could not carpet an area until the flooring is down and the flooring cannot
be completed until the underlying electrical and telephone conduits are
installed.) The data is then analyzed, usually by computer, to determine the
most efficient schedule for the entire project. Many subprojects may be
performed at any time within a given period without any effect on the
completion of the entire project. However, some items of work are given no
leeway and must be performed on schedule; otherwise, the entire project will be
delayed. These latter items of work are on the "critical path." A
delay, or acceleration, of work along the critical path will affect the entire
project.
In the another U.S.
Court of Claims case, (G.M. Shupe, Inc. v. United States, 5 Cl. Ct. 662,
728-30 (1984)) the Court stated:
A requisite for
government liability for the consequences of a critical path delay is fault on
the part of the Government. Courts will deny recovery where the delays [of the
Government and the contractor] are concurrent and the contractor has not
established its delay apart from that attributable to the government.
There are four
primary methods of analyzing a delay claim using a CPM schedule. All four
methods rely on some comparison of the as-planned schedule to the actual
as-built schedule or events. Two methods are primarily used after the project
is completed and two methods are used during the course of construction.
The first approach
requires a determination of which events the other party is responsible for and
then removing them from the as-built schedule by manipulating the scheduling
software. In essence, delays caused by the owner are removed from the schedule
then a comparison is made to the as-planned schedules completion date. This
method is used after the project is completed. If the collapsed as-built
completion indicates that the collapsed project completion date is equal or
less than the as-planned schedule the owner is responsible for the delays. This
method is referred to as the “collapsed” as-built schedule method.
The second method
involves a selection of specific time periods when major delays occurred for an
“as-planned” versus “as-built” comparison. Rather simply collapsing out the owner caused
delays, this approach involves a more in depth analysis of how each delay
period impacted the critical path activities. Once an analysis of the first
major delay is made, then those conclusions become the baseline for determining
how the subsequent delays impacted the project. This approach is used after the project is
completed.
The third method
involves modifying the “as-planned” schedule. The method involves either
modifying the as-planned schedule by modifying the schedule to reflect the
critical delays for which the owner is responsible or alternatively by
modifying the schedule to reflect the critical delays for which the contractor
is responsible. A comparison of the original “as-planned” schedule to the
modified schedule should indicate the number of additional days that are
attributable to the owner. This method is typically used before a project is
completed. It should be noted that the courts have questioned the validity of
such an approach since it fails to accurately measure the impact of the delays
on the critical path.
The fourth method
involves the use of fragnets, which are fragments of a CPM network. In
essence, new partial CPM networks are created for the periods or events that
are being evaluated. Once the fragmented portion of the schedule is completed,
it is then added into the current “as-built” schedule. At which point, an
evaluation of the delay can be made in relationship to the ongoing activities.
The fragnet approach is typically used during the course of construction.
Before a court will
accept whatever method is chosen, the proponent of the analysis method must be
able to establish that the approach identifies how the delay impacted the
actual completion of the project. By
definition, only those delays which delay the actual completion of the project
are on the critical path.
Using Critical Path
Method scheduling (CPM) provides analysts the needed tools to conduct a proper
analysis. To understand the tremendous
advantage of having CPM technology, please allow me to give you a brief idea
about basic principles of CPM scheduling.
Prior to CPM
scheduling, owners, contractors and any other businesses that needed schedules
like large manufacturers used scheduling techniques where activities were
listed and the sequence identified but the activities were not tied by logical
relationships. Therefore, any delay or change of schedule needed reconstruction
of the whole schedule. So, if we have a large schedule with hundreds of
activities, you can imagine the cumbersome process of updating the schedule,
say at 75% of the project or identifying the impact of a delay on the schedule.
The CPM method and
the relevant software give the user the ability to tie the schedule’s
activities by logic relationships. For example:
·
Activity
B shall start when activity A is completed.
·
Activity
C can start only when A and B are completed.
·
Activity
D will start 5 days after activity A starts.
A scheduler builds a
schedule by performing the following basic steps:
·
Define
the activities.
·
Assign
durations for each of the activities.
·
Identify
the predecessor and successor activities.
·
Allocate
the proper relationships similar to the described above.
·
The
software automatically performs the CPM calculations, displays the schedule,
gives you the completion date and identifies the critical and non-critical
activities.
