Measuring Success with Claims Management

*


Stuart Ockman, President
Ockman & Borden Associates
Wallingford, Pennsylvania


*
Originally published in the Proceedings of the Project Management Institute.


INTRODUCTION

Let's examine a typical $30 million construction project with an
increasingly common problem, a $10 million plus end-of-contract delay
and disruption claim. How can we avoid similar claims on our projects?

Let's look at the corollary to an effective project management programby
the contractor: an effective claims management programby the owner.
And in particular, let's look at how an effective claims management
programwill avoid what can be millions of dollars of claims preparation
and legal fees spent by both the contractor and the owner long after the
project is complete.

The major categories of contractor claims during a project are the result
of delays, (e.g. failure to provide timely access or late vendor drawing
approval), changes and differing site conditions. However, acts of God,
value engineering change proposals, defective specifications, etc., may
also result in disputes. Similarly, lack of performance by the contractor
which may result in termination for default is a problemfromthe other
side. In order to measure the impact of these problems a good network-
based project management (CPM) system is essential with periodic
updates by the contractor at least once a month. We'll examine how to
specify such a system, what to look for when approving the contractor's
initial schedule submittals, and how to properly adjust the schedule to
account for owner delays.

Once a reasonable as-planned schedule has been approved, it becomes
the benchmark for measuring contractor and owner performance on the
project. We'll look at the basic tool for determining the effect of a delay
or change on the project milestones, the time impact analysis. What
should a time impact analysis include and how can it be incorporated in
the approved schedule? We'll also look at how to make sure the owner
gets what he pays for when he executes a change order. It's not always
easy.

Finally, we'll look at establishing goals for future projects. In particular,
how can you be sure (1) that the amount billed to date is fair and
adequate compensation for the work performed, and (2) that the current
contract amount is fair and adequatecompensation to performthe current
scope of work by the current contract completion date? If you can't be
sure, then your claims management programneeds review and you may
be heading toward an end-of-contract claim.


THE PROJECT

The project involves construction of the Cold Spring Lane Station &
Line and the Rogers/Reisterstown Line Contracts for the Baltimore
Region Rapid Transit System(BRRTS).

The $16.5 million Cold Spring Lane Contract consists of a double track
aerial structure, a center platformstation at Cold Spring Lane, a traction
power substation, and related sitework:

1. Aerial Structure - approximately 9140 feet of double precast
concrete girder trackway resting on cast-in-place concrete piers
with either spread footings or pile supported footings. As the
girders are erected, the spaces between adjacent girder ends are
filled with cast-in-place concrete; concrete walls supporting the
precast safety walk and sound barrier panels are placed; conduits
are installed beneath the safety walk; and safety walk and sound
barrier panels are installed to complete the structure.

2. Cold Spring Lane Station - a three level structure with entrances at
grade level and, via an aerial pedestrian walkway, directly from
the parking lot to the mezzanine; fare collection and the station
control center at the mezzanine; and access to the transit vehicles
at the platformlevel. The station is cast-in-place architectural
concrete with aluminumclad canopy and skylights, brick and
granite pavers, and stainless steel and granite accent panels.

3. Traction Power Substation - a single story structure with
cast-in-place concrete foundation, grade slab and partial basement;
concrete block walls; steel roof joists, and built-up roofing.

4. Sitework including clearing and grubbing, support of excavation,
utilities, paving, curbs and gutters, sidewalks, fencing, guard rails,
seeding and sodding.

The $11.4 million Rogers/Reisterstown Contract consists of an aerial
trackway structure, bridges over Northern Parkway, sub-ballasted
trackway on grade and on retained fill, a traction power substation and
related sitework:

1. Aerial Structure - approximately 4220 feet of single, double and
four track aerial structure including precast and cast-in-place
concrete girders. Construction is similar to the Cold Spring Lane
Contract except that the Rogers/Reisterstown Contract utilizes
single track piers while the standard Cold Spring Lane pier
supports two tracks.

2. Trackway on Grade and Retained Fill - approximately 3340 feet
of double and three track construction including six retained fill
abutments, sub-ballast, and 3630 feet of retaining walls.

3. Northern Parkway Bridges - three composite steel I-beamgirder
and concrete deck bridges supported by cast-in-place concrete
piers in the median, and abutments on either side of the Parkway.

