Damages And Remedies In Construction Disputes - RPPTL
Damages and Remedies in ConstructionDisputes1 Moye, O’Brien, Pickert & Dillon, LLP
Agenda Damages Concepts––Proof of DamagesTypes of Damages Suffered by a Contractor –Types of Damages Suffered by an Owner Extra or Additional WorkDisruption, Inefficiencies and Losses of ProductivityDisplaced Activity Costs and EscalationDelaysExpanded Jobsite OverheadAccelerationConsequential DamagesDefective and/or Incomplete WorkDelays/Liquidated DamagesDamages Concepts Regarding Specific Causes of Action–––Breach of ContractNegligenceOther Damages Concepts2 Moye, O’Brien, Pickert & Dillon, LLP
Damages Concepts3 Moye, O’Brien, Pickert & Dillon, LLP
Agenda Damages Concepts––Proof of DamagesTypes of Damages Suffered by a Contractor –Types of Damages Suffered by an Owner Extra or Additional WorkDisruption, Inefficiencies and Losses of ProductivityDisplaced Activity Costs and EscalationDelaysExpanded Jobsite OverheadAccelerationConsequential DamagesDefective and/or Incomplete WorkDelays/Liquidated DamagesDamages Concepts Regarding Specific Causes of Action–––Breach of ContractNegligenceOther Damages Concepts4 Moye, O’Brien, Pickert & Dillon, LLP
Proof of Damages Claimant has the burden of proofClaimant is not required to prove exactamount of damages– Estimates are acceptable Need to place claimant in reasonable“should-have-been” cost positionSufficient to have a reasonable basis ofcomputation, even though the result mayonly be approximateUncertainty that defeats recovery relates towhether damage occurred, rather than theamount of damage suffered5 Moye, O’Brien, Pickert & Dillon, LLP
Agenda Damages Concepts––Proof of DamagesTypes of Damages Suffered by a Contractor –Types of Damages Suffered by an Owner Extra or Additional WorkDisruption, Inefficiencies and Losses of ProductivityDisplaced Activity Costs and EscalationDelaysExpanded Jobsite OverheadAccelerationConsequential DamagesDefective and/or Incomplete WorkDelays/Liquidated DamagesDamages Concepts Regarding Specific Causes of Action–––Breach of ContractNegligenceOther Damages Concepts6 Moye, O’Brien, Pickert & Dillon, LLP
Types of Damages Suffered by aContractor Traditional terms: “Direct” and“Indirect Costs”– Direct costs: the labor, material andequipment expenses necessary tophysically build the work– Indirect costs: overhead, often associatedwith delay (e.g., jobsite and home officeoverhead)– These classifications are overly broad andcan be inaccurate7 Moye, O’Brien, Pickert & Dillon, LLP
Types of Damages Suffered by aContractor Contractors often incur increased overhead costs,direct costs and project-wide support costsperformed in the field due to extended performanceCreates confusion for classificationAdditionally, using contrasting terms like direct vs.indirect costs can create confusion and unnecessarydebates regarding legal concepts that are not strictlylimited to construction disputesWhether a particular set of claimed damages aredirect, as opposed to consequential, in nature.“Activity-related” and “Time-related” costs aremore accurate classifications8 Moye, O’Brien, Pickert & Dillon, LLP
Types of Damages Suffered by aContractor Activity-related costs vary with productiveeffort for performing construction or demolitionwork in the field, or design effort for designbuild projects– Labor, materials, equipment, subcontractor andsubconsultant– May also include items classically characterized as“indirect” costs, like fuel for onsite equipment– In practice, is often included as part of acontractor’s calculation of jobsite overhead or“general conditions” costs– Example: the costs of forming, pouring and placinga concrete slab9 Moye, O’Brien, Pickert & Dillon, LLP
Types of Damages Suffered by aContractor Time-related are driven by time–Time-related overhead Classically labeled as “indirect” costs:––––Jobsite overheadDistrict / regional office overheadExtended / unabsorbed / under-absorbed home office overheadTime-related direct costs Labor, material (e.g., extended rental), equipment, subcontractor andsubconsultant expenses that increase due to extended performance requirementsProject-wide support expenses (not limited to performing isolated work activitiesin the field):–––––– Casting yardSurveyingMaintenance & protection of trafficDewateringSedimentation / erosion control,Quality control, quality assurance, and inspection, among othersExample: the costs of a mobile crane that supports an entire project rather than aspecific activity10 Moye, O’Brien, Pickert & Dillon, LLP
Time-related costs example 3,50040,000 3,00035,00030,00025,000 2,00020,000 1,50015,000 1,00010,000 5005,000 --MarA -02pM r-02ayJu 02nJu 02A l-02ugSe - 02pO -02cN t- 02ovD - 02ecJa -02nFe - 03bM -03arA -03pM r-03ayJu 03nJu 03A l-03ugSe - 03pO -03cN t- 03ovD - 03ecJa -03nFe 04bM -04ar-04Indirect Dollars 2,500MonthDirect Labor Hrs02-0002-001 CRANE Average Time-Related Cost Per Month @ 0%11 Moye, O’Brien, Pickert & Dillon, LLPDirect Labor HoursRecorded Monthly Data
