LACK OF CREDIBILITY CAN DESTROY A CLAIM

Posted on July 12, 2025July 12, 2025 by David Adelstein

Lack of credibility can undermine your claim in a HUGE way. That lack of credibility can come from a party or a party’s expert. In Appeal of ECC International Constructors, LLC, ASBCA No. 59586, 2025 WL 1357784 (ASBCA 2025), a contractor’s delay expert was construed to have deliberately omitted a key factual event in his analysis that the contractor previously claimed was a delaying event. This fact was a focus of cross examination during an Armed Services Board of Contract Appeals’ proceeding. This omission was noted and gutted the expert’s credibility to the Board:

To demonstrate that the government delayed project performance, [the contractor] relies primarily upon the opinion of [the expert]. To be credible, a contractor’s delay analyst must take into account, and give appropriate credit for, all of the delays that were alleged to have occurred. We have found that the expert] deliberately omitted from the crux of his delay analysis the ECP security changes that—until we ruled against [the contractor] upon that issue—[the contractor] had alleged delayed its performance. That is, [the expert] did not make the ECP security changes the subject of a fragnet, as he did 22 other potential delay events. That renders [the expert’s] opinion not credible, and therefore, not helpful to us or to [the contractor’s] case. We are free to reject expert testimony [that] we find intrinsically unpersuasive … and here, we find [the expert’s] opinion intrinsically unpersuasive.

See, supra, Appeal of ECC International Constructors, LLC.

In construction disputes, not all facts are good and not all facts are bad. You can extrapolate this, in reality, to every dispute. Deliberately omitting bad facts, not telling the truth, or trying to conceal bad facts, can have the effect of killing the credibility on all the good facts. Understanding, appreciating, and addressing the bad facts is always the best way to proceed. You address the good, the bad, and the ugly, and weave this into the theme of your dispute and presentation. There is credibility conceding bad facts in that it adds to the credibility of your good facts. Remember, credibility is key and you don’t want to do anything to undermine your credibility!

Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.

…MORE ON DELAY CLAIMS AND THE BURDEN OF PROOF SUBSTANTIATING DELAY

Posted on February 23, 2025February 23, 2025 by David Adelstein

How about some more on DELAY claims and the burden of proof substantiating delay.

Delay claims can no doubt be complex – factually and legally. They warrant expert opinions further bolstered by fact witness testimony from the folks that lived the details and issues. If you need assistance with a delay claim, make sure you have the right representation to best position the claim, the arguments, and the burden of proof to substantiate the claim. Otherwise, you’ll be navigating murky waters in dealing with issues and facts that rarely will be one-sided.

Claims relating to delay can be a driving item on construction projects with back-and-forth positions / arguments and differing expert opinions. From the contractor’s perspective, to recoup time and money, the delay needs to be excusable and compensable. Below is a snippet from the Court of Federal Claims explaining the contractor’s burden in proving an excusable, compensable delay:

“[N]ot all delays are excusable, and furthermore, not all excusable delays are compensable.” Compensable delay is delay where “the government [is] the sole proximate cause of the contractor’s additional loss, and the contractor would not have been delayed for any other reason during that period.” Sequential delay is defined as delay “where one party and then the other cause different delays seriatim or intermittently.” “If a period of delay can be attributed simultaneously to the actions of both the [g]overnment and the contractor, there are said to be concurrent delays, and the result is an excusable but not a compensable delay.” Plaintiff “has the burden of establishing by a preponderance of the evidence” the existence of any excusable delay, compensable or otherwise

***

A compensable delay analysis requires the Court to look at each specific instance of excusable delay plaintiff is entitled to and determine if the government is “the sole proximate cause of [plaintiff]’s additional loss, and the contractor would not have been delayed for any other reason during that period.” Consequently, the Court cannot decide whether plaintiff is entitled to any compensable delay until it decides if plaintiff is entitled to excusable delay. Further, the government’s blanket assertion that any excusable delay caused by weather, logs, clay, or debris was concurrent with plaintiff’s delayed start, defective equipment, project planning, and personnel management is unavailing because it does not assess each specific instance of excusable delay to which plaintiff is entitled. (“[I]n the event of concurrent delays, the contractor ‘can attempt to prove the portion of the delay attributable to the government[ ] that was separate and apart from the contractor’s delay.’ ”). The government correctly states, and plaintiff acknowledges, plaintiff “has the burden of establishing by a preponderance of the evidence” the existence of any excusable delay, compensable or otherwise.

