22. Construction Contract Claims

Key Words and Concepts

  • Claim definition
  • Change in contract time
  • Written claim notice
  • Causal event
  • “Proximate” costs
  • Detailed claim submittal
  • Impact costs
  • Entitlement element
  • Extended indirect costs
  • Quantum element
  • Escalation costs
  • Failure to give notice
  • Severe weather costs
  • Waiver
  • Decreased efficiency of work performance
  • Constructive notice
  • Claim processing procedure
  • Industry published inefficiency factors
  • Time limits for owner’s consideration
  • Excessive overtime
  • Change in contract price
  • Comparison with bid estimate
  • “Cost of the work”
  • “Measured mile” analysis
  • Contractor’s fee
  • Comparison with other contracts

To some construction owners, A/Es, and CMs, “claim” is an unsavory word. They regard claims as hostile assaults on their management of the contract and contractors who file them as devious and unscrupulous. On the other hand, some contractors indiscriminately file claims whether they are contractually justified or not. In reality, filing a claim is the only contractually provided procedure by which either party to the contract can openly and fairly assert their position regarding contract time or money when disputes arise. Filing a claim is the first step in the contractually provided dispute resolution process.

This chapter highlights some of the more important aspects of this complicated subject.

Threshold Matters

Nearly all claims originate with the contractor following the occurrence of a contract dispute. The Massachusetts Water Resources Authority contract for the construction of the Inter-Island Tunnel in Boston Harbor defined a claim as follows:

A claim means a written demand or assertion by the Contractor seeking an adjustment in Contract Price and payment of monies so due, an extension or shortening in Contract Time, the adjustment or interpretation of Contract terms, or other relief arising under or relating to the Contract following denial of a submittal for change under Article 10….

By the above definition, a contractor’s claim is triggered by the owner’s denial of a contractor’s proposal for a change in contract price or time. The claim is a response to the owner’s denial, which now takes the form of a demand for a stated amount of money or time, which demand becomes subject to the dispute resolution provisions of the contract. The original contractor’s proposal for an adjustment in contract price or time that triggers the owner’s denial typically originates for one of the following reasons:

  • The owner issues a formal change order or change notice adding contract work or making changes in original contract work, originally specified working conditions, or originally permitted construction methods. The occasion for the owner’s issuing of the change order or change notice could be a desired scope change in the finished project or because acknowledged differing site conditions had been encountered by the contractor. In these situations, the contractor is required to propose a change in contract price, time, or both in response to the change order or change notice.
  • The contractor, believing they have encountered differing site conditions, so notifies the owner and requests (proposes) that the owner issue a change order for an appropriate increase in contract price, time, or both.
  • The contractor, believing that instructions received from the owner constitute a constructive change to the contract, so notifies the owner and requests (proposes) that the owner issue a change order for an appropriate increase in contract price, time, or both.
  • Some causal event that the contractor believes is compensable or excusable has occurred and the contractor, after so notifying the owner, requests (proposes) that the owner issue a change order increasing the contract price, time, or both.

In order for a contractor’s claim to be valid, it usually must be established by written notice submitted to the owner within a stated number of days after the occurrence of the event giving rise to the claim. For instance, the Massachusetts Water Resources Authority contract provides that

For any claim under this article to be valid, it shall be based upon written notice delivered by the Contractor to the Authority promptly, but in no event later than twenty-one (21) days, after the occurrence of the event giving rise to the claim and stating the general nature of the claim (underline added for emphasis).

In the context of this type of contract provision, the “event giving rise to the claim” (causal event) could be the owner’s denial and refusal to issue a change order in accordance with a contractor’s cost/time proposal, or the occurrence of some event that the contractor believes is either compensable or excusable under the terms of the contract.

Once the written notice of claim has been delivered to the owner by the contractor, most contracts provide that the contractor’s detailed claim submittal, supported by a CPM schedule analysis in cases involving a demand for additional contract time be submitted to the owner within a stated number of days following the notice. Some contracts require the detailed claim to be submitted within a stated number of days following the occurrence of the event that gave rise to the claim notice. For instance, the federal government contract proscribes that the contractor’s detailed claim proposal be submitted within 30 days after the furnishing of a written claim notice while the Massachusetts Water Resources Authority contract proscribes that the detailed claim submittal be submitted within 60 days after the occurrence giving rise to the claim notice.

The contractor’s detailed claim submittal must clearly establish that (1) the contractor is entitled by the terms of the contract to an adjustment in contract price, time, or both of some amount (the entitlement element), and (2) establish the amount of the claimed dollar change in contract price or claimed number of calendar days of contract time extension—the quantum element.

