TECHNICAL ARTICLE

Recommended Contractual Methods For

Resolving Delay Events
Prospectively or Retrospectively
Patrick M. Kelly, PSP

Abstract: The reality of construction projects is that the oft-mandated methodol-

ogy for granting a contract time extension is ignored during the press of work. Having defined the nature and
This can result in a significant change in the risk allocation between the parties. cause of trends and the scope
The traditional risk allocation model requires performing a prospective time im- and cause of deviations and
pact analysis (TIA), with agreements on time and money prior to corrective work change requests, corrective
commencing. Yet, when the work is performed before negotiation, the risk allo- action alternatives are
cation has shifted significantly. This article makes recommendations for two con- developed and assessed using
tractual paths for resolution of changes with potential time impacts, to balance the forecasting process (Section
risk and responsibility for cost control. The first method, occurring prior to the 10.2). Forecasting applies the
start of corrective work, uses a prospective TIA to determine entitlement to time, methods of integrated project
and bilateral negotiation to manage costs. The second method occurs immedi-
planning (Chapter 7) in the
ately upon completion of corrective work, tracks costs through stringent time and
material cost accounting, and determines time through a contemporaneous pe- context of a project that is
riod analysis. Having two methods for resolution gives project managers additional progressing while demanding
tools to resolve time-related issues early and prior to contract completion, mini- quick and effective change
mizing potential disputes. This article was first presented as CDR.923 at the 2012 management decisions.
AACE International Annual Meeting in San Antonio, Texas. The change management
process may identify alternative
Key Words: Construction, contracts, cost, project management, and risk actions to implement changes
and to correct performance

T
he AACE Total Cost thereby closing the project trends (including process
Management Framework, control cycle loop. The process improvements). These are
Section 10.3, “Change includes the identification, generally simple action
Management,” states: definition, categorization, statements (e.g., “revise
recording, tracking, analyzing, schedule logic”). The forecasting
Change management refers to disposition (i.e., approval or process develops the proposed
the process of managing any disapproval for incorporation action statements into
change to the scope of work into approved or baseline actionable control plan
and/or any deviation, project control plans), and alternatives for further
performance trend, or change to reporting of deviations, trends, assessment (e.g., “complete
an approved or baseline project and changes [14]. activity B before activity A”).
control plan. The change Additional alternative actions
management process is used to Furthermore, regarding the analysis may be identified in this process
approve or disapprove changes of changes, “Section 10.3.2.5 “Assess [15].
in the scope and baseline plans, Impact” states:

