Anatomy of a Delay Claim

There are three crucial components of a successful delay claim: 

A contractor must be able to prove legal entitlement to the claim. In most cases, this involves reviewing the contract, establishing a breach and demonstrating that the contractor complied with important provisions of the contract.

The causation component normally involves an accurate analysis of the critical path method (CPM) schedule to prove that the breaches in the contract caused the delay. There are many methods for preparing a schedule analysis including total time, impacted as planned, impacted as built, and contemporaneous time-frame analysis. Some of these methods which were acceptable ten years ago, are now often rejected by arbitrators and judges.

The quantification of the delay damages should result in a fair and reasonable claim that is supported by the job cost and accounting records. In determining the best method (total cost, modified total cost, discrete, or other) for calculating the damages, a contractor should carefully consider facts of the case, as each method has advantages and disadvantages. Then, a thorough review of the contract, state and federal law and case precedence should be conducted to determine the allowable cost components to be included in the claim. Usually, a contractor submits a claim for direct "brick and mortar" costs (including lost productivity, acceleration, escalation, additional work, etc.), extended general conditions (job site overhead), and unabsorbed home office overhead (extended general and administrative expenses, usually recovered using the Eichleay formula).

A Case Study: The New Jamestown Bridge

The New Jamestown Bridge project in Rhode Island experienced substantial design, administrative and construction problems resulting in a complicated $55 million claim. Through an in-depth investigative process that studied the fine details of the claim while still maintaining the large perspective Mr. Lee was able to significantly challenge the contractor's claim thus leading to a mediated settlement for about 1/3 of the claim.

The bridge had been partially completed under two previous contracts. The third contractor completed four months late and submitted a detailed claim prepared by a "Big 5" accounting expert with support from a nationally recognized lost productivity expert and CPM scheduling expert. $1.2 million was paid to these three experts to prepare the claim.

$14 million of the claim was for additional labor and equipment costs for lost productivity due to overtime and damages due to interference. This was 50% of the direct cost portion of the claim.

The underlying argument for the lost productivity due to overtime was that design problems, late approval of submittals and change order requests, and rejection of time extension requests forced the contractor to accelerate. The lost productivity expert relied on the statistics in The Business Roundtable report, "Scheduled Overtime Effect on Construction Projects," to determine the percentage lost on a weekly basis for labor and equipment costs. The expert had used the total labor hours on the project as the basis for calculating the claim instead of determining the actual labor hours for each phase of work.

When Mr. Lee was retained to investigate this claim, he began by reviewing the detailed payroll records and time cards. He found there was excessive overtime only in driving the piles for the trestle, while the other phases -- including pier footings, pier shafts, pier caps and spans, incurred sporadic, and unscheduled overtime -- were not extensive enough to meet the lost productivity standards in The Business Roundtable report. Additionally, the heavy overtime in pile driving had been planned per a review of the details in the bid take-off sheets, and had therefore not been incurred by the owner's interference. Mr. Lee was able to show that there was no unplanned extended scheduled overtime resulting in lost productivity.

The "Big 5" accounting expert calculated the damages caused by interference using the measured mile method. This is a widely accepted method where the contractor compares the performance during a non-impacted period to the impacted performance period, and calculates the difference as damages. However, the legal argument claimed interference and interruption continually throughout the project and, therefore, there was no non-impacted period against which to measure performance. In actuality, the accounting expert used the "lowest cost" period as the base.

When Mr. Lee reviewed the detail of costs and the procedures for allocating them to different periods, he found that the contractor increased equipment charges by $9 million when converting equipment costs to bluebook. Most of the increase ended up in the claim. This was a Trojan Horse claim. The contractor rode the claim in on charges of damages caused by interference but, when the details inside the claim were revealed, the so-called damages were caused more by a questionable conversion of actual equipment costs to blue-book values.

The CPM scheduling expert concluded that the contractor accelerated the project by over two years so that it was "only" four months late. The scheduling expert concluded that the contractor was very efficient in working overtime hours and accelerated the completion date by over two years, while the lost productivity expert concluded that the contractor was very inefficient in working overtime hours. This was a "big picture" contradiction.