“Red Flag” Contract Provisions

The above discussed matters pertain to contract claims in general. Some of the more specific provisions that contractors should be particularly alerted to include the following.

Notice Requirements

Perhaps the most important provision regarding claims is that requiring the giving of notice by the contractor that they are filing a claim. Most contracts provide explicitly that failure to give notice within the number of days specified in the contract after the event giving rise to the claim results in waiver of the contractor’s right to file a claim. Contractors sometimes avoid waiver of their claim rights by showing that the owner was aware of the event giving rise to the claim and had constructive notice of the contractor’s intention to seek monetary or contract time relief in respect to that event. This is particularly true for claims for an extension of contract time following an obvious excusable event such as a labor strike or a flood shutting down the entire project for a finite period of time. However, “dodging the bullet” in this manner is risky and should be avoided by strictly complying with the notice requirements stated in the contract.

The contractor should always follow up the initial notice of claim with a submittal explaining their detailed claim position, citing relevant contract language supporting entitlement to monetary, time relief, or both as well as detailed calculations establishing the dollar amount claimed, and, in cases where an extension of contract time is claimed, a CPM analysis supporting the number of calendar days of contract time extension claimed. The entitlement explanation can always be submitted promptly but, in many cases, costs and contract time associated with the claimed event may be ongoing and cannot be finalized until the total impact of the event has been experienced, sometimes many months after the onset of the event. In these situations, it is common for the contractor to submit best estimates of the monetary and time quantum, subject to later correction when final actual figures are available.

Claim Processing Procedure

The contract usually proscribes the procedure for processing the claim once the contractor has properly submitted it. In some contracts, these procedures are relatively straightforward, resulting in reasonably prompt consideration of the claim by the owner’s engineer or construction manager. The owner usually awaits the recommendation of their engineer or construction manager before communicating their position on the claim back to the contractor, either accepting it, denying it, or accepting in part and denying in part. The contractor then must either accept the owner’s decision or dispute it and invoke the dispute resolution procedures of the contract, usually within a stated number of days after receiving the decision. Other contracts have extremely complicated and time-consuming procedures for consideration of contractor claims, often resulting in no serious consideration of the claim until the end of the contract work. Since the contractor often cannot invoke the dispute resolution procedures of the contract until they have received the owner’s final decision with respect to the claim, complicated and time-consuming claim consideration procedures unfairly penalize contractors who may have legitimate claim positions and seriously impact their fiscal liquidity. For this reason, many contracts contain provisions setting strict time limits for the owner’s consideration of contractor claims. Failure of the owner to furnish a final decision on the claim within these time limits is considered tantamount to a denial of the claim, which frees the contractor to immediately invoke the dispute resolution provisions of the contract. Contracts containing such time limits are far preferable from the contractor’s standpoint.

Proscribed Procedure for Determination of Adjustments of Contract Price and Time

If the claimed entitlement issue is resolved in the contractor’s favor, the monetary adjustment to the contract price or the number of calendar days of contract time extension with respect to the claim must each be determined. With regard to the first determination, the change in contract price, most contracts provide the following methods, listed in order of preference:

  • By use of lump sum prices or unit prices in the contract bid schedule that were applicable to the original contract work.
  • By mutual acceptance of new lump sum prices or unit prices to be applied to the claim work.
  • If the owner and contractor do not agree to one of the above methods, on the basis of actual costs of the claim work determined from mutually accepted job records, plus a fee to cover contractor’s indirect claim costs and contractor’s profit—the so-called “cost of the work” method.

Since by their nature claims are contentious, the owner and contractor seldom agree on one of the first two methods and contract price changes are usually determined on the basis of the third method—that is, on the basis of the “cost of the work” plus a contractor’s fee.