COST ENGINEERING NOVEMBER/DECEMBER 2013 29

 This article does not address the
correction of performance trends
described in the TCM; however,
deviations and change requests resulting
in the need for analysis and possible
alternative actions requires a proactive
change management plan within the
project controls process.
The Problem
While executing construction
contracts, contractors often encounter
problems which were not foreseen by
either party, and which are not covered
by the contract. Additionally, the needs of
owners occasionally evolve after the
award of a contract, necessitating a
change to the contract.
These issues can be described as
having the following three parts.
• The discovery of an interference or
changed condition, (hereafter
referred to as the, “event”);
• The time necessary to resolve the
contractual issues related to the
change, (hereafter referred to as the,
“resolution time”); and,
• The work necessary to overcome the
event and return to the original
contract scope, (hereafter referred to
as the, “added work”).
For example, the discovery of an
abandoned duct bank not shown on the
plans would be the “event,” while the
“added work” would involve the
excavation and demolition of the duct
bank. Once the added work is complete,
the event has been overcome, and
original contract work can resume.
In between the event and the added
work lies a lag time, during which the
administrative processes designed to
establish a means for payment and to
determine the necessity of a time
extension take place. This is the
“resolution time,” and minimizing this
time is a key way to reduce the overall
impact of changed conditions. It is
essential, however, to ensure that before
the added work begins, the contractual
methods to compensate the contractor
(for both time and money) are in place.
The contractor should not wish to
proceed until there is assurance that he
will be compensated for the time and
effort associated with the added work.
30 COST ENGINEERING NOVEMBER/DECEMBER 2013
Furthermore, it is very important that the
owner be given the opportunity to
understand the event and the
implications of the added work, prior to
that work taking place. It is possible that
the cost or time implications of the added
work may cause the owner to alter his
plan for proceeding. The owner may, for
instance, delete scopes of work in order
to account for the time and money
associated with the added work, or may
use another contractor to perform the
work.
For some owners, whether or not to
proceed with the work may be contingent
upon whether the owner has sufficient
funds to pay for the added work related
to the changes. And, if money is available
but on-time completion is a must, the
owner may also need to decide whether
to pay for acceleration of future work in
order to meet the original contract
completion date.
All these options are denied to the
owner when the contractor moves
forward with work prior to analysis and
agreements. Failure to reach any sort of
formal agreement prior to the start of the
added work therefore puts both parties
at risk. It is in the interests of both parties
to arrive at such an agreement as early as
possible, but before the start of the
added work.
Figure 1—Elements of the
Fragnet
These three parts together make up
the essential elements of the
fragmentary network, or “fragnet,” which
represent the total impact that the
changed condition can have on the
project. As a result of many of these
events, resolution time, and added work,
the contractor’s ability to finish the scope
of work within the original contract
duration may be impacted.
Construction contracts need a
method to analyze the effects of events
and added work to the overall duration of
the project. In a contract that requires
CPM scheduling, the discussion of the
time effects of changes relates to
whether the event and added work have
impacted activities which define the
project’s critical path. In other words, if
the event and added work do not impact
a critical activity, then it is merely
impacting the float of a non-critical
activity and not the overall duration of
the project.
When events such as these occur, the
contractor is typically required to submit
a request for time extension (RFTE) which
provides analysis and justification for a
modification to contract time, resulting
from a critical path delay. In most
contracts, the mandated form of RFTE is
the time impact analysis (TIA). However,
given the stringent requirements that
exist for the correct performance of a
prospective TIA, it is problematic to have
this as the sole contractual means for
resolution of a time-related dispute
during project performance.
Should there not be sufficient time to
perform a TIA in a prospective manner, it
is helpful to have an alternate means for
the determination of entitlement to a
time extension. On occasions where it is
impractical to perform a prospective TIA,
a contemporary period analysis (CPA) can
show entitlement to a time extension in
the period immediately following the
completion of the event, resolution time,
and added work. (Note that while this
article refers to AACE Recommended
Practice 29R-03, Forensic Schedule
Analysis, it is intended that the CPA be
conducted while the project is still in
progress; that is, prior to project
completion. In fact, it is best if the CPA is
conducted in the update period
immediately following the completion of
the added work.) Closely linked to the
analysis method that should be used to
determine or control the aspect of
changes related to time is the selection of
the contract type that should be used to
determine or control the aspect changes
related to cost and risk.
Construction Contracting: The Balance
between Cost Control and Risk
Construction is fraught with risks for
both parties: risks to cost, time, and
performance. Design of the construction
contract is the process of building an
agreement between the two competent
parties—the owner and the contractor—
that clearly defines the scope of work and
