HOW TO MANAGE CONSTRUCTION DISPUTES TO MINIMIZE SURETY AND CONSTRUCTION CLAIMS. PART 4: ACCELERATION OR COMPRESSION OF THE CONSTRUCTION SCHEDULE CLAIMS
Construction is a business fraught with risk. Disputes over even the smallest of issues can quickly escalate, with crippling consequences to the project and the parties. Over the years, the construction industry has developed various methods of contractually allocating the risk of project delay and disruption. Some of these methods include liquidated damages provisions, "no damages for delay" clauses, mutual waivers of consequential damages, provisions that limit liability, claims notice provisions, “waiver of damages clauses”, acceleration clauses, “time is of the essence” clauses, and provisions addressing responsibility for the adequacy of the construction plans and specifications. Parties frequently litigate the sufficiency of these risk-shifting efforts in conjunction with the underlying merits of delay and disruption disputes. We use our renowned "Lessons Learned" methodology to perform loss control and risk management services.
Construction Claims & Disputes
In Part I of our series of how to manage construction disputes to minimize surety and construction claims, we addressed the construction delay claims and the methods typically used to analyze them.
1. We indicated there that the most frequently encountered claims include:
2. Construction Delay Claims
3. Disruption and Loss of Labor Productivity Claims
4. Design and Construction Defect Claims
5. Force Majeure Claims
6. Acceleration or Compression of the Schedule Claims
7. Suspension, Termination and Default Claims
8. Differing Site Conditions Claims
9. Change Order and Extra Work Claims
10. Cost Overrun Claims
11. Unacceptable Workmanship or Substituted Material Claims
12. Non-payment Claims (stop notice (or Notice to Withhold) claims, mechanics’ lien (only for private construction projects) and payment bond claims)
Part IV of this series discusses item 5 above: Acceleration or Compression of the Schedule Claims
Definition of Acceleration
Acceleration is the speeding up of the work process in a construction project by either the general contractor or property owner. An example of acceleration is when a contractor, working a school seismic upgrade, is ordered to stop work while the school district makes major changes to the plans. The delay associated with the stoppage and changed plans makes it impossible for the contractor’s scheduled work force to complete the project on-time. However, the school district needs the project completed by the original completion date so that students can use the classrooms. As a result of this conflict, the school district requires the contractor to complete the project before the commencement of the school year.
The acceleration of a project typically results in the general contractor or sub-contractor having to increase the number of work hours or shifts, hire additional labor or crews, providing for additional supervisory personnel, and increase resources such as equipment and supplies, all of which increase the costs associated with the project for the contractor. Calculating the acceleration cost of a construction project is not simply related to the direct and indirect cost of the project. Working under compression creates an environment that increases the chance of mistakes and redoing that work. Accelerating a project implies more work on a critical path and reducing project float times. Accordingly, project risk will increase, and therefore potential for more losses. It is not unusual for 25% or so of the labor hours to be inefficient. Overtime also causes stress and reduces morale of the labor force.
These added labor costs are typically direct payroll costs (factoring in labor burden) as well as equipment costs associated with operating the equipment (especially if it is owned equipment) for longer hours or renting additional equipment to be utilized by the additional manpower or crews and for rushed delivery times of the construction material. In addition, acceleration can result in inefficient labor hours because manpower is now working longer hours, new manpower is added and there is a learning curve associated with new manpower that is not familiar with the work, and the labor is potentially working under re-sequenced conditions and in congested locations with other trades. Thus, just because the contractor takes reasonable efforts to accelerate does not mean that it is incurring efficient / productive labor costs or that its acceleration efforts are substantially improving the completion date of the project.
Acceleration can be classified as either directed acceleration or constructive acceleration. Another category that also has been litigated is voluntary acceleration, if the contractor volunteers to complete the project per the actual or revised completion date, the contractor will not, generally, be entitled to recover the additional cost associated with the acceleration Acceleration may occur from the other party's express or constructive order to increase the rate of production. An express order to accelerate does not have to be written or use the word "accelerate", although it must direct the contractor to increase its rate of production and reflects an intention or understanding that the increased effort will result in additional compensation.
