Delay Claims – Part II; Me
thods of Proving Delays and Required Documentation by Andrew Vicknair and Heather Shore
By D’Arcy Vicknair founding partner, Andrew Vicknair, and Heather Shore of Baker Sterchi Cowden & Rice.
I. Methods of Proving Delays
When a party experiences a delay and determines that the delay is excusable and compensable, the party must then determine how to properly quantify the damages associated with the delay. Such damages may include many different types of added expenses and costs, including increased labor costs, equipment costs, material costs, subcontractor costs, jobsite overhead costs, home office overhead costs, and lost productivity. With so many types of damages that could result from delays, it is as important to understand how to effectively present such a claim, as it is to determine which damages may be compensable under the circumstances. There are multiple methods for proving delays and each has its pros and its cons. Attorneys and claimants must be sure that the method chosen is best for the available facts and data surrounding the delay and that the analysis will be accepted as reliable and credible by those that ultimately review and determine whether the delay claim has merit. Determining which method to use when dealing with delay claims will depend on the quality and supportability of the overall analysis, which will ultimately depend on the facts and the data available to support the claimed delay. Some common methods of delay analysis include (1) the Total Cost Method, (2) the Modified Total Cost Approach, (3) the Jury Method, and (4) the Measured Mile Method.
A. Total Cost Method
In general, the Total Cost Method is a process used to calculate damages as the difference between total actual costs incurred (plus overhead and profit) and the bid amount.1[1] The basic calculation subtracts the contractor’s bid estimate from the total of all project costs incurred and seeks recovery of the overrun cost as the damages caused by the delay. While one of the simplest methods for calculating delay damages, it tends to carry the least amount of weight with those opposing delay claims, as it does not eliminate the possibility that the party seeking the delay claim may have been responsible for some of the delay, or that the contractor may have underbid the project.
The Total Cost Method is often subject to attack including (1) the validity and accuracy of the original estimate; (2) errors and deviations from the work plan by the contractor that result in added costs; and (3) events increasing the cost (such as weather) that are not the fault of the owner.[2] If the total cost method is used, each of these points must be addressed by the claimant in any claim presentation as part of its burden of proof.[3] Additionally, one of the main concerns with the Total Cost Method arises from the possibility of bidding inaccuracies.[4] Many courts, such as the Federal Circuit in Servidone, are openly critical of the Total Cost Method and have even noted that the Total Cost Method should be used with caution and as a last resort.
B. Modified Total Cost Approach
The Modified Total Cost Approach was created in response to the complaints surrounding the Total Cost Method. It is preferred over the Total Cost Method as it eliminates sole reliance on the contractor’s original estimate by taking into account deficiency or performance issues caused by the contractor and also assesses non-compensable delays, such as “Acts of God.” With this method, a plaintiff will normally reduce its claim by the amount of bid errors, costs arising from contractor actions, and costs arising from actions of parties other than the owner.[5] Courts explain that when using the Modified Total Cost Approach, safeguards must be used to ensure that the burden of excess expenses falls on the party responsible for those expenses.[6] In Raytheon Co. v. White, the Federal Circuit clarified that a plaintiff utilizing a Modified Total Cost methodology must prove that (1) the nature of the losses make it impossible or highly impracticable to determine them with a reasonable degree of accuracy; (2) the plaintiff’s bid or estimate was realistic; (3) its actual costs were reasonable; and (4) it was not responsible for the added expenses.[7] If a plaintiff is successful, the plaintiff may recover the total cost of the contract minus the bid price with various adjustments for delays the contractor caused or any miscalculations.[8]
C. The Jury Method
The Jury Method is another analysis often used when the claimant lacks sufficient documentation to link damages to causation. This very simple method involves a party seeking compensation related to delays to establish its losses to the best of its ability and based on its limited data and documentation, with the intent to obtain an equitable adjustment. In general, the contractor presents the jury or court with the best evidence available and hopes for an equitable solution. While the Jury Method is disfavored due to the lack of evidentiary support to determine damages with any certainty, a claimant, such as a contractor, may have no choice if there is little to no direct evidence of the delays and resulting costs.