establishes a price for the work (which
contains a fair and reasonable profit). The
contract serves as a legally binding
agreement, wherein the contractor
promises to perform the work described,
and the owner agrees to pay.
The Contract
The contract consists of the basic
agreement, which forms the legally
binding agreement described above. It
can also consist of supplemental
agreements (also called modifications),
when the basic agreement must be
altered for some reason. A supplemental
agreement will alter the contract in
scope, quantity, or schedule. These
supplemental agreements can either be
bilaterally negotiated and agreed upon,
or can be unilaterally issued by the
owner.
Beyond this basic definition of a
contract, however, there are many
different types of contracts, which are
appropriate to use depending on the
circumstances of the project. The Federal
Acquisition Regulations (FAR), Part 16,
Types of Contracts, provides a standard
taxonomy for the contract types. (Clearly,
not all construction projects are
performed under the FAR; however, the
FAR definitions are a convenient method
of describing the many contract types in
use in the industry.) FAR, Part 16, lists the
following five major groups of contract
types:
• Fixed Price contracts [4];
• Cost Reimbursement (CR) contracts
[5];
• Incentive contracts[6];
• Indefinite Delivery (IDIQ) contracts
[7]; and,
• Time and Materials (T&M) contracts
[8].
For the purposes of this article, the
three contract groups that are most
relevant to the performance of an
individual construction project are firm
fixed price (FFP), CR, and T&M contracts.
FFP contracts establish a price that is
not subject to any adjustment on the
basis of the contractor’s cost experience
in performing the contract [11]. The FFP
contract is suitable for acquiring services
on the basis of a reasonably definite
functional or detailed specification, when
the owner can establish a fair and
reasonable price. A FFP contract usually
establishes a price based on the
contractor’s understanding of that
developed scope of work, with respect
also paid to market conditions and the
likely prices of competitors also seeking
the contract. Given that the price is fixed,
maximum incentive for cost control is
placed upon the contractor. It provides
maximum incentive for the contractor to
control costs and perform effectively and
imposes a minimum administrative
burden upon the contracting parties.
CR contracts allow for payment of
allowable incurred costs, to the extent
prescribed in the contract. These
contracts establish an estimate of total
cost for the purpose of obligating funds
and establishing a ceiling that the
contractor may not exceed (except at its
own risk) without the approval of the
contracting officer.
A Cost-Plus-Incentive-Fee contract
(CPIF contract) is a specific type of cost-
reimbursement contract that provides for
an initially negotiated fee to be adjusted
later by a formula based on the
relationship of total allowable costs to
total target costs [12]. Such contracts
should be used when circumstances do
not allow the owner to define its
requirements sufficiently to allow for a
FFP contract, or uncertainties involved in
contract performance do not permit costs
to be estimated with sufficient accuracy
to use any type of fixed-price contract.
Since CPIF contracts use a pre-
determined formula for judging the
contractor’s time and cost performance,
and that formula calculates the level of
profit that the contractor earned. In this
way, the CPIF provides a method of
incentivizing performance, though the
incentive is often not as great as the
potential incentive in a FFP contract.
T&M Contracts allow for acquiring
supplies or services on the basis of direct
labor hours at specified fixed hourly rates
that include wages, overhead, general
and administrative expenses, and profit;
and actual cost for materials [13]. A T&M
contract may be used only when it is not
possible at the time of placing the
contract to estimate accurately the extent
or duration of the work or to anticipate
costs with any reasonable degree of
COST ENGINEERING NOVEMBER/DECEMBER 2013
confidence. A T&M contract provides no
positive profit incentive to the contractor
for cost control or labor efficiency.
Therefore, it is essential that the owner
provide surveillance of contractor
performance in order to ensure that
efficient methods and effective cost
controls are being used. Cost controls are
therefore typically provided by daily
submission of cost records, and proper
cost accounting methods which will
allocate labor and equipment specific to
the event and added work.
Generally speaking, the
reasonableness of a price is established in
one of the following ways:
• There is adequate price competition.
• There are reasonable price
comparisons with prior purchases of
the same or similar supplies or
services made on a competitive basis
or supported by valid certified cost or
pricing data.
• Available cost or pricing information
permits realistic estimates of the
probable costs of performance. And,
• Performance uncertainties can be
identified and reasonable estimates
of their cost impact can be made,
and the contractor is willing to
accept a firm fixed price representing
assumption of the risks involved.
Among the factors that FAR, Part 16,
recommends for consideration are the
following [9]:
• Price competition—The process of
full and open competition for a
contract is generally accepted to
create a fair and reasonable price.
Multiple contractors bidding on a
common scope of work will typically
result in a situation where the lowest
responsive bidder’s price represents
the best price available for that
scope of work within that particular
market. This is typically how a
reasonable price for a base
agreement is reached, particularly in
FFP contracts.
• Price analysis, or, if necessary, cost
analysis—If full and open
competition is not an option (for
instance, in the creation of
supplementary agreements) then it
may become necessary for the