Activity-related example 70,00040,000 60,00035,00030,000 50,00025,000 40,00020,000 30,00015,000 20,00010,000 10,0005,000-MarA -02pM r-02ayJu 02nJu 02A l-02ugSe - 02pO -02cN t- 02ovD - 02ecJa -02nFe - 03bM -03arA -03pM r-03ayJu 03nJu 03A l-03ugSe - 03pO -03cN t- 03ovD - 03ecJa -03nFe - 04bM -04ar-04 -MonthDirect Labor Hrs02-0002-002 PUMP Average Time-Related Cost Per Month @ 0%12 Moye, O’Brien, Pickert & Dillon, LLPDirect Labor HoursIndirect DollarsRecorded Monthly Data
Reality – MixedFunction CostsRecorded Monthly Data 600,00035,000Indirect Dollars 500,00030,000 400,00025,000 300,00020,00015,000 200,00010,000 100,0005,000- -MonthDirect Labor Hrs50-5000-009 FORMWORK 13 Moye, O’Brien, Pickert & Dillon, LLPAverage Monthly CostDirect Labor Hours40,000
Agenda Damages Concepts––Proof of DamagesTypes of Damages Suffered by a Contractor –Types of Damages Suffered by an Owner Extra or Additional WorkDisruption, Inefficiencies and Losses of ProductivityDisplaced Activity Costs and EscalationDelaysExpanded Jobsite OverheadAccelerationConsequential DamagesDefective and/or Incomplete WorkDelays/Liquidated DamagesDamages Concepts Regarding Specific Causes of Action–––Breach of ContractNegligenceOther Damages Concepts14 Moye, O’Brien, Pickert & Dillon, LLP
Extra or Additional Work Approaches:– Lump sum (forward-priced)– Unit price - to the extent the extra or additionalwork is within the scope of an established (oragreed) unit price– Time & materials, or “force account”– Standardized rates (e.g., Rental Rate BlueBook) for items like equipment may bespecified– Contract provisions often include specifiedlevels of markup (covering overhead, profit,insurance, bonds and/or supervision)15 Moye, O’Brien, Pickert & Dillon, LLP
Extra Work Claims Costs may be effectively capturedthrough separate cost codes– Provides contemporaneous documentationof increased costs– Need codes for all cost types– Must use codes properly– Only charge incremental increase ofchanged work16 Moye, O’Brien, Pickert & Dillon, LLP
Extra Work ClaimsIssues Common cost coding issues:– Open codes with no costs– New codes with exorbitant costs(“Dumping Grounds”)– Charges to codes outside time frame ofissue– Subsequent shifting costs from one code toanother– Difficulty matching cost code entries tosource document (time cards or invoices)17 Moye, O’Brien, Pickert & Dillon, LLP
Agenda Damages Concepts––Proof of DamagesTypes of Damages Suffered by a Contractor –Types of Damages Suffered by an Owner Extra or Additional WorkDisruption, Inefficiencies and Losses of ProductivityDisplaced Activity Costs and EscalationDelaysExpanded Jobsite OverheadAccelerationConsequential DamagesDefective and/or Incomplete WorkDelays/Liquidated DamagesDamages Concepts Regarding Specific Causes of Action–––Breach of ContractNegligenceOther Damages Concepts18 Moye, O’Brien, Pickert & Dillon, LLP
Disruption, Inefficiencies andLosses of Productivity Often intertwined with issues of delayCan be cause of delay or consequence of delayShould be evaluated separately from the delaysSeveral approaches for pricing inefficiencies:–––––Measured mileIndustry studiesPlanned vs. actual analysisTotal costModified total cost19 Moye, O’Brien, Pickert & Dillon, LLP
Measured Mile Preferred method, but can involve practical challengesCompares the productivity achieved during an un-impacted periodwith the productivity achieved for the same work during impactedperiodImportant considerations:––– Is the un-impacted period a representative sampling of performance? Measured “mile or measured “inch”? Or was the work was influenced by factors in addition to the specific, claimed impact?Is the work performed during both periods truly comparableAre there adequate, accurate records for identifying the productivity achievedduring both periods?If a representative period of un-impacted work did not exist, mayattempt to compare:––With productivities achieved on similar work activities on the same project, orWith the historical productivities achieved for the same work activities on priorprojects20 Moye, O’Brien, Pickert & Dillon, LLP
Industry Studies More generalized and more subjective than the measuredmile methodUses industry studies to identify estimated percentageimpacts by a variety of potential causes – the effect onproductivity caused by:––––Ambient temperaturesWeekly work shift structure/overtimeStacking of tradesOther issues affecting efficiency–Generic nature of the data does not account for specificcircumstances on a projectThere is still a need to corroborate the use of studies with thedata from the projectCriticisms:–21 Moye, O’Brien, Pickert & Dillon, LLP