In a recent decision, a contractor sent a letter to a subcontractor requiring that it increase its rate of production to meet the contractor's revised schedule. A hand-written note on the letter stated that "all costs for the above will be negotiated at close out." The contractor argued that the letter was not an order to accelerate because the subcontractor had caused the delay and the revised schedule gave the subcontractor more time to perform its work than the original schedule. The court held that the letter was an express order to accelerate because it directed the subcontractor to increase its rate of performance at a time when the weather conditions were less favorable than the original schedule and manifested an intention to pay the subcontractor additional sums for such increased performance.
For a contrary decision where the contractor caused its own delays, see United Constructors, LLC v. United States, No. 08-757C (Oct. 18, 2010) (denies Type I Differing site Conditions claim because conditions were reasonably foreseeable at time of bidding; denies constructive acceleration claim because contractor's own delays contributed to the delay)
Directed Acceleration
Directed acceleration occurs when the owner directs the general contractor (or when the general contractor directs the sub-contractor) to expedite the work process of the project to finish the job in advance of the completion date. In this type of acceleration, the owner is considered responsible for the contractor’s increased costs (acceleration costs) to complete the project prior to the contracted completion date. It is not uncommon for construction law firms to include a provision that allows the owner or general contractor to accelerate the project, with the understanding that the owner will need to compensate the contractor for the acceleration efforts.
Constructive Acceleration
The second type of acceleration that is more likely to result in disputes because it centers around entitlement and quantum is the constructive acceleration. Constructive refers to something that is not expressly required, but something that is inferred from the actions of a party or implied. When faced with an excusable delay, which is generally outlined within the contract, the general contractor or subcontractor is entitled to compensation for the increase in costs incurred as a result of the delay and a reasonable time extension to complete the project. The owner may not explicitly ask the contractor to accelerate the project, but it may require the contractor to fining as agreed upon the contract despite the delays.
Constructive acceleration occurs when the owner denies the contractor’s request for a time extension to complete the project, which forces the contractor to accelerate the work process to complete their contractual obligations within the original timetable despite the presence of an excusable delay so that he avoids the imposition of liquated damages. This results in an increase in costs for the contractor and typically leads to an acceleration claim. To ensure that the contractor is fairly compensated for a constructive acceleration claim, the contractor must include the appropriate provisions in the construction contract.
Another common scenario is when the owner’s agent tells the contractor that it will consider the time extension request at the end of the job. This places the contractor in the predicament of not knowing what to do. If it waits until job completion for the owner agent’s decision, then it runs the risk of exposing it to liquidated damages or other damage claims by the owner if the time extension request is rejected. If it chooses to accelerate, it will normally be entitled to recover its costs on a constructive acceleration claim, provided it notifies the owner it is accelerating the work.
Acceleration Claims
A claim of acceleration is a claim for the increased costs that result when the owner requires the contractor to complete its performance in less time than was permitted under the contract. The claim arises under the changes clause of a contract; the basis for the claim is that the owner has modified the contract by shortening the time for performance, either expressly (in the case of actual acceleration) or implicitly through its conduct (in the case of constructive acceleration), and that under the changes clause the owner is required to compensate the contractor for the additional costs incurred in effecting the change..
A claim of constructive acceleration ordinarily arises when the owner requires the contractor to adhere to the original performance deadline set forth in the contract even though the contract provides the contractor with periods of excusable delay that entitle the contractor to a longer performance period. Although different formulations have been used in setting forth the elements of constructive acceleration, the requirements are generally described to include the following elements, each of which must be proved by the contractor (See Fraser Construction Co. v. United States, 384 F.3d 1354 (Fed. Cir. 2004)):
(1) that the contractor encountered a delay that is excusable under the contract and that impacted the schedule;
(2) that the contractor notified the owner of the delay and made a timely and sufficient request for an extension of the contract schedule;
(3) that the owner either expressly denied the contractor's request for an extension or failed to act on it within a reasonable time;
(4) or that the owner insisted on completion of the contract within a period shorter than the period to which the contractor would be entitled by taking into account the period of excusable delay, after which the contractor notified the owner that it regarded the alleged order to accelerate as a constructive change in the contract; and
(5) that the contractor was required to expend extra resources to compensate for the lost time and remain on schedule and the contractor did in fact incur costs in accelerating its performance.
