Largely in the federal contract arena, there is a theory referred to as “cumulative impacts” used by a contractor to recover unforeseeable costs associated with a multitude of changes that have an overwhelming ripple effect on its efficiency, particularly efficiency dealing with its original, base contract work. In other words, by dealing with extensive changes, there is an unforeseeable impact imposed on the contractor relative to its unchanged or base contract work. Under this theory, the contractor oftentimes prices its cumulative impact under a total cost approach with an examination on its cost overrun. However, this is not an easy theory to prevail on because there needs to be a focus on the sheer number of changes, causation supporting the impact, and whether there were concurrent impacts or delays that played a role in the ripple effect. See, e.g., Appeals of J.A. Jones Const. Co., ENGBCA No. 6348, 00-2 BCA P 31000 (July 7, 2000) (“However, in the vast majority of cases such claims are routinely denied because there were an insufficient number of changes, contractor-caused concurrent delays, disruptions and inefficiencies and/or a general absence of evidence of causation and impact.”).
To best articulate how the cumulative impact theory has been defined, I want to include language directly from courts and board of contract appeals that have dealt with this theory. This way the contractor knows how to best work with their experts with this definition in mind–and, yes, experts will be needed–to persuasively package and establish causation and damages stemming from the multitude of changes. While many of these definitions are worded differently, you will see they have the same focus dealing with the unforeseeable ripple effect of the extensive changes.
Any contractor seeking an equitable adjustment from the Government must prove liability, causation, and resultant injury. An impact claim—often characterized using other names, such as, “cumulative impact,” “ripple effect,” “loss of labor efficiency,” or “loss of productivity”—is based upon the theory that individual compensable changes to a Contract, taken as a whole, can have such a disruptive effect on the contractor’s performance that the contractor has a compensable claim for costs in addition to the amounts of its individual change orders.
In order to recover on an impact claim, a contractor must do more than present evidence of the sheer number or scope of changes. Nor is it sufficient to compare the cost of the work, as changed, to the original contract price. A contractor must also present evidence of causation and impact. Cumulative impact claims are fact-intensive and require the contractor to substantiate its claims that its work was delayed or was performed in an inefficient, unproductive, or more costly manner as a result of the individual changes to the Contract. As one board observed, “[t]here must be testimony and contemporaneous documents evidencing the type and extent of disruption to the work, and a showing that the disruption resulted from Government actions.”
Jackson Const. Co. v. United States, 62 Fed.Cl. 84, 103–04 (2004) (internal quotations omitted).
Because contractors are required to include known and generally foreseeable impacts on unchanged work in pricing the cost of a change, the term “cumulative impact” has come to mean, in a generic sense, the impact on unchanged work which is not attributable to any one change but flows from the synergy of the number and scope of changes issued on a project. The underlying theory is that numerous changes cause a cascading ripple-type of impact on performance time and efficiency which is too uncertain or diffuse to be readily discernable at the time of pricing each individual change.
We do not question that such impacts from cumulative changes do, in some instances, occur and should be compensated. However, we are mindful that impacts, whether on changed or unchanged work, which flow directly from individual changes are, with few exceptions, legally compensated by the price negotiated for the change and, thus, should be excluded from recovery under a cumulative impact claim. We are also mindful that even when a compensable cumulative impact is found, proof of damages under a total cost approach (an approach often relied upon in this type of claim) is acceptable only where safeguards for its use have been clearly established. The total cost method is not favored, in part, because it is extremely difficult to assure that the contract is not transformed into a de facto cost reimbursement contract and that costs which should be borne by [the contractor] are excluded. Thus, we must carefully examine any claim of cumulative impact under a total cost approach to assure that the four factors generally recognized for its use have been met.
Mcmillin Bros. Constructors, Inc., EBCA No. 328-10-84, 91-1 BCA P 23351 (Aug. 31, 1990).
Cumulative impact is the unforeseeable disruption of productivity resulting from the “synergistic” effect of an undifferentiated group of changes. Cumulative impact is referred to as the “ripple effect” of changes on unchanged work that causes a decrease in productivity and is not analyzed in terms of spatial or temporal relationships. This phenomenon arises at the point the ripples caused by an indivisible body on two or more changes on the pond of a construction project sufficiently overlap and disturb the surface such that entitlement to recover additional costs resulting from the turbulence spontaneously erupts. This overlapping of the ripples is also described as the “synergistic effect” of accumulated changes. This effect is unforeseeable and indirect. Cumulative impact has also been described in terms of the fundamental alteration of the parties’ bargain resulting from changes.
Causation, in the context of a cumulative impact, can be an elusive commodity because the concept of cumulative impact is, in itself, somewhat amorphous. Several points relevant to cumulative impact and causation, however, are clear. First, the mere existence of numerous contract changes in and of themselves, whether or not the number of changes is considered to be reasonable or unreasonable and whether or not the changes resulted from defective specifications, establishes no right to recover cumulative impact costs. Consequently, contract changes alone, regardless of their number or nature combined with Government liability do not serve as a substitute for causation and do not necessarily give rise to cumulative impact damages. Second, it is clear that demonstrating an overrun in labor and the existence of numerous changes without some evidence linking the changes to the overrun is insufficient proof of causation. Finally, there must be some proof of a causal connection established showing that the undifferentiated group of contract changes affecting the changed and unchanged contract work resulted in the loss of productivity on that work. This proof may take the form of demonstrating that there are no other reasons for a loss of productivity for which the Government is not responsible.
Appeal of Centex Bateson Const. Co., Inc., VABCA No. 4613, 99-1 BCA P 30153 (Dec. 3, 1998).
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