31
 owner to analyze the proposed price Therefore, the selection of a contract Note that this article does not refer
or costs in order to determine type must balance all these factors, with to AACE RP 29R-03, Forensic Schedule
reasonableness. Price or costs can be an understanding that the selection of a Analysis, in its definition of the TIA. The
compared to the price or costs for contract type has implications for the TIA described in RP 29R-03, Method
similar services within similar price to perform the work and for the Implementation Protocol (MIP) 3.7, is a
markets, or can be compared to data balance of risk and administrative retrospective TIA. This article is providing
in appropriate estimating guides. requirements placed on each party. In a prospective perspective, in as much as
• Type and complexity of the other words, and owner should not think the TIA is concerned. The inherently
requirement — Complex that his administrative burden will be the retrospective nature of the CPA (MIPs 3.3
requirements usually result in a same for a T&M contract as it is for a FFP and 3.4) will be addressed separately, in a
greater level of risk being borne by contract—at least not if the owner manner that is in keeping with the
the owner. This selection factor intends to get the work performed in the recommended contract type.
relates, at least in part, to the most efficient manner possible. A TIA compares two schedules with
owner’s ability to fully define the As the owner’s cost risk increases, the same data date—one schedule that
scope of work. the owner must be willing (and able) to does not represent the event, resolution
• Urgency of the requirement—If the provide the additional oversight time, or added work, and one schedule
owner has a requirement that is necessary to ensure that the costs are that does represent the event, resolution
urgent in nature, it is likely that the reasonable and fully documented. In the time, and added work through the
owner will be required to accept a event that a contract cannot be FFP in its addition of activities and logic. The first
contract type in which he accepts entirety, because of the particular schedule is the most recently accepted
more of the risk. circumstances of that project, then it is schedule with a data date prior to the
• Adequacy of the contractor’s possible (or even preferable) to combine event—the “unimpacted schedule.”
accounting system—If the owner is contract types [10]. In these cases, (Note that it is a good practice, if the
considering using a contract type specific portions of a project’s scope are unimpacted schedule does not
other than FFP, it is essential that theperformed under a sub-agreement that is adequately represent the status of
owner verify that the contractor’s a different contract type from the basic progress at the time of the event, that it
accounting system is sophisticated agreement. should be statused and updated to the
enough to support the additional There are many different ways to day just prior to the event.)
cost accounting that CPIF and T&M contract for construction services. And, The second schedule has the same
contracts require. Given that the there are many different ways to analyze data date, but also contains the fragnet—
owner must rely on the contractor’s the time-related effects of a change to those added activities and logic which
accounting system to provide the the scope of work. It is important, then, represent the event, resolution time, and
support for the reasonableness of to pair the schedule analysis technique added work. This is the impacted
the costs incurred, the owner will not with the proper contract type (to be used schedule. The comparison of the
want to issue a T&M or CPIF contract in issuing the supplemental agreement), completion dates of the two schedules
to a contractor who cannot support to achieve the proper balance of cost risk (before and after the fragnet) determines
that level of accounting. and profit incentive, while also whether there is entitlement to a time
accounting for the time in the best way extension.
The key factor, however, in selection possible. In figure 3, a fragnet has been
of a contract type is the balance of risk inserted in the impacted schedule,
within the contract. Each contract type Path #1: The TIA and the FFP affecting the start of Activity A. As a
has a different method of allocating risk Supplemental Agreement result, the predicted completion date was
between the two parties, and balancing AACE International’s Recommended delayed from July 12, 2012, to August 1,
that risk is the ability to define the Practice 52R-09, Time Impact Analysis – 2012. The difference between the two
contract scope. In general, as the owner’s As Applied in Construction, describes the schedules’ predicted completion date is
ability to fully define the scope of work TIA this way: the basis of the negotiations for a time
increases, so does the owner’s ability to extension.
design a contract vehicle which places The TIA is a ‘forward-looking,’
more cost risk on the contractor. prospective schedule analysis
Conversely, if the owner is unable to fully technique that adds a modeled delay With regards to entitlement,
define the scope, the owner will likely to an accepted contract schedule to however, the reviewer must remember
have to accept more of the cost risk. determine the possible impact of that the existence of a delay does not
Figure 2 shows the complex that delay to project completion. This necessarily equate to entitlement to a
relationship between the balance of cost practice is not recommended for a time extension. There are any number of
risk and the profit incentive, along with retrospective (hindsight or forensic) issues which can delay a project which
the level of scope definition that the view taken after a significant passage are not excusable (such as contractor-
owner can provide. of time since the delay event [1]. caused delay events), or which are
excusable but non-compensable:

32 COST ENGINEERING NOVEMBER/DECEMBER 2013

 Figure 2—Balance of Risk and Profit
(meaning time but no money, such as
force majeure events like weather
delays). Therefore, the reviewer must
determine whether the event is
excusable and compensable, in terms of
the contract.
Given this understanding of the
technical process necessary to perform a
proper prospective TIA, it is important to
note that the creation of a fragnet—
before the performance of the added
work—that accurately represents
everything the contractor will have to do
in order to overcome the change and
return to base contract work, is in fact
directly related to the owner’s ability to
define the scope of work. In this way, the
prerequisite for selection of this
methodology is very similar to the
prerequisite for using a FFP contract. And,
in fact, the bilateral supplemental
agreement that would be the result of
this version of the change process is a
small FFP contract—the owner and
contractor are agreeing up front on a
scope of work to be performed, a time to
perform it, and a price. The contractor
then has control of his costs (and by
extension his profit), but also is
responsible for conforming to the time
for performance. The risk is appropriately
balanced between the parties, since the
analysis method and the contracting
method are aligned. Note that the TIA
process itself does not directly address
the cost aspect of changes. RP 52R-09
states:
This TIA practice concerns itself with
time aspects, not cost aspects of
projects. The time impact must be
quantified prior to determining any
cost implications. No practical
advantage is obtained by including
cost factors into a time impact
analysis. Linking time and cost into
one analysis implies that time
impacts are a function of costs,
which for the purposes of a
prospective TIA is not true.
Separating time analysis from cost
analysis makes TIA inherently easier
COST ENGINEERING NOVEMBER/DECEMBER 2013
to accomplish and accept
contractually; eliminating the cost-
driven considerations from both
‘creator’ and ‘approver’ of the TIA
[2].
As discussed above, the
reasonableness of FFP contracts is most
commonly determined through price
competition. In absence of price
competition, FAR, Part 16, suggests price
or cost analysis. Therefore, if a delay is
shown to exist, the reviewer must then
conduct the process of determining the
reasonableness of the costs requested by
the contractor. The costs will, in this case,
include both direct costs (those costs
related to the labor and materials
necessary to perform the work) and
indirect costs (the time-related costs
associated with the extended contract
duration).
On the other hand, if an event is
shown to not have an effect on the critical
path, the reviewer must still determine
whether that change had any cost
33