See Armour of America v. U.S., 96 Fed.Cl. 726, 757 (Fed.Cl. 2011) (“To prove a constructive acceleration claim, and entitlement to an equitable adjustment, which Armour [contractor] did not attempt to do during the proceedings before the court, a contractor must show (1) that the contractor encountered a delay that was excusable; (2) that the contractor requested from the government an extension of time due to the delay; (3) that the government denied the contractor’s request for an extension of time; (4) that the government demanded completion of the contract in a shorter amount of time than the contractor was entitled to, given the excusable delay; and (5) that the contractor was required to expend additional resources to adhere to the schedule on which the government insisted.”). See also Norair Eng’r Corp. v. U.S., 666 F.2d 546 (Ct. Cl. 1981).
Excusable Delays
As a general rule, parties to a construction contract can include anything in their agreements they want. When disputes arise, courts or arbitrators initially refer to the contract the parties signed as a memorial of their agreement and attempt to enforce the agreement as the parties intended. Whether or not a delay in the performance of the work is excusable or inexcusable depends to a large extent upon whether or not the owner and the prime contractor agree in the contract that certain delays are considered the risk of the owner or the contractor. General Condition 8.3 of AIA Document A-201 (2007) is a good example of a contract clause that addresses excusable delay.
8.3 DELAYS AND EXTENSIONS OF TIME
8.3.1 If the Contractor is delayed at any time in the progress of the Work by an act or neglect of the Owner or the Architect, or by any employee of either, or by any separate contractor employed by the Owner, or by changes ordered in the Work, or by labor disputes, fire, unusual delay in deliveries, unavoidable casualties, or any causes beyond the Contractor’s control, or by delay authorized by the Owner pending mediation and arbitration, or by other causes that the Architect determines may justify the delay, then the Contract Time shall be extended by Change Order for such reasonable time as the Architect may determine.
8.3.2 Claims relating to time shall be made in accordance with applicable provisions of Article 15.
8.3.3 This Section 8.3 does not preclude recovery of damages for delay by either party under other provisions of the Contract Documents.
As the clause indicates, the contractor’s relief in the event of excusable delay is only an extension of time for completing the work. While the delays are excusable because they are not the fault of the owner, no additional expenses caused by these delays are awarded the contractor. Therefore, these delays are also referred to as “non-compensable” delays, as the contractor is not compensated for the additional costs of the delay. Note that paragraph 8.3.3 of the clause does not exclude recovery of damages for delay by either party under other provisions of the contract.
Example
As a basic example, assume a project was to be completed December 31, 2014. This marked the date the owner needed to use the project for its intended purpose. However, due to excusable delays (assume many owner-directed change orders and/or design-related issues), this completion date is postponed a year to December 31, 2015. Encountering a differing site condition, unexpected consequences of a weather condition or unexpected productivity problems related to unique design details in the project often invoke disputes about whether the delay is excusable. Murdock & Sons Constr., Inc. v. Goheen Gen. Constr., Inc., 461 F.3d 837 (7th Cir. 2006).
The contractor notified the owner of the delays and impacts to its schedule and requested an extension of time to complete the project. Most standard construction contracts contain clauses requiring requests for time extensions be submitted to the owner or general contractor within a prescribed time. E.g. AIA A201 – 1997, paragraph 4.3.3. Further, many, if not most, governmental contracts have mandatory notice provisions for contractor claims in procurement manuals, statutes or regulations. It is always best to make all requests for an extension of time in writing. This document may become the centerpiece of proof when calculating the damages for acceleration.
For whatever reason, the owner refused to grant additional time and implicitly demanded that the contractor complete the project on schedule. The contractor, as the result of the owner’s refusal to grant additional time, accelerated its performance to finish the project earlier than December 31, 2015 and to avoid the consequence of the owner assessing liquidated damages (i.e., the contractor accelerated to mitigate the impact of the delay). Based on the contractor and its subcontractor’s efforts, the project was completed on May 30, 2015–5 months after the original completion date, but 7 months before the contractor should have been complete considering the excusable delays. In this basic example, the contractor’s acceleration efforts mitigated the overall delay by approximately 7 months (the difference between May 30, 2015 and December 31, 2015) even though the contractor finished 5 months later than the original schedule. The contractor will need to prove the costs associated with these acceleration efforts.
