Construction delays chapter thirteen other categories of delay costs

Construction delays chapter thirteen other categories of delay costs Construction delays chapter thirteen other categories of delay costs Construction delays chapter thirteen other categories of delay costs Construction delays chapter thirteen other categories of delay costs Construction delays chapter thirteen other categories of delay costs Construction delays chapter thirteen other categories of delay costs Construction delays chapter thirteen other categories of delay costs Construction delays chapter thirteen other categories of delay costs Construction delays chapter thirteen other categories of delay costs

CHAPTER THIRTEEN

Other Categories of Delay Costs

The calculation of delay costs is as much an art as it is a science This is because, while an understanding of the theory that leads to the types of additional costs that may germinate from a delay is straightforward, the appropriate cost calculations for each project situation will vary consider-ably As a result, no book can address every combination and permuta-tion This chapter addresses certain points that may not be obvious, but are important to defining the breadth of damages that may result from delays

DAMAGES ASSOCIATED WITH NONCRITICAL DELAYS

Thus far, we have focused on delays to the critical path or delays that are associated with a delay to the overall project However, activities that are not on the critical path can be delayed and such delays can result

in additional costs without ultimately affecting the completion date For example, a contractor has a contract for the construction of a hospital complex The complex consists of three buildings Two buildings (A & B) already exist and must be renovated The third (C) is new construction

The contractor schedules the project using the critical path method The schedule shows that the critical path of the overall project is con-trolled by the construction of the new building, C The other two build-ings need only be completed within that overall duration and have 12 months of float (Fig 13.1)

Early in the project, the owner discovers asbestos in Buildings A and

B The contractor cannot proceed until the project Architects develop a method for the safe removal of the asbestos The hold on the two build-ings remains in effect for 10 months, at which time an acceptable method

is devised and the contractor is released to continue work In the interim,

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the contractor works on the construction of Building C The owner and contractor meet to negotiate a change order for the delay and the extra work associated with removing the asbestos in buildings A and B The direct cost of the asbestos removal is a straightforward calculation The owner and contractor can agree on the work involved and the cost of the work The contractor, however, requests additional compensation for the delay to Buildings A and B The owner argues that the overall project was not delayed and, therefore, the contractor is not due any delay damages or any additional compensation associated with the delay

Did the contractor experience any damages from the delayed start of these two buildings? To answer this question, the contractor must estab-lish the effect of the delay and the corresponding additional cost

The contractor explains that the work sequence in the original sched-ule would have been more efficient and that the delay affects these three areas:

1 Escalation of Labor

2 Additional Supervision

3 Reduced Efficiency

Escalation of labor

The contractor had originally planned to work each trade through the three buildings in a consecutive sequence For instance, the drywall crew was to work Building A first, then move to Building B, and then move Figure 13.1 Schedule showing 2 months of float for building A and B.

into Building C This same sequence was planned for electrical, HVAC, plumbing, millwork, flooring, and painting

Because of the delay, the contractor was required to work several crews in all three buildings at the same time to meet the project com-pletion date, instead of moving the same crew from building to build-ing As a result, the distribution of labor shifts to a later time frame The contractor can document a wage increase of $1.25 per hour for the sheetrockers The shift in labor is plotted on a graph as shown in

later time frame

For the drywall crew, the contractor claims damages of $1950 (an increase of $1.25 per hour for labor for 1560 manhours) The contractor performs the same analysis for each trade affected by the change in sequence These calculations would be similar to that shown for the shee-trockers inFig 13.2

Additional supervision

To allow for the inclusion of supervision costs, the contractor explains that when crew sizes increase, additional nonworking foremen must be added The contractor calculates the additional supervision for the affected trades and summarizes the claim as shown inFig 13.3

Reduced efficiency

Finally, the contractor argues that if it had been able to use the same crew throughout all the buildings, it would have absorbed the initial

Figure 13.2 Sheetrocker manhours: planned vs actual.

