revay -case study on eot claim
DESCRIPTION
Schedule AnalysisTRANSCRIPT
Case Study: Claim for Extension of
Time and Additional Compensation
Newhealth Hospital Redevelopment
Presented in San Antonio, Texas
Agenda
I. Project Overview
II. Problems Encountered by the Contractor
III. How to Demonstrate Entitlement
IV. Workshop – Review of the Contractor’s Optimistic Claim
V. Delay Analysis
VI. Evaluation of Damages
VII. Problems/Solutions re. Disruption Claims
I. PROJECT OVERVIEW
Project Description
• Construction of the Newhealth Hospital redevelopment.
• Project consisted of interior finishes and fit-ups for the new
four-level addition to the hospital and renovations to the
existing structure.
Project Layout
Contract Dates
• On March 1, 2006, the Service and Supply Department of
Newhealth (“SSDN”) awarded a contract to Supreme
Contracting inc. (“Supreme”).
• This was a design-bid-build (fixed price) contract.
• Planned construction was to be executed from April 1, 2006 to
December 30, 2006.
Delay Overview
9 months
Planned
Apr. 1, 2006 Dec. 30, 2006
Apr. 1, 2006 Jun. 15, 2007
Actual
14.5 months
ExtendedDuration
5.5 months
Jun. 15, 2007
II. PROBLEMS ENCOUNTERED BY
THE CONTRACTOR
Problems Encountered by the Contractor
• Level 3
– Unanticipated Interferences in the Ceiling on Level 3
– Incorrect Slab Openings for Ductwork Systems
• Level 1
– Unanticipated Interferences in the Ceiling on Level 1
– Excessive Modifications to Patient Service Units (PSU)
– Late Drawings of Device Location and Elevation
– Excessive Modifications to Door Frame and Layout
Unanticipated
Interferences in the
Ceiling on Level 3
• Mechanical and electrical
systems located in the ceilings
of Level 3 had excessive
interference issues.
• The contractor discovered that
there was insufficient space to
accommodate the specified
mechanical and electrical
equipment.
• Several mechanical and
electrical systems, including the
ventilation, required significant
design modifications.
Unanticipated Interferences
in the Ceiling on Level 3 (cont’d)
ITEMS TO BE INCLUDED
- Seismic hangers
- Lighting fixtures
- Spacings
- Cable tray
- Controls
- Vav box
- Medical equipment
Installation Impossibility
• 758 mm of materials into a 650 mm space
• Someone did not CAD it, let’s see what the
contract says
• Whose pre-planning?
• Delayed for circumstances beyond the
contractor’s control
Incorrect Slab
Openings for
Ductwork Systems
• Existing openings in the
concrete slabs did not have
the correct dimensions to
accommodate ductwork
systems as designed.
• No timely design was
provided by the design
professionals, so the
subcontractor proposed a
solution.
Unanticipated
Interferences in the
Ceiling on Level 1
• Mechanical and electrical
systems located in the
ceilings of Level 1 had
excessive interference
issues.
• The contractor discovered
that there was insufficient
space to accommodate the
specified mechanical and
electrical equipment.
• Several mechanical and
electrical systems,
including the ventilation,
required significant design
modifications.
Excessive Modifications
to Patient Service Units
(PSU)
• Owner requested
modifications related to
the medical gas located in
the PSUs
• As seen, this request
introduced changes to
many of the rooms located
on Level 1
Distribution of Reasons for CCOs (QTY)
Incomplete Design 82%
User Requests13%
Site Conditions1%
Others4%
REASONS QTY % OF CCOS
Incomplete Design 450 82
User requests 74 13
Others 20 4
Site conditions 8 1
III. HOW TO DEMONSTRATE
ENTITLEMENT
Presented by: Phil Walters
Entitlement Issues
• Does the contract permit the claim?
• Was proper notice provided?
• Reasonable efforts to mitigate?
• Was there a reservation for cumulative impact?
• Were the CCO’s agreed to?
• Were the delay events on the critical path?
• Were there concurrent activities (contractor vs owner)?
• Was there apportionment of liability?
