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Pricing of Claims: Techniques and Defenses

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Pricing government contract claims requires intimate knowledge of how those costs are calculated. Make your calculations carefully.

Pricing government contract claims requires intimate knowledge of how those costs are calculated. Make your calculations carefully.

  1. How Should You Calculate Costs versus Prices in Government Contracts?

  2. How do Proposal Preparation Costs as Interrelated to Interest Recovery affect REA claims?

  3. When does a Termination for Convenience (Including Overturned Defaults) become a Claim for Interest Purposes?

  4. How does the Analysis and Proof of the Delay and Disruption Element and Costing of that Portion of the REA/Claim Affect Pricing?

The pricing of Government contract claims requires a combination of the following knowledge: the company’s accounting operations, prior case law decisions with respect to the current issues at hand, statutory requirements, and most importantly proof of claim techniques.

How Should You Calculate How an REA Claim Changes Costs? Use Proof of Claim Techniques

Additional Resources in this Section:

By proof of claim techniques, we mean that the contractor has carefully thought through all of the ways in which the REA or claim increases and/or decreases its costs (the Government should be doing likewise). The contractor then needs to translate this theoretical knowledge into accounting proof that will withstand scrutiny by the other side. This is easy to say, but often difficult to implement.

More Than Labor and Material

The equitable adjustment that the contractor is entitled to relates to all elements, clauses, provisions, and risks that the contractor has been performing under the contract. It is not just related to the one issue of  how much labor or material costs have increased. See for example, CTA Incorporated, ASBCA No. 47062, 2000 WL 716093 (Cost impact on all contract provisions considered.)

The Allowable Cost Trap.

Contractors spend too much time worrying about the issues of “allowable costs” in claims and other accounting issues, and far too little about proof of the actual costs that they incurred. We will demonstrate this below.

The government also falls into this trap. It focuses on accounting issues instead of whether the contractor really has experienced increased costs. A related issue is the consideration of whether the claim has actually resulted in cost savings for the contractor in other areas. The government should be exploring this issue as well.

Finally, most contractors will tell you that they lose between 1/10 of 1% to 1% of their actual costs on unallowable cost issues. If this is in an accurate range, it shows that accounting issues may often not be the area to focus on.

How Should You Calculate Costs versus Prices in Government Contracts?

As an initial matter, the terminology that is being utilized must be clarified. Recall this section is titled “Pricing of Claims”. It might more accurately be called "the accumulation of individual costs before the application of profit to calculate the claim price".

The point is that pricing and costing are distinctly different items. Price may have no relationship to cost at all. Or price may be all costs  plus 10% profit. There needs to be discussion and disclosure of this in the actual claim document, which is going to the Government.

In addition, the following differences in this terminology, and their relationship to the issue of “estimates”, needs to be borne in mind as the pricing section of the claim is being developed by the contractor or being analyzed by the Government agency that reviews it.

Cost vs. Price vs. Estimate: Representations to the Government

As a starting point, it is important that people understand the difference, particularly from a Government contract perspective, of the following three terms:

Cost (or Actual Cost)

Cost (or elements thereof) is generally assumed to be the actual cost as provable from a company’s books or records. There may be allocations of costs from overhead pools to direct costs incurred, but generally there is an element of actual contemporaneous recording of costs by individual timekeepers or purchase prices for materials on the company’s books. Thus, “costs” may be provable or displayable in many ways, but the contemporaneous keeping and creating of records is expected.

Price

In contrast, the price is whatever the company chooses to set for an item in a market.  It can have no relationship whatsoever to “costs”. It may choose to back-up its price with a “breakdown.” That breakdown should clearly state whether the price contains only certain elements of the price that the company wishes to obtain for various subparts of the item. It is not actual cost.

Stating that the price is backed up by a cost breakdown, which is not accurate or has no historical basis, can produce serious problems and misperceptions by Government evaluators and auditors.

Estimate

An estimate is often an element of either price or cost. It should be labeled clearly as an estimate, and explained in terms of its basis and makeup. An estimate may be a build-up that a company price analyst has done based upon various figures, expectations, contingencies, etc. It generally does not represent actual costs incurred, and that should be made clear. It may well represent a projection of expected future costs  to be incurred, based in part on historical (actual) costs.

To the extent that the estimate contains some historical cost elements – that should also be explained. An estimate could also be entirely pricing – simply what the company wants to receive to produce a particular item and there is an estimation of elements in terms of how to get to that price.

REA and Claim Issues—Cost Already Expended.

An estimate could also attempt to reproduce what actual costs have been historically. Carefully express this to your customers if this is what you intend the estimate to provide. In a REA or claim the costs have often already been expended. So you are often “estimating” what part of “actual cost incurred” were caused by the claimable events. Say this.

Confusion and Clarification.

It is easy to confuse and misuse these terms. Professionals do that as well. You find yourself talking about the cost of this or the cost of that when, in fact, it is really not the cost but an estimate or perhaps a pricing decision that the company has made. That is permissible in informal discussions. Certainly in writing, however, when representations are being made to Government customers, it should be made clear exactly what you are talking about.

Stating to Government representatives that something is a “cost” when it contains elements of a price or elements of an estimate, and not disclosing that fact is (at the least) a mistake. It could be worse – a misrepresentation.

Be cautious in using these terms. Make sure that in your compliance programs relating to the finance and contracts departments that they are sensitive to this issue, and monitor the materials going outside the company to be sure these critical terms are being appropriately distinguished in people’s minds and their written presentations.

Which Approach is Best? Estimate vs. Actual

Would you pay your auto mechanic, air-conditioning repair man, lawyer, etc. if they could not provide you with specific labor hours worked on each task on your behalf? We think not. Why should the Government be expected to pay contractors for constructive changes and/or directed change orders when the contractor has failed to keep track of the hours worked on the change at issue?

There is a long line of case law saying in effect that claims for extra work may be proven with after-the-fact estimates. That is satisfactory proof to Courts and Boards. And, as will be discussed below, there are various techniques for preparing these estimates.

Be aware that we believe that estimates in negotiations of all kinds of claims, up to and including litigation, invariably produce lower settlement amounts, far below one hundred cents on the dollar of what the contractor estimates he spent.

In contrast, if a contractor can capture and present his actual costs of performing a change or claim, then in theory the contractor is entitled to recover one hundred cents on the dollar, e.g. Bruce Construction vs. United States, 163 Ct.Cl. 97 (1963).

Rate of Recovery, Percentages

In negotiations, up to and including litigation, a contractor may suffer a decrement from his actual cost if he wishes to settle the matter short of a trial, but it is common to recover seventy, eighty, ninety cents on the dollar in such situations; whereas with an estimate it is not unusual to recover in the thirty to fifty percent range.