Marine Industrial Construction, LLC v. U.S., 158 Fed.Cl. 158, 207 (Fed.Cl. 2022) (internal citations omitted).

TIME IS MONEY ON CONSTRUCTION PROJECTS AND CATEGORIES OF DELAY

Posted on February 17, 2025February 17, 2025 by David Adelstein

As we know on construction projects, the adage “time is money” always applies. It applies to contractors just as much as owners.

If a project is delayed, a contractor incurs additional overhead costs known as general conditions and general requirements which are driven by time. Similarly, an owner experiences its own delay damages driven by time which can be in the form of loss of use, increased or additional financing, and increased or additional consulting (architect/engineering) costs.

From an owner’s perspective, an owner’s damages are oftentimes captured in a negotiated liquidated damages clause designed to capture owner’s delay damages by liquidating the daily amount. A contractor typically would prefer liquidated damages versus the unknown and uncapped exposure of actual damages which could be astronomical depending on the project. A contract could also include a stipulated daily rate for the contractor’s delay damages (general conditions and general requirements) which a contractor may or may not want to negotiate and include. Regardless, this all stems from the adage “time is money” which means what it says to all parties on a construction project.

Just because the project is delayed does not mean a party gets to recover delay damages. Only if it were that easy. The delay still needs to be proven, particularly by the contractor, that would need to prove entitlement to its own delay damages and rebut any late completion argument by an owner looking to assess liquidated damages.

The below from the Court of Federal claims sheds light on the categories of delay on federal construction projects which, likewise, would have merit on all projects:

“The general rule is that ‘[w]here both parties contribute to the delay neither can recover damage[s], unless there is in the proof a clear apportionment of the delay and expense attributable to each party.” Courts will deny recovery where the delays are concurrent and the contractor has not established its delay apart from that attributable to the government.

“Delays generally fall into one of three categories: (1) excusable and compensable; (2) excusable but not compensable; and (3) not excusable.” Judges of the United States Court of Federal Claims have stated that “[f]ederal regulations provide for extensions of time for excusable delays (e.g., unusually severe weather), but do not provide for equitable adjustments for such delays.” “Moreover, to result in an excusable delay, ‘the unforeseeable cause must delay the overall contract completion; i.e., it must affect the critical path of performance.’ ”

“When a contractor seeks an equitable adjustment for government-caused delay, ‘the contractor has the burden of proving the extent of the delay, that the delay was proximately caused by government action, and that the delay harmed the contractor.’ ” “The Government’s liability for delay-related damages is limited to those delays that it caused and that hew to the project’s critical path.” Determination of the critical path is necessary for determining compensable delay because “ ‘only construction work on the critical path ha[s] an impact upon the time in which the project [is]completed.’

LCC-MZT Team IV v. U.S., 155 Fed.Cl. 387, 457-458 (citation and internal citations omitted).

***

For a delay to qualify as excusable and compensable, the Government must have been ‘the sole proximate cause of the contractor’s additional loss, and the contractor [must] not have been delayed for any other reason during that period.’ This obligation thus includes the requirement that ‘there was no concurrent delay on the part of the contractor.’”

Id. at 489 (citation omitted).

RECOVERING UNABSORBED HOME OFFICE OVERHEAD DUE TO DELAY

Posted on May 15, 2022May 15, 2022 by Edward Garber

In the preceding article, I discussed the use of a retrospective as-built delay analysis in a case before the Civilian Board of Contract Appeals (CBCA). This case also discussed a damages component in certain delay claims known as unabsorbed home office overhead—a challenging damages component to recover because this deals with indirect costs as opposed to direct costs.