4. Rogers Avenue Traction Power Substation - a single story
cast-in-place concrete structure located in retained fill beneath the



2
trackway. One wall of the substation is above grade in a retaining
wall.

5. Sitework including clearing and grubbing, support of excavation,
preload embankment, concrete slope protection, utilities, paving,
curbs and gutters, fencing, guard rails, and seeding.


THE PROJECT MANAGEMENT (CPM) SYSTEM

The scheduling specification for the Cold Spring Lane and
Rogers/Reisterstown Contracts is similar to the network analysis system
(NAS) specification used by the U.S. Army Corps of Engineers. It
specifies that:

1. The contractor is responsible for preparing and maintaining a
detailed progress schedule.

2. The detailed progress schedule shall be used to plan, organize and
execute the work; record and report actual performance and
progress; and forecast remaining work.

3. The progress schedule shall be submitted as a detailed network
diagramcomparable to that described in the Associated General
Contractors' Manual, CPM in Construction.

4. The detailed network diagramshall be supported by computerized
schedule reports, a manpower requirements forecast and a cash
flow projection.

5. A preliminary progress schedule shall be prepared and submitted
within 15 days of the notice to proceed, showing the work to be
performed during the first 90 days and the contractor's general
approach to the remaining work.

6. The contractor's detailed network diagram is to be submitted
within 45 days after receipt of notice to proceed.

7. Network activities shall include:

$ Procurement, fabrication, delivery, installation and testing
of major materials and equipment

$ Submittal and approval of shop drawings and material
samples

$ Availability of work areas

$ Delivery of owner furnished equipment

$ Interfaces with preceding, concurrent and follow-on
contractors

$ Manpower, material and equipment restrictions.

8. The selection and number of activities are subject to the approval
of the Engineer.

9. Estimated activity durations are to be in working days.

10. Construction activity durations shall not be more than 20
workdays unless approved by the Engineer.

11. Activity durations shall reflect manpower and resource planning
under contractually defined on-site working conditions.

12. The contractor shall supplement the initial network analysis with
information describing construction methods and resource
restraints so that the Engineer can evaluate the network diagram
for usefulness in monitoring job progress.

13. The network analysis shall include computerized schedule reports
sorted by activity number, early start, late finish and total float.

14. The contractor shall maintain full-time staff on the jobsite with
responsibility for updating the mathematical analysis (computer
printouts) and revising the network diagrams when necessary.

15. The contractor shall submit a manpower requirements forecast, in
accordance with the detailed network diagram, including:

$ Graphical manpower displays by principal trade and total
work force

$ A description of the type and number of work crews and
typical crew composition over the life of the project

$ Manpower relationships to the major work elements.

16. The contractor shall submit a cash flow projection graphically
displaying the estimated cash drawdown over the life of the
project.

17. The contractor shall review the initial schedule submittal with the
Engineer. Any revisions necessary shall be resubmitted within 15
days after review.

18. The Engineer will verify that the progress schedule and supporting
analysis satisfy the contract requirements.

19. The contractor shall submit monthly updates of the mathematical
analysis (computer printouts).

20. The contractor shall also submit a narrative report with each
monthly update including a description of the problemareas,
current and anticipated; delaying factors and their impact; and an
explanation of corrective actions taken or proposed.

21. The contractor shall submit a revised detailed network diagram
and supporting analysis whenever:

$ A change or delay significantly affects contract milestones
or the sequence of activities

$ The contractor changes any sequence of activities affecting
the critical path, or significantly changes the approved
work plan

$ In the opinion of the Engineer, the approved work plan is
no longer useful for planning the work and evaluating the
contractor's performance.

22. The contractor shall submit a time impact analysis when proposed
change orders are initiated or delays are experienced. The time
impact analysis shall demonstrate:




3
$ The impact of each change or delay on achieving the
contract milestone dates

$ How the contractor proposes to incorporate the change or
delay into the detailed progress schedule.

The time impact analysis shall be submitted within 30 days after a
delay occurs or a proposed change is identified. When both the
contractor and the Engineer agree on the impact of a change or
delay, the appropriate network logic revisions shall be
incorporated in the next monthly update of the detailed progress
schedule.

When the contractor and Engineer cannot agree on an appropriate
time extension before the next monthly schedule update, the
contractor shall incorporate logic revisions reflecting an interim
time extension as determined by the Engineer.

