Due to the complexity of construction, combined with changes often inherent as a result of the very nature of construction, a contractor’s actual performance can deviate significantly from its originally planned method, manner, sequence, and duration of work. A deviation can impact both the schedule performance period and the overall cost of the project.
Delay vs. Disruption
One recognized entitlement theory that a contractor can utilize for recovering damages caused by an impact is “Delay and Disruption.” Even though it is a common practice to generically refer to delay claims and disruptions as being synonymous, they are in fact very different, especially in terms of damages. For example, a contractor may experience a disruption to its planned method, manner, and sequence of work, but still complete the project on time without any total delay, through acceleration or other mitigative efforts.
While “delay and disruption” issues are usually easily identified, the effects of these types of issues are very complex and often difficult to quantify. When determining if a delay and/or disruption has occurred, it is necessary to distinguish the technical difference between a delay and a disruption. These are distinctions of considerable significance.
Delays are specific, singular events of conditions that result in the project completion and/or work actively starting or completing later than originally planned. Disruptions include the effects of individual or multiple delays, as well as interruptions to the planned method, manner, sequence, and duration of work activities directly and/or indirectly associated with the impacting event. Disruptions usually affect labor productivity and can cause significant cost overrun variances in labor budgets. Disruptions are often contributing causes to a project delay when the delay-related impacts ripple throughout the project to both the work activities directly changed and the unchanged work not directly affected.
In the federal government contracts context, “the U.S. Court of Claims and the various boards of contract appeals have recognized a general right to recover for the cumulative effect of a multitude of owner-directed changes that, when taken collectively, can be greater than the sum of the effects of the individual change orders.” R. M. Jones, Lost Productivity: Claims for the Cumulative Impact of Multiple Change Orders, 31 Pub. Cont. L.J. 1-2 (2001). Whereas a change order may directly change the work being performed in a specific area, recovery under a cumulative impact claim rests on the acknowledgment that a change order “may also affect the other areas of the work that are not addressed by the change order.” Id. at 2. Thus, unlike the direct impact claim, which can be recognized when a change order is issued, the cumulative impact claim represents a claim for lost productivity on unchanged work that contractors claim is not foreseeable at the time the change order is issued. Specifically, unchanged work refers to the contract work not covered by a specific change order. Id. at 7. Cf., Roberts Constr. Co., 81-1 BCA ¶ 15,104 at p. 2 (holding that change orders did not bar equitable adjustment and stating that “[i]t is unrealistic to expect a construction contractor always to be in a position to price forward a required change arising during the course of performance with full awareness of the impact the changes will have on the project.”) (copy submitted as Exhibit B hereto).
“Cumulative impact claims are fact-intensive and require the contractor to substantiate its claims that its work was delayed or was performed in an inefficient, unproductive, or more costly manner as a result of the individual changes to the Contract.” Jackson Constr. Co. v. United States, 62 Fed. Cl. 84, 104 (2004) (citations omitted). The costs associated with a cumulative impact claim have been described as: “. . . costs associated with impact on distant work, and are not readily foreseeable or, if foreseeable, as not [sic] readily computable as direct impact costs. The source of such costs is the sheer number and scope of the changes to the contract. The result is an unanticipated loss of efficiency and productivity which increases the contractor’s performance costs and usually extends his stay on the job.” David J. Tierney, Jr., Inc., 88-2 BCA ¶ 20,806 at p. 59 (awarding cumulative impact damages).
Quantifying the Effects
Once events have caused a delay and/or disruption, the next and most complicated tasks are to quantify the effects that the resultant impacts have on the contracted performance period and determine the costs associated with the delay and/or disruptions. Quantifying the direct costs for delayed work can be a relatively simple task, but secondary disruption impacts caused by the “ripple” effect” require more sophisticated techniques. Costs can be segregated into two categories, delay costs and disruption costs.
Delay Costs include, but are not limited to:
- Extended project management support
- Extended engineering staff
- Extended administrative support
- Extended project and home office overhead, and general conditions costs
- Idle tools and equipment, and
- Direct costs of the change work directly affected by the delay
In addition to the aforementioned delay costs, Disruption Costs include, but are not limited to:
- Efficiency decreased due to re-sequencing work or additional work activities in progress at a given time
- Performance extended into a period of adverse weather
- Dilution of supervision due to additional work activities to be manages
- Overcrowding of trades, and
- Acceleration– premium time/increases in manpower
Maximize Your Recovery
To maximize the recovery of the costs associated with delay and disruption, contractors must illustrate how the planned method, manner, sequence, and duration of work were affected/changed. Methods for measuring impacts associated with delays are different than those for disruptions. Delays can often be adequately illustrated using a Critical Path Method (CPM) schedule. Disruptions usually affect productivity rates and labor costs and proof of impacts are best measured by CPM schedule analyses, trending analyses, labor productivity data, and “clean period” (“measured mile”) analyses. In both cases, it is essential that the contractor have a CPM schedule developed prior to mobilizing to the project site or beginning work, and to status the schedule as the project progresses. If a delay does occur, it can be incorporated into the CPM schedule network using a “Time Impact Analysis” to illustrate the net effect of the delay on individual work activities and the contract performance period.
With the ever-present, day-to-day directed and constructive changes that occur on a construction project, and the burden of proof resting with the contractor, it is advisable for contractors to take a proactive approach to protecting their rights and their company from possible financial impact caused by delay/disruption.