Legally Speaking: Cumulative Impact Claims
A key factor in these type of situations is what not to do. Many contractors develop a claim strategy based upon a “total cost” approach. The problem with this approach is that the contractor must show the impracticability of proving actual losses directly; the reasonableness of its bid; the reasonableness of its actual costs; and lack of responsibility for the added costs.
Another downside to this approach is that it can be defeated by proving the existence of disruptions caused by the contractor (none is perfect) and there is no way to determine who is responsible for what damage. In one case (Pittman Construction Co. v United States), the court decided that because the contractor could not separate the impact costs caused by the government and those caused by the contractor’s own problems, the claim was defeated.
Because of the problems with the total cost approach, most claims professionals shy away from using this method to present a claim. Instead, they are ever more commonly using the “cumulative impact claim” approach. In a recent case in California involving a guaranteed maximum price contract, drawings at the time of the bid lacked sufficient detail and required months of extended revision drawings. The eventual changes that resulted made it impossible for the contractor to keep accurate cost records for the hundreds of changes. The court noted that the numerous changes had a “dynamic impact” on the construction productivity. However, the court also noted that the excessive number of changes constituted a “cardinal change” to the contract and awarded damages based upon a quantum merit basis.
There does not appear to be a need for the contractor to show a cardinal change in the contract in order to show a cumulative impact to productivity. Of course, if the contractor can prove a cardinal change to the work, the cumulative impact claim will likely have more appeal to the court. However, it is important that the contractor disassociate the two issues and focus on the cumulative impacts on production.
The most common defense for a cumulative impact claim is called the doctrine of “accord and satisfaction.” This refers to the waiver language in change orders, wherein by signing the change order, the contractor included any possible costs that could be associated with the cumulative change claim.
The contractor must show that the owner and contractor did not intend to negotiate and price the impacts from various changes to the job and did not settle on a price for their cumulative impacts. Contractors might refer to reservation language in correspondence or on the change order itself that allows for future consideration.
Also, a common defense is the lack of causation, which means that the additional costs are associated with the contractor’s own inefficiencies and not caused by the owner. Indeed, some courts require pinpoint proof that certain damages were caused by a specific change order or series of orders. However, the contractor could prove that the change resulted in a change in the working conditions and the changed working conditions led to the loss of productivity. There must be a real basis for causation.
Additionally, contractors must make sure that their initial planned productivity was based upon reasonable expectations and that they have accounted for other productivity impacts, e.g. weather delays, on the project. Failure to do this will enable the owner to demonstrate that the contractor cannot substantiate its damages.