The CPM scheduling
method helps the user do the following:
·
Update
the schedule and clearly note the change of the completion date.
·
Manipulate
the relationships and duration of activities to change the logic of the
schedule to recover a delay and bring back the completion date to a desired
date.
·
Insert
a delay factor to an activity and immediately read the new completion date.
·
Identify
the critical activities. These are the activities that don’t have any room
(float) for any delays. A 3 days delay on a critical activity delays the whole
project by 3 days unless the revised logic of the schedule dictates otherwise.
·
Identify
non critical activities. These activities have different amounts of float. A
float of 20 days means that this activity can be delayed up to 20 days without
impacting the whole schedule.
When the first
submitted schedule is approved, it is considered a base schedule for future
updates and delay analysis. That means the project manager needs to carefully
review the schedule and the critical path prior to approving the schedule. Some
of the elements that need careful review are:
·
Verify
that the start and completion dates of the whole project match the contract
dates.
·
Check
that the assigned durations are realistic.
·
Review
the logical ties between the activities.
·
Look
through the critical path and check what activities are critical.
·
If
the schedule show the phasing required.
Delay Analysis Methods
Having introduced all
these basic concepts related to delay analysis, please note below the different
methods that are commonly used to analyze delays:
·
As-Planned
vs. As-Built method; this is a
retrospective and actual fact-based analysis;
·
Impacted
As-Planned method; this is a perspective method and is a theory-based one;
·
Collapsed
As-built or “But for” method; this is a retrospective method, also
theory-based;
·
Window
analysis method; this is a retrospective and actual-fact based method;
·
As-Built
method
·
Contemporaneous
method; this is a retrospective and actual-fact based method;
·
Time
impacted analysis method; this is a perspective and actual-fact based method;
·
As
planned but-for method; this is a perspective and theory based method;
·
Net
impact method; this is a retrospective and theory-based method;
·
Global
impact method; this is a retrospective and theory-based method
The
Global Impact and Net Impact approaches are considered completely illegitimate
techniques, and if used to claim a time extension, should be rejected on grounds
that they make conclusions on the effect of delays without considering any project
logic. The remaining six techniques all
use the CPM approach to scheduling, although some techniques use it more
efficiently than others do.
As-Planned Vs.
As-Built Method
The analyst compares
the dates and durations of selected activities shown on the as-planned schedule
with the actual dates and durations on an as-built schedule and considers the
difference to be the delay on the job.
The main advantage of this method is that it is simple to understand,
easy to use, simple and inexpensive.
However, this is a very simplistic view of the delay claim because it
ignores the following important factors:
·
The
cause of the delays.
·
The
timing of the individual delays and their impact on the schedule to be able to
attribute the correct amount of delay days to the right responsible party.
·
It
ignores the impact of concurrent delays; it cannot handle complex delay
situations.
·
It
ignores the fact that the logic and sequence of the as-planned schedule may
have changed through the project due to numerous delaying factors.
Impacted As-Planned
Method
In this method the
analyst lists the excusable delays (or delays where time extension is owed to
the contractor) and inserts the extended duration to the relevant activities. The analyst reads the revised completion date
and calculated the days between this date and the as-planned completion date
and determines that these are the number of days owed to the contractor. This method can be used to show the potential
delaying effect of the owner’s delay, or contractor’s delay, or both
together. It can also be used for
what-if analysis to predict possible delays.
The sources of error
in this method are:
·
It
ignores the actual as-built schedule and events on site.
·
If
the delay events are added to the planned schedule in a different order,
different conclusions can be drawn.
·
It
assumes that the logic of the as-planned schedule reflect the reality on site.
·
It
requires an accurate and realistic as-planned baseline schedule.
·
It
ignores the inexcusable delays that may have been concurrent to some of these
inserted delays which impacts the number of days owed to the contractor.
·
Since
the analyst is only using the as-planned schedule, this method doesn’t
incorporate changes in logic and out of sequence work.
Global Impact Method
This
method requires
planned schedule (not necessary based on Critical Path Method), list of
delay
events caused by one party (owner, for example) with known durations.