Contractor must Prove that Acceleration Increased his Costs
Proving that the acceleration resulted in increased cost to the contractor is critical to the success of any acceleration claim. There are a number of methods to prove damages due to acceleration. One method of calculating the damages for the acceleration is the Total Cost Approach. The Total Cost Approach compares the total actual costs of the project to the estimate or original bid for the project. The problem with this method is that there are variables such as whether the contractor’s estimate or original bid was reasonable and whether the contractor contributed to the increased costs that can invalidate the resulting cost increase. This concern has led some courts to refuse to allow the Total Cost Approach to be used when calculating acceleration damages. See Amelco Electric v. City of Thousand Oaks, 27 Cal. 4th 228, 115 Cal. Rptr. 2d 900, 38 P.3d 1120 (2002).
Another method for proving damages for acceleration is to use Industry Standards to show damages. Industry standards from industry groups like the National Electrical Contractors’ Association (NECA), the Mechanical Contractors’ Association of America (MCAA), R.S. Means and the Business Roundtable produce standards and handbooks containing standard productivity rates. These industry productivity standards can be used as a baseline benchmark and used for comparison against actual productivity on a job. The difference would be the basis for acceleration damages.
Another method of measuring damages is called the Measured Mile Approach. This approach compares the level of labor productivity during the accelerated work period to labor productivity during a normal period, the difference being the basis for acceleration damages. See for example James Corp. v. N. Allegheny Sch. Dist., 2007 WL 4208589 (Pa. Commw. Ct. Nov. 30, 2007). In this case, the Commonwealth Court of Pennsylvania held that the trial court properly measured acceleration damages sustained by a general contractor under the “measured mile” theory of recovery. In a multi-phased construction project entered into by the school district and James Corporation, the district delayed James’ performance by failing to obtain permits in a timely manner, by requiring extra work which interfered with the planned sequence of work, by relocating fencing and reconfiguring the erosion and sedimentation pond, and by requiring removal of asbestos (which was not in the contract). Amidst the delay, the district abandoned the contract schedule, refused to consider the time impact on the contractor’s planned sequence, and then terminated the contractor after substantial completion. The trial court awarded James damages for acceleration/compression of work, unpaid invoices, prevailing wages withheld, attorneys’ fees and expenses. The district’s reliance on the standard “no damages for delay” clause was overcome by court findings that the district had affirmatively interfered with the contractor’s work. Extra work claims were accepted by the court as a matter of fact, because the district was fully aware that it had requested the extra work and performed under the district’s direction. The Commonwealth Procurement Code authorized damages as sanctions for the district’s bad faith, and interest on untimely progress payments and attorney’s fees were ordered.
Ina addition to these issues, overtime introduces additional problems including: fatigue, low morale, a higher cost per unit (typically a time and a half wage rate), a higher accident rate, increased absenteeism due to workers reaching 40 hours earlier in the week, and a phenomenon first described by the U.S. Army where workers tend to pace themselves to adjust for a longer work day or week. This phenomenon emerges because workers expend effort and energy at a rate established by a long period(s) of adaptation. When work hours are extended, it has been noticed that workers tend to adjust their pace (subconsciously) as to accomplish the same amount of work as would be completed in a typical eight hour day.
The most common response by contractors to an accelerated or compressed schedule is the implementation of over manning. Over manning is preferred because it can produce a higher rate of progress without the fatigue problems of overtime and the coordination problems realized with shift work. However, over manning introduces additional problems including: site congestion, stacking of trades, the dilution of supervision, a higher cost per unit hour (a result of additional crew members being inadequately trained), a higher accident rate, and supply chain inefficiencies (due to materials and tools being consumed at a much faster rate). The aforementioned problems confront contractors with a significant increase in total costs since they act to reduce productivity per man hour. When schedule acceleration or compression occurs, and over manning is used, the contractor is entitled not only for the direct costs of the extra workers but also for the impact costs caused by the productivity losses present with over manning.
No matter how damages are arrived at, the contractor should not forget to include profit and overhead in the acceleration claim. Additional indirect costs include job site overhead (e.g. project supervision costs), extended general conditions or extended or unabsorbed overhead, job shack, portable toilet, telephone, insurance, and job site power and water that can be tied to the acceleration.