These are practical issues not discussed in cases, and not discussed in various Government regulations. But, many practitioners in this area would agree with the foregoing.

Is seventy percent and up in cost recovery, versus thirty to fifty percent, worth the additional effort in systematically causing the accumulation of actual costs for pricing the claim? It clearly is.

Management Decisions—The Effort of Charge Numbers and Cost Collection Policing

Contractors have to decide whether they are going to be proactive, and put in place accounting controls and charge numbers, and police them as the work goes forward so that they may recover these higher dollar percentage figures. Or, whether they should simply produce after-the-fact estimates from their actual costs when they have no way to prove the exact reasons for those actual costs being incurred.

Many contractors performing a substantial amount of Government business or commercial business that is more likely to involve changes have decided that these are important issues that warrant attention on their part.

Would you pay your auto mechanic, air-conditioning repair man, lawyer, etc. if they could not provide you with specific labor hours worked on each task on your behalf? We think not. Why should the Government be expected to pay contractors for constructive changes and/or directed change orders when the contractor has failed to keep track of the hours worked on the change at issue?

In the final analysis, it is really a matter of management will and determination — are you going to have a direct charging system that accurately reports the financial impact of "extra work" or are you going to simply estimate “extra work” after the fact:

  • If a company does business in which it experiences limited to no change order work, it might make sense not to invest its resources in a system that accumulates direct labor and material charges on a per change order basis.

  • However, if the company is like many Government contractors, change orders are occurring frequently, and therefore the answer as to what type of system to have seems fairly obvious: make the effort to have a direct costing system for changes and significantly increase your recovery rate.

Approaches for Proving and Pricing the Accounting Portion of Government and Commercial Contract Claims

There are only four fundamental approaches to claims pricing, each of which is discussed in detail below: (i) total costs, (ii) modified total costs, (iii) engineering estimates, and (iv) actual costs.

The so called “jury verdict” approach, as it is sometimes discussed, is not in fact a pricing approach. It is a result. After the parties have presented conflicting accounting information in litigation on the pricing of claims, it is not uncommon for a Court or a Board to arrive at a “jury verdict,” thereby compromising the differences between the parties’ various approaches.

Although there are only four fundamental approaches to pricing claims, it is common to have various elements of a single claim priced using combinations of these four different techniques. Indeed, suggested below is a hierarchical approach in performing that pricing activity.

From the Government Agency’s perspective, it should be prepared to pay:

  • more for pricing that includes actual costs incurred by the contractor, and

  • less for pricing that includes estimates or other similar types of calculation approaches.

Total Cost Claims Pricing

A total cost claim, as a pricing technique, is exactly that: the contractor claims its total costs of performing an element of work. Generally this involves a comparison of the contractor’s costs expended, as the result of an alleged claim, giving rise to increased costs, versus its bid for the entire contract in its barest form.

Example:

  • The Contractor has a contract to build a two-story test facility building for $2 million.

  • During the course of construction, the Government makes a change to the air conditioning on the second floor.

  • The contractor’s projected bid costs for performing the entire contract are $1.8 million; it actually spends $2.3 million.

  • The Company submits a claim for $500,000 plus ten percent profit.

  • The allegation is that there was one Government change order on the  job. The cost increase was $500,000 for the job; therefore the Government owes $500,000 plus ten percent profit.






What Is Wrong With This Claim Approach?

The most obvious thing is if the contractor made only one mistake in the way he prepared the bid or only one mistake in the way he actually performed the work then, by claiming his total cost, he is asking for costs, which are not the Government Agency’s responsibility.

Does that sound like a fraud, waste, and abuse problem? It certainly does. This example illustrates the fundamental problem with total cost claims. They are an invitation for aggressive prosecutorial scrutiny by the Government.

Case Law

Courts and Boards very definitely disfavor the use of total cost claims approaches. Freedom NY, Inc., ASBCA No. 43965, 02-1 BCA ¶ 31,676 (Contractor’s request for damages on a total cost basis was denied because the contractor failed to prove that the costs could not have been segregated and quantified.)

Perfect Bid and Performance

That is not to say that in certain limited instances, total cost claims are not permitted. They are.

But, the fundamental infirmity with total cost claims remains. A contractor is claiming his total costs. That requires perfection in bidding and perfection in performance. If either of those two assumptions is incorrect, the contractor is technically claiming costs that it is not entitled to recover. It is the rare contractor that could claim that its bid and its performance were both perfect!

Problem Avoidance Techniques.

A small contractor who has only a job cost system for accumulating costs (costs are accumulated for and charged to one particular job; that is the only breakdown available) may, under appropriate circumstances, be able to use the total cost approach if it is particularly cautious and explicit as to the approach utilized in its claim.

Example:

A contractor who is building equipment shelters for the Federal Aviation Administration (FAA), and who only builds various types of equipment shelters, may be able to show as follows:

  • The company has built equipment shelters for the last ten years. Based upon historical cost records it can show that it routinely produces shelters on an average within (plus or minus) five percent of its bid.

  • The company could make the back up for that assertion available for audit as part of the claims pricing package. That tends to dispose of the  issue that it bid in error or performed in error at various times.

  • The company could then show that there are only one or several changes to the contract, which were the Government’s responsibility. Then, attributing the increased costs to only the Government’s actions might be reasonable.

  • The contractor would probably want to deduct five percent (its upward margin of error on previous contracts in bidding and performance) and explicitly disclose that in its claims package.

  • Some commentators would call this a modified total cost approach. We think it is probably more a prudent total cost approach. Modified total cost approaches are discussed immediately below.

Modified Total Cost Approaches to Claims Pricing

The foregoing section displays total cost pricing at its worst: a contractor is assuming that its cost overrun was a certain amount, and that due to the Government’s various claims producing actions, it is therefore responsible for the entire cost overrun.

There are approaches for lessening this sort of total cost approach. These are grouped under the concept of modified total cost pricing.

Example:

Assume the same total cost scenario of the two-story test facility building, construction contract:

  • The contractor has the same one change order to the air conditioning system on the second floor.

  • It shows labor and material bid estimates for the air conditioning purchasing and installation on the second floor that amounts to $112,000.

  • It shows that actual bid costs for the air conditioning equipment on the second floor are $50,000, and the estimate  of  the  second  floor  portion  of  the  labor  is $62,000 (total $112,000).

  • The contractor then shows that there was only one change order that related to significantly upgraded air conditioning on the second floor.

  • The costs to actually do the work are $612,000 for the second floor air conditioner after this one change (Vendor quotes? Internal estimates? Does it matter?).

  • The contractor claims $612,000 minus $112,000 for a claim of $500,000 for the air conditioning alteration.