It is a retrospective schedule impact analysis
technique that plots all delays on an as-built bar chart, equating the
total
delay to be the sum total of the durations of all delaying events. The
application procedure is as follows: the owner-caused delay periods are
simply added to the end of the
planned completion date, and then the actual completion date is compared
with a
calculated date. If the latter is equal
or later than actual completion date, the contractor is entitled to full
extension of time.
The advantages of this
method are that it is simple to use and no CMP is required.
The disadvantages are that
concurrent delays are ignored in this method; the types of delays are also
ignored; and it assumes that all delays affect project completion.
Net Impact Method
This method is the same as Global Impact Method except here we are also considering the issue of
concurrency of delays. It is a retrospective schedule impact analysis technique
that attempts to justify time extension by showing all delaying events on an
as-built bar chart, claiming total project delay is the claim for time
extension. The method requires planned schedule and a list of delay events caused
by one party. If two or more listed
events happened at the same time, only the longest one is considered.
Calculations procedure is the same as for Global Impact Method.
As-planned “But-For” Method
Set of delay events related to one party is added into
the planned baseline program, and then the impacted completion date is compared
with the as-built completion date, and the difference is said to be how much
earlier the project could have finished but for all other events (imposed by
the other party) but which have not been analyzed.
Advantages:
• No need to consider
actual progress of works (only completion date);
• Can be used to show delaying effects for different types of delay;
Disadvantages:
• Requires an
accurate and realistic As-planned program;
• Requires all
information to be analyzed at one time;
• It is a theoretical investigation;
• Drawn conclusions are different depending on perspective of analysis
Collapsed As-Built
“But For” Method
In this method the
analyst takes the actual as-built schedule and takes out the duration of all
the excusable delays (delays rightfully owed to the contractor). This revision
forms the collapsed as-built schedule. The analyst reads the completion date on
the collapsed as-built schedule and considers this date to be the completion
date of the project had the contractor not been delayed. The analyst calculates
the days between the collapsed as-built and the completion date from the
as-built schedule and considers these days to be the days owed to the
contractor. The sources of error in this method are:
·
It
depends on the as-built schedule to be accurate.
·
The
excusable delays removed from the as-built schedule are assumed to be excusable
without a complete analysis of these delays, the causes and concurrencies. That
means subjective assumptions and judgments have been taken and need to be
examined.
·
It
doesn’t factor in how the sequence of operation changed, any acceleration that
took place, any recovery that took place because the as-built schedule is a
representation of what really happened on site without addressing causes and
effects of delays along the way.
·
In
some cases, where an as-built schedule does not exist, the analyst recreates
the as-built schedule based on his/her research. This product does not reflect
the planned logic of activities or the planned critical path.
Window Analysis
Method
The method follows
the same basic philosophy as the as-planned versus as-built method. This method is based on analyzing the delay
over the entire schedule dividing it to windows with a selected duration, most
commonly used is monthly. The analyst looks at the activities within the
selected window, updates the activities incorporating the delays within the
selected window. Updating the selected window changes the as-planned schedule
to an as-built schedule up to the end date of the selected window and becomes
the basis for projecting the remaining activities from the end of the window to
the completion of the project. The sources of error in this method are:
·
Need
to have accurate as-built information on the start and finish dates of the
windows.
·
The
original base schedule has to be accurate.
·
There
may be delaying activities outside the selected window that have an impact.
Time Impact Analysis
Time Impact
Analysis
This method is a combination of the window technique
and as-planned impact method. It concentrates on delay events and applies them
to as-planned model on window by window.
The major distinction between the windows/snapshot and the time impact
analysis is that the former is a retrospective analysis looking back at what
actually happened and the latter is a prospective analysis looking into the
future and assessing what might have happened in terms of delay. The Window and Time Impact Analysis share
almost same advantages and limitations.
Advantages:
·
Methods are dealing with changes in project
planning and execution;
·
Can be used during the currency of the works as
well as for retrospective analysis;
·
Consequential
delays, concurrency, criticality, and acceleration are taken into account;
·
The paucity of activities in each “window” makes
analysis easier and results more convincing;
Conditions
and Disadvantages:
·
As each “Window” must be updated regularly complete
detailed records are needed;
·
Choosing the impact period is subjective;
·
Complexity.