Unabsorbed home office overhead is a damages component when the contractor is on standby, but this is NOT as easy as just claiming standby thereby you are automatically entitled to unabsorbed home office overhead. There are requirements that MUST be met.

To obtain an equitable adjustment for unabsorbed home office overhead as compensation for being on standby, [the contractor] must initially show “[1] a government-caused delay of uncertain duration,” that “[2] the delay extended the original time for performance” or precluded the contractor from finishing earlier than scheduled, and that “[3] the contractor [was] on standby and unable to take on other work during the delay period.

CTA I, LLC v. Department of Veteran Affairs, CBCA 5826, 2022 WL 884710 (CBCA 2022) quoting Nicon, Inc. v. U.S., 331 F.3d 878, 883 (Fed. Cir. 2003).

Regarding the first element of a government-caused delay, the contractor’s workforce is not required to be completely idle during this standby period, but there needs to be an “indefinite ‘interruption or reduction of the contractor’s stream of income from direct costs incurred,’” namely:

It simply requires that [its home office] overhead be unabsorbed because performance of the contract has been suspended or significantly interrupted and that additional contracts are unavailable during the delay when payment for the suspended contract activity would have supported such overhead.

Suspension or delay of contract performance results in interruption or reduction of the contractor’s stream of income from direct costs incurred. Home office overhead costs continue to accrue during such periods, however, regardless of direct contract activity. Consequently, this decrease in direct costs necessary to support the continuing overhead creates unabsorbed overhead, unless home office workers are laid off or given additional work during such suspension or delay periods. Even then, fixed overhead costs usually remain.

***

When the period of delay or suspension is uncertain…and the contractor is required by the government to remain ready to resume performance on short notice, the contractor is effectively prohibited from mitigating such overhead costs by making reductions in home office staff or facilities

Interestate General Government Contractors, Inc. v. West, 12 F.3d 1053, 1057-58 (Fed. Cir. 1993)

Moreover:

[I]f the contractor can make out a prima facie case of (1) above, i.e., that the government-imposed delay was uncertain and that the government required the contractor to remain on standby, ready to resume full work immediately, the burden shifts to the government to show either (1) that it was not impractical for the contractor to obtain “replacement work” during the delay, or (2) that the contractor’s inability to obtain such work, or to perform it, was not caused by the government’s suspension.

Melka Marine, Inc. v. U.S., 187 F.3d 1370, 1375 (Fed. Cir. 1999)

The formula to calculate unabsorbed home office overhead is known as the Eichleay formula (after an Armed Services Board of Contract Appeals’ decision).

There are three steps in determining recoverable damages under the Eichleay formula: “(1) find the allocable contract overhead by multiplying the total overhead cost incurred during the contract period by the ratio of billings from the delayed contract to total billings of the contractor during the contract period; (2) find the daily contract overhead rate by dividing the allocable contract overhead by the number of days of contract performance; and (3) determine the amount recoverable by multiplying the number of days of delay by the daily contract overhead rate.” Melka Marine, Inc. supra, n.3. This Eichleay formula will require the assistance of an expert to calculate.

In the case before the CBCA, the contractor sought unabsorbed home office overhead for numerous delay periods. However, only one 178-day delay period truly satisfied an entitlement to unabsorbed home office overhead, and that was a delay attributable to asbestos. The government directed the contractor to stop work due to the discovery of asbestos and then, subsequently, terminated the contract for convenience. This asbestos delay stalled the project and was a standby period of an indefinite duration until the government terminated the contract for convenience. The government did not notify the contractor that the contractor could leave the project and take on other work during this period and simply remobilize without consequences and provided no evidence the contractor could even take on other work during this period. CTA, supra.

Remember, not every delay period results to an entitlement to unabsorbed home office overhead. But if the “standby” argument could be met, as discussed above, and an expert is utilized to assist in calculating the Eichleay formula, there is a basis to recover these indirect costs.