Figure 2—Balance of Risk and Profit
impacts to the contractor. In this case,
there should only be direct costs, since
there are no time-related costs. The
reviewer should also consider the
possibility that the changes that have not
affected the critical path may have
caused disruption to the contractor’s
work. The contractor is also possibly due
these costs related to disruption (to the
extent they can be quantified). Ignoring
the non-critical impacts of changes,
however, will deprive the contractor of
money he is likely due, and increase the
chances that the contractual relationship
will become adversarial. This pushes the
contract closer to claim.
It is important to understand that the
time between the occurrence of the
event and the start of added work—the
resolution time—must be minimized as
much as possible, but that the resolution
time is necessary to ensure that the time
and cost of the added work is fair and
reasonable and that the contractor has an
incentive to keep his costs and
performance period within reasonable
boundaries. The resolution time, then, is
34 COST ENGINEERING NOVEMBER/DECEMBER 2013
supplemental agreement. Instead,
owners and contractors should use an
alternate path to resolution.
Path #2: The CPA and the T&M (or CPIF)
Supplemental Agreement
The second possible path for
resolution of changes involves using a
T&M contract type (or possibly a CPIF, if
the owner’s contracting organization is
sufficiently sophisticated to handle the
development and execution of the
formulas for calculating the incentive
fee). As discussed, the T&M contract type
is used when the owner cannot
sufficiently define the scope of work, or
when the urgency of the work is such that
the owner is willing to accept a greater
portion of risk in order to achieve faster
completion (i.e., minimizing the
resolution time to the maximum extent
possible).
In cases where the owner cannot
sufficiently define the scope, it is not
realistic to compel the contractor to
estimate, with any degree of accuracy,
the durations of activities for the added
work. However, with most contract
specifications, the prospective TIA is the
only method available to the contractor
to justify an RFTE. The other option—to
the price that the owner pays to ensure a
perform the work without a
finalized resolution of changes which are
supplemental agreement, and “take care
his responsibility. Should the owner
of it at the end of the project”—is
choose to actively avoid spending
unacceptable because it can confuse the
resolution time on finalizing a
parties as to where the responsibility for
supplemental agreement, or passively
cost and time control lies. If both parties
avoid it by allowing the contractor to
think that the other is responsible for
proceed with added work prior to the
controlling costs and time, it is likely that
supplemental agreement, the owner is
neither party will pay the appropriate
likely to find himself in a situation where
amount of attention to these factors. It is
he is either paying too much for a change,
here that the seeds of disputes and
or is involved in a post-completion claim.
claims related to changes are planted,
However, use of this combination of
and it is because of these incongruities
analysis technique and contract type is
that a second path is needed.
also predicated upon the urgency of the
According to AACE RP 29R-03,
work. It is possible that once the event
Forensic Schedule Analysis, Method
occurs, both parties can immediately
Implementation Protocols (MIP) 3.3 and
agree (with a reasonable level of
3.4 are commonly called, “windows
certainty) that the added work will affect
analysis or contemporary period analysis”
the critical path. Furthermore, the owner
[16]. This will be the common term used
may believe that time is more important
to describe these two methods, and the
than money, and that he would prefer the
method will be further described and
contractor to immediately begin the
refined herein. The CPA “is retrospective
added work (thus minimizing or
technique that uses the project schedule
eliminating the resolution time).
updates to quantify the loss or gain of
In these cases, Path #1 (the TIA/FFP
time along a logic path and identify the
option) is not valid for reaching a
causes. Although this method is a
retrospective technique, it relies on the
forward-looking calculations made at the
time the updates were prepared. That is,
it primarily uses the information to the
right of the updates’ data date.”
Furthermore, RP 29R-03 states:
“[The Contemporaneous Period
Analysis] is an observational
technique since it does not involve
the insertion or deletion of delays,
but instead is based on observing the
behavior of the network from update
to update and measuring schedule
variances based on unaltered,
existing logic models.”
Because the method uses schedule
updates whose logic may have changed
from the previous updates, as well as
from the baseline, it is considered a
dynamic logic method.
It is labeled contemporaneous
because the updates it relies on were
prepared contemporaneously with the
project execution…. [17].
A CPA compares two schedules with
successive data dates. The first schedule
is the most recently accepted schedule
with a data date prior to the event. For
the purposes of this article, this will be
called the “pre-impact schedule.” (Note
that it is a good practice, if the pre-impact
schedule does not adequately represent
the status of progress at the time of the
event, that it should be statused and
updated to the day just prior to the
event).
The second schedule is the next
update schedule after the completion of
the added work. For the purposes of this
article, this will be called the “post-
impact schedule.” This schedule will be
logically identical to the pre-impact
schedule. The only difference between
the two schedules should be the inclusion
of status information—actual start and
finish dates, percents complete, and
remaining durations—to represent the
progress of activities which were
originally included in the schedule series,
and a series of added activities for the
fragnet.
It is very important to note, however,
that these fragnet activities will be added
to the left of the data date, so that they
do not affect the forward and backward
pass calculations of the CPM algorithm. In
this way, the scheduler can help
document the responsibility for different
portions of the delay shown in the
analysis. The fragnet will not, however,
forward-project the effects of future
delays. No activities should be added to
the right of the data date, and the critical
path of the post-impact schedule will be
driven by the progress information input
into the original schedule activities,
rather than by the effects of the fragnet.
For a detailed discussion of documenting
delays in this manner, see reference [3].
In figure 4, the pre-impact schedule,
calculated as of Feb. 4, 2012, shows a
predicted completion date of July 12,
2012. The post-impact schedule has been
statused with progress information
through the next update’s data date,
March 4, 2012. Note that activities for the
event, resolution time, and added work
have been added to the post-impact
schedule, but that they are all actualized
at 100 percent complete and cannot
affect the CPM calculations. The progress
information also shows that Activity A
and Activity B started and progressed;
however, the start of Activity A was
