Proving Loss of Productivity Damages
Construction and Procurement Law News, Q4 2016
In a recent decision by a federal trial court in Washington state, the court offered contractors a roadmap on how to best recover, or oppose recovery of, damages based on claims of interference and loss of productivity. United States ex rel. Salinas Constr., Inc. v. Western Sur. Co. involved a dispute between a general contractor, CJW Construction, Inc. (“CJW”), and a concrete subcontractor, Salinas Construction, Inc. (“Salinas”), related to work performed at a project at Joint Base Lewis-McChord in Washington. Although both CJW and Salinas asserted breach of contract claims against each other, the central issue involved Salinas’ claim against CJW that “CJW interfered with and hindered Salinas’ performance of its work at the project.” Salinas sought damages for the inefficiencies it suffered based on CJW’s alleged interference with Salinas’ work. Salinas, however, did not designate or provide any expert testimony to support its damages claim. Instead, Salinas presented evidence of its inefficiency damages through only one lay witness. After trial, the jury awarded Salinas approximately half of its claimed inefficiency damages. CJW and the surety asked the district court to vacate the jury’s damages award, primarily because they believed Salinas’ damages evidence, lacking expert testimony, failed to support the award. The court agreed and vacated the award.
Salinas’ lone damages witness purported to employ the “measured mile” method to calculate Salinas’ alleged lost-productivity damages. Put simply, the measured mile method compares an unimpacted period, area, or activity of construction work with another area or activity of work that was disrupted, and determines the contractor’s loss based on the difference between the contractor’s productivity and performance during the unimpacted period(s) with the contractor’s productivity and performance during the disrupted period(s). Courts have awarded loss of productivity and inefficiency damages based on other methods of calculation, such as the total cost or modified total cost method, but the measured mile method is often stated to be “preferred.”
While the court acknowledged that this witness’s “position at Salinas qualified him to testify from personal knowledge and give lay opinion testimony based on basic measurements and simple math,” it ruled that he was not qualified to provide expert testimony. Specifically, Salinas’ witness purported to calculate Salinas’ loss of productivity by using actual production costs, but the witness then “subjectively decided which costs to consider impacted versus unimpacted and constructed a hypothetical world in which Salinas’ work on every day of the project went unimpacted by CJW’s breach of contract.” Because this methodology accounted for Salinas’ productivity on days that proceeded exactly how Salinas “believed [the project] should have gone” but did not adjust to consider impacts unrelated to CJW’s interference, the court concluded that the “methodological flaws” inherent in the witness’ testimony revealed why a claimant must support inefficiency damages with expert testimony. The court stated that Salinas’ witness “calculated the measured mile by choosing comparators that ‘magically’ proceeded how [the witness] ‘believed [the project] should have gone,’ rather than attempting to control for variables that did not relate to CJW's breach.” Stated differently, Salinas’ witness compared the disrupted project to a fictional, problem-free project and based on that comparison, arrived at a figure representative of its alleged inefficiency damages.
This decision demonstrates that proving inefficiency and loss of productivity damages due to interference with a contractor’s work requires careful thought, adequate documentation, and may require an opinion from a qualified expert witness. Adequate records must be maintained to support the calculation of a measured mile, but this documentation must then be analyzed in a credible and supportable manner. Failure to provide a supportable and repeatable analysis may leave the impacted contractor in the position of Salinas: the impact is proven but the resulting damages are not.