Contractor must Comply with All Requirements
It is very important that the contractor complies with all the above elements to be able to prove a constructive acceleration claim. Many times the claim fails because the contractor failed to comply with the requisite notice requirements. These notice requirements also serve the following purposes:
· They warn the other party that it is incurring an additional obligation;
· They permit the other party to take alternative action in order to avoid or reduce the cost of schedule acceleration; and
· They establish that the contractor is not performing the schedule acceleration voluntarily.
If those events occur, the contractor must immediately review the contract to determine what contractual notification deadlines exist. Most contracts have change order and time extension clauses that are applicable when there are project delays. The failure to comply with these contract notification clauses constitute the owner’s primary defense to this type of construction claim. The contractor’s entitlement to construction schedule acceleration is sometimes valid in the absence of notice on those occasions where the contractor can show that the owner could not or would not have granted a time extension, even with notice. In other situations where the contract documents do not require notification, the contractor can still prove his claim even if he did not notify the owner of the acceleration. See SNC-Lavalin America, Inc. v. Alliant Techsystems, Inc., 858 F. Supp. 2d 620 (W.D. Va. 2012). This dispute involved a construction acceleration claim. The U.S. District Court for the Western District of Virginia ruled that where a contract did not expressly require a contractor to provide notice of acceleration, that contractor could still maintain its acceleration claim based on an owner’s demand for completion by a date certain. The Court held that, unlike contracts with the federal government that include the standard Federal Acquisition Regulations changes clause, the contract in question did not require that the prime contractor notify the owner that it believed an owner’s completion demand required acceleration. Accordingly, despite the contractor’s lack of notice, the court permitted the contractor to recover on its claim for damages resulting from constructive acceleration.
Although there may be some cases (as the above) in which the contractor is not required to request a time extension, it is highly recommended for the contractor to make the request to avoid the defense of voluntary acceleration. To minimize disputes, the contractors are advised to notify their contract partners at the time of submission of a recovery schedule that: (1) delays previously encountered are understood to be excusable; and (2) performance to a submitted recovery schedule is understood to be accelerated work at the owner’s request. This request for a time extension should include a specific date by which if no time extension is granted or no response from the owner is received, the contractor will assume that the owner has denied the request and will be forced to accelerate the project to meet the contracted completion date. This type of notice may encourage the owner to take action and may help avoid an acceleration claim.
For owners, to the extent that accelerated performance is sought, express direction relative to the recovery schedule should be provided to the contractor. Owners should explain the rationale for determination of unexcused delay or why performance to the compressed schedule may not actually result in acceleration damages.
Some additional case law discussing the acceleration claims is: Nat Harrison Associates, Inc v Gulf States Utilities Co., 491 F.2d 578 (5th Cir. 1974) and Johnson Controls Inc. v. National Valve & Manufacturing Co., 569 F.Supp. 758 (1983
Submission of and performance to a recovery schedule may also give rise to legal issues between a prime contractor and its subcontractors. Disputes are particularly likely where the subcontractor’s performance arguably contributed to the necessity of a recovery schedule. Where subcontractor performance (or lack thereof) is a point of contention, prime contractors are advised to review and protect their rights vis-à-vis both subcontractors and project owners at the time of recovery schedule submission. In fact, failure to do so may result in the legal waiver of rights.
Notably, in the case of McLain Plumbing & Electrical Service, Inc. v. United States, a prime contractor placed in default agreed with its owner to perform to a recovery schedule. 30 Fed. Cl. 70, 75 (1993). As part of the recovery schedule performance, the prime contractor terminated an alleged underperforming subcontractor. Subsequent to its termination, the subcontractor pursued arbitration with the prime contractor and prevailed on a theory of wrongful termination. The prime contractor later attempted to recover the cost of the subcontractor judgment and associated costs from the government, asserting that the government “forced” the prime contractor to terminate the subcontractor. The Court of Federal Claims ruled against the prime contractor, holding that the prime contractor’s written agreement with the government pledging performance to the recovery schedule and wherein the prime also agreed to terminate the subcontractor, amounted to accord and satisfaction. Accordingly, by failing to reserve its rights in the recovery schedule agreement, the prime contractor was deemed to have relinquished its right to recover the subcontractor damages. Id. at 77-84.