Window Analysis Method
As-Built Method
This method is used
in the absence of reliable schedules on the job. In this case the analyst
recreates a schedule based on actual information. The analyst determines the
logical ties between the activities to form a retrospective schedule which
becomes the basis for analyzing the effect of the delays. Durations are given
to the activities based on reasonable time to finish the various activities.
The delays are then inserted in the newly created schedule and then compared
with the actual as-built durations to calculate the number of delay days. The
sources of error in the method:
·
The
analyst has to be very experienced in construction means and methods.
·
There
is a lot of judgment calls by the analyst that need to be examined.
As-built but-for schedule analysis
Contemporaneous
Method
This is usually the
preferred method of analyzing delays. In this method, the analyst takes a look
at the schedule and actual site progress on the starting date of each delay,
and then inserts the delays in the schedule. The new completion date is compared to the
original completion date to determine the delay days. This way the impact of
concurrent delays is incorporated, the new critical path reflects reality on
site and effect of the delaying causes. The sources of error in this method:
·
Having
good documentation to reflect the actual site progress.
·
Accurate
schedule updates.
As a conclusion, the
analyst has to select the method to use. Each one has its advantages and problems. Sometimes the nature of the case, available
time, documents availability or budget consideration influence the method
selection.
Required
Evidence to Prove the Claim
Delay claims are
based in part on cost accounting concepts. Construction costs can be either
direct or indirect. Direct costs can be tied directly to a project (e.g. labor)
while indirect costs e.g. home office overhead) maybe allocated to several
projects. Construction costs can also be described in cost accounting terms as
either fixed or variable. Variable costs can generally increase or decrease in
relationship to amount of work (e.g. on site supervisor). Fixed costs remain
the same even though the amount of work may fluctuate (e.g. home office
overhead).
In a case entitled Howard Contracting, Inc. v. G.A. Macdonald
Construction Co., Inc., the California Supreme Court has effectively held
that a subcontractor can recover damages for cost overruns caused by delays and
disruption even though a City's prime contract barred the recovery of such
claims. The case is significant for several reasons. First, it emphasizes the
statewide public work contract prohibition against "no damage for
delay" clauses. Second, the Court's holding also emphasizes that in every
construction contract, the law implies a covenant that the owner will provide
the contractor timely access to the project site to facilitate performance of
work. Third, the courts have concluded that, as a matter of law, a general
contractor can prosecute a subcontractor's "pass-through" claims
against the project owner. Fourth, a contractor can recover extended overhead
for the delay, and the Eichleay Formula for determining allocation of home
office overhead in contractor delay claims has been legitimized by the courts. –
The Eichleay formula derives its name from a United States Board of Contract
Appeals case entitled Appeal of Eichleay Corp., (CCH) (1960) ASBCA 5183, 60-2
B.C.A.
A delay claim is
proved, in part, by comparing as-planned schedules against as-built schedules.
The damages for a delay claim also consider as-bid costs versus actual costs.
The Measure of
Damages Depends On the Nature of Your Relationship to the Project
The measure of
damages depend on your relationship to the project. Simply stated the project
owners delay damage will be different from those sustained by the general
contractor.
Typical Project Owner
Delay Claim Components Include:
When the contractor
delays the project the owner can recover one of two types of damages:
liquidated damages or actual damages.
Liquidated damages are typically used
when a determination of actual damages would be difficult if not impossible to
ascertain. The amount of and application of liquidated damages are normally set
forth in the contract. Some subcontracts incorporate the liquidated damage
clauses in the prime contract. The liquidated damage amount for a specific time
period are determined before the breach occurred. In California liquidated
damages are generally enforceable. Some contracts attempt to include both liquidated
damages and actual damage clauses. When both clauses are included in the
contract the liquidation damage clause maybe invalid. If the owner caused the
delay the liquidated damages provision will not be enforced. If there are
concurrent causes to delay which are attributable to the owner and the
contractor the courts will generally not enforce the clause. However, there are
cases where the court has attempted to apportion the damages.
When there is no
liquidated damage provision in the contract the owner will be able to collect
its actual damages. If the owner has any direct involvement in the
project its actual damages can include: (1) additional supervisorial expenses,
(2) other additional expenses actually caused by the delay, (3) overhead expenses
incurred during the delay period, (4) if project is intended to be leased
reasonable value of loss of use and the lost rents which could not have been
reasonably avoided, (5) if the project is not intended to be leased reasonable
value of loss of use, interest expense, interest expense during the delay
period and (6) any other reasonably foreseeable damages the owner may have
incurred including lost profits from a business.
