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Construction Law

: The South Carolina Construction Law Blog

Contract Modifications May Trigger Disruption Claims

By Ryan McCabe

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            A government agency hired a general contractor to construct a laboratory building. Bell BCI Co. v. United States, 81 Fed. Cl. 617 (2008). After nine months from the beginning of construction, the government asked that an additional floor be added to the building. The change resulted in over 200 modifications by the government and delayed the completion of the project by almost two years. Moreover, the government's modifications increased the cost to complete construction by $21 million.

            When the government refused to pay the contractor the additional costs, the contractor filed suit. The government denied owing the contractor any money. To the contrary, the government claimed the contractor owed the government $447,678 in liquidated damages for not completing the project in time. See id. at 619.

            The contractor brought a cumulative impact claim: it sought recovery for the total losses the government's changes caused to the contractor. The contractor's alleged damages totaled over $6 million and included an unpaid balance of the contract price, about $1.6 million in unresolved changes, about $1.6 million in delay damages, over $2 million in inefficiency costs due to the cumulative impact of the changes, and the lost profit on the inefficiency cost. See id.

            The court first found that the contractor was not liable to the government for liquidated damages due to failure to complete the project within the timeframe specified in the contract. Furthermore, the court distinguished delay damages from disruption damages. Delay damages are costs resulting from not being able to work. Disruption damages are the costs of having to work less efficiently than planned. See id. at 636.

             As the court noted, bilateral modifications will compensate a contractor for performing the changed work. However, these modifications do not pay the contractor for the impact such changes have on the rest of the project. The contractor must only assert a reasonable basis for its cumulative impact claim. The court found that such basis was established: the contractor's historical productivity data and project records showed the government's changes affected the contractor's performance of unchanged work. See id. at 638.

            The court noted that none of the change orders approved on the project waived disruption, cumulative impact, or labor inefficiency claims. Without such express waiver, the court could not conclude there was meeting of the minds between the parties. The government, therefore, was liable for the cumulative impact its changes had on the contractor. See id. 639.

Full post as published by The South Carolina Construction Law Blog on June 08, 2009 (boomark / email).