 

The contract provisions defining the “cost of the work” are usually explicit and detailed. For instance, the Oakland County Drain Commission contract for the construction of a sewage retention treatment basin in Michigan included the following pertinent language:

25. BASIS FOR DETERMINING COST OF CHANGES IN THE WORK (CONTINUED)

“COST” is herein used shall be the actual and necessary costs incurred by the Contractor by reason of the change in the work for—

  1. labor
  2. materials
  3. equipment rental
  4. insurance premiums
    1. Labor costs shall be the amount shown on the Contractor’s payrolls with payroll taxes added when such taxes can be shown to have been incurred. In no case shall the rates charged for labor exceed the rate paid by the Contractor for the same class of labor employed by him to perform work under the regular items of the Contract.
    2. Material costs shall be the net price paid for material delivered to the site of the work. If any material previously required is omitted by the written order of the Owner after it had been delivered to or partially worked on by the Contractor and consequently will not retain its full value for other uses, the Contractor shall be allowed the actual costs of the omitted material less a fair market value of the material as determined by the Owner.
    3. Equipment rental shall be the actual additional costs incurred for necessary equipment. Costs shall not be allowed in excess of usual rentals charged in the area for similar equipment of like size and condition; including the cost of necessary supplies and repairs for operating the equipment. No costs, however, shall be allowed for the use of the equipment on the site in connection with other work. If equipment not on the site is required for the change in the work only, the cost of transporting such equipment to and from the site shall be allowed. The rental rate established for each piece Contractor owned equipment, including appendices and attachments to equipment used, will be determined by the Rental Rate Blue Book for Construction Equipment Volume 1, 2, or 3 as applicable; the edition which is current at the time the work was started will apply. The established hourly rental rate will be equal to the “Monthly” rate divided by 176, modified by the applicable rate adjustment factor and the map adjustment factor, plus the “Estimated Operating Costs per Hour.” For equipment not listed in the Rental Rate Blue Book, Volume 1, 2, or 3, the rental rate will be determined by using the rate listed for a similar piece of equipment or by proportioning a rate listed so that the capacity, size, horsepower, and age are properly considered. In the event the machinery and equipment actually on the project site is idle for reasons beyond the control of the Contractor, the rental rate of the Contractor-owned equipment will be the “Monthly” rate divided by 176, modified by the applicable rate adjustment factor and the map adjustment factor, and then multiplied by 50%. No payment will be allowed for operating costs. This section applies to only machinery and equipment necessary for performance of the work in question.
    4. Insurance premiums shall be limited to those based on labor payroll and to the types of insurance required by the Contract. The amount allowed shall be limited to the net costs incurred as determined from the labor payroll covering the work. The Contractor shall, upon request of the Owner, submit verification of the applicable insurance rates and the premium computations.
    5. “Plus” as herein used is defined as a percentage to be added to the items of “Cost” to cover superintendents, use of ordinary tools, bonds, overhead expense, and profit. The percentage shall not exceed 15% on work done entirely by the Contractor and shall not exceed an aggregate total of 25% on work done by a Subcontractor.
    6. “SPECIFIED MAXIUM LIMIT OF COSTS” is the amount stated in the written order of the Owner authorizing the change in the work. The amount to be allowed the Contractor shall be the “cost”, and “plus” the percentage or the specified maximum, whichever is the lessor amount.

This contract goes on to provide:

B. The Contractor shall keep complete, active, daily records of the net actual cost of changes in the work and shall present such information at the end of each working day as verified by the inspector, in such form and at such times as the Owner may direct.

C. If the Owner and Contractor can not reach mutual agreement in establishing the cost of changed work, the method of establishing said costs shall be on a cost plus basis.

The cited above Oakland County Drain Commission contract provision pertains to determining contract price changes for claims that do not involve an extension of contract time. This contract also provides for a change of contract time in a separate article stating in pertinent part:

26. CHANGE OF CONTRACT TIME (CONTINUED)

B. The Contract Time may be extended in an amount equal to time lost due to substantial delay of a type or of a cause that could not reasonably have been foreseen or anticipated by the Contractor, and that is beyond the control of the Contractor or its Subcontractor, if the Contractor timely and properly asserts a claim pursuant to this section. Delays that may give rise to an extension of time, if such delays are substantial and otherwise come within the preceding sentence, include those caused by negligent acts or omissions by Owner or others excluding Contractor or its agents or its Subcontractors performing additional work as contemplated by Section 9, or caused by fires, floods, labor disputes not involving a dispute between Contractor or its subcontractors and their own employees, epidemics, or other “Act of God,” as that term is commonly understood.

The Massachusetts Water Resource Authority (MWRA) Inter-Island Tunnel contract contains language to a similar effect with regard to contract claims that do not involve an extension of contract time, but in its provisions regarding changes in contract time, the MWRA contract distinguishes between time extensions due to causes which are excusable only and those that are compensable as far as extended contract costs are concerned.