Typical Contractors
Delay Damage Components Include:
The components of a
contractors delay claim include: (1) indirect costs that occurred during the
extended performance period, (2) home office overhead that was incurred during
the extended performance period, (3) increased (material escalation) material
direct costs that occur during the delay (4) lost productivity caused by the
delay and (5) other damages directly related to and attributable to the delay.
Indirect costs include job site
overhead (e.g. project supervision costs), extended general conditions or
extended or unabsorbed overhead, job shack, portable toilet, telephone,
insurance, and job site power and water.
Home office overhead for the extended
performance period can be calculated using several formulas. The Eichleay
formula is one method for calculating overhead. The Eichleay formula
resulted from a federal Board of Contract Appeal case against the Eichleay
Corporation. The formula is calculated as follows:
Overhead allocable to
the contract equals contract billings divided by total billings for the
contract period times total company overhead for the contract period. Daily
contract overhead equals allocable overhead divided by days of performance.
Amount of company overhead equals daily contract overhead times number of delay
days.
The formula cannot be
applied to every claim. There are cases which limit its application when there
is not a total suspension of work. The formula is best used where home office
overhead incurred and other jobs did not absorb the overhead. Other methods include
modified versions of the Eichleay formula which are modified to fit the
contractors particular delay circumstance such as: (1) segmenting costs to the
delayed project, (2) using the same overhead percentage as that included in the
bid and (3) applying industry published overhead averages.
Direct costs include: (1)
Equipment rental costs and equipment ownership expenses (measured through rate
manuals, depreciation, taxes and insurance) during the delay period (2) Field
labor if the scope of work is increased as a direct result of the delay or if
the hourly labor rate increases during the delay period (e.g. demobilization
and re-mobilization expenses), and (2) Increased material costs if the scope of
work is increased or if the material cost increases during the delay period the
contractor will be entitled to that increased cost.
Delay damages can
also include a contractors increased labor hours resulting from a loss of the
on-site labors efficiency. Disruption occurs when a contractor cannot
achieve the productivity that was originally anticipated. Productivity can also
be impacted by a delays ripple effect. Loss of productivity can be calculated
using several methods. Generally, a productivity claim seeks the increased
labor cost. Typically, each area of lost productivity is determined by
comparing the bid to the actual cost. Once, the area of lost productivity is
determined the damages are calculated for each individual item of work or task
where productivity is lost. Some contractors attempt to calculate the claim on
a total overrun cost basis, but such an approach is disfavored. It is thus very
important to keep detailed time record when the project is disrupted. The
increased labor factors can be obtained through the following: Use of learning
curves and other similar models, time motion studies, expert witnesses,
scientific models, and comparisons to industry unit pricing standards.
Other damages that may be
recovered include: (1) interest on the claim, (2) lost profits on other jobs if
it can be established that due to the delay the contractor couldn't get other
jobs during the delay period, typically, this occurs when a contractor bonding
capacity restricts further contracts until the existing work is completed.
Attorney fees are not recoverable
unless there is an applicable attorney’s fees provisions. If there is an
attorney's fees provision the prevailing party recovers the fees, but in
discretion of the judge. AIA documents attorney’s fees provisions may not
always allow the prevailing party to recover attorney’s fees.
If the party who has
been damaged fails to mitigate damages it may not be able to recover those
damages which could have been mitigated. Thus it is important for the
contractor to make reasonable efforts to minimize the damages it sustains as a
result of a delay.
Delay claims require
significant documentation. Once a delay is identified the effected contractor
should earmark those costs which are due to the delay. Separate files with
copies of the delay related expenses should be set-up and maintained. If there
is a loss of productivity the project supervisorial personnel should maintain
accurate of record of what caused the disruption and how much time was lost as
a result. Generally, the more accurate and complete your delay related
documentation is the more likely you will prevail when you make a claim. It is
difficult and expensive to reconstruct a delay claim when there is little or no
contemporaneous records which set-forth how the contractor was damaged.