D. Measured Mile Method
The Measured Mile Analysis is the most reliable, and thus the preferred method for calculating lost productivity and delay damages. Under this technique, a nonimpacted period or area of activity of construction work is compared with another period or area of activity of construction work that has been disrupted. The assumption underlying the Measured Mile Method is that the difference between the labor or equipment hours expended per unit of work performed in the non-impacted and impacted periods represents the loss to the contractor due to the impact or disruption for which another party is responsible.[9] Basically, the method compares productivity during a non-impacted period with productivity during an impacted period. Ideally, the Measured Mile analysis uses productivity data from the same project and relies upon actual productivity rates and not bid productivity rates. If there is no “measured mile” available on the same project, then a “measured mile” may be used from a similar project utilizing a similar crew to represent a nonimpacted productivity rate.[10]
The chief advantage of this methodology is its ability to isolate the productivity loss during an impacted period from other project factors via achieved progress in a non-impacted period. The ability to isolate the productivity loss is one of the most significant reasons why contractors prefer this method of measuring damages.
E. Contracts and Delay Methods
Most sophisticated contracts specifically include terms which address the methodology required to calculate and prove delays, as typically established through specific schedules, pre-determined methods of analyses, and specific documentation. For example, under FAR 52.235-15, Schedules for Construction Contracts, the federal government specifies the deadline for the contractor to submit its schedules, the format and content that must be included in the schedules, and the dates on which the contractor contemplates starting and completing the several salient features of the work.[11] In the case of federal contracts, if the contractor fails to comply with these requirements, then the Contracting Officer may withhold approval of progress payments until the contractor submits a schedule in compliance with FAR 52.235-15.[12]
It is also important to understand all relevant contract clauses concerning delays, such as notice requirements and certain methods for establishing delays. Courts routinely enforce contract clauses that set forth specific elements for establishing a delay claim and the calculation of the damages arising from such claims.[13] Well drafted construction contracts will also address notice requirements as a prerequisite for any claim for additional compensation under the contract, and how quantum for the delay claim is to be calculated. For example, under FAR 52.211-13, time extensions may only be submitted based on the following:
(a) If the Contractor requests an extension of the time for substantial completion, the Contractor shall base its request on an analysis of time impact using the project schedule as its baseline, and shall propose as a new substantial completion date to account for the impact. The Contractor shall submit a written request to the Contracting Officer setting forth facts and analysis in sufficient detail to enable the Contracting Officer to evaluate the Contractor’s entitlement to an extension of time.
(b) The Contractor shall only be entitled to an extension of time to the extent that-
(1) Substantial completion of the work is delayed by causes for which the Contractor is not responsible under this contract; and
(2) The actual or projected substantial completion date is later than the date required by this contract for substantial completion.
(c) The Contractor shall not be entitled to an extension of time if the Contractor has not updated the project schedule in accordance with the contract.
(d) The Government shall not be liable for any costs to mitigate time impacts incurred by the Contractor that occur less than 30 calendar days after the date the Contractor submits a request for extension of time in compliance with this clause.[14]
II. Required Documentation
A. Documentation for Delays
Regardless of the method chosen to prove the delay, the party asserting the delay claim has the burden of establishing entitlement on the claim, and the finder-of-fact is entitled to consider whether the claiming party was partially responsible for causing the delay based on the weight of the evidence presented through documentation and testimony.[15] As explained in our prior article on Delays — Part I, a party should first determine what type of delay they are dealing with (critical vs. non-critical, excusable vs. non-excusable, compensable vs. non-compensable) and also understand if the delay they are experiencing is or is not a concurrent delay. Concurrent delays occur “where both parties are responsible for the same period of delay,”[16] and when concurrent delays exist, neither party may benefit monetarily from the delay.[17]
If a party determines that they are entitled to some type of recovery for the delay, the party making a claim for delay, such as a contractor, must have the proper back-up to assist in proving its delay claims. Without the proper back-up, contractors will likely be unable to recover all of the additional costs and expenses associated with the delays or, at best, recover only an “equitable” amount. Courts are not justified in fixing damages in the absence of definite proof. Generally, damages must be proved with reasonable certainty and may not be based on speculation or conjecture.[18] Thus, it is crucial for a party to have the proper documentation to support a delay claim, if the goal is to fully recover the damages associated with the delay.