  • Most commentators would call this a modified total cost approach.

  • How is this claim more certain for the Government in terms of ensuring that it is receiving fair value for its payments? Note the actual cost elements in this claim: or are they?

  • How is this claim different from a total cost claim?

  • Assume the contractor’s original material bid for a/c equipment of $50,000 was off by $42,000. It  should have been $92,000 in total. What adjustments should be made? What effect does this have on the costs bid for labor?

  • What if the contractor had a bid of $62,000 from a subcontractor before the change, and a bid of $612,000 after the change was ordered? Why should a vender quote make a difference?

  • Is this actual cost to the prime or simply an engineering estimate by the subcontractor? See discussion below.

Engineering Estimates

Engineering experts can be outside contractors – often a competitor is the best of all engineering experts.

Engineering estimates are a major departure from the two costing approaches described above. Those costing approaches set out above are based upon what the contractor spent for the entire job or a section of the job.

An engineering estimate in its purest form is done without any regard for the costs that are actually expended on the job. There is no consideration given to the contractor’s accounting records.

Experts

An expert in the area of work involved who is accustomed to taking off and estimating costs – be it construction, service or supply – makes their own independent estimate of what it would cost their company or organization or another organization to perform the particular change order.

The Bid

The author has utilized this pricing approach in situations in which the engineering expert was not shown and did not know the original bid for the items in question, nor did the expert know the contractor’s cost experience on the job or in the area related to the estimating done.

In other words, the expert was prepared to testify at trial that its estimate was prepared with no knowledge whatsoever of the contractor’s bid, or actual experience in doing the job.

Performance Events?

Obviously, the expert would have to have knowledge of the scope of the change and perhaps the circumstances under which it was to be performed. That could be provided in a written document without interviews of the affected contractor or personnel permitted.

Engineering experts can be outside contractors – often a competitor is the best of all engineering experts. It is also possible to use company employees who are accustomed to providing such estimates of the contractor’s costs. The American Society of Cost Engineers is a nationwide organization whose members include such individuals with certification programs.

These individuals are often found in companies of all types and have vast amounts of historical information to draw from for that specific company. Their opinion in negotiations or litigation can be very persuasive.

Engineering Approaches—Learning Curves, Models, Etc.

There are adjuncts to expert engineering testimony as to how costs were incurred or what the experience was in a given situation. Learning curves are a prime example of accepted mathematical approaches for proving cost increases as a result of change orders. See also International Aircraft Services, ASBCA No. 8369, 65-1 BCA ¶ 4793.

The materials discussed below relating to mathematical modeling are also a type of engineering or scientific estimating technique that can be used in preparing portions of the cost proposal that relate to disruption types of costs.

To summarize, engineering estimates are an accepted measure of proof in Court and Board trials. They are also very useful in claims negotiations.

The Good and Bad Results

Independent engineering estimates can be persuasive because they operate separate and apart from the contractor’s books and records. That promotes independence from mistakes, errors,  and omissions in the contractor’s bid and performance of the job.

As will be discussed below, a principal problem with engineering estimates is they are often too low, unfair to the contractor, and do not capture the contractor’s true costs of performing the particular extra work involved. That is because an expert, operating in an idealized setting, often is unable to capture the real turmoil and increased costs that the contractor experienced when performing a change or group of changes.

Government Defensive Use

It is also common for Government Agencies to use an engineering estimate (often called a “should cost”) to rebut a contractor’s claim pricing presentation. The Government engineering estimate will likely  have different assumptions and come to a lower cost result. This is a perfectly appropriate way for the Government to rebut all or part of a contractor’s claim. It can be very persuasive.

Actual Cost Experience

True actual cost experience is the best possible way of presenting a contractor’s cost in any pricing proposal for a claim. If the contractor can prove actual costs, in theory it can likely go to trial and collect one hundred cents on the dollar. Bruce Construction Co., supra. That is a powerful tool in negotiations and experienced contracting officers and agency trial lawyers recognize it as such.

The Approach

In an idealized situation, the contractor gets a change or formal direction from the Government to do extra work. It then immediately opens a charge number and directs personnel working on the contract to charge to that individual charge number. If multiple changes or directions are received, multiple charge numbers are opened and all changes are made currently to those charge numbers as the work proceeds and labor is expended. See, e.g., Litton Systems, ASBCA No. 49,787, 2000 WL 777148.

Look at the change order accounting requirements in FAR 43.203 for specific directions to undertake such procedures.

It is Idealized

The problem with this idealized situation is that many contractors do not undertake it because they are unaware of the events giving rise to  the claim in time to do it. Many more say it is impossible to  open  individual charge numbers and accurately get workers to charge to these numbers, as well as the remaining portion of their hours to the base contract work.

It Can Be Done

The author disagrees with all such points. It is possible for companies to have the discipline to open individual charge numbers when multiple change orders occur, formal or informal, and to insure that employees accurately charge to those numbers.

He has seen and participated in such situations at both large and small companies. While it is easier to accomplish at smaller companies, it is also done, for example, by contractors in the top one hundred defense companies.

The only issue that is really involved is how much time and effort a contractor is willing to commit to this type of charging accuracy in return for vastly increased settlement amounts paid on the various types of extra work claims presented. (Recall the 30 vs. 70 percentages of recovery set out above.)

Checklist for Action

The following is a checklist of items that contractors interested in pursuing prospective direct charging must be prepared to deal with:

  • Is a system already established for noting informal, extra work occurrences, as well as formal ones and causing a charge number to be opened in the accounting department?

  • Has the contractor worked with employees and put a system in effect so those employees understand the importance of charging to the individual charge numbers? Are they given adequate time and direction to do so?

  • Is a mechanism available to check behind and see that employees are actually charging correctly and is corrective action being instituted if necessary?

  • Has the issue of opening charge numbers and then having only several hours charged to them been considered? Policing failure?

  • Does the contractor understand that the “steering” of an employee’s time charges is clearly inappropriate, i.e. directing they charge twenty five percent of time to this change order and seventy five percent of time to the basic contract work?

  • Does the contractor understand that counseling employees as to whether they are charging their time correctly based upon a review of their time cards is appropriate as long as the employees are not directed as to how to charge their time?

  • Actual charging of time can vastly increase the amount of an equitable adjustment that a contractor recovers. It takes great discipline to do so.

A Fall Back Position; Retrospective Direct Costing

A contractor should not consider that direct costing is unavailable simply because it failed to open a charge number prospectively.

Material

For almost every claim, it is possible to retrospectively direct cost the material elements of the pricing proposal. Why? Because the contractor already has in place a mechanism, which notes, usually by date, when alterations are made in material purchases and purchase orders.

