When you encounter a problem job, your attention may become overly focused on solving the immediate, day-to-day concerns. You know the claim must be assembled and submitted, but you’re not ready. You know the facts, but they are not organized for an effective presentation. Unless you go about this effort properly, you may miss the true theory of your case.
Using a typical problem as an example, I’ll show you how I analyzed a similar claim, and I’ll explain how my approach can work for you.
An electrical subcontractor is working on a two-story, 180,000-square-foot retail store. Aside from site lighting and temporary electrical work, the majority of the contract involves the installation of several different types and models of light fixtures at differing elevations. The contract provides that the owner is to supply all light fixtures.
As the job progresses, and the rough-in is proceeding, the light fixtures have not yet arrived on site. With only four months left on this one-year project, the fixtures begin to arrive piece-meal. By this time, the store is almost finished: drywall is up and wallpapered, carpeting and tile are being laid, interior partitions are up, and display cabinets are being installed. As the owner begins stocking the store with goods, three of the four access doors are kept locked all day for security reasons.
The contract has a “no damages for delay” clause. In addition, the owner reserved the right to occupy early, before substantial completion, with no additional payments to the subcontractors. The “early occupancy” option is not well defined in the contract.
At the completion of the job, the electrical contractor’s overrun is approximately $1 million in excess labor and overtime.
The contractor’s first approach
How should the contractor proceed? The electrical contractor knew that it was not his or her fault. Clearly, the reason for the delay was the owner’s failure to obtain the light fixtures so they could be installed on schedule.
Should the claim be made under the “changes” clause when there were no changes to the plans and specifications? There clearly was a delay, but the contract bars that type of claim, and job completion was approximately on time.
A consultant was retained and he styled the claims as an “acceleration.” What other avenues were available?
How to analyze a claim
Contractors and consultants commonly make the following mistakes in preparing and presenting a claim:
• They tell the story, but they do not anticipate the other side’s opposition/defenses.
• They pick a contract clause (e.g., changed conditions, changes, or delays) and construct the claim around that clause only.
• They argue that the job was so disrupted and altered that the contract should be set aside (the theories of abandonment or cardinal change).
• They fail to establish the correlation between the tale of woe and the breakdown of cost overruns by line item or by activity.
To begin with, analyze the problem. Don’t worry at first about what you think the contract says or what the law is. That legal analysis is important, but it needs to come later.
Always compare the plan versus the actual. What did you expect as opposed to what really happened on the job?
In the problem presented, the plan for fixture installation was to use rolling scaffolds, as the floor area was to be fairly open during most of construction. The plan, part of a CPM submitted to the architect, showed a sequence of installation, by area, which made sense and would allow for normal efficiencies.
Gang boxes, lay-down areas, and staging sites were all to be indoors, in a variety of locations. With four principal entrances, there were reasonable ways of directing crews, getting access to equipment and supplies, and even providing for break-time areas.
In actuality, ladders rather than scaffolds had to be used because the display cases were in the way. For a rehabilitation “rehab” job, you could estimate the cost of this more time-consuming operation. Compare the time and cost per square foot of retail space for an open floor versus a rehab, and you have a start to your cost analysis. In addition, the claim starts looking more like one for extra work than for lost productivity (which are viewed with suspicion as being inaccurate and inflated).
Locking the entrances added time for the crews to move around the store. If you had thought of it, you could have done a random time/motion study of the time differential in labor hours between reasonable access and limited access for your crews. You can still, however, estimate the time lost because of limited access.
Other factors capable of calculation and estimation include:
• Double-handling (in this case, three people were assigned full-time to move boxed fixtures out of the way of other work).
• Overtime premiums, coupled with lost productivity for extended overtime (using NECA curves).
• The cost and time effects of out-of-sequence work.
• Lost time/money for breaks as the crew had to leave the building for lunch.
• Percentage of time your crews were stopped by interference from other trades.
Considering these facts, and others, this is not a traditional acceleration claim.
Choosing the theory of recovery
My firm successfully handled this claim. Our theory of the case was determined in large part by the specific facts and information we had from the workers and the job records. Another contractor, with different circumstances, might have used another approach.
Some suggestions include the following:
By accepting the CPM, the owner implicitly agreed not to interfere with the planned sequence of the work. By delivering the fixtures late per the CPM, the owner actively interfered with the contract (breach-of-contract theory). In many jurisdictions, “active interference” is an exception to a no-damages-for-delay clause.
Other legal theories could be pursued so long as your factual analysis supports them. The more detailed information you have available (remember, the plan versus actual), the more convincing the presentation of the claim. For example, the “changed conditions” clause might be useful.
You have to be sure that you select a proper legal theory on which you can recover. Likewise, if there is a choice among applicable contract clauses, why rely on the contract theory that has a limit on the damages that are recoverable? (For example, see the usual suspension of work clause, which does not allow for profit.)
It’s obviously important to ground the claim in the contract, but don’t get so bogged down in understanding the legal terms that you miss the true story, or create a package of facts that are not convincing. Use your knowledge and experience as a contractor to sort out what happened and why. Then, when you’ve got a truer picture of what will become a “claim,” you can work with your construction attorney to integrate the facts and the law.