recent Court of Federal Claims decisions involving
disputes with the U.S. Navy reaffirm and clarify the principles governing delay
claims. They also highlight a legal
issue that is undecided under current law and needs resolution by the U.S.
Court of Appeals for the Federal Circuit.
This article first summarizes the applicable legal principles and then
reviews recent Court of Federal Claims cases pertinent
1. The Contractor’s Right To Compensation For
2. Brief Review Of
General Cost Recovery Principles
3. Delay & Burden Of Proof -- Recent Navy
Case: Sollitt Constr. v.
4. Unresolved Issue -- Whether Liquidated
Damages May Be Assessed Against The Contractor If The
Government Is Able To Apportion The Causes Of Delay
The Contractor’s Right To Compensation For
Project delays are disruptive and usually cause the direct
costs on a project to increase. Any time a project experiences a ‘critical
delay’ while substantial work is in progress, construction job site support
costs (e.g., trailers, supervision costs, maintenance, utilities, tools, and
equipment) will continue to accumulate unless it is practical to move these
resources to another job site. Usually
it is not practical to reallocate these resources. Likewise, manufacturing
resources idled by delay can result in continuing unanticipated costs. For these purposes, a ‘critical project delay’
is one that extends the project completion or would extend completion if
activities were not resequenced or accelerated to eliminate the effect of the
contractor has a duty to mitigate delay impact if practical. In determining
what mitigation is practical the courts consider: (1) whether the delay is of a
reasonably known length to allow planning; (2) whether there are other
projects, existing or new, that can use these resources effectively during the
delay; (3) what the costs of reassigning the resources will be; (4) whether the
delayed project can be partially or totally demobilized or manufacturing space
sacrificed; (5) how the subcontractors and
suppliers will be affected and how the delay’s impact on them can most
effectively be managed; and (6) whether the remaining work can be resequenced
to allow real progress to be made during the delay, and the cost of that
When a critical project delay
occurs, it almost always causes inefficiencies in the delayed work and impacts
other work. Even though it is often
difficult to quantify these inefficiencies, they are nevertheless compensable. Examples of these costs include but are not
limited to: storage, escalation of direct material and labor prices, diluted
management, out-of-sequence work, less efficient production and man-loading, and overtime labor rates. These increased costs
caused by acceleration efforts are recoverable if the Government does grant a
schedule extension. The contractor may
also recover extended or unabsorbed overhead costs in many cases, pursuant to
the ‘Eichleay’ formula.
contrast to some private or public state construction contracts, the right to
recover delay damages is not precluded in Federal contracts. I.e., ‘no damages for delay’ clauses are not
Review Of General Cost Recovery Principles
For contractors performing fixed-price contracts, the Federal
Acquisition Regulations (FAR) cost principles guide the negotiation of
equitable adjustments. See FAR 31.102. Generally, a contractor is entitled to
an adjustment if the delay causes the contractor’s costs of performance to
increase. Indirect costs must be
grouped into pools that can then be allocated to each contract based on the
benefits received as approximated by some allocation base (often labor hours).
fundamental objective of an equitable adjustment for government-caused delays
is to restore the contractor to the same position that it would have been in if
there had been no delay. FAR 52.243-4; FAR 52.242-14.
The contractor is entitled to profit on the extra costs but not for any
lost-opportunity profit. The price adjustment equals the difference between
what it would have cost to perform the work as originally required and what it
reasonably cost to perform the work as changed.
The contractor’s costs must be ‘reasonable,’ although costs will not be
rejected simply the work could have been done more cheaply. However, the contractor has the burden of
showing ‘reasonableness’ when challenged by the Government. FAR 31.201-3(a).
Delay & Burden Of Proof -- Recent Navy Case: George Sollitt Constr. Co. v.
George Sollitt Constr. Co. v.