• Is there a disruption claim without a delay?
• Is the quantification credible?
IV. WORKSHOP – REVIEW OF THE
CONTRACTOR’S OPTIMISTIC CLAIM
V. DELAY ANALYSIS
Presented by: John Owens
Examples of Different
Delay Analysis Methods
• As-Planned vs As-Built
• Window or Snap Shot Analysis
• Impacted As-Planned
• Collapsed As-Built
• Time Impact Analysis
Level 1 – Primary Problems
Level 1 – Rough in Above Ceiling
DELAYS TO CONTRACTOR AND ITS
SUBCONTRACTOR’S ACTIVITIES RESULTING
FROM ABOVE CEILING COORDINATION
PROBLEMS
Level 1 - Partitions
DELAYS TO CONTRACTOR AND ITS
SUBCONTRACTOR’S ACTIVITIES RESULTING FROM
ABOVE CEILING COORDINATION PROBLEMS
Level 1 Delays
DELAYS TO CONTRACTOR AND ITS
SUBCONTRACTOR’S ACTIVITIES RESULTING FROM
ABOVE CEILING COORDINATION PROBLEMS
CLAIM 1
COMPLETION DATE
JUNE 10, 2008
DELAYS TO CONTRACTOR AND ITS
SUBCONTRACTOR’S ACTIVITIES RESULTING FROM
ABOVE CEILING COORDINATION PROBLEMS
EFFECT OF CEILING COORDINATION
PROBLEMS ON STEEL STUD INSTALLATION
CONTRACTUAL INITIAL
COMPLETION DATE
DEC 1, 2007
VI. EVALUATION OF DAMAGES
Presented by: Steve Revay
Contractor’s Evaluation of Damages
1. Extended Field Overhead…………………………………... $ 124,740
2. Extended Equipment………………………………………….. 160,000
3. Delayed Release of Holdback….…………………………… 42,000
4. Inclement Weather……………………………………………. 45,000
5. Overtime Premiums …………………………………………. 23,000
6. Productivity Loss …………………………………………….. 28,000,000
7. Material Handling …………………………………………….. 150,000
8. Safety …………………………………………………………. 75,000
9. Disputed Extras ………………………………………………. 457,000
10. Labour and Material Escalation …………………………….. 300,000
11. Loss of Revenue ……………………………………………… 135,692
SUBTOTAL : $ 29,512,432
12. Head Office Overhead & Profit (10%) ………………………. 2,951,243
SUBTOTAL : $ 32,463,675
13. Claim Preparation (3.5%) ………………………………………. 1,136,228
TOTAL : $ 33,599,903
1. Extended Field Overhead
• Superintendent. ……………………………… $ 8,250
• Secretary/timekeeper (labour burden incl)…… 3,000
• Telephone (service & long distance) …………… 450
• Fax (rental, paper, long distance)……………… 250
• Couriers ………………………………………….. 250
• Sundry Trucking …………………………………. 400
• Temporary Power ……………………………….. 400
• Temporary Toilets ………………………………. 450
• Office Building & Supplies ……………………... 950
• Site Truck & Fuel ……………………………. $ 950
• Consumables ………………………………... 550
• Tools and Equipment ……………………….. 2,500
• Subsistence ………………………………….. 2,000
• Travel Time …………………………………... 2,200
• Bonds …………………………………………. 2,270
• Insurance ……………………………………... 600
• Extended Warranty ………………………….. 1 530
Total Cost per month ……………………………. $27,000
Total Cost ($27 000 x 4 months) ………………. $108,000
10% Office Overhead …………………………… 10,800
SUBTOTAL : $ 118,800
Profit (5%)…………………………………………. 5,940
TOTAL : $ 124,740
Quantifying Overhead Costs
How much of the delay is truly compensable?(assume that 4 months delay is acceptable)
THREE OPTIONS :
Option 1: Average O/H during the peak period of work
• More common approach
• This will yield the highest result
• It is appropriate only when no delay occurred during the mobilization period
Option 2: Average O/H during the life of the project
• More common approach
Option 3: Average O/H during last 4 months of the project
• Much of the last period is demobilization
• A contractor will generally short change himself with this option
Supreme’s Extended
Field Overhead Costs
Extra Work field O/H
• Supreme has received $1.5 million of extra work
• Duplication! Typical pricing of extra work contains monies for field O/H
• Explanation should be provided if this credit is not provided(i.e. “Extra work required additional resources which are not part of the extended field O/H”)
Actual O/H
Estimated costs
Extra work O/H
Optimum claimable O/H cost
Supreme’s Extended
Field Overhead Costs
Home Office O/H & Profit
• In Principle, there is nothing wrong with claiming home office O/H and profit on its field O/H.