With regard to extensions of contract time for excusable causes, this contract provides:

11.12 CRITERIA FOR DETERMINING ADJUSTMENTS IN CONTRACT TIME

The Criteria to be used to determine an adjustment in Contract Time necessitated by changes ordered or negotiated pursuant to these General Conditions, or work covered by a submittal or a claim, are limited to the following:

11.12.1. An adjustment in Contract Time will be based solely upon net increases in the time required for the performance or completion of parts of the Work controlling achievement of the corresponding Contract Time(s) (Critical Path). However, even if the time required or the performance for the completion of the controlling parts of the Work is extended, an extension in Contract Time will not be granted until all of the available Total Float is consumed and performance or completion of the controlling work necessarily extends beyond the Contract Time.[1]

11.12.2. The Authority may elect, at its sole discretion, to grant an extension in Contract Time, without the Contractor’s request, because of delays meeting the requirements set forth below.

11.12.3. An extension in Contract Time will not be granted unless the Contractor can demonstrate through an analysis of the Progress Schedule that the increases in the time to perform or to complete the Work, or specified part of the Work, beyond the corresponding Contract Time(s) arise from unforeseeable causes beyond the control and without the fault or negligence of both the Contractor and his Subcontractors, suppliers, or other persons or organizations, and if such causes in fact lead to performance or completion of the Work, or specified part in question, beyond the corresponding Contract Time, despite the Contractor’s reasonable and diligent actions to guard against those effects. Examples of such causes include: (1) Acts of Gods or of the public enemy; (2) Acts of the Government or of another Public Entity in its sovereign capacity; (3) Acts of another contractor in performance of a contract with the Authority; (4) Fires, floods, epidemics, quarantine restrictions; (5) sinkholes, archeological finds; (6) freight embargoes; (7) unusually severe weather; (8) a case of an emergency; (9) delays as itemized in this paragraph, to Subcontractors or Suppliers or other persons or organizations at any tier arising from unforeseeable causes beyond the control and without fault or negligence of either the Contractor or any such Subcontractors, Suppliers or other persons or organizations.

11.12.4. It is the intent of the Contract Documents that an extension in Contract Time, if any granted, shall be the Contractor’s sole and exclusive remedy for any delay, disruption, interference, or hindrance and associated costs, however caused, resulting from causes contemplated in this paragraph but not included under paragraph 11.13.

11.12.5. The provisions of this paragraph 11.12. shall govern and are applicable to Contractor requests, submittals or claims for acceleration in lieu of the alternate extension in Contract Time.

The MWRA contract then continues with article 11.13, dealing with changes in contract time due to compensable causes as follows:

11.13 CHANGES IN CONTRACT TIME MAY BE COMBINED WITH CHANGES IN CONTRACT PRICE:

It is the intent of the Contract Documents that an extension in Contract Time shall be combined with an appropriate increase in Contract Price to provide the Contractor with full remedy for any delay, disruption, interference, extension or hindrance caused by: Acts of the Authority in its contractual capacity in connection with changes in the Work, differing physical conditions or differing reference points; a case of an emergency, of uncovering work, or a suspension of work not excluded by another provision of the Contract Documents. However, no adjustment in Contract Price under this paragraph shall be provided: (1) to the extent that performance would have been so extended by any other cause, including fault or negligence of the Contractor, or his Subcontractors, Suppliers, or other persons or organizations; (2) for which an adjustment is provided or excluded under any other provision of the Contract Documents; (3) for acceleration costs in lieu of extension costs to the extent that the acceleration costs exceed those of the alternate extension in Contract Time; or (4) if delays merely prevent the Contractor’s achievement of completion of the Work, or part in question, ahead of the corresponding Contract Time(s). The Contractor shall be entitled to a Contract Price increase due to these delays, disruptions, extensions, interferences or hindrances only when delays extend the Work or specified part of the Work, beyond the applicable Contract Time(s) including any authorized adjustments.

Finally, the MWRA contract continues with article 11.14placing a limitation on the costs allowed due to an extension in contract time:

11.14 COST OF THE WORK INVOLVED—EXTENSION IN CONTRACT TIME:

When determining the cost of the work involved to complement an extension in Contract Time, amounts shall be allowed only if related solely to the extension in Contract Time,… “

As can be seen from the above, contract provisions governing changes to contract price and time are apt to be complicated. In the following sections of this chapter dealing with methods of proving the price and time quantum elements, the contract provisions of the type illustrated above must be strictly observed.