Courts routinely uphold a contractor’s decision to demand sufficient backup documentation and other evidence to support a claim for payment, prior to submitting the claim to an owner.[19] To establish delay damages, parties preferably should use the actual project records illustrating all changes, delays, and related costs from the course of the project. The best documentation will include items that are contemporaneous with the delay event(s). Not every project will have the same documentation, as every project is different. To assist in proving a delay claim and related damages, some key documents may include:
- dated progress photos and drone videos;
- daily, weekly, and monthly progress reports created at the time of the delay rather than those that may have been created after the fact;
- project meeting minutes that were distributed to various parties as opposed to draft meeting minutes in a word processing software;
- project schedules and any schedule updates;
- requests for information (RFIs);
- change orders and change order requests;
- construction change directives (CCDs);
- correspondence, such as letters, emails, and texts, between the project team;
- delay logs;
- delay notices;
- payroll records;
- time and material reports;
- diaries and witness statements;
- quality control and inspection reports;
- payment requisitions; • invoices and receipts for costs incurred due to delays; and
- any other documentation helping to establish the delay.
A best practice of any contractor is to place the owner on notice of delays and to submit all change orders for review and approval before proceeding with extra work that might cause delays. Alternatively, a contractor can continue with the contract work in the face of delays caused by third parties, regardless of whether the contract requires written notice of delays or a delay claim. However, doing so may be at the contractor’s risk, as courts will not interfere with the terms of contracts made by competent parties, and generally hold parties to contract terms which require written notice and specific documentation of delay claims and claims for extras.[20]
The lack of documentation may not necessarily bar all claims of delay, however. Depending on the jurisdiction, written modification provisions may be waived orally or by course of dealing. For example, Missouri courts hold that, even if a subcontract requires that all change orders be authorized in writing, the requirement can be waived: “Habitual acceptance of work done on oral change orders in connection with a contract, and payment therefore, results in waiver of a contract clause providing that all orders must be signed.”[21]
Because construction project delays are common, project participants such as owners, sureties, and contractors will eventually be faced with some type of delay on a construction project. Thus, it is important to understand the different types of delay and whether or not a delay is compensable. At the same time, it is also important to understand the different delay claim methodologies to understand what information and project documentation will assist in proving entitlement to recovery for damages due to delays. While you may eventually have to retain a delay expert to assist with the claim, it is important to understand delays and delay claims and the evidence required to support such claims so that you can proactively support any such claims.
[1] Safeco Ins. Co. of Am. v. S & T Bank, 2010 U.S. Dist. LEXIS 18914, *24 (W.D. Pa. Mar. 3, 2010). See also Raytheon Co. v. White, 305 F.3d 1354, 1365 (Fed. Cir. 2002).
[2] Safeco Ins. Co. of Am., at 25.
[3] Id.
[4] Servidone Constr. Corp. v. U.S., 931 F.2d 860, 861-62 (Fed. Cir. 1991).
[5] Safeco Ins. Co. of Am., at 26.
[6] Raytheon Co. v. White, 305 F.3d 1354, 1366 (Fed. Cir. 2002).
[7] Id.
[8] Propellex Corp. v. Brownlee, 342 F.3d 1335, 1339 (Fed. Cir. 2003).