23. Float or slack is not time for the exclusive use or benefit of either
the owner or the contractor.

24. Time extensions will be granted only to the extent that equitable
time adjustments for the affected activities exceed the total float or
slack along the paths involved.

The one important difference between the BRRTS Specification and the
NAS requirements of the Corps of Engineers is that the Corps specifies
that a monetary value be assigned to applicable activities and the
schedule be used for requesting payment for work accomplished. The
Corps requirement not only assures timely monthly updating, but also
insures that both the contractor and the owner agree each month on
activity percent complete.


SCHEDULE APPROVAL

Too often schedule reviews are only cursory at best. With a proper
scheduling specification, the approved schedule becomes a benchmark
for assessing the contractor's performance throughout the project. It is
the basis for negotiating equitable time extensions for changes and
owner-caused delays and, thus, vital for determining equitable
compensation for delay damages. As the benchmark for measuring
performance, the schedule also becomes the owner's most effective tool
(or weapon) for keeping the project on schedule.

With so much importance resting on the initial approved progress
schedule, a thorough and timely review is vital. The following key items
must be considered:

1. Is It Reasonable? - This is the acid test. Does the schedule
accurately represent the contractor's thinking and will its
implementation result in the timely and efficient execution of the
project? Are the activity durations realistic considering
reasonable crew sizes, efficiency and equipment availability? Do
the logical restraints accurately reflect planned crew movement
and availability of resources?

The initial schedule submittal on the Rogers/ Reisterstown
Contract indicated the need for three clearing and grubbing crews
to work simultaneously early in the project to achieve the contract
milestones. However, the contractor's real plan (the one not
reflected by the schedule) was to use only a single crew.
Obviously the real plan and the approved plan must be one and
the same for the schedule to be effective.
2. Does It Meet the Contract Milestones? - This is extremely
important but, too often, it is the only criteria used for schedule
review and approval. Many schedule reviewers seemto believe
that if the schedule meets the contract completion milestones, it
complies with the contract. This is only true if it is reasonable,
represents the contractor's thinking, and is at the appropriate level
of detail.

3. What is the Appropriate Level of Detail? - On the Cold Spring
Lane and Rogers/Reisterstown Contracts, the contractor was
required to show network activities for:

$ procurement, fabrication, delivery, installation and testing
of major materials and equipment;

$ submittal and approval of shop drawings and material
samples;

$ availability of work areas;

$ delivery of owner furnished equipment;

$ interfaces with preceding, concurrent and follow-on
contractors; and

$ manpower, material and equipment restrictions.

Also, construction activity durations were to be less than or equal
to 20 workdays.

Still, both the initial and approved Cold Spring Lane schedules
included no procurement, fabrication, delivery and testing
activities; only ten activities for submittal and approval; no
activities indicating required delivery of owner furnished
equipment; and no interfaces with preceding, concurrent and
follow-on contractors other than those identified by contract
milestones.

Make sure that schedule submittals meet all the contract provisions prior
to approval.


THE TIME-SCALED NETWORK DIAGRAM

One of the problems confronting the owner in schedule review and
approval is that the traditional tools for scheduling, the logic diagramand
the computer printout are not easy to read or to fully comprehend. The
traditional logic diagramwith circles and arrows, dummies (sometimes
flowing fromright to left), and off-page connectors is often confusing to
the preparer and almost unintelligible to the reviewer. This is because
there is no easy way to see which activities are going on at the same
time. With computer printouts, it's easier to see which activities are
going on at the same time (e.g. with early start barcharts). However, with
traditional computer printouts it's difficult to follow the logical
relationships among activities. The solution is the time-scaled network
diagram. By requiring a time-scaled logic diagramas part of the initial
schedule submittal, not only is it an order of magnitude easier to review
and approve the initial schedule, but also errors in the initial schedule
submittal are substantially reduced by forcing the contractor to draw the
network logic to a time-scale.





4
COST ON ACTIVITIES

What good is a reasonable, approved progress schedule if it is not used
throughout the project? Not much. Sometimes it's very difficult to
insure that the schedule is effectively used by the contractor. However,
it's easy to insure that the schedule is updated monthly with accurate
estimates of activity percents complete and hopefully accurate actual start
and finish dates and remaining duration estimates as well. Just require
the contractor to assign costs to applicable activities and use the schedule
to request payment for work accomplished. By tying progress payments
to the monthly schedule updates, timely schedule updating is assured.
By contrast, schedule updates on the Cold Spring Lane Contract were
four to eight months apart after the initial schedule was approved.

