The Tangled Mess: Apportioning Delay and Proving Damages

Construction and Procurement Law News, Q4 2015

Client Alert

A recent case in North Carolina serves as a good reminder of the legal principles involving delays and overruns, specifically regarding the responsibility for apportioning delay and proving damages. In Flatiron- Lane v. Case Atlantic Co., the general contractor Flatiron-Lane (“FL”) hired Case Atlantic Co. (“Case”) as its casing subcontractor for the drilling and installation of casings and associated concrete work. Case’s subcontract was based on unit prices and its commitment to complete its work in sixteen weeks. Poor communications with the designer, poor productivity, incorrect assumptions regarding the costs to implement Case’s stated means and methods of installation, and various other issues resulted in a 30 to 40 week delay to the project. The delay and purported changes resulted in both parties incurring millions of dollars of additional costs. Litigation ensued with each party blaming the other for the entire delay and all of its associated costs.

The Court concluded that both parties contributed to the delay. This conclusion was fatal to the parties’ respective claims for delay-related damages as both took an all-or-nothing approach to the delay during trial and presented no evidence to allow the Court to apportion the responsibility for the delay. The Court reminded the parties, “where both parties contribute to the delay neither can recover damages, unless there is proof of clear apportionment of the delay and expense attributable to each party.” Thus, the Court refused to award any time related costs.

With respect to FL’s other claims, the Court also provided reminders about proving damages. While implicitly approving of the “measured mile” approach commonly accepted for proving productivity impacts and associated damages, the Court refused to award FL damages for a loss in productivity because FL had not disclosed an expert to testify regarding the measured mile calculations (which was required in the Court’s view), and because the testimony from FL’s damages expert did not support the measured mile analysis presented by FL’s employee. The Court then denied FL’s claim for additional direct costs incurred by FL because FL failed to introduce evidence of modifications or breaches of the subcontract and failed to present any witness with personal knowledge of how and why the costs were incurred with any reasonable certainty. These proof issues can often be mitigated by keeping good project documentation.

The Court denied all of Case’s counterclaims. The Court denied one of the counterclaims because Case failed to provide contractual notice. The Court also addressed and dismissed Case’s catch-all claim which utilized the “modified total cost” method. While acknowledging that a “total cost” or “modified total cost” method for calculating damages can be appropriate, the Court repeated the principle that “the party seeking damages [under a total cost or modified total cost claim] must first demonstrate ‘the impracticability of proving actual losses direct.’ [] Where a party simply fails to preserve records that with diligence it could have kept, impracticability cannot be shown.” In addition to questioning the underlying cause of Case’s damages, the Court essentially concluded that a measured mile approach to directly calculate actual losses was practical under the facts and that Case’s failure to present such an analysis required the dismissal of its modified total cost claim.

This case serves as a reminder that an objective assessment of the delay and appropriate documentation are important in evaluating claims for delay and impact. Specifically, is it advisable to provide an allocation in a delay situation and take some responsibility, if appropriate, even if the allocation is only presented as an alternative to complete responsibility? Have notice provisions been met, waived, or otherwise excused? Can you document the damages, are there weaknesses in the damages backup, and, if so, can you explain those weaknesses? It often is prudent to seek the assistance of a seasoned construction lawyer or consultant to assist in this evaluation.