[9] U.S. ex rel. Salinas Constr., Inc. v. W. Sur. Co., No. C14-1963JLR, 2016 U.S. Dist. LEXIS 88267, at *9 (W.D. Wash. July 7, 2016). See also Identifying, Quantifying, and Proving Loss of Productivity, ASCE 71-21 (2021).
[10] Identifying, Quantifying, and Proving Loss of Productivity, Standard ASCE 71-21 (2021).
[11] See FAR 52.235-15 (Schedules for Construction Contracts) (Apr. 1984).
[12] Id.
[13] See e.g., R.P. Wallace, Inc. v. U.S., 63 Fed. Cl. 402 (2004); Manuel Bros., Inc. v. U.S., 55 Fed. Cl. 8 (2002); Morganti Nat’l, Inc. v. U.S., 49 Fed. Cl. 110 (2001).
[14] See FAR 52.211-13 (Apr. 1984).
[15] Newell Machinery Co., Inc. v. Pro Circuit, Inc., 596 S.W.3d 635, 653-654 (Mo. Ct. App. 2020).
[16] Plato Gen. Constr. Corp./EMCO Tech Constr. Corp., JV, LLC v. Dormitory Auth. of State of New York, 89 A.D.3d 819, 826 (App. Div. 2nd Dept. 2011).
[17] Otis Elevator Co. v. W.G. Yates & Sons Constr. Co., 2016 U.S. Dist. LEXIS 26748, *30 (N.D. Ala. Mar. 3, 2016) (citing 5 Bruner & O’Conner & O’Conner on Construct ion Law, § 15:67 (West 2002)).
[18] Baker DC, LLC v. Baggette Constr., Inc., 378 F. Supp. 3d 399 (D. Md. 2019).
[19] See generally In re Central States Mechanical, Inc., Case No. 09-12542, 2011 WL 1637991 (Bankr. D. Kan. Apr. 29, 2011) (collecting cases); Systemaire, Inc. v. St. Charles County, 432 S.W.3d 783 (Mo. App. 2014) (finding a genuine issue of material fact as to what documents were required under the construction documents prior to payment).
[20] Razorback Contractors of Kansas, Inc. v. Board of Cty. Com’rs of Johnson Cty., 43 Kan.App.2d 527, 227 P.3d 29 (2010) (rejecting contractor’s claim that substantial performance sufficed to preserve its claims, when the contract required written notice of claims for extra to be given to specific entities and within a specified time-period). See also T L James & Co. v. Traylor Bros., 294 F.3d 743 (5th Cir. 2002) (applying Louisiana law and denying a contractor’s claims for extra work due to contractor’s failure to follow terms of the contract and provide notice); In re Central States Mechanical, Inc., Case No. 09-12542, 2011 WL 1637991 (applying Iowa law and denying a subcontractor’s delay claims based on the contractor’s failure to strictly comply with the contract’s provision to provide written notice of delays and delay claims and rejecting the argument that contractor had waived the subcontract’s preconditions based on its prior actions). Compare with Central Iowa Grading, Inc. v. UDE Corp., 392 N.W. 2d 857, 860 (Iowa App. 1986) (citing Berg v. Kucharo Constr. Co., 237 Iowa 478, 489, 21 N.W. 2d 561, 567 (1946)) (holding that a course of dealing that repeatedly disregards the written change order requirements and promises to pay for work that was orally requested, can be sufficient to waive the subcontract’s written change order requirements).
[21] Brockman v. Soltysiak, 49 S.W.3d 740, 745 (Mo. App. 2001). See also Missouri Dept. of Transp v. SAFECO Ins. Co., 97 S.W.3d 21, 36-37 (Mo. App. 2002) (holding that the subcontractor had presented sufficient evidence that the general contractor had requested and agreed to extra work and that the subcontractor had performed it, thereby waiving the requirement in the subcontract that all change orders be approved by the contractor in writing).