There is an
important distinction between ‘compensable’ delay and ‘excusable’ delay. Compensable delay: if the Navy is responsible
for delaying the contractor’s critical performance path, then the contractor
recovers its delay costs. Excusable
delay: if the Navy or some event that is neither party’s fault (e.g., severe
weather) delays the critical path, then the contractor
is entitled to a schedule extension but no monetary recovery. It is of course relieved from liquidated
damages late penalties. If in an
‘excusable’ delay situation the Navy does not grant a schedule extension, then
there is deemed to be an acceleration of the work and the contractor is
entitled to its acceleration costs.
court provides an excellent state-of-the-law outline regarding the law of delay
in Federal contracts, and it is set forth hereinbelow. The three general headings are: 1.
Compensable Delay; 2. Excusable Delay; 3. Proof of Equitable Adjustment Claims.
a. Government liability for an
equitable adjustment may lie when the Government has caused delay to the
b. Government liability is
limited to its unreasonable delays.
c. Government action or inaction
must be the sole proximate cause of the delay
Government to be found to have caused compensable delay,
it must have been the sole proximate cause of the contractor's
additional loss and the contractor would not have been delayed for any other
reason during that period
d. The burden of proof for
compensable delay is borne by the contractor
In some cases,
this burden may be met if the contractor proves four elements: the Government's
delay was of unreasonable length, the Government was the proximate cause of the
contractor's delayed performance, the contractor was injured, and there was no
concurrent delay on the part of the contractor.
e. The contractor bears the
burden of separating and apportioning concurrent delays
Even if the
Government was not the sole proximate cause of the delay, the contractor may
recover if it can establish ‘clear apportionment’ of the delay attributable to
f. The contractor must prove the
extent of the Government-caused delay, and its increased costs, to prove its
additional costs related to the expense of performing certain contract work in
winter (or summer if heat is a major factor), or the rise in materials and
labor prices in the later work period.
g. The increased costs of winter
construction may be compensable
h. The increased costs of winter
work may be apportioned for concurrent delays
of additional costs encountered by working in the winter months, when there
have been concurrent delays caused by the Government and the contractor,
is appropriate, and may be achieved by awarding a proportion of winter-related
costs based on a mathematical formula derived from the amount of delay
attributable to each party.
i. When establishing the extent
of Government-caused delay to project completion, the contractor bears the
burden of proving critical path delays
that the determination of the critical path is crucial to the calculation of
delay damages is that only construction work on the critical path had an impact
upon the time in which the project was completed. One established way to
document delay is through the use of Critical Path Method (CPM) schedules and
an analysis of the effects, if any, of Government-caused events upon the
critical path of the project.
delay which affects only those activities not on the critical path does not
delay the completion of the project.
j. Because the critical path
changes over time, critical path schedule updates are needed to analyze delays
path of construction activities may change as a project is actually built, and
activities that were not on the original critical path subsequently may be
added. Accurate, informed assessments of
the effect of delays upon critical path activities are possible only if
up-to-date CPM schedules are faithfully maintained throughout the course of
k. The contractor bears the
burden of apportioning concurrent critical path delays
evidence shows that the contractor, along with the Government, caused
concurrent delay to the critical path of a project, the contractor must
apportion the delays affecting the completion of the project to be able to
recover delay damages. Courts will deny recovery where the delays are
concurrent and the contractor has not established its delay apart from that
attributable to the Government.
l. The contractor must prove the
amount of home office and field office overhead that is related to the
Government-caused delay of project completion
Extended home office overhead costs are a type of delay damages that
may sometimes be recovered. Where the Government suspends performance of a
contract, the contractor's indirect costs, such as home office overhead, often
accrue beyond the amount originally allocated to that particular contract.
These additional indirect costs may thus be unabsorbed. The Court of Claims consistently
allowed a contractor to recover not only additional direct costs that accrue to
a contract where completion of performance is delayed by the Government, but
also any unabsorbed, indirect costs that result.
m. When the parties stipulate to the daily costs
of home office and field office overhead, the contractor must prove the extent
of the Government-caused delay but is relieved of some other elements of proof
of its increased costs.
