Overview of Disruption Claims on Construction Projects
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Construction projects are complex endeavors that involve numerous variables, from planning and design to execution. Even with the best planning, unforeseeable events can still occur that cause disruption to the contractor’s plan for performance of the work. These disruption events can be costly to the contractor, even if they do not result in a delay to critical path of the work on the project, because they result in lost productivity and increased costs. Under certain circumstances, a contractor may be entitled to assert a claim to recover additional costs due to the disruption to its work. This blog provides an overview of disruption claims on construction projects, including how they are different than delay claims, and under what circumstances the contractor may potentially be entitled to relief due to the disruption.
What is a Disruption Claim?
A disruption claim on a construction project is generally based on a reduction in the planned and expected productivity of labor and equipment during a given period of time on the project, caused by an event or events outside of the contractor’s control and within the control of the other party to the contract. Due to this loss of productivity, the contractor incurs higher costs, including through added manpower, overtime and/or additional equipment costs, than the contractor planned for to complete the work. This results in the contractor losing money, even if the contractor’s work or the project completion is not delayed.
How is a Disruption Claim Different Than a Delay Claim?
A disruption claim is different from a delay claim because disruption is based on a loss in productivity to work activities, even if the work activities do not delay the critical path for completion of the project. One court explained the fundamental distinction between the disruption claim and delay claim as follows:
“Unlike the delay claim, the disruption claim is intended not to redress [the subcontractor’s] loss from being unable to work, but to compensate [the subcontractor] for the damages it suffered from [the contractor’s] actions that made its work more difficult and expensive than [the subcontractor] anticipated and than it should have been.”
U.S. Industries, Inc. v. Blake Constr. Co., 671 F.2d 539, 546 (D.C. Cir. 1982).
Under What Circumstances Can a Contractor Claim Additional Compensation Due to Disruption?
A contractor may be entitled to additional compensation due to a disruption if the contractor can prove that (a) it suffered an abnormal loss of productivity beyond the normal range inherent in the construction process and (b) that the loss was caused solely by events within the control of the other party to the contract. See Ace Constructors, Inc. v. United States, 70 Fed. Cl. 253, 282 (2006), aff’d, 499 F.3d 1357 (Fed. Cir. 2007) (“A contractor may recover for loss of efficiency if it can establish both that a loss of efficiency has resulted in increased costs and that the loss was caused [by the government].”).
In determining whether disruption was abnormal, courts typically look to whether the actual disruption exceeded a normal range reasonably foreseeable at the time of contracting. As explained by one court, “there is a range of reasonably expected adverse conditions in the performance of a construction contract within which there is no breach … It is only to the extent that [the contractor’s] lack of diligence as a general contractor caused these adverse conditions to move outside that expected range that [the subcontractor] is entitled to recovery.” Bat Masonry Co., Inc. v. Pike-Paschen Joint Venture, III, 842 F. Supp. 174, 182 (D. Md. 1993). However, productivity is, by its very nature, difficult to measure, such that the inability to prove the amount of loss of productivity with exactitude does not necessarily bar recovery for the loss. See Luria Bros. & Co., Inc. v. United States, 369 F.2d 701, 712 (Ct. Cl. 1966) (citing Needles v. United States, 101 Ct. Cl. 535, 618, 1944 WL 3698 (1944)).
In addition to proving abnormal disruption, the contractor also has to be able to prove that it was solely caused by the causes or events within the control of the other party to the contract. In other words, this requires proof that “but for” the occurrence of the event within the owner’s control, the loss of productivity would not have occurred. Because of the numerous variables on a construction project that may affect productivity, this can be a difficult showing. Where lost productivity may be caused by multiple events, some of which were outside the owner’s control, the contractor may not be able to meet its burden.
It is important to enhance the chance of success for the contractor to provide timely notice of the disruption to the other party under the contract. Equally as important, the contractor needs to document and track the additional costs due to the disruption. This may include through using separate cost codes or other methods to be able to demonstrate the labor productivity before and after the disrupting event. Due to the complex nature of a disruption claim, the contractor may need to engage an outside expert consultant to assist in proving entitlement and quantifying the damages caused by the disruption.
Disruption can have significant impacts on a contractor’s costs to complete the work. Contractors that are able to act quickly to recognize what may constitute a disruption in order to provide the required contractual notice in a timely manner, and that understand how the claim must be documented in order to establish that the disruption’s effect on the work, will have a greater chance at successfully obtaining relief on a disruption claim.