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Elements Of Delay Damages - Part Ii
Saturday, July 27, 1996 11:13 am
Last month this article discussed the recovery of escalated direct costs, demobilization/ remobilization, standby costs, and lost labor efficiency. In this month?s conclusion, the article covers the recovery of extended field overhead, unabsorbed home office overhead, and lost profit. The article also discusses 'total cost' quantification and delay claims administration issues. Extended Field Overhead
When a contractor's performance is delayed, the contractor?s period in the field is extended. This necessitates additional costs in the form of supervision, field office and utilities. These costs are usually tallied into a total daily rate and assessed against the party responsible for the delay. TechDyn Systems Corp. v. Whittaker Corp., 427 S.E.2d 334 (Va. 1993); CCM June 1993, p. 3.
It is relatively easy to quantify daily field costs. But a number of pitfalls stand in the way of recovery. A price adjustment is appropriate only when the performance period is extended by owner delay or suspension. If the time in the field is extended due to change order work, the overhead mark-up on the extra work is presumed to include field expenses. Appeal of Rod Hermanson, ASBCA No. 38384 (September 9, 1992); CCM December 1992, p. 5. This is frequently stipulated in the contract itself. Appeal of Colton Construction Co., Inc., VABCA No. 1574 (December 30, 1982); CCM March 1983, p. 5.
Even if there is a true suspension of work, the contractor will not be entitled to recover unless there was a resulting extension of field overhead. When a suspension occurred before the contractor had mobilized at the site, there was no recovery for extended field overhead. Appeal of Warbonnet Electric, Inc., VABCA No. 3875 (October 25, 1995); CCM February 1996, p. 5. And when a contractor demobilized from the site during a suspension of work, there could be no recovery for extended field overhead. Appeal of Palomar Grading and Paving, Inc., ASBCA No. 32196 (July 2, 1986); CCM October 1986, p. 6.
Unabsorbed Home Office Overhead
The recovery of unabsorbed home office overhead has been covered extensively in CCM over the years. A detailed discussion of unabsorbed overhead is beyond the scope of this article, so the concept will be summarized and recent cases will be mentioned.
When a contractor submits a fixed-price bid on a construction contract, the contractor reasonably anticipates a certain cash-flow from that contract. This expectation is based upon the contract price, the progress payment provisions, and the scheduled performance period established in the contract itself. The contractor expects the cash-flow to absorb a certain portion of the contractor's fixed home office expenses during the scheduled performance period.
If the project owner suspends the contractor?s performance of the work, the contractor is unabl[...]