Company record keeping systems almost always produce a paper trail that can be examined to determine what specific changes at a specific time caused material alterations for a particular job.  E.g., Defense Systems Corp., ASBCA No. 4413R, 2000-1 BCA ¶ 30,851.

Labor Costs/Hours: Correlation to Dates, Events

It is also often possible to retrospectively direct cost a portion of the contractor’s manufacturing or engineering hours for individual change orders. Consider the following tools:

  • Do job logs exist? They are common in construction jobs – they also are often kept in supply and service work. They can be calculated by date, to hours expended.

  • Do plant managers keep daily or weekly production records? Do other shop records exist?

  • Do only certain specific people work on the job? Can they estimate or prove their hours retrospectively? On the job? On altered work? Does a foreman keep any such records? See, Thomas J. Papathomas, ASBCA No. 51352, 99-1 BCA ¶ 30,349.

Conclusions: The foregoing should give contractors the information necessary to improve cost displays, thereby increasing recovery in the pricing portion of claims. Use all approaches and elements to the company’s best ethical advantage. The government will do likewise in defending against the claim.

How do Proposal Preparation Costs as Interrelated to Interest Recovery affect REA claims?

The recovery of interest and its relationship to the certification of claims is discussed in detail in the certification section, infra.

But, one further connection is very important, and that is the issue of proposal preparation costs. There are no hard and fast rules as to the recovery of proposal preparation costs, but the following guidelines are presented for consideration:

Economics

There is also an economic issue: What can the company afford to spend out of pocket to present an REA or Claim? And then what can it get back from the government? Some practitioners in this area will say no more than 10% out of pocket of the face value of the REA/Claim. That requires a pre-existing system in place and decision making.

Change Claim/Equitable Adjustment Types of Actions

On a straightforward changes/equitable adjustment type action, the contractor may be able to recover proposal preparation costs for its initial submission of the proposal to the Government, particularly if it is uncertified. This is before the REA/Claim stage is reached.

Directed Change or ECP

If the contractor is responding to a directed change or an ECP, the chances are much higher that he will recover his proposal preparation costs. After all, the Government directed the change or asked for the engineering change proposal. The contractor is simply claiming the cost of complying with the Government’s direction.

A decision allowing ECP preparation costs to fix technical data package errors is: Essex Electro Engineers, Inc., ASBCA No. 49,915, 99-1 BCA ¶ 30,229.

What about a technique in which the contractor submits an ECP to correct all drawing/contract errors or disputes? Some contractors  use such a system. This again is pre-REA/Claim.

Constructive Changes

As one enters the area of constructive changes, in which the Government has not given a direct order, the recovery of proposal preparation costs becomes more problematic. There are some cases allowing smaller amounts of proposal preparation costs to be recovered following the seminal decision in Allied Materials and Equipment Co. ASBCA No. 17318, 75-1 BCA ¶ 11, 150; and Sigler and Associates, IBCA 1159-7-77, 78-1 BCA ¶ 13,137.

But often an REA or claim must be submitted to collect for constructive changes.

Strategies to Maximize Proposal Preparation Recovery

After the Federal Circuit’s decision in Reflectone and Raven, as discussed in the certification section below, there is a clear distinction between routine requests for payment and claims. Claims are certified documents; routine requests for payment are not. REA’s may be routine requests for payment.

Therefore, an argument is available that all routine requests for payment are simply another type of contract administration effort, thereby making the costs of such efforts appropriate charges to the direct contract vehicle under which the costs were generated. The ECP, Condition Report, etc. submission approaches discussed above could support this position.

Certification is a Cut Off

As also discussed in the certification section below, no interest recovery on a disputed item is available until the item is certified as a claim. Therefore, that would appear to be the cut-off point for claiming proposal preparation costs on a request for equitable adjustment, etc.

A Strategy

Thus, a strategy emerges where the contractor might want to consider preparing his document (or ECP) first and submitting it to the Government, particularly if it is a response to an ordered change of some sort. It could then attempt to negotiate with the Government, as its preparation of such a submission could arguably constitute a routine contract administration matter. That would provide the best argument for recovering proposal preparation costs, particularly in later litigation on this item.

At a later point in time, the contractor could certify the claim and start the interest clock, but doing so will likely cut-off all further proposal preparation costs. Consider the following language from The Singer Company, Librascope Division, 568 F.2d 695 (Ct. Cl. 1977), in which the Court suggests additional factors that may increase the likelihood that a contractor will succeed in recovering its proposal preparation costs:

It is not disputable that the Board in Allied did allow the recovery of the attorneys' fees connected with an equitable adjustment request made to the contracting officer. But, to say that in doing so the Board thereby intended to or actually did depart from prior law is to misread the decision. The equitable adjustment involved in that case addressed a situation where the contractor's entitlement to the requested relief was well-night conclusive--the equitable adjustment was intended to compensate the contractor for the added performance costs attributable to the Government's acknowledged failure to have made available the facilities and tooling that had been promised at the outset. Joined with this was the equally important fact that the request for equitable adjustment occurred in the midstream of contract performance and had, as one of its principal objects, the development of a new production schedule to accommodate the delays which the Government's own actions had provoked. In short, the objective of the  equitable adjustment in Allied was twofold: to pay the contractor what was owed in a situation where Government liability was not disputed and to ascertain the course of future performance with a view to securing the objective for which the contract had been let in the first place.

Plainly, the situation presented in the instant matter differs significantly from that encountered in the Allied case. Here, the claims for equitable adjustment were not presented to the contracting officer until all work had been completed, they addressed no situation in which Government liability was clear or apparent and, in content, they offered nothing that could reasonably be considered as benefiting the contract purpose. Judged both from the standpoint of the time of their submission and the purpose of their submission, Librascope's requests for equitable adjustment were not performance- related; they bore no beneficial nexus either to contract production or to contract administration. Accordingly, the attorneys' fees are not recoverable. As to the other claim preparation costs which plaintiff also seeks, these too are not allowable and for the same reason—--they bear no relation to contract performance. [Emphasis added].

When does a Termination for Convenience (Including Overturned Defaults) become a Claim for Interest Purposes?

The termination for convenience proposal area is one in which, with a little care, the contractor should recover virtually all of its proposal preparation costs, if they are well documented.

A more unique situation exists with respect to termination for convenience proposals/claims. As also discussed in the certification section, there are peculiarities in determining when termination for convenience proposals become claims for interest purposes. It most likely happens at certification.

Contractor Recovery

There is a long-standing line of case law allowing contractors to recover the costs of preparing and supporting their termination for convenience proposals. Baifield Industries, ASBCA No. 20006, 72-2 BCA 12,096. That does not include actual litigation costs.

