quantify construction damages related to delay, disruption, and inefficiencies

QUANTIFYING CONSTRUCTION DAMAGES DUE

TO DELAYS, INEFFICIENCIES AND DISRUPTION

Presented By: Michael A. Pink

www.construxsolutions.com 2

ABOUT THE PRESENTER: MICHAEL PINK

Founder of Construx Solutions, LLC

Inventor of the SmartPM Technology

15 Years of Advisory Experience in Commercial Construction Industry

Specialization in Project Controls, Risk Management, Dispute Avoidance

Advisory Board Member for the School of Building Construction at GT

Certified Planning and Scheduling Professional (PSP)

Certified Cost Engineer (CCE)


COURSE OBJECTIVES

Delay, Inefficiency and Disruption Claims – How does it all begin?

Delay vs. Impact Costs

Quantifying Damages Related to Delay

Quantifying Damages Related to Impacts (or Inefficiencies)

Acceleration Costs

Subcontractor Claims Review


WHY ARE DELAY AND DISRUPTION CLAIMS PREPARED?

A Construction Project didn’t go “As Planned”;

A Contractor has spent significantly more money than it was paid;

The Contractor doesn’t believe the overrun was its fault;

The Contractor wants/needs to get paid.


ENGINEERS &

ARCHITECTSOWNERS

CONSTRUCTION

MANAGERSCONTRACTORS OTHER

• Poor Design• Incomplete Design • Slow Response Time

• Excessive Changes• Delayed Approvals/

Permits• Prolonged Planning• Delayed Payment

• Poor Planning/ Scheduling

• Poor Contract Management

• Coordination Issues• Unachievable

Schedule• Poor Data

Management• Mismanagement of

Resources

• Unachievable Bid• Poor Productivity/

Performance• Mismanagement of

resources• Labor Shortages• Default

• Unanticipated Weather

• Changing Market Conditions

• Unforeseen Conditions

• Force majeure

The Challenge: Wading through all the possible causes for overruns, and

coming up with a defendable argument.

WHY ARE DELAY AND DISRUPTION CLAIMS COMMON?

Because there are a lot of stakeholders, who impact the project in different ways…


THE STEPS IN BUILDING A DELAY/DISRUPTION CLAIM

1. The Contract must be reviewed;

2. Delay and Disruption items must be studied (through a Delay Analysis);

3. Causation and Entitlement must be determined for all Delays identified;

4. A Detailed Analysis of all Cost Overruns must be performed;

5. Classification of Cost Overruns must ensue;

6. Cost overruns need to be linked to delay/disruption items that were identified and

where the contractor has determined that it is entitled compensation;

7. Then, and only then, Damages can be Quantified and a Claim can be prepared.

For Purposes of this Webinar, we will be focusing on items 4 through 7 and all items discussed apply to both CM/GC’s and Trade Contractors.


WHAT WON’T WORK…

Determine how much money was spent on the project;

Find the difference between the planned budget and actual cost on

the project;

List a bunch of reasons why this happened and why one is not

responsible.

This is called the “Total Cost Method” and usually results in a request for more information, evidence

and/or support (for obvious reasons).


DELAY VS IMPACT DAMAGES

Delay Damages are costs associated with project taking longer.

Supported through a Critical Path Analysis

Typically includes Extended General Conditions Costs, Escalation, Unabsorbed Home Office

Overhead, etc.

Delay Damages are usually additional “management” or “indirect” costs of construction

Impact Damages relate to caused resulting from inefficiencies and

disruption to the actual work being performed.

A study of labor and equipment cost overruns across the construction activities;

Typically is related to increases in direct cost of construction;

Consists of all calculating inefficiency costs across schedule activities, not only critical path items;

Requires a considerable level of analysis and issues identification (need good records);

Impact costs could also include added management resources on highly impacted projects.

Acceleration costs can result from both, and can impact productivity


DELAY DAMAGE CLASSIFICATION

In order to quantify damages, the critical path delays must be classified

into the following:

Critical Delay: A “driving” delay impacting the critical path, typically

caused by a single party for a period of time. This type of delay is

“Excusable, Compensable”.

Concurrent Delay: Multiple delays delaying the critical path of the project

at the same time, typically caused by both the claimant party and the

defendant party. This type of delay is considered “Excusable, Non-

Compensable.”

Non-Critical Delay: A delay that did not cause a delay to the end date of

the project. This type of delay is considered “Non Excusable, Non

Compensable”. While Delay damages can’t be assessed for this,

impact/inefficiency damages can be.


CALCULATING DELAY DAMAGESEXTENDED GENERAL CONDITIONS

Requires that a Critical Path Analysis has been performed and delay

days have been allocated.

Only project delays that are both A) proven critical path delays and B) caused wholly by the other

party, are compensable;

Concurrent Delays will only extend the time for which LD’s can be incurred, with no compensation

for extended general conditions.

Need to determine daily cost for all overhead items:

‒ Management Personnel

‒ Office Equipment & Material

‒ Management Services

Need to multiply number of delay days by each line item’s daily cost



* Project personnel items should align with the original planned personnel

EXAMPLE: Project is delayed 354 days, of which the Contractor has determined the Owner is responsible for 273 days of critical path delay.