When claims arise in
projects, the party with the most complete documentation will have a tremendous
advantage. It is difficult and sometimes
impossible to establish and prove a claim without good documentary evidence. It
is certainly easier to defend a claim with good documentary evidence.
·
Correspondence. A claims expert will
often want to look first at correspondence files, as the best way to see how
the project unfolded chronologically and find notices between the players of
events, impacts and costs. When delays or other problems occur, notice should
normally be in writing, through letters or electronic mail. Written notices
also are normally required pursuant to most construction contracts in order to
preserve rights to time extensions or additional funds.
·
Daily Reports. Daily reports, log
books, journals, equipment logs or labor logs are very helpful to determine
chronology of events, progress of work, manpower and equipment on site.
Regularly kept daily reports will corroborate the circumstances surrounding the
problem, show the men and equipment impacted, help establish the impact on the
schedule as planned and evidence the costs incurred.
·
Payroll Records and Delivery Receipts. Payroll records also are reliable
evidence of manpower on site at various times in the project. Obviously, to be
helpful, payroll records must show which job personnel were working on each
day. It also is important to know which personnel were available, as well as
their specific capabilities or experience. Delivery receipts will similarly
show the availability of materials and equipment throughout the project.
·
Requisitions. Requisitions or pay
applications will typically show work completed at specific times on the
project. These are reliable indications of progress asserted by the contractor
and agreed upon by the owner and architect as of those specific dates.
·
Schedules. Baseline or "as
planned" schedules are particularly important to show what the owner and
contractor really planned as a schedule for the project. Updated schedules and
time impact analyses can show the occurrence of events and the impact on the
project.
·
Bid Documents, Estimates and Job Cost Accounting. Bid documents, including estimates,
will show costs expected by the contractor. Job cost accounting records created
during the project can show the actual costs incurred at various stages of the
project for comparison to bid estimates or change order estimates.
·
Photographs. Photographs and
videos should be taken regularly on any project as an easy and accurate way to
record conditions and progress of the work. It is important, of course, to
establish when photos were taken, who took them and where. Constant and
consistent photographing is invaluable as an easy, inexpensive and thorough
method of describing conditions.
Summary
Construction projects are, by nature, difficult to
control because of their dynamic and complex environment, resulting in frequent
changes, delays, and cost overruns. The ability to assess the impact of site
events on construction projects is vital in the preparation and settlement of
claims. None of the commonly recognized methods of delay analysis, including
windows delay analysis and but-for method, is able to assess the impact of
resource allocation on delay analysis. In addition, the effects of actions
taken by the contractor to accelerate the project and minimize potential delays
are usually ignored in delay analysis.
Delay
claims are now a major source of conflict in the construction industry and also
one of the most difficult to resolve. Inspired
by this, academic researchers and practitioners alike have made numerous
attempts by way of developing methods and good practice documents for guiding
practitioners on the proper analyses and resolution of the claims.
In view
of the differences between the various methods, the general view amongst
practitioners regarding use of the delay analysis methods is that no single
technique is suitable for all delay claims situations and that the most appropriate
one for any case is dictated by a number of factors or criteria. The need to determine and make use of this
appropriate technique is increasingly becoming a crucial issue. Availability and accuracy of project records
have a major influence on the suitability of a technique since the various
techniques employ different programming information sources. If a good as-planned network program exists
but has not been updated with progress due to lack of as-built records, etc., then
impacted as-planned analysis may be appropriate. Conversely, where there are good as-built records
but no as-planned program or the as-planned program is not adequately prepared,
then the collapsed as-built method may be appropriate.
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
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
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.
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)
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/
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https://sites.google.com/site/metroforensics3/
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recommend our services to your friends and colleagues.
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 (7th
Cir. 2006).
The contractor
notified the owner of the delays and impacts to its schedule and requested an
extension of time to complete the project. Most standard construction contracts contain
clauses requiring requests for time extensions be submitted to the owner or
general contractor within a prescribed time.
E.g. AIA A201 – 1997, paragraph 4.3.3. Further, many, if not most, governmental
contracts have mandatory notice provisions for contractor claims in procurement
manuals, statutes or regulations. It is
always best to make all requests for an extension of time in writing. This document may become the centerpiece of
proof when calculating the damages for acceleration.