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mobilization and learning curve to become most productive Because each crew had to go through the mobilization/learning curve and each had different foreman and crews with varying capabilities, the result is a lower productivity level than that originally planned The contractor argues that reduced productivity represents an increase in cost

Unfortunately, productivity is a very difficult item to document In order to raise the owner’s level of confidence, the contractor has used the best crew for each trade as a benchmark to measure the learning curve/ startup effect and the difference in productivity caused by added crews

Equipment

The preceding example addressed labor costs If the added crews needed additional equipment to complete their work, the contractor would be forced to mobilize an additional piece of equipment The contractor would

be entitled to reimbursement for the mobilization and demobilization costs

of this added equipment, only, since the cost of using that equipment (once mobilized) should be included in the contract sum (Unless the cost to rent the additional equipment was more than the cost of the original piece of equipment In this case, the contractor may also be entitled to recover the difference in cost between the hourly rate of the second piece of equip-ment and the hourly rate of the original piece of equipequip-ment for the hours that the second piece of equipment was used.)

Figure 13.3 Additional supervision calculation.

CONSULTING AND LEGAL COSTS

In general, the costs associated with legal counsel and consultants are not recoverable in a claim situation This does not mean that they cannot be collected in a settlement or that they can never be awarded in litigation or arbitration The parties involved in a dispute may include legal and consultant costs as valid elements of their claims, recognizing the limited chance of recovery

Although these costs are typically disallowed in litigation, the contract may allow reasonable costs of experts expended to support a change order under the changes clause In this case, the consulting costs would typically

be connected to the administration, monitoring, or completion of extra work

Therefore, while the recovery of legal fees is generally precluded, the contract or legal statutes may provide for recovery

LOST PROFITS/OPPORTUNITY COSTS

Contractors and owners may each seek to recover damages associ-ated with lost profits and lost opportunities

In general, these costs are extremely difficult to recover due to their speculative nature In order to achieve recovery, the contractor or owner must prove that the lost profits or lost opportunity costs are directly caused by the delay A well-supported claim that can clearly establish an

Figure 13.4 Loss of efficiency calculation.

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ered to be highly speculative and subject to many diverse factors, such damages may be difficult to prove Accordingly, courts have demonstrated

a reluctance to award lost profit damages to owners It is, therefore, recommended that owners consider including a liquidated damages clause

in the contract, rather than relying on recovery of these damages through litigation

A contractor’s additional costs on other projects may also be difficult

to recover For example, a contractor may intend to use its owned exca-vator on a follow-on project However, when a delay is encountered, the contractor-owned excavator is needed on the delayed project for a longer period and the contractor must rent another excavator for the follow-on project In its delay claim, the contractor includes the cost to rent the excavator for the other project While this argument may seem viable, these types of costs are usually not recoverable for a variety of reasons including the fact that such damages are not reasonably contemplated by the owner as a consequence of a delay or at the time the project was executed

Interest

A contractor may incur interest or financing costs as a result of borrowing funds to finance the construction costs, including the damages identified

in the claim Although these interest costs may be a real cost or damage resulting from delays, contractors often are not successful in their recov-ery, as interest claims may be barred by the contract or by statute When allowable, interest may be claimed either on the overall value of the claim

or as a component of the claim that represents the recovery of the cost of borrowed monies used to fund the work

The interest claimed on the value of the claim may face several obsta-cles to recovery Generally, interest on an unresolved claim represents pre-judgment interest and is often excluded as an allowable damage either by

the contract or by statute Contract agreements often preclude such inter-est charges, but typically will allow interinter-est to be paid once a claim amount has been successfully litigated or resolved Generally, a negotiated settlement to a claim excludes interest If a claim is litigated, interest may also be regulated by State and Federal laws, and interest rates may be set

by statute

When interest is included as a specific cost of the work, or the cost of funds borrowed to perform the work, the chances of recovery are increased The contract must support such a claim by identifying that the increased borrowing and the interest cost is based on the actual financing cost incurred If such interest is demonstrated to be an actual cost, recovery may be allowable, providing the contract has supplied adequate support When calculating interest, the period of interest may vary based on the nature of the claim The start date may be the date a payment became due or the date a claim was filed Ending dates may be the date of record-ing the judgment or the date of actual payment Other factors to consider include the type of interest allowable (compound or simple interest) Many interest claims are not recoverable because the contractor has not provided adequate support or has taken shortcuts in perfecting the claim A successful interest claim must adhere to the contract agreement and be adequately supported

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