* Extra Costs for Heavy Duty Construction Equipment for critical path items can be included here.


CALCULATING DELAY DAMAGESESCALATION

Consists of Direct Cost (“Rate”) variations incurred during

the delay period.

Typically included Equipment, Labor and Material rate

increases.

Best if the calculations are based on the planned resources

as opposed to actual resources (so inefficiency or

acceleration costs are not also factored in here).


CALCULATING DELAY DAMAGESESCALATION

Determining the planned labor hours (broken out by labor classification) for the work performed in the delay period would be the easiest way, but sometimes we don’t have that info. broken out.


CALCULATING DELAY DAMAGESUNABSORBED HOME OFFICE OVERHEAD

Delay Costs that ultimately consume time from resources at

the Home Office (during delay period).

Typically calculated using the Eichleay Formula.

2 criteria must be met:

‒ Delay must be proven to be “compensable”;

‒ There is no opportunity for mitigating damages by taking on other work.


CALCULATING DELAY DAMAGESUNABSORBED HOME OFFICE OVERHEAD


QUESTIONS?


CALCULATING IMPACT AND INEFFICIENCY COSTS

Requires a Detailed Analysis of Direct Cost of Construction.

Organize and classify direct cost items:

Compare planned versus actual costs in each category.

Highlight overruns and assess causation.


HOW TO ANALYZE DIRECT COSTORGANIZING AND CLASSIFYING COSTS

In a perfect world, one would be able to calculate planned and actual cost

by schedule activity, broken out by equipment, labor and material for

each;

This is typically not the case due to time and informational constraints, so

attempt to align costs for each activity contained in a level 2 schedule.

Try to classify costs in a spreadsheet with the following field populated:

Cost Type: Labor, Equipment, Material

Corresponding Schedule Activity Location

Corresponding Schedule Activity Trade/Scope


HOW TO ANALYZE DIRECT COSTIDENTIFYING AND ANALYZE COST OVERRUNS

For each cost line item, strive to compare planned versus actual cost

Highlight variances that warrant investigation;

Study plan versus actual duration, manpower for each;

For each item, determine causation for cost variance(s):

‒ Stop and go operations

‒ Trade stacking

‒ Resequencing

‒ Unforeseen circumstances

‒ Excessive change orders

Need to prove responsibility for the impact, and then calculate

inefficiency cost.

‒ Poor Performance

‒ Poor Design

‒ Poor Quality/Rework

‒ Weather


SETTING UP THE AS PLANNED SCHEDULE INTO A VISUAL DATABASE


ADDING DAILY REPORT DATA INTO A VISUAL DATABASE


CONVERTING DAILY REPORT DATA INTO PERFORMANCE METRICS


HOW TO ANALYZE DIRECT COSTIDENTIFYING AND ANALYZE COST OVERRUNS

EXAMPLE Cost Comparison Table that is obviously incomplete


Most of the time, contractor’s are not compensated by simply requesting the

cost variance of activities;

Why? Because Owners will argue that it was not the sole cause for

performance impacts.

As a result, the claimable variance is often determined through the “Measured

Mile” approach.

The “Measured Mile” approach compares performance in un-impacted areas,

with performance impacted areas.

The % difference between productivity factors in un-impacted vs. impacted is

what is requested.

HOW TO ANALYZE DIRECT COST OVERRUNSCALCULATING THE INEFFICIENCY COST


HOW TO ANALYZE DIRECT COST OVERRUNSCALCULATING THE INEFFICIENCY COST

EXAMPLE – Measured Mile Calculation


QUESTIONS?


Acceleration costs include: Overtime, Trade Supplementation, additional

equipment, or resequencing.

Acceleration costs typically result from critical path delays, and usually are

employed to minimize critical delays (or speed up completion)

For that reason, it is typically place in the Delay Cost Classification.

Acceleration can also result in inefficiencies, which can be captured and

placed in the “impact” claim bucket.

Sometimes its best to separate out from both, and explain acceleration in

terms of both.

Contractor should try to receive directive and approval from owner for

acceleration –this is called “Constructive Acceleration”.

Either way, acceleration should be closely monitored in order to true up cost,

or enter into a claim.

ACCELERATION


GC’s / CM’s need to review subcontractor claims in a vacuum.

Need to consider only the activities subcontractor worked on;

Need to be cognizant that subs work is on its “own” critical path that

translate to added management costs.

Impact/costs should be calculated the ways outlined above.

GC/CM’s should try to push down as much of the analysis process to

Subs as possible.

GC’s should required that Subs provide the same level of detail,

analysis and support discussed today.

GC/CM should never accept a vague, inconclusive, non – supported,

“Total Cost Claim” from a sub.

As for Subcontractors – follow the steps discussed in this webinar and

claims will be resolved quicker.

SUBCONTRACTOR CLAIM REVIEW


QUESTIONS?


PRESENTED BY: MICHAEL PINK

Contact Info:

C: 404 277 4387

O: 404 329 3000

[email protected]

Feel free to contact me directly if

you have any additional questions

Sign up for our upcoming courses:

— CPM Scheduling

— Data Management and Performance Analysis

— Delay Analysis in Construction

— Construction Claims Review/Prep

Follow us on LinkedIn for more info.

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