While the above fact pattern is layered, it again underscores the importance of notice and reservation of rights at the time of performance to a recovery schedule. Prime contractors especially must be wary of the sometimes competing legal interests of project owners and subcontractors.
What to document
Once it's apparent that the project is in distress, you must document everything that happens on the job. Supervisors should be aware of how important their daily job log will be when it comes time to recover lost monies due to inefficiencies. The burden of proof will be on you. Your documentation will build a chronology that will tell the story of what happened and when. Trying to reconstruct what happened after the project is complete will be virtually impossible. A project file should be organized to support a claim for a loss of labor efficiencies that include 10 essential items.
Estimating and bidding files
These files should include the original estimate with all related backup sheets. Because most, if not all, bids are done on a computer, a backup disk should be made and stored with the job file. Include any quotes from subcontractors and vendors. These prices may be different than the actual dollar amount spent due to excessive changes or having to expedite material fabrication and delivery.
Contract documents
Maintain copies of all contract documents, including addenda, change-orders, and correspondences that were associated with the contract negotiations.
Schedules
Start with the original project schedule and include all updates and revisions. The schedule should show a date of implementation. If it doesn't, make sure the date is handwritten on a hard copy.
Cost records
Keep a weekly cost record of all expenditures on the project. Be sure to include deliveries, payments, and requisitions.
Correspondence and similar communications
Include all correspondences, internal and external memos, letters, e-mails, notes of phone conversations, meeting minutes, and any other documentation that shows proof of key events that took place.
As-built information
Include daily reports, inspection reports, time sheets, job logs, professional inspections, and diaries. These records will show the conditions of how the work progressed. The daily job logs are probably the most import documentation that will go into this file.
Standard form correspondences
Include any and all correspondences with all project participants, such as notes of phone conversations, requests for information (RFIs), field clarifications, transmittals, submittals, and changes.
Photographs
A picture is worth a thousand words — and perhaps dollars — in this case. When filing a claim, you need to show the conditions in which the work was installed. Make sure pictures are dated and time-stamped. The value of the picture will be determined by how well it is documented.
Other subcontractors' files
Manpower and location of the work others are performing are also important factors to document. Out-of-sequence work and slow progress may not affect you immediately, but they could cause problems down the road.
Completion documents
Documents, such as punch lists, certificates of substantial completion, certificates of occupancy, or certificates of final acceptance, should go into this file.
Looking at the big picture, the three most important things to remember are documentation, documentation, and documentation. When in doubt, document. Remember, it's your responsibility to show entitlement when filing a claim. The better your documentation is, the easier it will be for you to recover your claim.
The Claim Presentation
To be successful, a claim for delay, disruption and/or acceleration must persuasively set forth the facts underlying the claim and the technical and legal justification for compensation. As general rule, the claims is structured to present clearly and concisely a discussion of information regarding:
1. the contractual relationship;
2. a description of the project and of major installations of various trades;
3. key physical characteristics and keys to successful construction;
4. an overview of planned verses actual performance;
5. an analysis of items causing increased costs;
6. a detailed schedule impact analysis of major substantive claim items;
7. a discussion and analysis of the relevant legal principles; and
8. a statement and analysis of damages.
We could not emphasize enough the importance of carefully tracking and documenting the project schedule and all relevant delays and costs, as a finding of excusable delay is the first step in proving a constructive acceleration claim. For example, in the case of Fluor Intercontinental, Inc. d/b/a J.A. Jones International v. Department of State (May 24, 2013), the U.S. Civilian Board of Contract Appeals awarded Fluor $1,253,710 for constructive acceleration costs incurred in constructing a new embassy in Haiti.. Here, although the parties entered a firm, fixed-price, design-build contract – which the government argued was the end of the story – Fluor was able to recover for constructive acceleration based on the contract, actions by the government and its detailed tracking of the schedule, excusable delays and acceleration costs.
One of the most important parts of the claim is the proper identification and quantification of the damages. Items of damages can include escalation of labor and material costs, idle labor, idle equipment, home office overhead impact, increased insurance costs and bond premiums, increased costs of performing during adverse weather conditions, loss of productivity, subcontractor's claims, demobilization/ remobilization, lost profit, interest, increased equipment and material costs, overheard, extra shifts and crews, added supervision, added equipment, expedited material, and delivery costs, etc.