SUBCONTRACT SHOULD FLOW DOWN DELAY CAUSED BY SUBCONTRACTORS

Posted on November 21, 2020November 21, 2020 by Edward Garber

A general contractor’s subcontract with its subcontractor should include a provision that entitles it to flow down liquidated damages assessed by the owner stemming from delays caused by the subcontractor. Such a provision does not mean the general contractor does not have to prove delays caused by the subcontractor or can arbitrarily allocate the amount or days it claims the subcontractor is liable. The general contractor still will need to reasonably establish the delays the subcontractor caused the critical path of the schedule, i.e., delayed the job. In addition to the right to flow down liquidated damages, the subcontract should also entitle the general contractor to recover its actual extended general conditions caused by the subcontractor’s delays (regardless of whether the owner assesses liquidated damages). The objective is that if the subcontractor delays the job, the subcontractor is liable for liquidated damages the general contractor is liable to the owner for in addition to the general contractor’s own delay damages. This is an important subcontractual provision so that the risk of delay caused by subcontractors is clearly flowed down to them in the subcontract.

In a 1987 case, Hall Construction Co., Inc. v. Beynon, 507 So.2d 1225 (Fla. 5^th DCA 1987), the subcontract at-issue contained language that stated, “The parties hereto agree that a supplier who delays performance beyond the time agreed upon in this Purchase Order shall have caused [general contractor] liquidated damages in the amount required of [general contractor] by their contract per day for each day such delay continues which sum the supplier hereby agrees to pay.”

The general contractor was liable to the owner for liquidated damages in the amount of $1,000/day and settled the liquidated damages assessment with the owner for the amount of $20,000 (which was a reduction from a $60,000+ exposure for 60+ days of delay). The general contractor looked to apportion the liquidated damages to subcontractors it claimed was liable for the delay. The subcontractor at-issue disputed its apportionment; therefore, the general contractor sought ALL of its delay damages caused by the subcontractor for the full amount of the 60+ day delay period. The appellate court held that while the subcontract could be clearer, it was still unambiguous that the general contractor could ONLY recover liquidated damages because that is all that contract afforded:

Liquidated damages is a fictitious contractual amount which the parties agree will be paid for breach if damages are not readily ascertainable at the time the contract is drawn. Although the [general contractor] maintains that it is entitled to liquidated damages as well as actual damages suffered as a result of the delay, we find that the parol evidence rule precludes such a finding.

***

Had the general contractor been aware of the parol evidence rule, a different contract may have been provided. For example, a contract with one paragraph for indemnification of all liquidated, or other, damages paid by the general to the owner and another paragraph for payment of other actual, consequential damages suffered by the general as a result of the delay caused by the sub.

Hall Construction Co., 507 So.2d at 1226-27.

GUESSING AS TO YOUR CONSTRUCTION DAMAGES IS NOT THE BEST APPROACH

Posted on August 24, 2019August 24, 2019 by Edward Garber

Arbitrarily guessing as to your construction damages is NOT the best approach. Sure, experts can be costly. No doubt about it. Having an expert versus guessing as to your construction damages caused by another party’s breach of contract is a no brainer. Engage an expert or, at a minimum, be in a position to competently testify as to your damages caused by another party’s breach of contract. Otherwise, the guessing is not going to get you very far as a concrete subcontractor found out in Patrick Concrete Constructors, Inc. v. Layne Christensen Co., 2018 WL 6528485 (W.D. New York 2018) where the subcontractor could not competently support its delay-related damages or change orders and, equally important, could not support that the damages were proximately caused by the general contractor’s breach of the subcontract.

In this case, the concrete subcontractor entered into a subcontract to perform concrete work for a public project. The project was delayed and the general contractor was required to pay liquidated damages to the owner. Not surprisingly, the subcontractor disputed liability for delays and sued the general contractor for all of its delay-related damages “in the form of labor and materials escalation, loss of productivity, procurement and impact costs, field and home office overhead, idle equipment, inability to take on other work, lost profits, and interest.” Patrick Concrete Constructors, 2018 WL at *1.

The general contractor moved for summary judgment as to the plaintiff’s delay-related damages – the subcontractor’s damages were nothing but guesses and the subcontractor could not prove the general contractor was the cause of the subcontractor’s damages.

