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A contractor filed a request for equitable adjustment (REA) to the District of Columbia (D.C.) government asserting that the District caused $1.2 million in delay and impact costs, and other damages arising out of a road reconstruction project. It appealed a deemed denial to the D.C. Contract Appeals Board (CAB). The CAB found in favor of the contractor on all its claims based on defective specifications or differing site conditions, but remanded to D.C. to negotiate the quantum of damages. D.C. then concluded that quantum was equal to “Zero” and the contractor appealed to the CAB, which awarded equitable adjustment in the amount of only $155,000 on the claim because the contractor failed to use a Critical Path Method (CPM) to prove its critical path was impacted and failed to keep good financial records of the damages claims. This decision was affirmed by the D.C Court of Appeals in Rustler Construction, Inc. v. District of Columbia, 2111 A.3d 187 (2019). Of note are the following holdings:

1) Contractor was unable to recover under a theory of “overall delay” because it failed to submit appropriate evidence to show the extent of delay to itmes on the critical path;

2) Contractor was unable to prove the amount of damages because it didn’t break down its costs by task; and

3) Contractor’s failure to demonstrate it was unable to keep detailed records doesn’t necessarily preclude the use of the jury verdict method to award the contractor a portion of its claimed damages.

The claim for Overall Delay

The contractor wanted to use the number of days by which completion was delayed as a proxy for extra costs incurred. But overall delay only occurs when delay by the government/owner affects items that are on the critical path. If the government causes delay to the completion of items outside the critical path, a contractor may not recover based on a theory of overall delay.

“The best way to establish the critical path is by presenting CPM schedules.”  The court noted, “It is a well-accepted principle that contactors must modify and update the CPM schedules when issues arise during the course of construction.”

In this case, although the contract specifically required the contractor to frequently and regularly update the CPM schedules, it only submitted four CPM schedules throughout the course of the contract, and two of those were submitted before construction even began.  “The only CPM schedules that [contractor] produced after construction began were insufficient to establish the effect of delay on the critical path.”

Although delay damages may sometimes be proven through expert testimony in the absence of up-to-date CPM schedules, the contractor failed to produce such expert testimony.

Jury Verdict Method used to Calculate Damages for Additional Tasks and Out-of-Sequence Work

The Board awarded the contractor damages for 28 days of additional tasks and out-of-sequence work. Due to Contractor’s failure to break down the costs by task, the amount of damages awarded was significantly less than the contractor requested. The contractor wasn’t happy with the award amount and contended that, “since it proved entitlement [during the entitlement stage of the Board proceedings], it should receive at the quantum stage all of the damages it requested.” In rejecting that argument, the Court noted that the regulations pertaining to the Board permit it to reserve the determination of the amount of recovery for another proceeding.

There is no lighter evidence rule for proving damages before the Board

The contractor argued that it was only required to “prove the amount with sufficient certainty such that the determination of the amount will be more than mere speculation.” The court agreed that “a claimant need not prove his damages with absolute certainty or mathematical exactitude,” but that “the same preponderance of the evidence standard of proof that applies to an entitlement showing ‘also applies to proof of the amount of [a contractor’s] increased costs.”

Use of Jury Verdict Method was Appropriate

The D.C. government argued that use of the jury verdict method was inappropriate because the contractor didn’t demonstrate a justifiable inability to produce evidence of its actual costs or cost estimates, and that the jury verdict method should only be used to resolve conflicting testimony.

The court began its analysis of this issue by stating that there “is some confusion about the jury verdict method and its application,” and that it can cover a variety of techniques to allow contract appeals boards and courts “to fashion a price adjustment that best compensates the contractor yet does not force the government to pay an amount that is unfair in the circumstances.” (quoting, from Nash & Cibinic, Administration of Government Contracts 709 (4th Ed. 2006).

Following federal precedent, the court states “we have held that the jury verdict method may be used only when it is determined ‘(1) that clear proof of injury exists; (2) that there is no more reliable method of computing damages; and (3) that the evidence is sufficient for a court to make a fair and reasonable approximation of the damages.’”

All three conditions were found by the court here. The D.C. government didn’t argue to the contrary. Instead, they argued that the method can’t be used because contractor didn’t demonstrate that it was “justifiable unable to provide actual cost data concerning the additional or out-of-sequence work it performed.”

The court held “that a contractor’s failure to demonstrate that it was unable to keep better records does not necessarily preclude use of the jury verdict method. However, we do not retreat from our prior statements that the use of the jury verdict method is disfavored.”

The court also rejected the argument that the jury verdict method is only appropriate to resolve conflicting testimony. In this regard the court explained, “While resolving conflicting testimony may be a common purpose for using the method, it may be employed in other circumstances as well. It may, for example, be used to calculate “the amount of an adjustment when there are gaps in the evidence or the evidence is not completely persuasive,” Cibinic & Nash at 707, as was the case here. Indeed, … this court acknowledged that the jury verdict method “may be used when the board is not convinced by the contractor’s evidence of the precise amount owed, yet finds that some extra costs were incurred.”

Comment: When it comes to proving delay claim entitlement, the contractor can be held to the requirement to prove, through a critical path method analysis, that the items of work that were delayed were on the critical path. Without a CPM analysis, it is difficult or impossible to determine what is, or was, the critical path.

The court’s holding concerning the use of the jury verdict method in this case is helpful for clarifying when, and how, the method can be used. But even though the jury verdict method was used here to award some damages to the contractor, it must be noted that the contractor got only $155,00 out of its total $1.2 million claim. The jury verdict method is certainly no substitute for maintaining good cost records of each task that the contractor claims is impacted.

 

About the author: Article written by J. Kent Holland, Jr., a construction lawyer located in Tysons Corner, Virginia, with a national practice (formerly with Wickwire Gavin, P.C. and now with ConstructionRisk Counsel, PLLC) representing design professionals, contractors and project owners.  He is founder and president of a consulting firm, ConstructionRisk, LLC, providing consulting services to owners, design professionals, contractors and attorneys on construction projects.  He is publisher of ConstructionRisk Report and may be reached at Kent@ConstructionRisk.com or by calling 703-623-1932.  This article is published in ConstructionRisk Report, Vol. 22, No. 3 (March 2020).

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