delayed to the point where the critical
path was delayed overall. The fact that
Activity A has delayed the critical path
(regardless of cause or responsibility)
makes Activity A the “causal activity.”
Because of the effects of the start delay
to the causal activity, the post-impact
schedule shows a later predicted
completion date. The difference in
predicted completion dates between
these two schedules is the duration of the
time extension in the final supplemental
agreement.
It is possible that after the post-
impact schedule has been submitted,
that either or both of the parties may
decide that it is preferable to condense
the remaining portion of the work in
order to regain the original predicted
completion date. In these cases, it is
preferable to submit a third schedule,
having the same data date of the post-
impact schedule but containing network
revisions to the uncompleted schedule
activities. These network revisions may
represent compensable acceleration, or
possibly the deletion of other future
work, in order to regain the completion
date.
COST ENGINEERING NOVEMBER/DECEMBER 2013
This “post-impact revised schedule”
can serve as the basis for additional
negotiation and compensation, which can
be definitized in either the second
supplementary agreement or in a
separate supplementary agreement,
depending on the needs of the project.
However, it is very important to use
separate schedules for the post-impact
schedule and the post-impact revised
schedule, so that the effects of progress
(i.e., the delay to the causal activity
caused by the actualized fragnet) can be
clearly separated from the effects of
network revisions (i.e., revisions to future
activities, logic, or durations).
Only by separating these two
schedules can the reviewer clearly
delineate responsibility for the gains or
losses seen in the schedules, and provide
justification to the contracting authorities
for the size of the costs and time in each
of the extensions. In figure 5, the
remaining duration of Activity A, as well
as the original durations of Activities C
and D, were reduced in order to regain
the original predicted completion date of
July 12, 2012.
Note that the comparison of the pre-
impact schedule to the post-impact
schedule is a simple Contemporaneous
Period Analysis, as described in MIP 3.3,
whereas the comparison of the pre-
impact schedule to the post-impact
schedule to the post-impact revised
schedule is a Bifurcated
Contemporaneous Period Analysis, as
described in MIP 3.4. The difference lies
in the existence of network revisions and
in the quantification of responsibility for
those revisions as they relate to changes
in predicted means and methods.
This more immediate
implementation of the CPA (i.e., using the
two updates encompassing the fragnet as
soon as the added work is complete,
rather than waiting until the end of the
project an performing a full CPA across
the project) is the main way in which this
implementation differs from the one
described in RP 29R-03. While the
methodology is the same, the
methodology described in RP 29R-03, is
generally performed on the entire
duration after project completion. This
article envisions the CPA as a part of the
in-stream project management process.
35
 In other words, while the analysis is
technically a retrospective analysis, it is
being performed contemporaneous with
project progress, and as soon after the
completion of the added work as
possible. This results in a basis for
approval of an RFTE as early as possible.
Schedule specifications can be
designed to create this second path, that
would establish a general scope of work
(detailed to the extent possible), a first
supplemental agreement that would
establish a basis of payment (most likely a
T&M contract that will cover direct costs
and profit), and an agreement that the
time effects of the change would be
judged using a CPA immediately following
the completion of the added work. The
CPA would result in an agreement on the
time impact of the event, resolution time,
and added work. This time impact would
then be included in a second
supplemental agreement which would
compensate the contractor for the time
and indirect costs associated with the
change.
The need for owner-provided
oversight to costs is essential in Path #2.
As described in FAR, Part 16, the Figure 4—Contemporaneous Period Analysis
contractor has little incentive to control
costs in a T&M contract, and in fact has a time as necessary to fully develop the
much smaller profit incentive than with a scope of the added work, such that Path Conclusion
FFP contract. It must be clear in the #1 becomes feasible. Furthermore, The goal of this project management
specification (and in the first by including language in the schedule method is to minimize the resolution
supplemental agreement establishing the specification describing a methodology time, while ensuring that the risks for cost
T&M) that the contractor is required to for use after an event has occurred, the and time control are well-defined and
provide detailed cost accounting records, owner has provided for a means to definitized in a supplemental agreement.
establishing a relationship between all analyze the schedule retrospectively. Note that in both paths, a supplemental
the labor, equipment, and materials that If no agreement can be reached agreement to the contract is in place prior
are used in the execution of added work. during the project on the time impacts, to the start of the added work. However,
This data should be submitted daily, the CPA becomes the method for in Path #2, the finalized agreement for
and the owner must have personnel on analyzing the project’s delays after the time is left until after the work is
staff that is capable of reviewing the fact. This averts any assertion that the TIA complete. But a T&M (or CPIF) agreement
information, establishing a correlation is the “contractual method for is already in place for the work. The
between the written records and the establishment of entitlement to a time contractor is not performing work
work observed in the field, and verifying extension.” without an agreement in either case.
the reasonableness of the costs through The use of a TIA after the fact would Performing work without an agreement is
detailed cost analysis. If the contractor mean performing a retrospective TIA. a good way to drive the project to claim.
cannot provide this level of cost While there are occasions when such an But it also the goal of this project
accounting, or the owner cannot provide analysis may be necessary, retrospective management method to ensure that the
this level of administrative support and TIAs are very difficult to perform, analysis methodology is linked with an
analysis, then Path #2 is not an commonly misrepresent delays and their appropriate contractual methodology, in
appropriate method for establishing a impacts, and tend to ignore the order to have similar levels of
cost and time basis for a supplemental contemporaneous understanding of responsibility and risk balance.
agreement. criticality [18]. For Path #1, the TIA is a method that
If that is the case, then the owner Recommended specification prospectively estimates the time
must accept that he cannot minimize the language describing this process is necessary to perform the added work and
resolution time, and must spend as much included as Attachment #1. whether that time will impact the critical