The portion of the deposition transcript of the subcontractor’s president that may have also been its corporate representative as to damages is telling:

Q: After today’s exercise, do you believe you’re entitled to [$]681,740 under those items [regarding change orders]?

A: No.

Q: What amount [are] you entitled to?

A: I don’t know. I’d have to work it up.

Q: So as of right now, with my one chance to depose you, the person on damages, you can’t give me a figure that you’re actually entitled to?

A: No. We just ripped all these figures apart, so now I got to go back and refigure.

With regard to the amount of damages sought for “extra costs,” Bell [the President of subcontractor] testified as follows:

Q: Okay. Then you have – you total everything here, total of everything except for the Amount Due on Contract and Outstanding Change Order heading. So that [$]915[,000] basically added up everything under Extra Costs Not Submitted all the way down to Extra Equipment?

A: Yes.

Q: You’re asking for [$]915[,000] in this. Do you believe that’s actually what you’re entitled to today?

A: Well, like I said, we were – like you said, we have to do some adjustments here.

Q: Okay. Adjustments downward, correct, sir?

A: Yes.

Q: Can you tell me today what you think you’re actually entitled to?

A: No.

And, there was more. The subcontractor could not locate its original estimate for the job, which is important for any loss of productivity or inefficiency claim – or any claim dealing with added labor and equipment usage. The subcontractor could not identify payroll records, time cards, vendor invoices, or anything to justify the damages it sought. The subcontractor guessed as to labor hours without the back-up substantiating the labor hours and, equally important, could not establish it incurred the guesstimated labor hours caused by the general contractor.

In essence, Plaintiff [subcontractor] concedes that it cannot provide the Court with an “intelligent estimate without speculation or conjecture,” for either category of damages. Because Plaintiff has failed to make a factual showing sufficient to establish that the “extra costs” and “change orders” damages are capable of being proved with reasonable certainty, summary judgment dismissing these claims is appropriate.

***

Here, Plaintiff asserts that Defendant [general contractor] breached the Subcontract by delaying the Project, and that Defendant’s delay caused it to sustain damages. However, Plaintiff has admitted that Defendant was not responsible for all of the delay, and that Plaintiff and its reinforcing bar subcontractor contributed to the delay as well. Because, by Plaintiff’s own admission, it contributed to the damage-causing delays, it is required to allocate the amount of delay and resultant damages between, at a minimum, itself and Defendant.

Patrick Concrete Constructors, 2018 WL at *4.

THE CONSTRUCTION PROJECT IS LATE – ALLOCATION OF DELAY

Posted on November 13, 2016November 8, 2024 by Edward Garber

The construction project is late. Very late. The owner is upset and notifies the contractor that it is assessing liquidated damages. The contractor, in turn, claims that the project is late because of excusable, compensable delays and, perhaps, excusable, noncompensable delays. This is a common and unfortunate story between an owner and contractor on any late construction project. Now the fun begins regarding the allocation of the delay!

Through previous articles, I discussed that in this scenario the burden really falls on the contractor to establish that the liquidated damages were improperly assessed against it and, thus, it is entitled to additional time and/or extended general conditions as a result of excusable delays. Naturally, this requires the contractor to develop a critical path analysis (time impact analysis) allocating the impacts / delays (and the reasons for the impacts/ delays) to the project completion date. The reason the burden really falls on the contractor is because the owner’s burden is relatively easy – the project was not complete on time pursuant to the contract and any approved changed orders.

In a recent opinion, East Coast Repair & Fabrication, LLC v. U.S., 2016 WL 4224961 (E.D.Va. 2016), the court contained a very detailed and sound discussion regarding this common story between an owner and contractor. Although this is a case involving a ship repair company overhauling and repairing a Navy (government) vessel, the court’s discussion would apply to any late construction project and the allocation of delay to a late project. Please take the time to read the Court’s discussion below as it lays the framework for the allocation or apportionment of delay.