When the daily
costs of field office and home office overhead have been stipulated, the award
of extended overhead costs may be derived from the sum of the proven
Government-caused unreasonable delays which slowed the completion of the
n. When multiple delays by one
party are concurrent with each other, that party's delays must be analyzed to
ensure that the overall effect of these multiple delays is correctly attributed
to that party
complication with concurrent delays is the inquiry into whether one party's
multiple delays are concurrent with each other in addition to being concurrent
with the other party's delays. The court focuses only on critical path
activities that are delayed. Among all
critical path delays, the court first examines the proven delays caused by only
one party to make sure that the delay days which are concurrent with each other
are not counted more than once.
Government has the initial burden of showing late completion, and the
contractor then has the burden to show that the delay was excusable
In the context
of litigating liquidated damages assessed by the Government in a
construction contract, the Government first must meet its initial burden of
showing that ‘the contract performance requirements were not substantially
completed by the contract completion date and that the period for which the
assessment was made was proper.’ Once the Government has met that burden, the
burden then shifts to the contractor to show that any delays were excusable and
that it should be relieved of all or part of the assessment. Where a contractor
is prevented from executing his contract according to its terms, he is relieved
from paying liquidated damages.
3. Proof of
Equitable Adjustment Claims
a. The contractor must prove that
its actual incurred costs for the changed work were reasonable
Once the contractor has proved the Government's liability for the
costs of added or changed contract work, the actual costs incurred by the
contractor will provide the measure of the equitable adjustment to the contract
price, if those incurred costs are reasonable. Although a contractor's incurred
costs were once considered to have a presumption of reasonableness when
determining the amount of an equitable adjustment this presumption has been eroded by an
amendment to FAR 31.201-3. This regulation now states that no
presumption of reasonableness per se shall be attached to the incurrence of
costs by a contractor, and sets forth guidelines.
b. The Government bears the
burden of proving the cost of deleted contract work
the Government has deleted work and/or costs from a fixed-price construction
contract, the Government, not the contractor, bears the burden of proving the
amount of any downward equitable adjustment to the contract price.
Unresolved Issue: Whether
Liquidated Damages May Be Assessed Against The
Contractor If The Government Is Able To Apportion The Causes Of Delay
There is an unresolved legal
question which needs to be resolved by the Federal Circuit – does government-caused
delay to the critical path void the contract's liquidated damages provision,
even if the contractor shares some of the blame? The traditional answer has been yes since
1914. More recently, some courts and Boards of Contracts Appeals have allowed
partial assessment of liquidated damages where the Government has been able to
precisely apportion responsibility for delay.
The Sollitt case, above, discusses
this issue and makes reference to another recent Navy Court of Federal Claims
case, R.P. Wallace, Inc. v. United States, 63 Fed. Cl. 402 (December 15,
2004). Plaintiff contractor, a construction firm,
contracted with defendant
However, another Federal Claims
case two years earlier, PCL Constr. Servs., Inc. v.
‘The status of the rule against
apportionment in the United States Court of Appeals for the Federal Circuit is
unsettled. … . Regardless of the
apparent discrepancy between the rule against apportionment, as described in
Acme Process Equipment; and the clear apportionment rule, described in Sauer,
the two rules have coexisted in the United States Court of Claims, the United
States Claims Court, and the United States Court of Federal Claims, as well as
the United States Court of Appeals for the Federal Circuit, for many years.’
The Sollitt court observed the
existence of this conflict and ‘punted’:
‘In light of the extensive
discussions in PCL and R.P. Wallace of the rule against
apportionment and the conflicting rule allowing apportionment of liquidated
damages, and in the absence of a precedential decision resolving the apparent
conflict between these two analyses of controlling precedent on this issue, the
court here will examine the facts of this case under both the rule that forbids
apportionment and the rule that permits apportionment of liquidated damages.
Because the result in this case happens to be the same under either rule, the
court here does not need to further address the status of the rule against
apportionment of liquidated damages in this circuit.’