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 &
ARCHITECTS
OWNERS
CONSTRUCTION
MANAGERS
CONTRACTORS 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 DAMAGES
EXTENDED 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.

ESCALATION
 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).

ESCALATION
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.

UNABSORBED 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.

UNABSORBED 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 COST
ORGANIZING 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

IDENTIFYING 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

IDENTIFYING 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 OVERRUNS
CALCULATING THE INEFFICIENCY COST

HOW TO ANALYZE DIRECT COST OVERRUNS
CALCULATING 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
mpink@construxsolutions.com
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.

Quantify Construction Damages related to Delay, disruption, and inefficiencies

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