For whatever
reason, the owner refused to grant additional time and implicitly demanded that
the contractor complete the project on schedule. The contractor, as the result
of the owner’s refusal to grant additional time, accelerated its performance to
finish the project earlier than December 31, 2015 and to avoid the consequence
of the owner assessing liquidated damages (i.e.,
the contractor accelerated to mitigate the impact of the delay). Based on the
contractor and its subcontractor’s efforts, the project was completed on May
30, 2015–5 months after the original completion date, but 7 months before the
contractor should have been complete considering the excusable delays. In this
basic example, the contractor’s acceleration efforts mitigated the overall
delay by approximately 7 months (the difference between May 30, 2015 and
December 31, 2015) even though the contractor finished 5 months later than the
original schedule. The contractor will
need to prove the costs associated with these acceleration efforts.
Contractor must Prove that Acceleration
Increased his Costs
Proving that the
acceleration resulted in increased cost to the contractor is critical to the
success of any acceleration claim. There
are a number of methods to prove damages due to acceleration. One method of calculating the damages for the
acceleration is the Total Cost Approach. The Total Cost Approach compares the total
actual costs of the project to the estimate or original bid for the
project. The problem with this method is that there are variables such as
whether the contractor’s estimate or original bid was reasonable and whether
the contractor contributed to the increased costs that can invalidate the
resulting cost increase. This concern has led some courts to refuse to
allow the Total Cost Approach to be used when calculating acceleration damages. See Amelco
Electric v. City of Thousand Oaks, 27 Cal. 4th 228, 115 Cal.
Rptr. 2d 900, 38 P.3d 1120 (2002).
Another method for
proving damages for acceleration is to use Industry Standards to show damages. Industry standards from industry groups like
the National Electrical Contractors’ Association (NECA), the Mechanical
Contractors’ Association of America (MCAA), R.S. Means and the Business
Roundtable produce standards and handbooks containing standard productivity
rates. These industry productivity standards can be used as a baseline
benchmark and used for comparison against actual productivity on a job.
The difference would be the basis for acceleration damages.
Another method of
measuring damages is called the Measured Mile Approach. This approach compares the level of labor
productivity during the accelerated work period to labor productivity during a
normal period, the difference being the basis for acceleration damages. See for example James Corp. v. N. Allegheny Sch. Dist.,
2007 WL 4208589 (Pa. Commw. Ct. Nov. 30, 2007). In
this case, the Commonwealth Court of Pennsylvania held that the trial court
properly measured acceleration damages sustained by a general contractor under
the “measured mile” theory of recovery.
In a multi-phased construction project entered into by the school
district and James Corporation, the district delayed James’ performance by failing
to obtain permits in a timely manner, by requiring extra work which interfered
with the planned sequence of work, by relocating fencing and reconfiguring the
erosion and sedimentation pond, and by requiring removal of asbestos (which was
not in the contract). Amidst the delay,
the district abandoned the contract schedule, refused to consider the time
impact on the contractor’s planned sequence, and then terminated the contractor
after substantial completion. The trial
court awarded James damages for acceleration/compression of work, unpaid
invoices, prevailing wages withheld, attorneys’ fees and expenses. The district’s reliance on the standard “no
damages for delay” clause was overcome by court findings that the district had
affirmatively interfered with the contractor’s work. Extra work claims were accepted by the court
as a matter of fact, because the district was fully aware that it had requested
the extra work and performed under the district’s direction. The Commonwealth Procurement Code authorized
damages as sanctions for the district’s bad faith, and interest on untimely
progress payments and attorney’s fees were ordered.
Ina addition to these
issues, overtime introduces additional problems including: fatigue, low morale,
a higher cost per unit (typically a time and a half wage rate), a higher
accident rate, increased absenteeism due to workers reaching 40 hours earlier
in the week, and a phenomenon first described by the U.S. Army where workers
tend to pace themselves to adjust for a longer work day or week. This phenomenon emerges because workers expend
effort and energy at a rate established by a long period(s) of adaptation. When work hours are extended, it has been
noticed that workers tend to adjust their pace (subconsciously) as to accomplish
the same amount of work as would be completed in a typical eight hour day.