Methods of Proving Price and Time Quantum

Two separate general claim scenarios can each generate cost and time impacts. In the first scenario, some new element of work not present in the original contract is required to be accomplished either as a result of an owner directive or due to the contractor encountering differing site conditions. If the contract price and time change is to be forward priced by agreement between the owner and contractor, the quantum analysis is nothing more than making a cost and time estimate for performance of the added work by the same general methods as used for the original total project cost and time estimate. Alternately, if the price and time changes are to be determined retrospectively, it is only necessary to maintain mutually agreed accurate job records detailing the elements of contractually allowable cost and time adjustments previously discussed in this chapter.

In this first claim scenario, costs may consist of the “proximate” costs directly associated with the added work itself, incurred at the time and location where the work was added and the consequential or “impact costs,” which consist of (1) time-related costs such as increased indirect costs due to the extension of the contract period, escalation costs on unchanged work that is pushed into a period of increased labor rates or material prices, excess costs resulting from pushing original work into periods of severe weather that otherwise would have been avoided; and (2) the adverse effect of the added work on the efficiency of performance of related original contract work.[2]

The second general claim scenario is one where the original contract work is made more difficult as the result of (1) an owner directive changing the details of the original work itself, changing the conditions under which the original work must be constructed, or restricting the construction methods or equipment that is permitted to be employed for the original work; and (2) situations where the original work is made intrinsically more difficult for the above reasons due to the contractor encountering differing site conditions.

In this second claim scenario, proving time and price quantum always involves evaluation of a decrease in efficiency of performing work originally included in the contract. Several different methods utilized by contractors to prove decreased efficiency of original work performance are discussed and illustrated in the following sections.

Use of Industry Published Factors

The National Association of Electrical Contractors and others have conducted studies and published factors claimed to quantify the loss of efficiency in performing unchanged work due to stacking of trades, frequent crew movements with associated starts and stops, frequent requirements for prolonged overtime, the necessity of going through a learning curve more times than would otherwise would be necessary, and the general effect on morale due to continual changes and delays. Similarly, the Business Roundtable has published data illustrating the loss of efficiency when excessive overtime is worked on an extended basis.[3] Generally speaking, this method of proving decreased work efficiency of performance is met with skepticism by owners, courts, and arbitrators because of a lack of proof that the same conditions applying to the underlying studies were present in the claim situation involved.

Comparison with Contractor’s and Engineer’s Bid Estimates

Typically, the contract bid price is based on the contractor’s cost and time estimate prepared at the time of bid. Also, the owner’s engineer usually makes a parallel estimate indicating their assessment of a reasonable bid price under the competitive conditions existing at the time of bid. Either or both of these estimates provide a useful standard for measuring the adverse impact of causal events not contemplated at time of bid on the performance of unchanged original contract work.

In one case in the writer’s experience, both the contractor’s bid estimate and the engineer’s estimate for a IBM-excavated tunnel in rock, which had been impacted by excess water inflows not expected at the time of bid, were available to establish a reasonably expected rate of advance under the water inflow conditions indicated by the contract documents. In this case, the advance rate was also heavily dependent upon the tunnel excavation temporary support assumptions in each estimate. When the engineer’s estimate was adjusted to reflect the same temporary support assumptions as the contractor’s estimate, the adjusted engineer’s estimate advance rate was 121.8 ft. per day. The actual advance rate in the contractor’s estimate was 123.9 ft. per day. Alternately, when the contractor’s bid estimate was adjusted to reflect the same temporary support assumptions as the engineer’s estimate, the adjusted contractor’s estimate advance rate was 95.5 ft. per day. The actual advance rate in the engineer’s estimate was 95.1 ft. per day. It would be difficult to argue in this case that these estimates did not provide a reasonable figure for the tunnel advance rate that could be expected under as-bid water inflow conditions.

Measured Mile Analysis

The most reliable methodology to prove impact of an adverse causal event on the efficiency of original unchanged work performance is to compare work performance in an impacted area of the project with the performance of identical work in an area of the project that was not impacted by the causal event-—that is, the so-called “measured mile” analysis. The following two examples, taken from the writer’s claim evaluation experience, illustrate the use of this method.