In the context of litigating liquidated damages assessed by the government in a construction contract, the government first must meet its initial burden of showing that “the contract performance requirements were not substantially completed by the contract completion date and that the period for which the assessment was made was proper.” Once the government has met that burden, the burden then shifts to the contractor “to show that any delays were excusable and that it should be relieved of all or part of the assessment.”

In order for the contractor to carry its burden it must “demonstrate that the excusable event caused a delay to the overall completion of the contract, i.e., that the delay affected activities on the critical path” because the contractor “is entitled to only so much time extension as the excusable cause actually delayed” completion of the contract.

***

Having considered the somewhat conflicting positions taken on this issue in prior federal cases, this Court finds that the better legal interpretation regarding the proper treatment of “sequential delays” (where one party causes a delay followed by a separate-in-time delay caused by the other), is that “apportionment” should be permitted when the evidence provides a reliable basis on which to determine which party is responsible for which delay. Stated differently, the fact that the Government was solely responsible for some delays in this case…does not preclude the Government as a matter of law from recovering some amount of liquidated damages as a result of subsequent, and conceptually distinct, delays deemed to be solely the fault of ECR/Técnico [Contractor and its subcontractor].

As to performance delays deemed to be “concurrent,” (both parties causing a delay at the same time), the established law reveals that ECR [Contractor] is permitted to seek an extension of the project completion date for such delay, as long as the delay caused by the Government would have disrupted the “critical path” in the absence of the delay caused by the contractor. However, while ECR may seek an extension of the performance period for a concurrent delay, ECR is precluded by law from obtaining a monetary award to compensate it for “delay damages” for such delays, with the appropriate relief being only the extension of the project completion date (which, in effect, results in a day-for-day reduction of the Government’s liquidated damages claim).

East Coast Repair & Fabrication, supra, at *13-14 (internal quotations omitted).

IS PERFORMANCE BOND LIABLE FOR DELAY DAMAGES?

Posted on October 6, 2016November 8, 2024 by Edward Garber

There is an argument that a performance bond is not liable for delay damages UNLESS the bond specifically allows for the recovery of such damages. Keep this in mind when requiring a performance bond so that the bond covers the associated risks (and damages) you contemplate when requiring the bond. This argument is supported by the Florida Supreme Court’s 1992 decision in American Home Assur. Co. v. Larkin General Hosp., Ltd., 593 So.2d 195, 198 (Fla. 1992):

The language in the performance bond, construed together with the purpose of the bond, clearly explains that the performance bond merely guaranteed the completion of the construction contract and nothing more. Upon default, the terms of the performance bond required American [performance bond surety] to step in and either complete construction or pay Larkin [obligee] the reasonable costs of completion. Because the terms of the performance bond control the liability of the surety, American’s liability will not be extended beyond the terms of the performance bond. Therefore, American cannot be held liable for delay damages.

However, the Eleventh Circuit in National Fire Ins. Co. of Hartford v. Fortune Const. Co., 320 F.3d 1260(11^th Cir. 2003), also analyzing an issue relating to the recoverability of delay-type damages against a performance bond, did not narrowly interpret the Florida Supreme Court’s decision in Larkin General Hospital. Rather, the Eleventh Circuit stated:

Larkin General Hospital could possibly be interpreted to mean that a performance bond surety cannot be held liable for…delay damages, whether liquidated or unliquidated, unless the responsibility for delay damages is specified on the face of the performance bond. However, we do not read the decision that broadly. The “purpose of the bond” must be considered, which requires reference to the contract secured by the bond. Where a provision for liquidated delay damages is clearly delineated in the underlying contract and incorporated by reference into the bond, the surety is on notice of the time element of performance and the contractual consequences of failure to timely perform in accordance with the contract.

***

While it is true that the terms of the bonds in this case do not expressly require the surety to assume responsibility for delay, “[i]t is the general rule of contract law that where a writing expressly refers to and sufficiently describes another document, the other document is to be interpreted as part of the writing.” Even after Larkin General Hospital, Florida courts have continued to utilize the well-established doctrine of incorporation by reference to impose liability on a performance bond surety. The “purpose” of the performance bonds was to insure performance in accordance with the terms of the respective subcontracts, and those terms plainly include adverse direct consequences for delay. Therefore, under the particular facts of this case, the unequivocal delay damages provisions of the subcontracts are properly considered part of the bonds issued by National Fire because of the incorporation by reference.