The most common
response by contractors to an accelerated or compressed schedule is the
implementation of over manning. Over manning
is preferred because it can produce a higher rate of progress without the
fatigue problems of overtime and the coordination problems realized with shift
work. However, over manning introduces
additional problems including: site congestion, stacking of trades, the
dilution of supervision, a higher cost per unit hour (a result of additional
crew members being inadequately trained), a higher accident rate, and supply
chain inefficiencies (due to materials and tools being consumed at a much
faster rate). The aforementioned problems confront contractors with a
significant increase in total costs since they act to reduce productivity per
man hour. When schedule acceleration or compression occurs, and over manning is
used, the contractor is entitled not only for the direct costs of the extra
workers but also for the impact costs caused by the productivity losses present
with over manning.
No matter how
damages are arrived at, the contractor should not forget to include profit and
overhead in the acceleration claim.
Additional indirect costs include job site overhead (e.g. project
supervision costs), extended general conditions or extended or unabsorbed
overhead, job shack, portable toilet, telephone, insurance, and job site power
and water that can be tied to the acceleration.
Contractor must Comply with All Requirements
It is very
important that the contractor complies with all the above elements to be able
to prove a constructive acceleration claim.
Many times the claim fails because the contractor failed to comply with
the requisite notice requirements. These
notice requirements also serve the following purposes:
·
They
warn the other party that it is incurring an additional obligation;
·
They
permit the other party to take alternative action in order to avoid or reduce
the cost of schedule acceleration;
and
·
They
establish that the contractor is not performing the schedule acceleration
voluntarily.
If those events
occur, the contractor must immediately review the contract to determine what
contractual notification deadlines exist. Most contracts have change order and time
extension clauses that are applicable when there are project delays. The failure to comply with these contract
notification clauses constitute the owner’s primary defense to this type of
construction claim. The contractor’s
entitlement to construction schedule acceleration is sometimes valid in the
absence of notice on those occasions where the contractor can show that the
owner could not or would not have granted a time extension, even with
notice. In other situations where the
contract documents do not require notification, the contractor can still prove
his claim even if he did not notify the owner of the acceleration. See SNC-Lavalin America, Inc. v. Alliant
Techsystems, Inc., 858 F. Supp. 2d 620 (W.D. Va. 2012). This dispute involved a construction
acceleration claim. The U.S. District Court for the Western District of
Virginia ruled that where a contract did not expressly require a contractor to
provide notice of acceleration, that contractor could still maintain its
acceleration claim based on an owner’s demand for completion by a date certain.
The Court held that, unlike contracts with the federal government that include
the standard Federal Acquisition Regulations changes clause, the contract in
question did not require that the prime contractor notify the owner that it
believed an owner’s completion demand required acceleration. Accordingly,
despite the contractor’s lack of notice, the court permitted the contractor to
recover on its claim for damages resulting from constructive acceleration.
Although there may
be some cases (as the above) in which the contractor is not required to request
a time extension, it is highly recommended for the contractor to make the
request to avoid the defense of voluntary acceleration. To minimize disputes, the contractors are
advised to notify their contract partners at the time of submission of a
recovery schedule that: (1) delays previously encountered are understood to be
excusable; and (2) performance to a submitted recovery schedule is understood
to be accelerated work at the owner’s request. This request for a time extension should
include a specific date by which if no time extension is granted or no response
from the owner is received, the contractor will assume that the owner has
denied the request and will be forced to accelerate the project to meet the
contracted completion date. This type of
notice may encourage the owner to take action and may help avoid an
acceleration claim.
For owners, to the
extent that accelerated performance is sought, express direction relative to
the recovery schedule should be provided to the contractor. Owners should explain the rationale for
determination of unexcused delay or why performance to the compressed schedule
may not actually result in acceleration damages.
Some additional
case law discussing the acceleration claims is:
Nat Harrison
Associates, Inc v Gulf States Utilities Co., 491 F.2d 578 (5th
Cir. 1974) and Johnson
Controls Inc. v. National Valve & Manufacturing Co., 569 F.Supp.
758 (1983
Submission of and
performance to a recovery schedule may also give rise to legal issues between a
prime contractor and its subcontractors. Disputes are particularly likely where
the subcontractor’s performance arguably contributed to the necessity of a
recovery schedule. Where subcontractor performance (or lack thereof) is a point
of contention, prime contractors are advised to review and protect their rights
vis-Ã -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
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
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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
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)