During pile-driving work for steel bearing piling supporting an outfall sewer, the contractor alleged a loss of productivity caused by excessive owner directed changes, extra work, and owner-caused delays experienced during pile-driving operations. The contractor had based their claim on a productivity of 11 piles per day, which they stated was their “as-built” production for pile-driving work where the alleged interferences were not encountered. However, a study of as-built driving performance unimpacted by the claimed causal events revealed a production of 159 piles in 16.33 days for an average of 9.74 piles per day. The contractor’s actual productivity in driving 434 piles that was impacted by the claimed causal events was 434 piles in 63.0 workdays for an average of 6.89 piles per day. The extra pile-driving time on account of the claimed interferences therefore was:

Actual time required = 63.0 workdays

Time required at 9.74 piles per day = 44.6 workdays

Additional time required = 18.4 workdays

 

In another example from the same project, the contractor claimed that productivity losses in the Stage 2 phase in the construction of a bypass conduit from the productivity achieved during the Stage 1 phase were incurred due to delays caused by owner-directed strengthening of the Stage 2 conduit, differing site conditions caused by leakage from the existing outfall sewer, and numerous other directed changes in the work. The contractor also claimed that owner-caused delays pushed the Stage 2 work into severe winter weather.

According to the contractor’s claim, the following actual work quantities and man-hours (mh) required to accomplish them represented the as-built bypass conduit Stage 2 construction for which reimbursement for lost productivity was sought:

Excavation 2419 cy 786 mh 0.325 mh/cy
Form and strip 6733 sfca4 2729 mh 0.405 mh/sfca
Place concrete 357 cy 440 mh 1.232 mh/cy
Backfill 1141 cy 276 mh 0.242 mh/cy

 

The as-built Stage 1 figures taken as the “measured mile” were:

Excavation 3040 cy 740 mh 0.243 mh/cy
Form and strip 8355 sfca 1398 mh 0.167 mh/sfca
Place concrete 458 cy 254 mh 0.555 mh/cy
Backfill 1842 cy 257 mh 0.140 mh/cy

Two adjustments to the Stage 2 as-built mh were found to be necessary to reflect replacing a failed sheet pile wall during excavation due to contractor error and reflecting an estimated 15% increase in general complexity of Stage 2 work over Stage 1 work. The adjustments to the actual Stage 2 mh are shown in Figure 22-1. Based on Figure 22-1, the productivity losses for Stage 2 construction, including the effect of performing Stage 2 in the winter relative to Stage 1 construction were calculated as shown in Figure 22-2.

Activity Reported mh mh for Replacing Sheet Pile Wall mh for Increased Complexity Net mh
Excavation 786 mh 108 mh 88 mh 590 mh
Form and strip 2729 mh 356 mh 2373 mh
Place concrete 440 mh 57 mh 383 mh
Backfill 276 mh 36 mh 240 mh

Figure 22-1: Adjustments to Stage 2 mh.

Activity Quantity Net mh Adjusted Productivity Factor Stage 1 Productivity Factor Loss in Productivity Factor Productivity Loss in mh
Excavation 2419 cy 590 0.244 mh/cy 0.243 mh/cy
Form and strip 6733 sfca 2373 0.352 mh/sfca 0.167 mh/sfca 0.158 mh/sfca 1246
Place concrete 357 cy 383 1.073 mh/cy 0.555 mh/cy 0.518 mh/cy 185
Backfill 1141 cy 240 0.210 mh/cy 0.140 mh/cy 0.070 mh/cy 80
Total impact 1511

Figure 22-2: Calculation of productivity loss in Stage 2 construction.

In both the above examples, the productivity loss can easily be converted into dollars and cents. In carrying out this step, the contractual provisions governing labor and equipment hourly costs and the application of percentage markups for indirect costs and profit discussed in the previous sections of this chapter must be strictly observed. For instance, in the first of the above examples the parties had agreed that the daily labor costs including all applicable fringes and taxes for the pile driving crew were $2,443 per day. They further agreed that the crew equipment costs totaled $1,800 per day according to the equipment hourly rates proscribed by the contract provisions. The pile-driving work was performed by a subcontractor and the contract proscribed the following percentage markups for the subcontractor and prime contractor:

Subcontract markup on labor @ 15% and on equipment @ 10% for indirect costs and profit.

Additional allowance for subcontractor small tools and supplies @ 2% of the labor total.

Prime contractor markup @ 5% of subcontractor labor and equipment total for prime contractor indirect cost and profit.