• The % should be based in the mark-ups defined in the contract
• Duplication! Supreme has claimed for home office O/H and profit on:- each individual item- within the charge out rates used to calculate labour impact- as a separate component at the end of the claim- under the guise of lost revenue
Supreme’s Extended
Field Overhead Costs
Substantiation Should be Requested
• Claimed amount for each individual item is rounded off, undoubtedly upwards!
• It is possible that Supreme erred in making its claim and that some of the amounts are not as high as is suggested.
Time Related Costs
• Must ensure that Supreme is only claiming for ongoing time related costs
• Supreme should not be claiming for non-recurring costs such as:- Mobilization- Permits- Potentially insurance & bonds
Consumables and Tools
• Potential for duplication, if the charge out rates used by Supreme in claiming impact include an allowance for consumables and small tools.
Supreme’s Extended
Field Overhead Costs
Extended Warranty Period
• Warranty period starts upon substantial completion with the owner but starts when the equipment is put in to service for the supplier.
• Due to delays, the gap between these two periods has extended considerably
• This is a valid item of claim. However:- How was the amount claimed determined?- Is there a more appropriate manner of dealing with this cost?
• The owner could simply indicate that it will accept a warranty period based on when the equipment was put into service.
• The owner could agree to pay actual costs if any occur.
There is ample room for discussion as to how this claimed cost might be addressed
2. Extended Equipment
4 months x $ 40,000/month ………………… $ 160,000
• This is an extended overhead cost and as such, the aboveamount should be substantiated
• Supreme should be requested to demonstrate that the cranewas in fact on site for the additional four months claimed.
• It is not axiomatic that all overhead items will be extended bythe same duration as the project.
VALID
INVALID
� - Justification required
3. Delayed Release of Holdback
Contract Value ……………………………………………. $ 31,500,000
10% Holdback……………………………………………… 3,150,000
Therefore, 4 months interest at 4% …………….. $ 42,000
VALID
INVALID
• Valid claim IF: the contract does not indicate that financing costs are part ofthe mark-up for profit and home office overhead
• The calculation, is incorrect!
• The contractor has suffered additional costs because it was required to financethe holdback for a longer period of time than would otherwise have occurred,as the project duration incurred from 9 months to 14.5 months. Thus, it isentitled compensation. It did not, however, finance the whole holdback for anadditional 5.5 months. Therefore, the calculation should be corrected to reflectthe varying level of holdback during the life of the project.
�
4. Inclement Weather
Additional Heaters ………………………… $ 15,000
Temporary Protection ……………………. 15,000
Additional Labour ………………………….. 15,000
TOTAL: $ 45,000
This might be a valid claim subject to the following qualifications:• the amounts need to be substantiated• there has to be a demonstration that the delays being claimed did push the
work into winter• one has to ensure that no duplication exists with the costs claimed for
extended duration and impact.
VALID
INVALID
- Justification required�
5. Overtime Premiums
Total Cost of Premium O/T Worked…………..……………... $ 25,000
Premium Cost Agreed by Owner …………….……………… (5,000)
SUBTOTAL: $ 20,000
a) Premium Portion of Overtime
Total Second Shift Premium ……………….………….…... $ 4,000
Amount Agreed by Owner …………………………….…… (1,000)
SUBTOTAL: $ 3,000
b) Second Shift Differential
TOTAL PRICE: …….………….…... $ 23,000
VALID
INVALID�
5. Overtime Premium
• Supreme contends that it accelerated the work with the knowledge of theowner who should pay for the cost.