Of course, using the schedule for progress payments introduces other
considerations in schedule approval including:

1. Front End Loading - Do the activity costs represent an equitable
amount for the work involved or will the contractor have been
paid for ninety percent of the work when twenty-five percent
remains to be done?

2. What Costs Are Included and When Is an Activity Complete? -
For example, does the activity, Form, Rebar and Place Mezzanine
Beams include costs for form stripping, scaffold removal,
patching and finishing? Or, is the activity complete when the
concrete is placed?


THE SCHEDULE REVIEW CONFERENCE

The schedule review conference should be held within a day or two of
the initial schedule submittal. On the Cold Spring Lane and
Rogers/Reisterstown Contracts, the schedules were submitted on June 23
and the schedule review conference was held on December 13. Prompt
schedule approval is in the interest of both the contractor and the owner
so that both parties should push for a timely conference and speedy
schedule approval. At the schedule review conference, the contractor's
superintendent should explain his plan in general terms, and the owner
should verify that the schedule reflects that plan. Any questions about
reasonableness and conformance with the contract requirements should
be discussed, and required changes and additions should be identified if
necessary for approval. The contract should specify the amount of time
allotted for the contractor to make the necessary revisions and resubmit
the schedule, in this case fifteen days.


TIME IMPACT ANALYSIS

The BRRTS Contracts state that "When proposed change orders are
initiated or delays are experienced, submit to the Engineer a written Time
Impact Analysis illustrating the influence of each change or delay on any
specified intermediate milestone dates and completion dates". The
Contracts further state that "Each Time Impact Analysis shall
demonstrate how the Contractor proposes to incorporate the change or
delay into the detailed progress schedule" and shall be "based on revised
activity logic and durations". But, what is a Time Impact Analysis?

By now, the term"Time Impact Analysis" should be as widely known in
the industry as the term"CPM". However, not only within the industry
in general, but also among the experts testifying on the merits of delay
and disruption claims, there seems to be a widespread lack of
understanding of this straightforward concept.

A time impact analysis is a step-by-step, network-based scheduling
method for evaluating the effect of a change or delay on achieving the
project milestone completion dates. Since most contract scheduling
specifications state that time extensions will be granted only to the extent
that equitable time adjustments for the affected activities exceed the total
float or slack available at the time a delay occurs or notice to proceed
with a change is issued, the time impact analysis methodology was
developed to demonstrate whether a change or delay exceeds the
available total float.

The steps for performing a time impact analysis during construction are:

1. Update the approved progress schedule to reflect the status of
construction immediately prior to the change or delay. This
update becomes the adjusted base schedule for measuring the
impact of the change.

2. Identify the scope of the change or the extent of delay.

3. Identify the activities affected by the change or delay including
any new activities required to perform changed or additional
work.

4. Prepare a subnetwork showing the sequence of activities required
to performthe changed work or to identify the impact of the
delay. The subnetwork should identify all interfaces with the
adjusted base schedule (see Step 1).

5. Develop support for the subnetwork from contract drawings,
sketches, correspondence, estimates, etc.

6. Determine whether incorporating the subnetwork logic in the
adjusted base schedule will impact any contract milestone dates.

The subnetwork and supporting documents along with the adjusted base
schedule are the time impact analysis. The time impact analysis should
be reviewed with the owner's representative to obtain approval for
incorporating the proposed subnetwork in the next schedule update.
And, if the time impact analysis indicates an impact on any contract
interimmilestone (i.e. if the change or delay exceeds the available float),
a contract modification must be negotiated with the owner to adjust the
affected milestone dates. If a change or owner-caused delay impacts the
contract completion date, the contract modification must be negotiated
for both a contract time extension and damages for delay.

A time impact analysis can also be performed upon completion of a
construction project to demonstrate entitlement to damages for delay.
The steps for performing an after the fact time impact analysis are:

1. Develop a reasonable as-planned schedule. The purpose of the
reasonable as-planned schedule is to illustrate the contractor's
original work plan to performthe scope of work in accordance
with the contract terms and within the specified period of time. If
a contemporaneous original progress schedule was prepared (and
particularly if the original progress schedule was approved by the
owner), the original progress schedule (with appropriate
adjustments to make it reasonable, if required) becomes the
reasonable as-planned schedule. The reasonable as-planned
schedule is the benchmark for measuring the impact of subsequent
changes or delays.