Additional prime contractor allowance for bond @ 0.68% Additional prime contractor allowance for insurance @ 1.2%

On this basis, the claim quantum was computed as follows:

Subcontractor labor 18.4 days @ $243/day = $44,951

Subcontractor equipment 18.4 days @ $1,800/day = $33,120

Subcontractor subtotal = $78,071

Subcontractor markup on labor @ 15% = $6,743

Subcontractor markup on equipment @ 10% = $3,312

Subcontractor subtotal = $88,126

Subcontractor small tools and supplies @ 2% of labor = $899

Subcontractor total = $89,025

Prime contractor’s markup @ 5% of $78,071 = $3,904

Prime contractor subtotal = $92,929

Prime contractor allowance for bond @ 0.68% = $632

Prime contractor allowance for insurance @ 1.2% = $1,115

Total claim amount = $94,676

Comparison with Similar Cost Experience on Other Contracts

Sometimes the entire contract work is adversely impacted by a series of intertwined causal events that significantly affect the efficiency of performance of original unchanged contract work. Such was the writer’s experience in the early 1980s during the performance of structural concrete work for the underground Peachtree Station constructed in downtown Atlanta for the Metropolitan Atlanta Rapid Transit Authority (MARTA). In this case, the entire surface and underground structural concrete operation was adversely impacted due to the following causations:

  • Excessive number of changes both by formal change notice and constructive changes.
  • Changes directed at the “eleventh hour” preventing their incorporation into the work in a timely and organized manner.
  • Numerous errors, omissions, and conflicts found in the drawings and specifications as the work was performed.
  • Lack of engineering information and/or direction and eleventh-hour provision of same.
  • Directed acceleration of the work requiring stacking of crews and overtime work.
  • Change in sequence of performance of the underground cavern structural work.
  • Impacts associated with interference of other MARTA contractors who were allowed into the main cavern work area concurrently with the structural concrete operations.

Since the entire surface and underground work area was adversely impacted, there was no “measured mile” that could be used to compare work item productivities to prove the claimed decrease in efficiency of performance. However, our heavy engineering construction division performing the concrete work had completed eight other rapid transit projects involving similar work operations and was concurrently completing a similar deep-mined station for the Washington Metropolitan Area Transit Authority (WMATA) in Bethesda, Maryland. All of these projects had been set up and operated in a virtually identical manner and the labor productivity cost records for each of them was structured in an identical format making it possible to directly compare actual construction performance for similar work items. Great similarity existed between many of the MARTA work items and comparable work items on six of the other projects for which our computer bank contained the work-item productivity records. None of the previously constructed projects departed from the norm in factors adverse to contractor work performance.

Figure 22-3 shows the comparison made for 27 separate MARTA concrete work items to our average “normal” performance for similar work items from the other company projects. For each work item, the work-item description is listed as well as the as-built MARTA quantity and unit of measure, the MARTA mh factor per unit of work accomplished, the MARTA mh total, the normal project mh factor, and the normal project mh total. The MARTA project required 309,100 mh for the 27 separate work items, which would have required only 254,960 mh according to our experience on the other projects. The excess MARTA mh equal to 309,100 – 254,960 = 54,140 exceeded our experience on comparable projects by 21.23%. Following an extensive review of our records, MARTA accepted our offer of proof and issued a change order that compensated us for the claimed inefficiency.

Work Item No. Work Item Description As-Built Quantity Unit of Measure MARTA Performance mh Factor MARTA Performance mh Total Normal Performance mh Factor Normal Performance mh Total
1 Outside Concrete—S.O.G.* 1897 cy 1.222/cy 2,318 0.414/cy 785
2 Outside Concrete—Walls 4060 cy 1.599/cy 6492 0.816/cy 3313
3 Outside Concrete—Suppt. Slab 1097 cy 1.493/cy 1638 0.578/cy 634
4 E&S Outside S.O.G. Bulkheads 1936 cy 0.644/cy 1247 0.458/cy 887
5 E&S Outside Wall & S'Slab Bulkheads 4138 cy 0.490/cy 2028 0.459/cy 1899
6 E&S Outside Single Face Walls 18205 sfca 0.666/sfca 12125 0.222/sfca 5862
7 E&S Outside Double Face Walls 68823 sfca 0.335/sfca 23056 0.248/sfca 17068
8 E&S Outside Suppt. Slabs 16503 sfca 0.434/sfca 7162 0.172/sfca 2839
9 Erect/Dismantle Outside Shoring 263396 cf 0.015/cf 3951 0.009/cf 2371
10 Underground S.O.G. Concrete 5668 cy 1.469/cy 8326 1.079/cy 6116
11 Underground Wall Concrete 11707 cy 1.844/cy 21588 5.015/cy 58711
12 Underground Suppt. Slab Concrete 2237 cy 2.063/cy 4615 1.880/cy 4206
13 Tunnel Invert Concrete 2902 cy 1.38/cy 4008 1.149/cy 3334
14 Tunnel Arch Concrete 4911 cy 0.953/cy 4729 0.804/cy 3929
15 E&S U/G Double Face Walls 72279 sfca 0.433/sfca 21397 0.268/sfca 19371
16 E&S U/G Single Face Walls 95157 sfca 0.652/sfca 62042 0.492/sfca 46817
17 E&S U/G Invert Bulkheads 5891 sfca 0.795/sfca 4683 0.848/sfca 4996
18 E&S U/G Wall Bulkheads 10222 sfca 0.898/sfca 9179 0.467/sfca 4774
19 E&S U/G Slab Bulkheads 16821 sfca 1.098/sfca 18469 0.820/sfca 13793
20 E&S U/G Hung Forms 15436 sfca 0.319/sfca 4924 0.280/sfca 4322
21 E&S U/G Invert Edges 2690 sfca 0.812/sfca 2184 0.326/sfca 877
22 E&S U/G Arch Forms (Wood) 28771 sfca 0.723/sfca 20801 0.667/sfca 19190
23 Erect/Dismantle U/G Shoring 925354 cf 0.027/cf 24986 0.014/cf 12955
24 E&S Tunnel Invert Forms 2807 sfca 1.276/sfca 3582 1.589/sfca 4660
25 E&S Tunnel Arch Forms 50130 sfca 0.109/sfca 5464 0.057/sfca 2857
26 E&S Tunnel Bulkheads 8580 sfca 1.000/sfca 8580 0.777/sfca 6667
27 Unload/Handle Reinf. Steel 2829 ton 3.332/ton 9426 0.681/ton 1927
Total mh 309100
Excess mh 54140
% Inefficiency = (Excess mh/Normal mh) x 100 = (54140/254960) x 100 = 21.23%
*Slab on Grade