Fortune Const. Co., supra, at 1275-76 (internal citations omitted).

It is uncertain whether a Florida appellate court will agree with the rationale of the Eleventh Circuit in Fortune Const. Co., albeit the rationale making perfect sense. If the contract incorporated into the performance bond renders the principal of the bond liable to the obligee for delay damages, then the bond should cover delay damages. On the other hand, Larkin General Hospital is a Florida Supreme Court decision meaning there is a very strong argument that that the performance bond’s liability for delay damages will not be extended beyond the face of the bond. For this reason, and as mentioned above, it is essential that the face of the performance bond expresses that it covers the obligee’s delay damages or any other damages stemming from the default of the principal. (By way of example, the AIA A132 performance bond expresses on the face of the bond that it covers delay costs stemming from the bond-principal’s default resulting from the surety’s failure to act and contractual liquidated or actual delay damages, if no liquidated damages, caused by the bond-principal.)

LIQUIDATED DAMAGES IN CONSTRUCTION CONTRACTS – WHO BEARS THE BURDEN?

Posted on June 18, 2016November 8, 2024 by Edward Garber

Liquidated damages are in many, many construction contracts. They are designed to capture an owner’s damages if a project, or portion thereof, is not substantially completed by an agreed date. The liquidated damages provision contemplates that the contractor will be liable for a daily rate of “x” for each day of delay beyond the substantial completion date (or any agreed change to this date). Sometimes there is a cap on the contractor’s liquidated damages exposure (say, capped at the contractor’s fee) and sometimes there is no cap. On private projects, the liquidated damages provision is a negotiated provision. Typically, on public projects, the liquidated damages provision is not negotiated, but is known upfront and the contractor can try to account for that risk in any bid or proposal.

Assume a project is completed 100 days beyond the agreed-upon substantial completion date. The contract provides for liquidated damages of $2,000 per day with no cap. This means the contractor has liquidated damages exposure in the amount of $200,000. The question, however, is who bears the burden relating to the 100-day delay that triggers the application of the liquidated damages provision. Understanding this burden is important, especially if you are the contractor looking to challenge this assessment and, perhaps, support a claim for extended general conditions / overhead.

The owner’s initial burden is typically an easy burden—known as the burden of persuasion. The owner really just needs to produce evidence that the project was not substantially completed by the agreed-upon date. Once the owner does this, the burden shifts to the contractor to prove that the owner prevented performance, there was excusable delay such as concurrent delay, or the owner caused the delay or a portion of the delay (e.g., design-changes, late change orders, etc.). The contractor will want to do this to not only establish it is not liable for a majority or all of the assessed liquidated damages, but that the owner is liable for the contractor’s extended general conditions / overhead associated with delay. Once the contractor does this, the burden of proof then shifts back to the owner since the owner carries the overall burden relating to its assessment of liquidated damages.

This sentiment was conveyed In the Armed Services Board of Contract Appeal’s decision in In re Idela Const. Co., ASBCA No. 45070, 2001 WL 640978 (ASBCA 2001) (internal quotations and citations omitted):

In order to assess liquidated damages the Government [owner] must prove by a preponderance of the evidence that the contractor is in default, that it did not prevent performance or contribute to the delay, and that the appellant was the sole cause of the days of delay. The Government has established that substantial completion did not occur until 109 days after the adjusted contract completion date.

In order to defeat the Government’s claim for liquidated damages, the appellant [contractor] must come forward with evidence to show that the Government prevented performance or contributed to the delay or that the delay was excusable. Because liquidated damages is a Government claim, the Government continues to have the overall burden of proof, and if the responsibility for days of delay is unclear, or if both parties contribute to the delay, for the Government [t]o recover liquidated damages the Government must prove a clear apportionment of the delay attributable to each party.