5
2. Develop an as-built schedule to illustrate the actual sequence and
performance of construction. The as-built schedule is developed
fromcontemporaneous project documents including schedules,
daily reports, diaries, time sheets, correspondence, progress
photographs, etc.

3. Compare the contractor's actual performance (the as-built
schedule) to his original plan (the reasonable as-planned schedule)
and identify chronologically the first activity which actually
started or finished after its scheduled late start or finish date (i.e.
the first activity which exceeded the float available). The delay to
the first activity exceeding the float available is the first
controlling delay experienced on the project or the first delay
impacting a contract milestone. The date when the first
controlling delay was resolved becomes the date of occurrence of
Impact No. 1.

4. Update the reasonable as-planned schedule to reflect (1) actual
progress to the date of occurrence of Impact No. 1, (2) the impact
of the controlling delay, and (3) any changes in the contractor's
plan for achieving the contract milestones reflected in
contemporaneous schedule updates or other contemporaneous
project documents. The updated reasonable as-planned schedule
becomes the adjusted benchmark for measuring the impact of the
next controlling delay.

5. Repeat steps 3 and 4 until all controlling delays have been
identified. Since the purpose of an after the fact time impact
analysis is to identify all schedule related events affecting each
interimcontract milestone as well as contract completion, it may
be necessary to show schedule improvements (e.g. where the
contractor performs two critical activities, originally scheduled
sequentially, in parallel to regain lost time) and schedule revisions
as impacts too.

6. Identify the causes of each impact fromthe project records. Be
sure to consider excusable, noncompensable delays (e.g. abnormal
weather or work stoppages) in determining equitable time
adjustments for each impact.

Figure 1, on the following page, is a sample time impact analysis
showing two controlling delays to achieving the "Building Enclosed"
contract milestone.

1. The As-Planned Schedule shows the approved logic for achieving
the September 1, 1986, contract milestone date (Step 1).

2. The As-Built Schedule shows the contractor's actual performance
developed fromthe project records (Step 2).

3. By comparing the As-Planned Schedule to the As-Built Schedule,
the first controlling delay to achieving the contract milestone can
be identified as the delayed start of steel erection. This delay was
resolved on May 26, 1986, the date of occurrence of Impact No. 1
(Step 3).

4. Impact No. 1 shows the contractor's actual performance to the left
of the date of occurrence and the contractor's adjusted plan for
achieving the contract milestone to the right of the date of
occurrence. Note that steel erection actually started 40 workdays
later than planned; and, since steel erection was critical to
achieving the contract milestone, the projected milestone
completion date has been delayed by 40 workdays (Step 4).
5. The next (and final) controlling delay, Impact No. 2, was the late
finish of glass and glazing. Since this delay was resolved when
the contract milestone was achieved, Impact No. 2 has been
shown together with the As-Built Schedule on the Time Impact
Analysis. Glass and glazing took three weeks longer than
planned, delaying the projected milestone completion by fifteen
additional workdays (Step 5).

6. The project records indicate that the start of steel erection was
delayed by eight weeks, or 40 work days, by a strike at the
structural steel fabricator's plant entitling the contractor to an eight
week excusable, noncompensable delay. From the notice to
proceed to the date of occurrence of Impact No. 1, the contractor
experienced no abnormal weather. Thus, as of May 26, 1986, the
date of occurrence of Impact No. 1, the properly adjusted
milestone completion date is October 27, 1986, and the contractor
is on schedule. The project records indicate that the late finish of
glass and glazing was due to the untimely performance of the
glazing subcontractor. However, fromthe date of occurrence of
Impact No. 1 to the actual milestone completion date, the
contractor experienced five work days of abnormal weather.
Thus, the properly adjusted milestone completion date at the
actual milestone completion is November 3, 1986, and the
contractor is liable for actual or liquidated damages, if any, for
finishing ten work days behind schedule (Step 6).

On the Cold Spring Lane Contract, the contractor submitted a narrative
"time impact analysis" alleging six to nine months of delay to all contract
milestones. The contractor's time impact analysis included a revised
schedule logic diagramand computer printout where the delays to each
contract milestone were "demonstrated" by assigning constraints to
downstreamactivities, artificially extending the schedule for achieving
each milestone and creating float for activities scheduled prior to the
constraints. The contractor's revised schedule was presented as reflecting
progress two months after notice to proceed when the contractor had
experienced a controlling delay to the contract milestone dates of one
week or less, and not the six to nine months claimed.