Both the contractor's attorney and claims consultant will work closely together to fashion a presentation which is persuasive both in factual analysis and law. From the legal standpoint, it is important for the attorney to understand relevant issues, including notice issues, contractual issues, state or federal regulations where applicable and delay issues. The claims consultant must obtain a clear understanding of the contractor's as-planned schedule, must confirm and develop the as-built schedule, compare the as-planned with as-build, develop a "what would have been" schedule, and provide a persuasive analysis of the delays or other factual issues.
Example Case
In a recent case, HPS Mechanical, Inc. v. JMR Construction Corp. et al, 3:11-cv-02600, No. 156 (N.D.Cal. Aug. 1, 2014), the subcontractor (HPS) seeked damages from the general contractor (JMR Construction Corp.) and its surety in the amount of $21,456 for costs of accelerating its work in August of 2008 to meet the milestone deadline of August 22, 2008. The disputes in this case arose during the construction of the San Ramon Valley Recycled Water Project − Pump Station R200A and Pipeline, located in the City of San Ramon, California. JMR directed HPS to have its crew work overtime and on weekends. The contemporaneous evidence showed that at the time, JMR acknowledged having ordered HPS to work an accelerated schedule. Nevertheless, JMR was entitled to accelerate HPS’s work under section 6.3 of the Subcontract, which provides:
Whenever, in the Contractor’s opinion, the Subcontractor fails to maintain its part of the Schedule of Work, the Contractor may direct the Subcontractor to take all steps, such as overtime or shift work, until the Subcontract Work is in accordance with such Schedule.
Such steps shall be without additional cost or compensation from the Contractor.
The Court found that section 6.3 of the Subcontract affected the “measure of recovery” under the Miller Act because it simply precludes HPS’s recovery for costs of acceleration when HPS has fallen behind its schedule of work. HPS was responsible for the delay prior to the August 22, 2008 milestone deadline. Even without installing the valves and laterals in the first phase of the Project, HPS was unable to complete installation of the full length of the mainline by August 22, 2008. This was largely due to HPS’s safety violations, failed compaction tests, and failure to pothole to avoid obstructions.
The Court rejected HPS’s contention that it was unreasonable for JMR to accelerate HPS’s work when, due to the delayed delivery of the valves, it was impossible to meet the August 22, 2008 milestone deadline. Complete installation of the valves and laterals by August 22, 2008 was a contractual obligation to which JMR and HPS were bound notwithstanding the delayed delivery of the valves. Moreover, even though HPS could not install the valves and laterals by August 22, 2008, it was still important to complete installation of the mainline by August 22, 2008. The encroachment permit allowed HPS to work with a permanent lane closure on Bollinger Canyon Road until the permit’s expiration on August 22, 2008. After August 22, 2008, the lane closure needed to be opened to ease traffic congestion at the start of the school year. While installation of the mainline required a permanent lane closure, “the laterals and the valves and the T’s, … [by] contrast, could be isolated.
The claim presentation must provide the decision-maker---whether it be contracting officer, judge or arbitrator---with a complete package and will all necessary supporting data. While the presentation should portray the conditions in the best light to the contractor, the presentation should admit and take into account the contractor's own problems that had significant effect on the project. The alternative could be a disaster if the contractor's credibility is shattered at a hearing or trial. Finally, the presentation should reflect pricing which is based upon actual cost records and which could survive an audit.
The contractor is best served by involving an attorney and claims consultant from first notice of problems because, historically, early involvement of these professionals has prompted quick and favorable settlements. This is particularly important with issues of notice and time restrictions applicable to filing a claim, which if not properly followed will defeat the claim. If professionals become involved earlier rather than later, even if settlement does not result, the contractor is in much stronger position and can prepare the claim at reduced cost.
SCHEDULE ACCELERATION OR COMPRESSION TECHNIQUES
Owner Project Management
1. Promote a positive attitude among owner personnel and all project team members.
2. Prepare a formalized project execution plan.
3. Promote and enforce a win-win relationship between owner and contractor organizations.
4. Conduct cross-training and rotate personnel assignments in order to promote the integration of plant construction with plant operation.