Figure 22-3: Structural concrete with performance inefficiency factor developed by comparison to average work performance in eight similar projects.

Conclusion

This chapter has reviewed the conceptual basis of construction contract claims, typical contract provisions delineating procedural requirements for their filing and processing, and the methods of proof traditionally offered by contractors seeking to establish the associated contract price and time quantum.

If the owner rejects a claim, the contractor must abandon it or contest the owner’s rejection through the dispute resolution provisions in the contract. The following final chapter in this book reviews the methods of contract dispute resolution practiced in the United States today.

Questions and Problems

  1. What triggers the filing of a contractor’s claim?
  2. What are the four basic reasons why contractors submit proposals for a change in contract price or time before the filing of a claim that were discussed in this chapter?
  3. What two examples of “the event giving rise to the claim” were given in this chapter?
  4. What two separate elements of a claim must be established by the contractor’s detailed claim submittal?
  5. What is the most important contract provision regarding contractor claims discussed in this chapter?
  6. What is the usual consequence of a contractor’s failure to conform to the claim notice provisions in construction contracts? What is “constructive notice”? Should contractors rely on the legal sufficiency of constructive notice?
  7. Discuss the importance of the claim processing procedure provisions in construction contracts from the contractor’s standpoint.
  8. In the case of construction contracts that proscribe strict time limits for the issue of the owner’s decision on a properly submitted contract claim, what is the usual consequence of an owner’s failure to issue a decision within the proscribed time limits?
  9. What general methods for the determination of changes in contract price, when entitlement has been recognized on a contract claim, are provided by most construction contracts? Of the three methods, which is usually employed?
  10. According to the Oakland County Drain Commission contract, what four elements make up the “cost of the work”? What is the maximum fee to be paid to a prime contractor for overhead and profit in addition to the cost of the work when their own forces perform the work of the claim? What is the maximum fee in the aggregate for the prime contractor and subcontractor when the work of the claim is performed by a subcontractor?
  11. How does the MWRA contract differ from the Oakland County Drain Commission Contract with respect to extensions in contract time?
  12. Discuss the two general claim scenarios presented in this chapter, pointing out how they differ and the kinds of claim costs generated by each.
  13. Discuss the four methods for proving the level of decreased efficiency of original contract work performance due to claim causations presented in this chapter? Which is generally the most persuasive? Which is the least persuasive?

  1. In the context of this contract language, "Total Float" has the meaning of "float" as defined in Chapter 18.
  2. These two general types of impact costs are the same as those discussed under price and time adjustments for contract changes in Chapter 14.
  3. The effect of this published data is discussed in connection with the pricing of contract changes in Chapter 14.

License

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Construction Contracting by Estate of Stuart H. Bartholomew is licensed under a Creative Commons Attribution-NonCommercial-ShareAlike 4.0 International License, except where otherwise noted.