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Legally Speaking: Presentation of Damages Caused by Disruption

Almost every contractor has experienced that problem project, the one in which just about everything goes badly. Causes for these problem projects range from excessive numbers of changes, unforeseen conditions, late delivery of essential materials or equipment, etc., and the escalation of labor costs. If the contractor cannot resolve this situation equitably with the owner, the contractor must prepare and file a claim for delay and disruption.

However, in many situations there is not a single factor causing delay and disruption, but many. For instance, consider a project in which there are many changes to the work and a long delay. Experience shows that the real impact on labor is far more than the simple sum of the individual changes. For a single change order, the contractor can usually measure the lost time due to the change order process, reassign his manpower accordingly, and take meaningful steps in the field to mitigate losses. When numerous changes are involved impacting several parts of the project, the ability of the contractor to take meaningful steps is jeopardized. Large disruptions in the flow of work result in inefficiencies and lost productivity from factors such as reassignment of labor, overtime, dilution of supervision, etc.

Given such a complicated situation, the contractor will often file a claim normally referred to as a cumulative impact claim. In order to be successful on this type of claim action, contractors must recognize the process for measuring damages and how such a claim must be presented. Among the more important factors to consider are:

Contractors must demonstrate that a fundamental change in the character of the work had changed and this change was not foreseeable. A case where a cumulative impact claim was successful involved Ingalls Shipbuilding. There was a 58 percent increase in the contract price and a four-year increase in contract time; however, even in this case, the claimant had to demonstrate the fundamental change in the work, not just a statement of percentages of increase.

Cumulative impacts need not be traced to specific causes of increased performance costs, but, can arise from changes or conditions which, when viewed retrospectively, were so numerous and had such effect on performance that there is a separately compensable impact claim.

The elements of proof for a cumulative impact claim are:

A significantly large number of change or disruptive events.
The changes or events have impact on productivity (performance time and efficiency).
The impact flows from the synergy of the number and scope of changes,
The contractor was unable at the time of pricing of each change or event or directive to foresee the ripple-type effect of the multiplicity of change and events.
The contractor did not knowingly waive the right to assert cumulative impact claims when negotiating changes.

Contractors must keep in mind that a major focus of their claim must be on “causation.” Claims are routinely denied because there were insufficient numbers of changes, contractor-caused concurrent delays or disruptions, and a general absence of evidence of causation and impact. While the courts have expressed that proving causation in the cumulative impact claim is difficult “because the concept of cumulative impact is, in itself, somewhat amorphous,” the contractor must still present the court with a reasonable explanation of how the complex nature of changes caused the claimed cost overruns.

Contractors facing claims for disruption, particularly those involving a cumulative impact claim, must be mindful that they must maintain sufficient records to demonstrate causation. Little things can mean a lot. Simply intensifying their efforts to enter onto daily time sheets the foreseen and unforeseen impacts and changes can position a contractor for future success.