Legally Speaking: Disruptive Impacts to the Construction Project
Most contractors have found themselves, at one time or another, in a project where the number of requests for information (RFI), directives and changes seem like a blizzard of paperwork, and key materials (e.g. steel) are delivered late, out of sequence, etc. In these situations, contractors know that their supervisors and managers spend a lot of time moving paper, moving workers from one part of the project to another, and standing around while waiting for answers from the designer. While this situation is common, contractors are often in a very uncertain position for claiming damages.
When a project’s work is disrupted, the contractor usually finds that his labor costs rise unexpectedly, and these losses can be the difference between a profitable project and a financial loss. Changes in the amount of work, the schedule, the work sequence, or even the time of year in which the work is performed, can cause contractors to experience additional labor costs. While this situation is common, the process of determining these damages and agreeing on a claim gives rise to many disputes.
Sources such as the Mechanical Contractors Association (MCA), National Electrical Contractors Association (NECA), and U.S. Corps of Engineers have published opinions on the causes and range of impacts of many of the common factors on a troubled project. While the various sources disagree somewhat, there is agreement on the list of causes and the potential severity of their impacts. A few of the more common causes given by these sources are:
Labor Loss Cause Average Loss of Productivity
Stacking of Trades 20%
Reassignment of Manpower 10%
Dilution of Supervision 15%
Errors and Omissions by Designer 25%
Site Access 10%
Crew Size inefficiency 20%
There are very few projects where only one factor is present. Normally there are multiple factors contributing to the loss of labor efficiency and productivity. The combined impact of two or more factors is not simply the addition of the losses of productivity of the individual factors, but a more complicated computation. In fact, some of the sources do not advise contractors on how to apply these factors when estimating damages.
When a contractor experiences the above type of disruption(s) to his work, the contractor should first determine a theory for his claim. As an example, a contractor’s claim for cumulative impacts has been denied when the contractor failed to show that a large number of change orders had created an unanticipated nature of work. To prove entitlement the contractor must prove: that an unanticipated impact (e.g. excessive numbers of change orders) affected the work; that the cumulative impacts increased the cost of performance, and that the cumulative impacts were not foreseeable.
In addition, courts have consistently rejected the most common approach used by contractors to present their damages. This is the Total Cost Approach, wherein the contractor tried to compare its original estimate for labor costs to the actual costs for labor, and claim the difference as damage. The contractor must present a detailed proof of its alleged inefficient performance in the form of comparisons of the productivity achieved on the disrupted work versus normal productivity achieved on undisrupted work on the same or a similar project.
In the last few years, contractors have also used the claim of cumulative impacts (particularly regarding excessive numbers of change orders) to get relief from the effect of certain contractor provisions. As an example, in a case involving a contractor dispute with the New York Board of Education regarding a school project, the court ruled that the cumulative impact of multiple change orders made the contract provision for “no damage for delay” unenforceable.