CUMULATIVE IMPACT CLAIMS (LOSS OF PRODUCTIVITY)-PART 1

Many courts of claims and the various boards of contract appeals have recognized a general right to recover for the cumulative effect of multitude of owner-directed changes that, when taken collectively, can be greater than the sum of the effects of the individual change orders. Although a change order may directly add, subtract, or change the type of work being performed in one particular area of a construction project, it also may affect others area of work that are not addressed by the change order. In one theory for recovery the issuance of unreasonable number of change orders creates a synergistic disruptive impact such that the total disruption caused by the changes exceeds the sum of the disruptive impacts caused by the the individual change orders when looked independently. Cumulative impact claims are exceedingly difficult to prove.

Cumulative impacts  cannot be captured in a forward-priced change order because one cannot foresee the impact of an  unreasonable number of changes yet to occur. Following this dichotomy to its logical conclusion, a contractor is able to price its cumulative impacts only in backward-priced change orders.

Synergistic effect is at the core of the definition of "cumulative impacts". Synergism is defined as the simultaneous action of separate agencies, which together have greater total effect than the sum of their individual      effects. Contractors claim that it is that compounding effect that should allow them to recover for the effects of numerous changes.

The allure of the cumulative impact claim lies in the simple idea that the effect of two or more changes to a project may be more severe than the effect of one change but it is difficult to determine how a contractor should establish that the size, number, or quality of contract changes caused the resultant injury. Courts and boards want to ensure that the owner and not the contractor was in fact the source of any inefficiency. Consequently, a contractor seeking to recover should attempt (as close a s feasible under the circumstances) to quantify the size of the disruption and connect the impact to its owner-related sources.

The essential elements of a cumulative impact claim are the same as those that courts and boards require for most other cost overrun  cases. The contractor must prove:

-liability;

-causation;

-and resultant injury.

Liability can be established with proof that the owner breached its contractual obligation by initiating a substantial number of contract changes, modifications, or design clarifications.

Resultant injury is the claimed loss of productivity. Contractors often seek to relate loss of efficiency to cost overruns and unanticipated schedule delays. Contractors must offer clear proof of damages suffered as the result of the breaching disruption. They can do so through a number of common methods:

A. Total cost method

The total cost method is the most basic approach to calculating damages for loss of productivity. Under this method, the estimated labor costs for the project are subtracted from the costs as actually incurred, including  profit to arrive at the amount of the equitable adjustment. Contractors generally rely on this method only when no documentation in either the project or field files exists to prove damages with greater certainty. Although courts and boards are reluctant to allow contractors to rely on the total cost method, on occasion they have allowed the method in the disruption cases on the theory that the very factors that produce loss of productivity can also serve to preclude the accurate and precise record keeping. The total cost method is not favored and often is not accepted by courts and boards because it does not eliminate the casual factors for which the owner was not responsible. A simple comparison of the estimated  cost and the actual cost to complete the project does not differentiate among problems caused by the owner and the contractor. The total cost method is a method of last resort and could be used only if the contractor showed:

-the impracticality of proving actual losses directly;

-the reasonableness of its bid (or estimate for the project);

-the reasonableness of its actual costs, and;

-lack of responsibility for the added costs.

B. Modified total cost method

As is evident from the discussion above, the two most significant shortcomings of the total cost method are

that it fails to consider problems caused by the contractor and it assumes the contractor's underlying bid is correct. The modified total cost method eliminates the dependence on the original estimate and accounts for non-owner-related performance factors by requiring the contractor account for performance factors for which the owner is not responsible. In order to calculate the inefficiency cost, the contractor must begin with actual cost of performing the project and subtract out (1) costs incurred due to contractor error and (2) the bid price for the project.