CHANGE ORDERS

Implicit in measuring success with claims management is successful
negotiation of change orders. As an owner, make sure you get what you
pay for. Don't negotiate a change order for a phantomchange!


PHANTOM CHANGES

There are at least two broad categories of phantomchanges: first, a
change order that pays a second time for work included in the original
contract (e.g., a change order for relocating pier cap reinforcing steel to
clear anchor bolt sleeves and canopy support brackets when the ACI
Code states that "Bars may be moved as necessary to avoid interference
with other reinforcing steel, conduits, or embedded items"), and second,
a change order that pays for a contractor's best efforts without specifying
an end result (e.g., a change order for overtime to regain time lost due to
previous delays. The net result of this type of phantomchange on one
project was that an owner negotiated a change order for $500,000 in
overtime premiums and achieved no gain in time at all).






5
J AN FEB MAR APR MAY J UN J UL AUG SEP OCT NOV
1986
1986
J UN J AN FEB APR MAR MAY OCT AUG J UL SEP NOV
J UN J AN FEB APR MAR MAY OCT AUG J UL SEP NOV
J UN
13
24
31
6
12
9
1
30 25
25
30
Building
Enclosed
7
4 25
25
20
20
27
Building
Enclosed
26
17
Building
Enclosed
Date of
Occurrence
May 26, 1986
1986


Time Impact Analysis

Figure 1


TIMELY NEGOTIATIONS

Timely negotiations are a necessity. In order to assure prompt payment
for changed work, it is imperative to submit prompt and reasonable
estimates and to reach an early agreement on the change order amount,
prior to the next invoice date if possible. The BRRTS Contracts required
that an estimate be submitted "within 30 days after receipt of a written
Change Order".

If a change order affects the ability to achieve a contract milestone date,
both a prompt estimate and a time impact analysis are required for
negotiating the contract modification. Only execute change orders with
reservations regarding time and cost as a last resort.

Many change orders on the BRRTS Projects had reservations stating for
example that "this Change Order covers the cost of performing the extra
work. The extension of contract time and delay costs, if any, will be
handled" later. These clauses increase the likelihood of end-of-contract
claims.


INDEPENDENT ESTIMATES

Another consideration in negotiating changes is the preparation of
independent estimates by both the contractor and the owner. A
contractor would not even consider negotiating a change order without
preparing an estimate, and neither should the owner. During
negotiations, the differences between estimates (both cost and time)
should be reconciled at a sufficient level of detail that both the contractor




6
and the owner understand what is included in the change order, how
much it will cost and how much additional time will be granted. This
understanding should be clearly defined on the face of the change order
document.


LOSS OF PRODUCTIVITY

Agreeing on cost and time are easy, but how about loss of productivity?
What about the ripple effect; the impact of changes and delays on base
contract work? It is the contractor's responsibility to motivate the
workers and to assign specific tasks to be performed. It is also the
contractor's responsibility to provide adequate supervision to perform
both the base contract work and the changed work. If the contractor
receives notice of a change in sufficient time to replan, incorporating the
additional work in the current schedule without interrupting the
workflow on site, then there is no loss of productivity. The changed
work should appear as base contract work to the craftsmen in the field.
On the other hand, if notice of a change is received or an owner-caused
delay occurs which requires work on an activity to stop and/or one or
more crews to be reassigned, then a reasonable amount for the work
stoppage and reassignment including learning curve losses should be
included in the change order. Also, even though it is the contractor's
responsibility to provide adequate supervision, if a change or owner
delay requires additional supervision, the cost of the additional
supervision should be included in the change. Another potential extra
cost itemin a change or owner delay is the impact on weather sensitive
work (e.g., additional costs for hot or cold weather concreting).


COMPENSABLE DELAYS

If a change or owner delay impacts achieving the contract completion
date, the contractor is entitled to damages for delay in addition to the
other costs associated with the change. Typically these costs would
include (1) extended site overhead for both supervision and equipment,
and (2) unabsorbed home office overhead. It is imperative that these
costs be negotiated with the direct costs of the change order to avoid an
end-of-contract claim.