• The owner contends that whereas it was aware that an acceleration programwas ongoing, it was not aware that it was to the owner’s account. It assumedthe contractor was making good its own delays.
Arguments:
Valid Claim?
• A review of the records is required before deciding conclusively
• Supreme has a problem. It should have acquired a change order, asapparently occurred for other acceleration efforts. In this case, it is likely thatSupreme's silence will be his undoing.
• It is quite surprising how often one sees an acceleration program discussedin detail at site with neither party seeking to ascertain who is paying for theprogram and how inefficiency costs are going to be addressed.
6. Loss of ProductivityHours Expended (includes subcontractors): ……………………... 400,000 manhours
Hours Estimated at Bid: …………………………………………………… 120,000 manhours
Includes scaffolding
The following list identifies all the adverse conditions experienced in executing the work. Pursuant to industry
averages and taking a very conservative approach, we have calculated the following efficiency losses.
Adverse Productivity Factors Manhours
Inclement Weather (5%) ………….......... 20,000
Shift Work (5%) ………………………….. 20,000
Overtime (5%) …………………………… 20,000
Impact from Changes (10%) …………… 40,000
Owner Interference (10%) ……………… 40,000
Congestion (5%) ………………………… 20,000
Adverse Productivity Factors Manhours
Overmanning (5%) ……………………… 20,000
Learning Curve (5%) …………………… 20,000
Site Access (5%)………………………… 20,000
Dilution of Supervision (5%) …………… 20,000
Stop-and-Go (5%) ………………………. 20,000
Errors and Omissions (5%)……………… 20,000
TOTAL LOSS OF EFFICIENCY… 280,000 manhours
COST ($100/hr. x 280,000 mhrs) : $ 28,000,000
VALID
INVALID
�
7. Material Handling
Additional equipment costs arising from
down time and standby time…………………………….. $ 150,000
• This is an extended field overhead cost and as such, theabove amount should be substantiated
• The lack of detail raises a number of questions, such aspotential duplication.
VALID
INVALID
� - Justification required
8. Safety
Additional tool box meetings
and indoctrination down time……………………………….$ 75,000
VALID
INVALID
� - Justification required
• Supreme is arguing that because of the extended duration, ithas experienced additional down time.
• Can be a valid claim, but is likely in this case a duplication ofamounts claimed for impact.
9. Disputed Extras
Justified extras refused by consultant…………………..….$ 457,000
VALID
INVALID
• Depending on the contract there may be some potential entitlement problems. Oneshould ascertain if the contractor has satisfied the requirement to provide theappropriate Notice of Dispute.
• Potential duplication may exist with the impact claim.
• If the alleged extra is deemed not to be an extra then the allocated hours and materialare in fact an underbid. If they were in the bid they would obviously not be an extra.
These disputed extras are frequently very telling about the project and the personalitiesinvolved. The reasonableness of the parties becomes quite apparent as one reviews theseextras. Additionally, it is surprising how often one can resolve the claim by dealing withthese extras which are frequently the root source of the friction between the parties.
�
10. Labour and Material Escalation
120,000 hrs. x $1.25 ……………………………. $ 150,000
Material Increase ………………………………… 150,000
TOTAL: $ 300,000
VALID
INVALID
� - Justification required
• If the project is extended, the contractor can be pushed into a period ofhigher wage rates or simply expend more labour in the period of higherwages. The same of course can apply to material.
• In Supreme’s case, whereas there might be some validity to the claim, the amount is clearly considerably inflated. A five and half month delay to a 14.5 month project should not cause 40% of the labour to be expended in a higher wage rate.
11. Loss of Revenue
Background:
� The revenue guaranteed towards the support of his home office will be reduced (if not eliminated) when a contractor encounters compensable delays
� Home office costs are real and unavoidable
� Home office costs (in majority of cases at least) include:
- Estimation for projects to be tendered
- Accounting for the job and the corporation
- Purchasing
- Management of the overall direction of the corporation and frequently for individual projects
� Head Office, per se, does not generate revenue
11. Loss of Revenue
Background:
� No construction project could function without the head office.
