Measuring Delay Damages: Federal Construction Contracts

This is the final submission in a series of Blog posts dedicated specifically to explaining delay damages.  This series has covered these damages from beginning to end.  From successfully proving that a delay occurred, while addressing common defenses and discussing the various methods used to calculate delay damages (Part III, IV, V, VI, VII and VIII).  All of this information is applicable to all construction contracts, but there are additional concerns and methods applicable to federal construction contracts.  This final post will examine the special considerations and methods of calculating damages that are commonly associated with federal construction contracts.

Federal Source of Authority

There is no shortage of federal laws, and this post will not attempt to cover all of the federal laws affecting construction contracts and delay damage claims.  However, it will highlight some major and applicable sources of federal authority.  When undertaking a federal contract, the contractor should be aware of the False Claims Act[i] and the False Statements Act.[ii]  These Acts apply to all undertakings relating to any governmental contract.  Specific to construction, the False Claims Act applies most frequently to inflated cost estimates.  Liability may exist for a party that (1) falsifies or conceals any material facts; (2) makes any false or fraudulent statements; or (3) makes or uses any false writings or documents.[iii]

Additional authority requires the contractor to submit certified costs and pricing data under specified conditions to the contracting officer.[iv]  This authority further requires accurate disclosure of all indirect costs, improper inclusion of indirect costs and failing to disclose prior indirect costs is a violation.  If it is proven that the contractor knowingly submitted incorrect data the government can recover twice that of any overpayment, plus interest.[v]  The Equal Access to Justice Act is an important governing authority for organizations or corporations with a net worth not exceeding $7 million and individuals whose net worth is below $2 million.[vi]  This Act provides for fees, costs and expenses awarded in proceedings before federal courts and the Civilian Board of Contract Appeals.

Contract Provisions

To increase efficiency and create uniformity with government contracts the Federal Acquisition Regulations (“FAR”) system was established.  There is a specific section of FAR pertaining to cost principles and procedures for pricing contracts and modifying the contracts.[vii]  In light of the uniformity, contractors should be familiar with several required clauses that deal with the right to modify the contract price.  One such clause is the “changes” clause.  This clause provides the governmental contracting officer with the ability to change, at any time and without notice, the work within the general scope of the contract.[viii]  Other clauses that are required in government construction contracts are the “differing site conditions” clause,[ix] “termination for default” clause,[x] “termination for convenience of the government” clause,[xi] “suspension of work” clause[xii] and the Christian Doctrine.[xiii]  With the exception of the latter, the required clauses stand for the named action.  The Christian Doctrine stands for the proposition that if a FAR or other agency’s regulations require a clause be included in a contract, the contract will be construed to include the clause even if not expressly included in the contracting documents.[xiv]  To fully understand federal construction contracts, it is extremely important for the contractor and the contractor’s representation to be familiar with federal procurement law and the FAR.

Calculating Delay Damages

Methods to calculate delay damages with federal construction contracts are virtually the same as the methods discussed in previous parts of this series.  There is a presumption with federal contracts that the actual costs paid are reasonable, and the party alleging the costs as unreasonable must overcome the presumption.[xv]  There is a clear preference for damage calculations based on records of costs compiled as they are incurred on projects, known as the Actual Cost Method.[xvi]  The preference is so great that claims have been denied simply because the contractor failed to submit available cost data.[xvii]

The Total Cost Method (Part III) is an available method to calculate damages.  The basis for this method lies in the notion that when liability is clearly established, absolute certainty in the measure of damages is not always required.[xviii]  As mentioned earlier in the series, there is no attempt to segregate damages to specific factors causing them.  It is this reason, along with the fact that the Total Cost Method compensates the contractor for its errors—in its bid and during construction—and other non-compensable items that courts are reluctant to accept this method as an accurate quantification of damages.[xix]  The Modified Total Cost Method (Part IV) is a more accepted approach for calculating damages, but still suffers from some of the unreliability and inaccuracy issues that plague the Total Cost Method.  Use of the Modified Total Cost Method has been specifically approved on multiple occasions to calculate damages.[xx]  The Eichleay Formula (Part V) and the Jury Verdict Method (Part VII) are also commonly used methods to calculate delay damages with federal construction contracts.  While other methods of calculating damages, found in Parts VI and VIII of the series, are not mentioned, this does not mean they are not applicable to federal construction contracts.  These methods are just not used as frequently.

Delay damages, like much of the legal world, comprise a complex area.  This series is by no means legal advice; rather, it is a look inside the process of potentially recovering damages for unexpected delays.  It is our hope that this series was enlightening and informative.  As always, should you have any questions or want to discuss a specific matter further, do not hesitate to contact me at Jimerson Birr, P.A.