ACCELERATION

Acceleration is a special situation where the contractor is using
extraordinary measures to performmore quickly than originally planned.
Acceleration can have a severe impact on productivity in several areas
including:

$ Stacking of Trades - several trades (or crews) working
simultaneously in a confined work area

$ Crew Size Inefficiency - use of more men than the optimum
originally planned

$ Shift Turnover - performing the same activities by different crews
on multiple shifts

$ Overtime - working more than forty hours per week.

Since acceleration, particularly when it involves extended periods of
overtime, can have a devastating impact on production, with productivity
losses of 30 to 65 percent or more, it is of limited use in recovering lost
time.
Acceleration is particularly unsuited for regaining time lost by the
contractor. The BRRTS Contracts state that "If, in the opinion of the
Engineer, the Contractor falls significantly behind the approved progress
schedule, the Contractor shall take any and all steps necessary to improve
his progress. The Engineer, in this instance, may require the Contractor
to increase the number of shifts, initiate or increase overtime operations,
increase days of work in the work week, or increase the amount of
construction plant, or all of them". Similar provisions appear in most
contracts, but enforcing these provisions is rarely successful in making
up a significant amount of lost time. The owner must monitor the
contractor's performance and insure that the contractor has sufficient
manpower, material and equipment on site and is achieving his planned
rate of productivity before the contractor falls significantly behind
schedule, not after it.

Another problemwith directing the contractor to improve his progress is
that, if the contractor is not behind a properly adjusted schedule at the
time of the directive, he may be able to recover damages for constructive
acceleration. In Norair Engineering Corporation v. The United States,
666 F.2d 546 (1981), the Court stated, "in order to recover for increased
costs of acceleration under a changes clause, plaintiff must establish three
things:

(1) that any delays giving rise to the order were excusable,

(2) that the contractor was ordered to accelerate, and

(3) that the contractor in fact accelerated performance and incurred
extra costs."

If a change order is negotiated to recover time lost by the owner, make
sure that the risk is born by the contractor and that the change order
includes penalties if the promised schedule improvement is not achieved.


GOALS FOR FUTURE PROJECTS

A CHECKLIST FOR THE CONTRACTOR

1. Reread the contract and make sure you understand the provisions
for delays, changes and disputes.

2. Give the owner timely notice of any non-contractor caused delays
or changes which will require additional time and/or money to
performthe required scope of work.

3. Since delays must be measured against a base schedule to
establish entitlement to delay damages, insist on owner approval
of a detailed CPM schedule on every project and performmonthly
schedule updates to monitor job progress. Make sure you
understand the cause of any schedule slippage and take immediate
corrective action.

4. Submit time impact analyses to demonstrate entitlement to time
extensions. Incorporate the agreed upon subnetwork logic into the
next schedule update.





7
5. Remember the contractor's duty to mitigate (lessen) damages;
notify the owner of potential problems which may have cost or
schedule impact and recommend least cost solutions.
6. Put all notices and recommendations in writing and insist on
timely written responses fromthe owner.

7. Finally, when submitting an invoice, if the current contract
amount does not represent fair and adequate compensation to
perform the current scope of work by the current contract
completion date, request a change order to adjust the contract
amount and/or time of completion accordingly. Note, on each
invoice, the amount due for work performed on pending change
orders, and sit down with the owner to negotiate approved change
order amounts prior to the next invoice. If negotiations break
down, consider the use of an independent expert to mediate the
dispute.

A CHECKLIST FOR THE OWNER

$ Institute an effective quality control/quality assurance program,
and

$ Make sure the contractor follows his checklist.


CONCLUSION

The preparation and evaluation of claims have recently imposed
significant additional costs on both contractor and owner in today's
construction market. In order to stemthe growth in claims against the
owner, both the owner and his construction manager must develop new
techniques in managing construction.

A promising approach is to require each contractor to sign a statement
accompanying each invoice stating, "The amount billed to date is fair and
adequate compensation for the work performed, and the current contract
amount is fair and adequate compensation to performthe current scope
of work by the current contract completion date." Any exceptions to this
statement would be noted with the invoice. A claims manager,
representing the owner, would then try to negotiate a change order
amending the contract to cover the contractor's exception(s) prior to the
next invoice.

This procedure, requiring both the contractor and owner to evaluate and
attempt to settle claims monthly, would be a giant step toward
eliminating the multimillion-dollar end-of-project claims now so
prevalent. As an added benefit, both the contractor and owner become
intimately aware of their schedule responsibilities and cost exposure over
the life of the project.