Contractors in most instances do not want to disrupt that recovery by submitting a termination for convenience proposal that is then immediately certified as a CDA claim. That would give the Government an argument that the termination for convenience proposal was always in dispute, and perhaps a limited amount, or no proposal preparation costs are therefore recoverable.

Pending Claims?

The termination for convenience proposal regulations and the clause itself support the recovery of proposal preparation costs. FAR 52.249-2(g)(3)(i). But, what happens in a situation in which a termination for convenience proposal also has equitable adjustment proposals prepared and submitted with it? Are the proposal preparation costs for those also recoverable?

We believe they should be. A contractor cannot submit a complete termination for convenience proposal unless it cleans up all outstanding contract adjustment matters, such as change orders, and submits them at the latest when the termination for convenience proposal is being provided to the government. The regulations say that the termination Contracting Officer shall consider all outstanding equitable adjustment proposals.

The termination for convenience proposal area is one in which, with a little care, the contractor should recover virtually all of its proposal preparation costs, if they are well documented. As to interest recovery in the termination for convenience area, again the rules are no interest accrual until after certification.

See Bill Strong Enterprises v. Shannon, 49 F.3d 1541 (Fed. Cir. 1995), which was decided prior to Reflectone, Inc. v. Dalton, 60 F. 3d 1572 (Fed. Cir. 1995); Raven Industries, Inc. v. Kelso, 62 F. 3d 1433 (Fed. Cir. 1995), and BetanCourt  and Gonzalez. S.E., DOTBCA No. 2785 et al., 96-1 BCA ¶ 28,033.

Starting Point for Interest Recovery

One point that bears mentioning is the question of when interest starts to run when a contractor submits a claim that contains estimates. It is logical that a contractor must submit claims, particularly on larger issues, that have forward-looking costs in them, i.e. that contain estimates of costs not yet incurred.

Such estimates will likely exist as the Government encourages early claims submission, and as the contract requires that a claim be asserted within thirty days of the contractor’s knowledge. The Federal Circuit has recognized that claims will include estimates. Essex Electro v. United States, 906 F.2d. 1576 (Fed. Cir. 1992).

The view has been expressed that when claims contain estimates, the estimates are certifiable, but that interest does not start to run until the costs are actually incurred; that is certainly a logical view. Harris Corporation, ASBCA 26548, 85-3 BCA ¶ 18, 167.

However, there is a contrary line of cases in the Federal Courts: Servidone Construction Corp. v. United States, 931 F.2d 860 (Fed. Cir. 1991) (a timber case) states the rule that interest starts to run when the claim is submitted even if estimates are involved. A number of agencies follow such an approach given this Court decision; it appears illogical.

Additional Interest Recovery Points

  • State laws on interest recovery generally follow the Harris line of reasoning, above.

  • Many states have “amount stated” and “sum certain” payment laws that require a commercial party to pay interest on debts owed – without a certification or other procedural requirements. You should be prepared for some of your subcontractors to raise this issue.

  • Interest clauses in contracts can set out the rules between the parties and resolve many of these problems.

How does the Analysis and Proof of the Delay and Disruption Element and Costing of that Portion of the REA/Claim Affect Pricing?

Delay and disruption proof, and costing are complex topics. The purpose in this course is to provide a conceptual framework and guidance points for contractors to follow in preparing such REA’s and claims for submission.

What is Delay and Disruption and How is It Priced and Proven?

First, one must understand that delay and disruption are two completely different things:

  • “Delay” is the amount by which the contractor’s job is extended as a result of actions, which are its fault, the Government’s fault, or no one’s fault (excusable, inexcusable, and compensable delays). It has a cost to it as well. The contractor may be paid for delay costs (a compensable delay) or not paid (excusable, inexcusable delay).

  • “Disruption” is variously defined by commentators, but in our view it is a cost element of the pricing of a change, or any other type of claim. While disruption may generate some delay, and that needs to be accounted for, disruption is basically the deterioration which occurs in the basic contract work as a result of a contractor attempting to perform a number of unanticipated changes during the course  of performing the base contract work. For this analysis, disruption to and inefficiency in the basic contract work are synonymous.

The Impact on the Basic Contract Work

If a contractor performs a number of changes, it can determine its costs and price those changes, if it is diligent in doing so. But, what about the basic contract work, which is disrupted/made more inefficient due to stops and starts and non-sequential performance that would not have been present had the change not taken place.

These are disruption costs that are a valid part of the contractor’s recovery for performing the changes. The difficulty is in capturing these costs, attributing them to the change, and presenting them in a fashion that is credible.

Recall that the standard changes clause provides that a contractor recovers increased costs relating to both the impact of the change on "changed and unchanged work". The changes clause itself is recognizing that the recovery of disruption costs (effects on basic contract work) is appropriate.

Overview—Delay First Reviewed, Then Disruption

This section begins by surveying the delay area and explaining the differences between various types of delay and delay proof as it applies to Government agencies and commercial contractors. This is important, because both Government agencies, and primes and subs must deal with delay proof issues, and accordingly different laws and rules may apply to different parties in the same factual situation or transaction.

The standard routine is as follows:

  • The contractor isolates and determines its direct cost  for performing the ordered change or constructive change.

  • The contractor then determines if it has been delayed as a result of the change and establishes any such costs incurred due to the delay (assuming it is a compensable delay). This can be for the whole job, or only a part of it.

  • Finally, it looks at the basic contract work to determine if it was disrupted or made inefficient because of the changes. It then attempts to isolate the direct costs flowing from the disruption and attribute them back individually, or as a whole, to the change or changes involved. This is obviously not a simple feat.

These tasks do not have to be done in this particular order, nor do they need to be done in isolation. But, this analysis does need to be performed.

Classification of Delays

A contractor is paid for some delays and not for others. Delays are classified as: (i) excusable, (ii) compensable, or (ii) inexcusable. The costs are still incurred by the contractor for all delays, whether or not it gets paid.

Excusable Delays; Generally No Cost Recovery

Contract provisions generally provide for which delays are excusable.

For example, the Standard Default Clause in Federal Government contracts states that certain types of delays, such as strikes, acts of God, boycotts, etc. are excusable under that contract provision.

What does excusable mean? It means the contractor cannot be default terminated, assessed liquidated damages, or held liable for other types of failures (such as reductions in performance incentives).

An excuse means just that: it is an excuse. It has nothing to do with the cost that a contractor is incurring. The contractor continues to incur costs of operating its business during the excusable delay period and such costs are its responsibility. The company may not generally recover those costs from the Federal Government.