� Revenue for a construction organization is earned on the field
� Project bids must include an allowance towards the support of Home Office functions. Usually as a % of estimated project costs.
� This allowance will yield the required contribution to allow the head office to function
� This unabsorbed portion of the contractor's overhead, in case of a compensable delay, is a proper valid claim. The Supreme Court of Canada has addressed this issue in the case of Shore & Horwitz Construction Co. vs. Franki Canada Ltd.
� Eichleay Formula - most commonly used by contractors to calculate loss of revenue
Therefore:
� when project completion is extended without commensurate increase in the overall revenue, then the "take home" pay generated by that project will fall below the required (and estimated) level and therefore the home office is left with some of its costs "unabsorbed".
COMPENSABLE DELAY
ACTUAL
PROJECTED
REVENUE
11. Loss of RevenueHome Office & Margin
RE
VE
NU
E
TIME
LOSS OF
REVENUE
PLANNED
11. Loss of Revenue
Contract Billing
Total Billing X Total Overhead = Overhead Allocatable to the Contract
Actual Contract Duration
Allocatable Overhead= Allocatable Overhead Per Day
Daily Overhead X Delay Days = Loss of Revenue
Step 1:
Step 2:
Step 3:
Eichleay Formula
Note:
• Eichleay formula has been accepted in Canada several times.
• In the USA, it is generally accepted when the delay is akin to a suspension during
the work but is still greeted with some skepticism as a means of calculating
compensable overhead at the end of the job.
• The amount of money calculated may have absolutely no relation to the actual
losses of the contractor, who in fact may not even have suffered damages.
11. Loss of Revenue
Per the foregoing formula, Supreme’s costs for this item are as follows:
500 million$ 441,500Step 1: 31.5 million X 7 million =
13 monthsStep 2:
$ 441,500 = $ 33,923/month
Step 3: $ 33,933 X 4 months = $ 135,692
VALID
INVALID
In the case at hand Supreme has several problems with the calculation.
• the calculation for loss of revenue duplicates the amount charged for overhead andprofit in the next item
• this claim item also duplicates the overhead and profit charged on individual items forif they are paid Supreme has not suffered unabsorbed overhead
• there also exists duplication with the amounts included for overhead and profit in theextra work.
This claim item is a hard sell and Supreme is better off simply applying the mark-up allowable in the contract, even if it yields a lower result. Applying the mark-up will cause less confusion and controversy and will usually be resolved much quicker with the same or a higher end result - i.e., money.
�
11. Loss of Revenue (American)
Eichleay Formula:
Contract Billing
Total BillingX Total Overhead = Overhead Allocatable to the Contract
Actual Contract DurationAllocatable Overhead = Allocatable Overhead Per Day
Daily Overhead X Delay Days = Unabsorbed Overhead
Step 1:
Step 2:
Step 3:
Modified Eichleay Formula:
Step 1:
Step 2:
Step 3:
Contract BillingTotal Billing X Total Overhead = Overhead Allocatable to the Contract
= Allocatable Overhead Per Day
Daily Overhead X Delay Days = Unabsorbed Overhead
Original Contract DurationAllocatable Overhead
11. Loss of Revenue
• HUDSON
• Overhead calculation based on Bid
• EMDEN
• Overhead calculation based on historical average over 2 to 3
years
Originated in Britain
Used in Canada
12. Head Office Overhead & Profit
� Utilities
� Building
� Computers
� Administration
� Management
� Financing
� Insurance
� Bonding
� Extended Warranty
� Business Development
$ 29,512,432 x 10% = $ 2,951,243
VALID
INVALID
� - Justificationrequired
• Duplication. This item duplicates costs that have been included in the otherheads of claim.
• Typically, as is suggested in the previous item, this amount will be accepted ifone does not duplicate cost and treats the claim as a disputed extra/changedwork.
• The mark-up used in pricing this item should be equivalent to the mark upallowance in the contract for extra work.