36 COST ENGINEERING NOVEMBER/DECEMBER 2013

 time and cost before start of added work.
This may lengthen the resolution time,
but will benefit the owner in the long run
because the risk is placed on the
contractor, in a manner consistent with
the FFP nature of the basic agreement.
The contractor, however, should not fear
Path #1. Because of his experience with
construction, the contractor is likely in a
position of superior knowledge, and in a
FFP agreement his profit incentive is
maximized.
However, as discussed, Path #2 has
its benefits, most notably in that it
minimizes resolution time and limits the
need for full scope definition. These
benefits come with clear trade-offs for
the owner, who will bear significantly
more risk under this scenario. And both
parties will be under significant
administrative burden, for cost
accounting and delay analysis, using this
method.

Regardless of the method used,

however, it should be the goal of both
parties to reach agreement on the time
and cost impacts of changes as early as
Figure 5—Regaining Schedule Through Revisions possible. Having two paths will maximize
the opportunities for resolution of these
path. The FFP supplemental agreement is This is the proper balance of analysis changes, and as a result minimize the
a method that prospectively estimates methodology and contract method. If chances for disputes. ◆
the cost of performing that work. In both the parties mix these methods, it is likely
cases, the contractor is responsible for that a muddled contractual situation will REFERENCES
the estimation and is in the position to result. For instance, if the contractor 1. Calvey, Timothy T.; and Ronald M.
control the costs and the time, in order to receives a FFP supplemental agreement Winter. Overview, RP 52R-09, Time
come in under budget on both. As a for direct costs related to the added Impact Analysis – As Applied in
result, the contractor has the best work, but no agreement is reached Construction, AACE International, pg.
opportunity to maximize profits. between the parties as to how the time 1.
For Path #2, the CPA is a method that impacts will be judged and paid, the 2. Calvey, Timothy T.; and Ronald M.
retrospectively determines the time that contractor is essentially operating in an Winter Overview, RP 52R-09, Time
was taken to perform the added work informal T&M environment. Impact Analysis – As Applied in
and how much of that time impacted the The contractor is in a position where Construction, AACE International.
critical path. The T&M supplemental it may be to his benefit to perform the pg.1.
agreement is a method that work at a slower rate than possible in 3. Carson, Christopher W. “Claims
retrospectively tracks the costs expended order to maximize indirect costs and Analysis Nested in Schedule
in performing the work. In both cases, associated profits; however, the Updates,” AACE International
the contractor is operating without a contractor will be unsure of whether he Transactions (2006): PS.06.
clear upper boundary, and work is being will be given a supplemental agreement 4. Federal Acquisition Regulations
performed at the owner’s cost and time for these indirect costs. In that same through FAC 2005-55, Subpart 16.2,
risk (more or less). In this case, the owner case, since the contractual responsibility Fixed Price Contracts, effective
must provide significantly greater for performance is unclear, the owner will January 3, 2012.
oversight to ensure that costs and time be in a position where he may not notice 5. Federal Acquisition Regulations
are reasonable. As a result, the that the responsibility has, by default, through FAC 2005-55, Subpart 16.3,
contractor is in a position where his risk fallen to him to ensure performance. Cost Reimbursement Contracts,
of exceeding costs is less, but his profits The best method for the owner is effective January 3, 2012.
will likely be lower. likely Path #1, and to use it means that 6. Federal Acquisition Regulations
the owner must achieve agreement on through FAC 2005-55, Subpart 16.4,

COST ENGINEERING NOVEMBER/DECEMBER 2013 37

 Incentive Contracts, effective January
3, 2012
7. Federal Acquisition Regulations
through FAC 2005-55, Subpart 16.5,
Indefinite-Delivery Contracts,
effective January 3, 2012.
8. Federal Acquisition Regulations
Through FAC 2005-55, Subpart 16.6,
Time-and-Materials, Labor-Hour, and
Letter Contracts, effective January 3,
2012.
9. Federal Acquisition Regulations
through FAC 2005-55, Subpart
16.104, Factors in Selecting Contract
Types, effective January 3, 2012.
10. Federal Acquisition Regulations
through FAC 2005-55, Subpart
16.104, Factors in Selecting Contract
Types, effective January 3, 2012.
11. Federal Acquisition Regulations
through FAC 2005-55, Subpart
16.202, Firm-Fixed-Price Contracts,
effective January 3, 2012.
12. Federal Acquisition Regulations
through FAC 2005-55, Subpart
16.304, Cost-Plus-Incentive-Fee
Contracts, effective January 3, 2012.
13. Federal Acquisition Regulations
through FAC 2005-55, Subpart
16.601, Time-and-Materials
Contracts, effective January 3, 2012.
14. Holloman, John K., ed. Section 10.3,
Change Management, Total Cost
Management Framework. First
Edition, AACE International, pg. 215.
15. Holloman, John K., ed. Section
10.3.2.5, Access Impact, Total Cost
Management Framework. First
Edition, AACE International, pg. 219.
16. Hoshino, Kenji P. Section 3.3
Observational/Dynamic/Contempora
neous As-Is (MIP 3.3) and Section 3.4
Observational/Dynamic/
Contemporaneous Split (MIP 3.4). RP
29R-03, Forensic Schedule Analysis,
Pgs. 43-55.
17. Hoshino, Kenji P. Section 3.4
Observational/Dynamic/Contempora
neous Split (MIP 3.4) RP 29R-03,
Forensic Schedule Analysis, Pg. 51.
18. Livengood, John. “Retrospective TIAs:
Time to Lay Them to Rest,” AACE
International Transactions, (2007):
CDR.08.
ABOUT THE AUTHOR
Patrick M. Kelly, PSP, is
with Arcadis. He can
be contacted by
sending e-mail to:
Patrick.kelly@arcadis-us.com

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