These same general rules apply in state and local procurement, and commercial procurements, with one exception: there are fairly well developed lines of case law defining delaying events that are considered excusable even when there is no contract listing of such excusable events. (UCC 2-615)

An excusable delay is generally one that neither party can control, i.e. acts of God, boycotts, embargos, etc. Such events are out of both parties’ control and therefore, the view is that both parties are not to penalize each other in those situations.

The Uniform Commercial Code has also stepped in (Section 2-615) and defined various types of excusable delay. Thus, a contract governed by State or Local law, such as a subcontract, even if it does not contain an excusable provision defining an excusable delay, is in fact subject to an excusable delay because of this statute and case law relating to it.

Compensable Delay; With Adequate Profit, The Contractor Gets Paid.

A compensable delay is a delay that has been caused by the action or inaction of one party to the contract. Often, the action is not appropriate under the contract or there is a slight element of “fault” involved in the taking or the failing to take the action at issue.

The simplest form of compensable delay arises when one party delays the other party in doing the work, issues a change order, fails to make the site available, fails to provide adequate drawings on time, fails to provide accurate drawings, etc.

All of these things are actions or inactions that a party has been obligated to undertake as part of its commitment under the contract. The action or failure to act when it is required is viewed as under the individual’s control, thereby entitling the other side to recover the delay costs it experiences. (It is often really just another type of cost element of  a constructive change/breach of contract.)

Compensable delays are remedied under contract clause(s) (if there is one), which provides for the recovery of specific costs during a delay period. See for example, the decision in Huff Sealing Corp., ASBCA No. 53587, 02-1 BCA 31,855, in which the Board held that the contractor was entitled to recover damages under the Suspension of Work clause even though it finished within the contract schedule.

Or, a compensable delay may be recovered under general common law as to breach of contract theories. This is so provided under the 2-7 series of the UCC.

Proof of the amount of delay and cost results a contractor is entitled to is important because it in effect collects payments for them.

Inexcusable Delay; No Payments And Perhaps Owes Damages.

A party to the contract, generally the contractor, is inexcusably delayed when he has control over the events which give rise to the delay.

A contractor who has inexcusably delayed performance may be terminated for default (or breach), assessed liquidated damages, or have other Government or prime contractor claims lodged against him during the delay period if the contract so provides. Under such conditions, the contractor generally receives no further payment and if defaulted could forfeit the whole contract and payments already made!

What are inexcusable delays? These are probably best classified as the failure of the contractor to have the necessary resources to pursue the work, i.e. insufficient labor, finance, plant, equipment, or vendors.

Events

As seen below, all of these resource items are considered generally inexcusable causes of delay for a contractor if they are not sufficiently present to permit the job to go forward:

  • Failure to have adequate personnel, including senior personnel, to pursue the job is an inexcusable cause of delay. Systems Laboratories, Inc. ASBCA No. 12162, 68- 1 BCA ¶ 6859.

  • Failure to have satisfactory finances, including loans, is an inexcusable cause of delay. Southland Manufacturing Co. ASBCA No. 10519, 67-1 BCA ¶ 6128.

  • Failure to have satisfactory vendors or subcontractors to perform on time is an inexcusable cause of delay. Electro – Nav, Inc. DC-NOAA-1-74, 75-1 BCA ¶ 11,162.

Defenses of Contractor

Note an important exception to the foregoing rules: if the government’s actions cause one of the above circumstances, the delay may be excusable to the contractor or even compensable.

Duty to Work Around Excusable and Compensable Delays, Particularly Excusable Delays.

Absent a special contract provision, the contractor has no real duty to work around excusable delays by expending substantial amounts of its own money doing so. Particularly in an excusable delay setting, it would make no sense whatsoever for the contractor to be entitled to an excuse delay while at the same time being expected to expend substantial amounts of its own funds to overcome excusable delays. See Southern Flooring and Insulating Co., Inc., GSBCA No. 1360,1964 BCA ¶ 4480.

Government delays of an land, which can be overcome through the normal, expected diligence of the contractor, are not separately compensable. Kirk Brothers Mechanical Contractors, Inc. ASBCA Nos. 35771R et.seq. 92-3 BCA ¶ 25,144. (“Kirk may have had no obligation to 'race ahead' with its performance, but it did have an obligation to prosecute the work diligently. . . . If Kirk had completed the other work diligently, it could have . . . mitigated the delay costs which it now claims as damages.”)

The contractor always has an obligation to mitigate damages. This planning and passive obligation exists when any delay or breach by the other party occurs. However, it should not be confused with affirmative spending to overcome an excusable delay, and perhaps also a compensable one. Yet the government will often press for such spending. Recall the acceleration claim discussion in Text 2.

Sole Source Vendor Delays

At the Federal level, delays caused by designated sole source vendors are often the responsibility of the prime contractor. In contrast, at commercial law, the designation of a source of supply, and its failure to perform, is generally at least an excusable cause of delay – see UCC 2- 615.

Concurrent Causes of Delay

The general rule is that if both parties are at fault in causing overlapping delays, i.e. concurrent delays, then neither party may take affirmative action against the other party. That means the Government cannot default terminate the contractor or assess liquidated damages, and the contractor cannot assert compensable delay claims against the Government.

See for example: Dynalectron v. The United States, 518 F.2d 594 (Ct. Cl. 1975) at 605; Ascani Construction and Realty Co., Inc., VABCA No. 1571 et.seq. 85-3 BCA ¶ 18, 272 at 91, 724-25.

At times Boards and Courts will attempt to apportion damage claims in an equitable way during periods of overlapping or concurrent delay. E.g. Taisei Rotec Corporation, ASBCA No. 50669, 02-1 BCA ¶ 31,739 (Contractor was negligent in failing to follow contract requirements that led a hangar to collapse damaging a helicopter. However, government was also at fault for using a hangar in an area that was being repaired, which it had agreed not to do. Based on comparative negligence, the board apportioned damages.)

The Advent of Actual Delay Proof; the Demise of “Bar Charts”

The foregoing delay sections discuss basically legal determinations and definitions of delays. Is it not important to identify what delayed the job? Are not the facts, as opposed to legal posturing, important?

Actual Delay?

For example: If one knew what actually delayed the job, would it matter if there were overlapping delays of various kinds?

If one knew that the actual delay of the job was compensable; would it matter if the contractor was experiencing excusable or inexcusable delays that did not delay overall performance during that same time period?

In terms of a delay event occurring that did not delay overall performance, would not the compensable delay control? The answer should be yes.

In addition, if the Government can show that the actual delay was inexcusable, then the fact that the contractor had compensable delays running at the same time is also irrelevant.

