Contractors Must Clear a High Bar to Claim Disruption Damages
It’s not unusual for a construction contractor to seek damages when an owner’s actions delay completion of a project. The contractor may pursue a variety of increased costs flowing from the slowdown, such as increased bond or insurance premiums, extra supervision costs, additional equipment or utility costs, and higher home-office overhead.
In some cases, however, an owner’s actions might disrupt a construction company’s operations. Although work continues and the project could even be completed on time, the contractor still suffers financial losses.
In those cases, the construction business may seek to recover damages for additional costs incurred because of the disruption. But proving the amount of disruption damages entails clearing a higher bar than that for delay damages.
Measured mile method
Generally, disruption damages are caused by lost efficiency — that is, a reduction in the expected productivity of labor and equipment. For example, scheduling errors or delays in shipments of materials might require a contractor to work out of sequence, reducing its efficiency.
There are several approaches to calculating disruption damages, but most courts prefer the “measured mile” method. Under this method, the contractor’s cost of work during the period of disruption is compared to the cost of the same work during an unaffected period.
The measured mile method is generally considered more accurate because it compares the same work by the same contractor on the same project. Other methods involve comparing the current project to a comparable, recently completed job or comparing actual expenditures to expected costs.
The distinction between delay and disruption damages is particularly important when the contract contains a “no damages for delay” clause. This clause protects the owner from liability for delays, though it may include exceptions for bad faith or “active interference.”
Because of the potentially detrimental impact of “no damages for delay” clauses on contractors, courts typically interpret them narrowly. These clauses usually don’t prevent claims for disruption damages unless the contract contains specific language to that effect.
Not easy, but possible
If you believe that an owner’s actions are disrupting your productivity on a project, you’ll need to be extra diligent about keeping a daily log of events with notes on incidents that affect your construction company’s efficiency. Also, document communications with the owner and other pertinent parties, and ensure you’re accurately recording project costs.
Contractors shouldn’t overlook potential claims for disruption damages when an owner’s actions have severely affected their productivity — even if completion of the project isn’t delayed. Although it’s rarely easy to prove such damages, and you’ll likely need to obtain legal counsel in your effort, the dollars recouped could be well worth the effort. Contact us for help identifying and organizing financial information and documentation related to your claim.