Measuring Delay Damages: Modified Total Cost Method

You have successfully proven that a delay occurred, effectively addressed the common and most applicable defenses and, subsequently, determined the Total Cost Method does not assist you in calculating the delay damages.  Luckily, or unlucky depending on whether trying to collect or avoid paying damages, courts allow the use of a number of different methods to ascertain the measure of delay damages.  Out of the usual objections with the Total Cost Method—the contractor receiving a windfall, lack of reliability and specificity and the low burden of proof—the Modified Total Cost Method was established.  This Blog post will describe the “ins and outs” of the Modified Total Cost Method.

The rationale behind the Modified Total Cost Method, other than those previously listed, is to alleviate the difficulty of quantifying discrete damages and removing the assumption of complete responsibility.[i]  This method, first seen in the Court of Claims decision of Great Lakes Dredge & Dock Co. v. United States, accounts for damages caused by acts not directly attributable to the defendant.[ii]  Prior to diving into the Modified Total Cost Method, it is imperative to understand how the method works on a basic level.

The Modified Total Cost Method, in the simplest terms, is a compromise between the Total Cost Method and a more specific form that segregates damages to specific instances.  The rational, similar to the Total Cost Method, is that the inability to prove exact damages should not preclude recovery where damages are incurred.[iii]  Under the Modified approach, the total damages due are the result of adding the original contract amount and the equitable adjustment to the price less any amount already paid under the contract.[iv]  The equitable adjustment is what remains after subtracting extra costs attributable to the contractor, specific costs arising from parties other than the party against whom damages are sought and adjustments for inaccuracies in the bid from the total costs expended on the project.[v]

Many courts have used the Modified Total Cost Method to calculate the overall damages, but this method can also be applied to particular phases or limited time periods of a project.[vi]  To successfully invoke the Modified Total Cost Method, the claimant must prove virtually all of the requirements under the Total Cost Method.  Courts differentiate, however, on which element is not necessary.  According to the Bankruptcy Court for the Middle District of Florida, the claimant must prove that (1) the original bid was reasonable, (2) the costs expended to perform the additional work were reasonable and (3) that the claimant was not responsible for the additional costs.[vii]  The Eighth Circuit, in Nebraska Public Power Dist. v. Austin Power, Inc., did not require the claimant to prove the lack of responsibility for any additional damages; rather, the court required that the claimant prove that no alternative method of computing damages existed.[viii]  Regardless of which method is applied, the basic principal remains that the Modified Total Cost Method is simply the Total Cost Method reduced by any expenses caused by the claimant.

Despite courts viewing the Modified Total Cost Method as more just, use of it has not always been permitted.[ix]  The Court of Claims rejected the use of this approach, finding the claimants’ efforts in reducing the total damages by its own deficiencies to be “a feeble justification for acceptance of such an approach since the integrity of the approach has been tainted . . . .”[x]  The court reasoned that using the Total Cost Method as a starting point and adjusting it according to the claimant’s faults tainted any recovery.[xi]

The Modified Total Cost Method generally receives a greater acceptance than the Total Cost Method, but is still less preferred than other more specific methods of calculation.  Where the claimant is responsible for some of the additional costs and expenses, the Modified method is preferred to the Total Cost Method.  When more specified, exact damages are determinable, neither the Modified nor the Total Cost Methods may be used.  Keep checking back for the more specific methods of calculating delay damages.