The standard techniques for proving actual delay to a project are interdependency analysis, or critical path method scheduling, or performance evaluation rating technique, or some similar term. The Corps of Engineers Board of Contract Appeals in Continental Consolidated Corp., ENGBCA No. 2743 & 2766, 68-1 BCA ¶ 7003 defined critical path scheduling techniques, as follows:

The CPM scheduling technique is one which requires a breakdown of the entire work into individual task orders and an analysis of the number of days to perform each task. The analysis is then programmed into a computer which produces a chart showing the tasks and a line which controls the completion of the over-all work. The line through the nodes, the junction points for the completion of a scheduled task, is know as the “Critical Path” In addition, there are numerous side paths for subordinate tasks which normally can be performed without affecting the critical path. However, the subordinate tasks, if improperly scheduled or unduly delayed in performance, can on occasions become critical and thus change the critical path for the entire work.

It is now virtually impossible to take a delay claim to the Board or any Court based upon an assertion that an event occurred and resulted in the total delay in the project as the responsibility of the Government (or the contractor). That assertion has the same infirmities as a total cost claim. The Boards and Courts have been highly critical of  the presentation of claims on a total delay basis.

For example: See Fortec Constructors v. The United States, 8 Cl.Ct. 490 (1985); affirmed 804 F. 2d 141 (Fed. Cir. 1986), and cases collected in James, Concurrency and Apportioning Liability and Damages in Public Contract Adjudication, 20 Public Contract Law Journal 490 (1991) and Finke, The Burden of Proof in Government Contract Schedule Delay Claims, 22 Public Contract Law Journal 125 (1992). See also, Santa Fe,  Inc., VABCA No. 2168, 87-3 ¶ 20104 and Coffey Construction Company, Inc., VABCA No. 3361 et.seq., 93-2 BCA ¶ 25,788.

All of these articles and cases point to the fact that one must now utilize the available mathematical/scientific techniques of interdependency analysis to prove what actually delayed contract performance. The case is virtually lost beforehand, unless these  techniques are used. Bay Construction Co., VABCA No. 5594, 2002 WL 442118 (March 19, 2002) (Generalized allegations will not work; nor will experts who so testify.)

The cost of utilizing these mathematical techniques is relatively modest. The issue is having knowledgeable individuals who can keep the program activities current on a CPM piece of software as the work goes forward. Perhaps the simplest and most often used software program is Microsoft Project, which is available for a modest cost of several hundred dollars. A more sophisticated program, utilized by many larger companies of all types (electronics, construction, etc.), is Primavera, which costs in the range of $3,000 to $4,000.

The ability to “man load” (or “resource constrain”) the individual tasks in the “as planned” and “as performed” phases of performance, and thereby add an additional dimension of analysis, is an important step beyond just analyzing how long it takes to perform a particular task in an abstract sense. Both of these programs permit “man loading” analysis; Primavera perhaps in a more sophisticated fashion.

Cross Contractual Delays and Changes.

If a contractor experiences an excusable delay on one contract for the Federal Government as a result of actions of the Government on another contract, it may be able to receive at least a time extension.

However, compensation of any kind for delays between two contracts is much more difficult at the federal level. And, if a contractor seeks to recover the costs of performing changed work on one contract – when in fact the Government action occurred on another contract – that is very difficult to prove and generally prohibited. General Dynamics v. The United States, 585 F.2d 457 (Ct.Cl.1978).

These rules may not apply to subcontracts, or in commercial contract cases. A more standard breach analysis may be more appropriate.

Recovery of Costs of Delays; Unabsorbed Overhead.

Obviously if a contractor incurs direct costs during periods of compensable delay, he may recover those costs if he can prove them. The unanticipated labor and materials expended are recoverable. So are stand by labor costs if reasonable.

The issue that repeatedly comes up is the contractor’s right to recover unabsorbed overhead during periods of delay.

If a contractor experiences a compensable delay for say a month, its overhead – the fixed overhead costs – continues to run during that time period. If the delay is compensable, such as with a change order, the company is entitled to recover those costs (unless it has agreed to a contract clause limiting recovery). The problem is how to calculate them?

Over the years, the Eichleay formula has been utilized (Eichleay Corp., ASBCA 5183, 60-2 BCA ¶ 2688, affirmed on reconsideration 61-1 BCA ¶ 2894). Numerous State and Federal Courts have also followed the Eichleay formula approach.

For example: There is a well developed body of case law dealing with the Eichleay formula in the New York State Courts, an influential Court in terms of commercial law.

The Eichleay formula is very simple in concept. It basically determines what a daily rate would have been for the contractor’s overhead that the delayed contract would have absorbed during the course of the entire job. There is a mathematical relationship between the amount of billings that would have occurred on the job versus on the contractor’s entire business operations. Simple division establishes  the daily rate of overhead and the contractor is entitled to that daily rate, with certain exceptions.

As with some mathematical formulas that are not directly connected to the real world by additional checks and balances, Eichleay can present problems. Many commentators argue that Eichleay can overcompensate a contractor, and that may be true in some instances.

Some additional points regarding Eichleay are in order:

  • Eichleay is the law for Federal Government contracts. The Federal Circuit so established in Capital Electric Co. v. The United States, 729 F. 2d 743 (Fed. Cir. 1984).

  • The Courts have also required that, in order to be entitled to Eichleay damages, the contractor must prove: (i) that the delay caused it to stand by, (ii) that it was unable to reduce its overhead, and (iii) that it was unable to take on additional work during the delay period. C.B.C. Enterprises v. The United States, 24 Cl. Ct. 187 (1991) and see Erostyle, Inc. GSBCA No. 12,084, 94-2 BCA ¶ 26, 891. This requires proof on the contractor’s part.

  • Obviously, contractors who receive major new work or changes work during the delay period cannot collect for overhead twice.

These and other limitations on the Eichleay formula require careful proof and analysis before the contractor simply employs Eichleay as if it is a magical wand for recovering unabsorbed overhead. It is not.

It should also be noted that there are other formulas and approaches available to calculate unabsorbed overhead. Most often mentioned are the following cases/approaches: Tru-Craft Clothes, Inc., ASBCA No. 5738, 60-1 BCA ¶ 2545; Industrial Pump and Compressor, Inc., ASBCA No. 39003, 93-2 BCA ¶ 25757; and Ingalls ShipBuilding Division, Litton Systems, ASBCA No. 17717, 76-1 BCA ¶ 11, 851.

Industrial Pump and Ingalls are particularly recommended for a comparison of complex versus straightforward  approaches/ methodology.

There is no automatic or "silver bullet" way to determine the most appropriate proof for such overhead claims. Many practitioners analyze the foregoing cases, and compare the approaches and formulas used in these and other related cases, to determine which one produces either the largest recovery or the most certain recovery and select that approach. The Government should do likewise in looking for approaches that minimize a contractor's recovery utilizing the foregoing cases.

Disruption Claims and Proof of Disruption.