12. Head Office Overhead & Profit
• Administration
• Purchasing
• Engineering
• Tendering
• Financing
13. Claim Preparation
Based on the costs expended,
claim preparation costs are 3.5% of the total claim:
$ 32,463,675 x 3.5% = $ 1,136,228
VALID
INVALID
�- Rationale:
• The amount and method of calculation is quite difficult to accept.
• Generally speaking, this item will infrequently be paid.
• It is usually considered part of doing business.
• It should be noted, however, that if the dispute enters the arena of arbitration or litigation the costs of experts are considered valid compensable costs.
Recap: Evaluation of Damages
1. Extended Field Overhead…………………………………... $ 124,740
2. Extended Equipment………………………………………….. 160,000
3. Delayed Release of Holdback….…………………………… 42,000
4. Inclement Weather……………………………………………. 45,000
5. Overtime Premiums …………………………………………. 23,000
6. Productivity Loss …………………………………………….. 28,000,000
7. Material Handling …………………………………………….. 150,000
8. Safety …………………………………………………………. 75,000
9. Disputed Extras ………………………………………………. 457,000
10. Labour and Material Escalation …………………………….. 300,000
11. Loss of Revenue ……………………………………………… 135,692
SUBTOTAL : $ 29,512,432
12. Head Office Overhead & Profit (10%) ………………………. 2,951,243
SUBTOTAL : $ 32,463,675
13. Claim Preparation (3.5%) ………………………………………. 1,136,228
TOTAL : $ 33,599,903
VII - How to Succeed in Disruption
Claims and improve the chances of a
Successful Project
to CCA Conference held March 2015
Presented by: Gerard Boyle
Objectives
• Discuss how and why Disruption claims are
failing
• Describe a better way to get more or all of
your Rightful Entitlement earlier, and possibly
even avoid performance impediments that
would otherwise continue or worsen
My Experience
• GC/CM
• At Revay:
– Claims Review
– Project Planning and Control on major
infrastructure, ICI, tunnelling, heavy civil, road,
airport projects
– Negotiated settlement of delay and disruption
claims
Typical Setting and Outcome of
Disruption Claims
• Submitted late: before Substantial?
• Sub Claim Pass-thru by GC? Not much collaboration in preparation
• Negotiations fail or unsatisfactory (30 cents on the dollar; arbitrary award; even if agreement payment is delayed)
• Dispute Resolution approaches similarly unsatisfactory
• If no agreement, Liens, job disruption and delayed finish
• Since project probably finishes late, may be indirect claim as well
• Litigation uncertainty & cost compels contractor to absorb losses
• Hope for the best in the end
• Potential exposure to owner claims
A Better Result
• Recover rightful
entitlement in a timely
fashion
• Improved project
performance thru more
efficient and effective
execution improves
bottom line
1. PROBLEMS WITH THE CURRENT
APPROACHES TO DISRUPTION CLAIMS
Identify current problems
How to correct them
Definitions – Impact/Disruption
• Impact Costs: “increased costs of one or several related construction activities, in excess of those which would have been but for an incident, action or omission relating to a separate (discrete) item of work. Often referred to as ripple effect, because originate in one or more isolated problems and spread like ripples through the project”. Not the direct (or discrete) cost of making a change. – Sometimes referred to as disruption costs or loss of productivity
costs.
• Disruption: “Loss of productivity, disturbance, hindrance or interruption to progress.”– “Local (Direct) Disruption”: direct impact that change works has
on other unchanged work around it.” Foreseeable!
– “Cumulative disruption”: disruption between two or more changes … and is exclusive of local disruption …Synergistic effect of changes on unchanged work and on other changes.”
Example of “Local Disruption” or One-
to-One “Impact”
• Increased quantity of
embedded conduit
increases cost of
formwork
• Or delay into winter
work conditions
• Foreseeable,
quantifiable,
Definitions: Cumulative Impact
• “When there are multiple
changes and they act in
sequence or concurrently, then
there is a compounding effect
– this is the most damaging
consequence for a project and
the most difficult to
understand and manage. The
net effect of the individual
changes … greater than sum
of individual parts.”