5. Reduce or eliminate layers of management.
6. Create incentives by tying personnel salaries and bonuses to plant operating profits and/or construction cost savings.
Engineering and Design
1. Formalize design/construct-ability reviews.
2. Establish a common purpose between engineering and construction organizations.
3. Require the EPC project team and start-up managers to plan the start-up sequences in detail.
4. Produce fast-track/semi-detailed engineering packages that will allow early field start. Engineering should be “package-driven” and focused on the schedule critical path.
5. Standardize plant designs to the greatest extent possible.
6. Optimize modularization and pre-assembly of selected components.
7. Enforce a strict change control procedure.
8. Promote engineering performance excellence with financial incentives.
9. Expedite small, critical projects through “construction-based engineering.”
Planning, Scheduling and Job Control
1. Establish an aggressive integrated CPM-based schedule for the engineering, procurement and construction organizations.
2. Involve the vendors in defining the schedule milestones for engineering/fabrication/installation of major equipment.
3. Make full use of advanced CPM scheduling and resource management software systems such as Primavera Project Planner.
4. Develop hierarchical schedules with progressive levels of greater detail.
5. Enhance the achievability of schedules by examining the number and size of crews, worker densities and other factors affecting productivity.
6. Hold the contractors and vendors to scheduled early start dates.
Contracts/Specifications/Procurement
1. On union jobs, give deference to local rather than out-of-town contractors that may face issues with the local union hall.
2. Motivate contractors by awarding lump-sum contracts and minimizing the amount of Time and Materials (T&M) work.
3. Consider procurement of packaged equipment units.
4. Avoid excessively restrictive specifications.
5. Consider availability of management personnel and past schedule performance in selecting contractors and vendors.
6. Require fabricators to fabricate strictly according to the erection sequence.
7. Include significant financial incentives and penalties for schedule performance of both contractors and vendors.
8. Guarantee delivery dates of owner-furnished equipment.
9. Accelerate purchasing and contract negotiations with the use of electronic data interchange.
9. Make use of a dedicated expeditor for vendor drawings and materials.
10. Conduct monthly progress/status meetings with major equipment suppliers.
11. Contracts should explicitly address system turnover dates.
Field Craft Management
1. Aggressively monitor craft labor productivity.
2. Use a detailed, accurate, efficient system for determining percentage of completion based on earned value using craft labor hours.
3. Start difficult field activities as soon as possible.
4. Use overtime judiciously.
5. Consider the use of multiple shifts when appropriate.
6. In strong organized labor regions, plan for labor productivity incentives as man-loading and overtime are reduced.
7. Take daily photos of job progress and look for ways to improve work sequencing.
System Turnover and Start-up
1. Transition from bulk commodities to a systems or startup-based schedule, as early as possible.
2. Maintain tight control over an expedited start-up schedule.
3. During start-up ensure that owner field personnel possess both adequate authority and technical capability.
4. Train system operators in advance of plant start-up.
As experts, Metropolitan utilizes a time-tested methodology for analyzing and evaluating acceleration-related construction disputes. Our analysis may include, but is not limited to, the following:
· Review the contract for relevant information including provisions relating to acceleration, notice, and entitlement issues.
· Research the facts through a review of contemporaneous project documentation and interviews with key project personnel.
· Evaluate key project data including project schedules, as necessary, and project cost information.
· Perform a critical path schedule analysis, as necessary.
· Establish what acceleration efforts were made and determine the method most suitable to quantifying the related disruptions and loss of productivity.
· Quantify costs associated with the acceleration efforts.
In our analysis, Metropolitan typically considers several factors including the following:
· Whether the delay was excusable or compensable
· Whether proper notice was provided, if required by the contract
· Whether an allowable schedule extension was or was not granted
· Whether the owner directly or constructively accelerated the contractor’s work
· Whether the contractor made reasonable attempts to accelerate, resulting in additional project costs
METROPOLITAN ENGINEERING, CONSULTING & FORENSICS (MECF)
Providing Competent, Expert and Objective Investigative Engineering and Consulting Services
P.O. Box 520
Tenafly, NJ 07670-0520
Tel.: (973) 897-8162
Fax: (973) 810-0440
E-mail: metroforensics@gmail.com
Web pages: https://sites.google.com/site/metropolitanforensics/
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