See also Sauer, Inc. v. Danzig, 224 F.3d 1340, 1347 (Fed. Cir. 2000) “(As a general rule, a party asserting that liquidated damages were improperly assessed bears the burden of showing the extent of the excusable delay to which it is entitled.); A.G. Cullen Const., Inc. v. State System of Higher Educ., 898 A.2d 1145, 1162 (Pa. 2006) quoting PCL Constr. Servs., Inc. v. U.S., 53 Fed. Cl. 479, 484 (2002) (“As to the applicable burden of proof in a liquidated damages claim, the government has “the ultimate burden of persuasion as well the initial burden of going forward to show that the contract was not completed by the agreed contract completion date and that liquidated damages were due and owing.”).

Remember, a liquidated damages provision is a common provision in construction contracts. Make sure you appreciate how this clause is triggered, the application of the clause, and who carries what burden when its comes to assessing and challenging liquidated damages.

CALCULATING EXTENDED GENERAL CONDITIONS (FIELD OVERHEAD) ASSOCIATED WITH A DELAY

Posted on December 19, 2015November 8, 2024 by Edward Garber

You are a general contractor. The project has been delayed 200 calendar days. You contend the owner and the owner’s consultants caused delays to the critical path. You submit a claim for extended general conditions / extended field overhead associated with the 200 day critical path delay. How do you calculate the costs associated with this 200 days of compensable delay? Calculate a daily rate!

The most frequently used method [to calculate extended general conditions] is to compute a daily rate by dividing the total general conditions costs on the project by the total days of contract performance and then multiplying the result by the number of days of compensable delay. An alternative method would be to determine the actual costs curing the actual delay period.

The Clark Construction Group, Inc., GAOCAB No. 2003-1, 2004 WL 5462234 (November 23, 2004) (internal citations omitted).

Construction contractors may carry field office costs, such as project supervision and administration, as direct costs to the job where the costs are specifically identifiable with that one project. In a compensable delay situation where project supervision and administration are carried as direct costs, an equitable adjustment for extended field supervision and administration is calculated as a direct cost item. Field overhead which is charged, for example, to a G&A expense pool as indirect costs should not be commingled in the direct cost calculation. Where it is impracticable to derive actual cost data during the delay period, one recognized measure of the direct costs for extended labor supervision and administration is to compute a daily rate by dividing total labor supervision and administration costs on the project by the total days of contract performance and then multiplying the result by the number of days of compensable delay. To the extent that the contractor already has recovered some field supervision costs during the delay period as part of another equitable adjustment under the contract, those amounts must be deducted from the amount of recoverable extended field supervision costs.

MCI Constructors, Inc., DCCAB No. D-924, 1996 WL 331212 (June 4, 1996) (internal citations omitted).

For example, in the appeal of MCI Constructors, the board of contract appeals determined that a contractor incurred a total of direct time-related general conditions in the amount of $303,624.80. The total contract period was 802 days, which resulted in a daily rate of $378.58. The board multiplied this daily rate by 252 days of delay to yield extended general conditions of $95,402. The board then reduced this amount by duplicative overhead markup included in other change orders.

In another example, in the appeal of The Clark Construction Group, the contractor had an original budget for general conditions in the amount of $2,540, 727. However, shortly after contract award, the contractor realized that it underbid general conditions by $344,527. In actuality and as the result of a delay, the contractor incurred $2,910,673 in general conditions costs through the substantial completion date. But, because the contractor originally underbid this amount, its actual general conditions costs ($2,910,673) were adjusted downward by the underbid amount ($344,527) to total general conditions of $2,566,146. (The reason the general conditions were adjusted downward due to the underbid amount is to put the contractor in its original position in determining its delay costs versus giving the contractor the benefit of a windfall when it originally underbid the amount.) Then, the general conditions of $2,566,146 were divided by the duration of the project (1,066 days) to come up with a general conditions daily rate of $2,407.27. This daily rate was multiplied by the number of days of delay to determine the contractor’s extended general conditions associated with the delay.