1.1 TIMING IS EVERYTHING! DELAYING
UNTIL THE END IS HIGH RISK!
“End-of-project Total-Cost
Disruption Claim”
Forecast Delay
Changes
priced/
approved
without
disruption
(or time-
based) costs
C.O. with direct
cost only
“The amount(s) set forth in this change order are for full
reimbursement for the direct cost of all labor, material,
and equipment … to perform the work described in this
change order. All rights are reserved and not accorded
or satisfied by this change order regarding any additional
time required or costs incurred to perform any and all
other work of the contract (including other change orders)
caused by this change order. For greater clarity, no
amount has been included for delay, disruption, impact,
cumulative impact of changes, productivity, acceleration
or consequential costs, and we reserve the right to claim
for any such costs.”
Contractor delays disruption cost
submission to end of project
As Built
Total Cost
Impact Claim
What about “Direct Disruption”
(or 1-to-1 Impact)?
• Why isn’t this forward priced?!
• Can the contractor rely on “reservation of rights” to claim later?
• Does owner know real cost of this change? Informed decision?
Forecast Delay
Electrical
conduit in
formwork; or
winter work
C.O. with direct
cost only
Contractor postpones forward pricing
to end of project
As Built
Total Cost
Impact Claim
What about Cumulative
Impact of Changes?
• Lost Productivity has been incurred to date and was discoverable …
• There will be future costs
• Can the Contract change process be used to address this?
• How does the owner know the significance of this issue and therefore really make an informed decision based and mitigate its own damages?
Forecast Delay
Contractor postpones disruption cost
submission to end of project
As B. Impact
• Numerous changes
over past 5 months
• For past 3 months,
productivity below
plan & declining
• Base contract
activities delayed,
taking longer.
Total Cost
Impact Claim
Can Contractor rely on Reservation
Clause instead of Compliant Notice?
• While cumulative impact may not be foreseeable at early stage, a contractor should be able to identify productivity (and time) effects once they start to appear.
• “20 years ago Appellant might justifiably have taken position … it could not foresee any sort of impacts … We consider more plausible [now] that complete cost of change, including impact, [could be estimated].”
Doyle vs. Carling – Failure to Notify on
Cumulative Impact Claim
• “The grumblings of this contractor, … in site minutes, display no intention to claim until December, 1983 [completion February, 1984]. Even then, no claim was actually advanced, but intent was indicated. But no details were given: an owner would be hard put to know exactly what it is to meet, and hence what it is to do. The purpose of the notice is to give the owner an opportunity of considering his position and perhaps taking corrective measures, and he is prejudiced by not being able to do it.”
1.2 QUALITY PROBLEM: OVER-RELIANCE
ON, AND IMPROPER USE OF, INDUSTRY
STUDIES & FACTORS
The Good News re. Quantifying
Productivity Claims
• Heavy burden of proof with respect to causation, but less so with the amount. Causation important because Contractor may be claiming for its own inefficiencies or a bad estimate.
• But if causation is established, even if amount defies precision, there may be leniency in quantification: “… there was uncertainty with respect to the extent of damage, but none as to the fact of damage; and there is a clear distinction between the measure of proof necessary to establish the fact [contractor] sustained some damage and measure of proof necessary to enable the jury to fix the amount.”
Methods to Calculate Productivity Loss
• 1. Project-Specific damage calculations supported by contemporaneous project documentation preferred:– Measured Mile
– Earned Value Analysis
• 2. Industry Studies and Factors: (not project specific)– Cumulative Impact:
• Industry Studies– Leonard, CII, IBBS
• Factors:– MCAA
– Overtime/Over-crowding/Congestion:• US Dept of labour; NECA; CII; Army Corps
• Studies re. work density, manpower pl.v. act
Assumptions & Inherent Limitations of
Productivity Loss Calculation Methods
• General:
– All will have element of subjectivity
– Causation must be established for each
• Measured Mile: (preferred but …)
– Unimpacted period? Similar work? Long enough?
Owner-caused? Apportionment possible?