As stated in the introduction, disruption is an element of cost that a contractor incurs when a Government action (or prime’s) increases its work in some fashion. Most generally, disruption elements of cost arise out of a series of change orders required by the Government; formal or constructive.

The difficulty is how to prove that inefficiencies increased costs in the basic contract work as a result of the changes. This is the disruption element.

Examples of Proof

In some situations, it is fairly easy. A contractor running a production line making batteries will most likely have an elaborate set of labor standards in minutes for what amount of time is consumed in producing a particular battery.

  • The contractor will record when a changed battery design commences production.

  • It may simply compare that point in time versus its previously achieved work standards to determine the drop off in terms of the basic battery production work as a result of the implementation of the changes.

  • It can probably also prove, by time and motion studies, the exact amount of direct increased labor in implementing the changed work, separate from the disruption to the basic work.

  • He has thus captured direct and disruption costs at the same time.

But, what of a complex manufacturing operation? Or, for example, work on an elaborate construction site, such as the building of a test facility:

  • The contractor has no fixed production line, which has been generating historical labor costs.

  • Basic contract work and changed work costs are not automatically captured, as in the example above.

  • The contractor is involved in the building of one specialized product, a test facility for NASA on a Government facility.

  • The Government orders a number of changes during the entire contract period.

  • The contractor can price the changes fairly accurately by knowing the material content that goes into them as well as the labor.

  • But, performing the changes causes drastic disruption (as well as delay) in the contractor’s basic contract work.

  • How does it price the disruption element that has occurred on the basic, original contract work, which is being performed at the same time as the changes?

Many trade organizations, particularly in the construction area, have undertaken empirical studies to analyze how much disruption to ongoing basic contract work results from the implementation of changes. For example, the Electrical Contractors’ Association, Masonry Association, and other trade organizations have done such studies, which may be useful to contractors in similar situations in proving disruption costs. Remember, disruption and inefficiency are equivalent in our analysis of the disruption problem.

The software industry has also done similar empirical studies.

In addition, substantial money has been spent on attempting to create mathematical algorithms for showing disruption costs when changes are introduced into a particular element of ongoing work. For example, the Navy has funded such studies. The most well known is the so- called “Blacksburg Study” that was done in an effort to develop a series of algebraic equations to prove or disprove contractor’s disruption claims flowing from change orders on naval shipbuilding contracts in various construction situations.

By far the most sophisticated and expensive approach in proving disruption is the use of dynamic mathematical modeling of the contractor’s production facility or particular job at issue. Basically, the way the original job was going to be performed and all of the critical elements in it are modeled mathematically.

Then that existing dynamic model of how the job was planned to run is impacted by specific alterations in how the job was performed as a result of changes. Assuming the model is correctly constructed, it will show the increased time, labor, and other related expenses coming out of the introduction of changes on top of basic contract work.

The Navy has spent significant funds in creating such mathematical models. And, there are a number of consultants who sell this type of mathematical modeling service. There is also computer software available (e.g. “What If”) that enables individual contractors, if they have the discipline, to do dynamic mathematical modeling of their own plant and operations, so that they may show and predict the disruptive elements being introduced through changed work.

This is obviously a very useful management tool as well as a claim-pricing tool.

It is extremely expensive to have outside consultants perform such mathematical modeling work. As people become more computer literate and tend to have the discipline to control their work in shared data environments, it seems logical that most sophisticated contractors will have mathematical models of their production operations for management improvement and analytical purposes if nothing else.

It is then only a short step away from being able to implement those dynamic math models to prove the costs incurred due to the introduction of alterations in basic work elements as a result of changes and delays caused by the other party to the contract.

Pricing and Proving the Delay/Disruption Portion of Claims in Subcontracts under Commercial Law

There is significant federal and state case law demonstrating that in order to recover contract damages, plaintiffs must be able to prove that the damages were directly caused by the other party's actions, and if other factors are also responsible for the damages, these must be separately accounted for.

Therefore, the inability to separate responsibility for each party's delays (and disruption costs) precludes the recovery of related damages:

  • Port Chester Electrical Construction Corp. v. HBE Corp., 978 F.2d 820 (2nd Cir.1992), rev'g 782 F.Supp. 837 (S.D.N.Y.1991)(Inability to establish the source of delays precluded recovery.)

  • Nat Harrison Associates, Inc. v. Gulf States Utilities Co., 491 F.2d 578 (5th Cir.1974) at 587 ("Harrison's proof relies only on generalizations about its overall operations and not on any loss caused by a particular action of Gulf States. There is in the record no testimony to the effect that such specific costs either could not be shown or are not available, and it does not appear to us that the nature of the particular losses make it impossible or highly impractical to determine them with a  reasonable degree of certainty.")

  • Austin-Westshore Construction v. Federated Department Stores, 934 F.2d 1217 (11th Cir. 1991) (Subcontractor's failure to prove how much of its claimed damages were due to owner's conduct precluded its recovery of delay damages.)

  • S.J.Groves & Sons Co. v. Warner Co., 576 F.2d 524 (3d Cir.1978) at 527 ("The burden is on the plaintiff to establish proximate cause between breach and damage and if the loss caused by a breach cannot be isolated from that attributable to other factors, no damages may be awarded.")

  • McDevitt & Street Co. v. Marriott Corp., 713 F.Supp. 906 (E.D.Va. 1989) at 936 (Owner's failure to prove that the contractor's breach directly resulted in an increase to its overhead precluded recovery).

  • E.I.DuPont de Nemours & Co. v. Universal Moulded Products Corp., 62 S.E.2d 233 (Va.1950) ("It was impossible, under the evidence, to segregate or allocate, with any degree of reasonable certainty, to one of several specific factors, its or their share of responsibility for damages sustained. Whatever part the several factors may have played in producing the damages complained of, the proportion to which Dupont's wrong contributed as a direct and proximate result is left purely to speculation and conjecture.")

  • AEL Industries, Inc. v. Loral Fairchild Corp., 882 F.Supp. 1477 (E.D.Pa.1995) ("New York law requires AEL to establish with reasonable certainty the specific delay `Directly attributable' to Loral's conduct. ...To meet its burden, AEL must calculate in `concrete terms' its increased costs, and `causally relate' any increased costs to delay.").

  • Central Florida Plastering and Development v. Sovran Construction Company, 679 So.2d 1226 (Fla.1996) ("Even if Mr.Vanderjagt's opinion as to the amount of delay damages had been supported by underlying facts, reversal would still be required. Sovran was required to provide a reasonable basis for apportionment of delay between subcontractors who were concurrently responsible for delay.")

The materials in the foregoing sections provide the background that companies need to develop strategies that avoid the traps these cases demonstrate.