Productivity data available?
Assumptions & Inherent Limitations:
Industry Studies, Factors, Formulas
• Not project specific;
• “… viewed with scepticism by the courts.
Studies, factors, formulaic approaches … relied
upon by experts must be shown relevant … to
project at issue.”
Assumptions and Limitations:
MCAA Factors
• MCAA Factors:
– Arbitrary and subjective
– Added or adjusted to obtain pre-determined
result
– Addition of multiple factors may be unreliable
– Objectivity? Mechanical contractor group
– Not based on empirical study
Flawed Practice in using Productivity
Loss Methods
• Timely (or any) productivity data not available.
• Use of Studies or factors instead of project
specific methods like measured mile
• No attempt to apportion responsibility
• No attempt to identify causes
Test the “End-of-Project Total Cost
Disruption Claim” against Claim Pillars
�Entitlement to claim for prod. per Contract: ?
�Notice: Just “grumblings”
�Critical Path Schedule Analysis: No reference to schedule at all, or only at the end.
�Mitigation: Owner deprived of opportunity?
�Apportionment (only owner-caused?): No effort to determine or apportion cause/ effect.
�Quantum fair and reasonable: Total Cost rarely justified.
2. A SUCCESSFUL APPROACH
Using the Contact to Succeed in
Disruption Claims
• Follow the Contract – especially change procedures
• Don’t wait until the end
• Changes to include all “reasonable costs”
• Include “reservation of rights clause”, but also …
• Forward price “direct impact” cost and time effects
• Quantify Cumulative Impact: – Identify effect and notify!
– Quantify historical effect
– Cause and effect: matrix, other
– Compare to studies (use in support of project specific analysis such as Measured Mile or Earned Value)
– Forward price (with qualifying assumptions): estimate based on current productivity, added Factors, etc.?
– Negotiation, dispute resolution
Connecting Time to Production and
Productivity
Forming Wall – 12-Day Activity Duration
Activity Duration(w.d.) =Quantity of Work (s.f.)
Daily Production Rate (s.f./w.d.)
Daily Production Rate
(s.f./w.d.)
=
=11,184 s.f.
932 s.f./w.d.
Productivity (s.f./m.h.) x Effort m.h./w.d.
= 9.75 s.f./m.h. x 96 m.h./w.d. = 932 s.f./w.d.
Measured MileImpacted vs. Non-Impacted Period
200
400
600
800
1,000
1,200
1,400
1,600
1,800
2,000H
ou
rs p
er
Mo
nth
Oct
-92
Nov -
92
Dec -
92
Jan -
93
Feb -
93
Mar
-93
Apr
-93
May
-93
Jun -
93
Jul -
93
Aug -
93
Sep -
93
Oct
-93
Nov -
93
Dec -
93
Jan -
94
Feb -
94
Mar
-94
Apr
-94
May
-94
Jun -
94
Jul -
94
Aug -
94
Sep -
94
NON-IMPACTED PERIOD IMPACTED PERIOD
Hours per Month
Non-Impacted Hours per Unit
Bid Hours per Unit
Actual Hours per Unit
Lost Productivity
Underbid
25
50
75
100
125
175
200
225
250
Ho
urs
per
Un
it
150
Cause Effect Matrix
RESULTED IN
RESULTED IN
Productivity Monitoring
• To gain experience and
expertise, and support
in your productivity
claims.
Conclusions• Contract compliance requires timely notice of reasonably
discernable effects so owner can mitigate its own damages
• Deferring disruption claims until the end of the project is high risk for the contractor
• The project is best served by identifying performance problems early so as to possibly avoid further delay and disruption
• Contract change mechanism usually affords an opportunity to claim for damages contemporaneously
• Distinguish between cumulative and other types of impact in quantifying claim
• Even cumulative impact claims can be resolved contemporaneouslyif the parties are willing and reasonable
• Track project-specific productivity data to feed MM and EV analysis
• 3rd party monitoring
• Negotiate settlement at the time, or make use of dispute resolution provisions
References – Revay Reports –
available at the back of the room
89