Planned v. Actual Analysis Compares the actual costs incurred to the planned costs for awork activityAlternative approaches:–– Sometimes erroneously referred to as “total cost” or “modifiedtotal cost” methods– Modify the estimated planned costs (to account for any “bid busts”on that item), and/orReduce the actual costs (to account for self-inflicted problems)With corresponding reference to case law that courts heavilydisfavor these approachesCriticisms and criteria:–––Were the planned costs a reasonable reflection of the costs forperforming the (un-impacted) work?Were the actual costs incurred reasonable?Was the contractor responsible for some (or all) of the additionalcosts?22 Moye, O’Brien, Pickert & Dillon, LLP
Total Cost Method Highly disfavored by courtsRequires:– Reasonable original bid– Reasonable actual costs– Additional costs not caused by contractorproblems– No other method available to quantifyclaim23 Moye, O’Brien, Pickert & Dillon, LLP
Total Cost MethodTotal CostIncurredBid CostPlusChangeOrdersCost OverrunChange OrdersOriginal Estimate24 Moye, O’Brien, Pickert & Dillon, LLPClaim
Modified Total Cost Method Modifies the total cost approach to compensatefor:–––– Bid errorsSpecific costs arising from the contractor’s actionsUnclaimable costsSpecific costs arising from actions of other partiesClaimant must prove that costs incurred inperforming the original work and the extrawork had become so co-mingled andinextricably intertwined that use of a segregateddamage measure is impracticable.25 Moye, O’Brien, Pickert & Dillon, LLP
Modified Total Cost MethodChange OrdersContractorProbs.Total OverrunRemaining OverrunBid BustsBustsBidOriginal Estimate26 Moye, O’Brien, Pickert & Dillon, LLPClaim
Agenda Damages Concepts––Proof of DamagesTypes of Damages Suffered by a Contractor –Types of Damages Suffered by an Owner Extra or Additional WorkDisruption, Inefficiencies and Losses of ProductivityDisplaced Activity Costs and EscalationDelaysExpanded Jobsite OverheadAccelerationConsequential DamagesDefective and/or Incomplete WorkDelays/Liquidated DamagesDamages Concepts Regarding Specific Causes of Action–––Breach of ContractNegligenceOther Damages Concepts27 Moye, O’Brien, Pickert & Dillon, LLP
Displaced Activity Costs and Escalation Related to delayMay involve the deferral of activitiesHeavily-influenced by the contractCan compare quoted prices (at bid time) to theactual prices incurredSome purchase orders include provisions (e.g., setannual or periodic increases) making quantificationof the increased costs straightforwardSome contracts (e.g., FDOT or other institutionalowners) recognize market volatility of certainproducts– Include indices for price adjustments associated withthe same28 Moye, O’Brien, Pickert & Dillon, LLP
Agenda Damages Concepts––Proof of DamagesTypes of Damages Suffered by a Contractor –Types of Damages Suffered by an Owner Extra or Additional WorkDisruption, Inefficiencies and Losses of ProductivityDisplaced Activity Costs and EscalationDelaysExpanded Jobsite OverheadAccelerationConsequential DamagesDefective and/or Incomplete WorkDelays/Liquidated DamagesDamages Concepts Regarding Specific Causes of Action–––Breach of ContractNegligenceOther Damages Concepts29 Moye, O’Brien, Pickert & Dillon, LLP
Delays Time-Related Direct CostsTime-Related Overhead– Jobsite Overhead– Home Office Overhead30 Moye, O’Brien, Pickert & Dillon, LLP
Time-Related Direct Costs May include labor, material (e.g., extended rental),equipment, subcontractor and subconsultantexpensesMay also be incurred when an activity’sperformance has been moved or displaced to a laterperiod than originally plannedMay include expenses for project-wide support (notlimited to performing isolated work activities)––––––Casting yardSurveyingMaintenance & protection of trafficDewateringSedimentation / erosion controlQuality control, quality assurance, and inspection31 Moye, O’Brien, Pickert & Dillon, LLP
Time-Related Direct Costs Can be compiled utilizing a combination of:– Project schedules (for identifying affectedactivities’ planned and actual durations)– Cost-accounting system (for quantifying the actualcosts incurred during the extended or displacedtime periods). It may be appropriate to identify a typical fleetof equipment on the project, or a grouping ofkey personnel for field operations, required foran extended duration– Then pricing the time-related cost of the same32 Moye, O’Brien, Pickert & Dillon, LLP
Increased Equipment Costs Need detailed equipment planPerform overrun analysis– More equipment– Increased use– Increased rates Determine liability for overrunContract terms33 Moye, O’Brien, Pickert & Dillon, LLP
Increased Labor Costs Perform detailed overrun analysis––––––– CostsHoursWage rateProductivity ratesQuantitiesExtra workOthersDecide on an approach34 Moye, O’Brien, Pickert & Dillon, LLP
Increased Labor CostsLabor Overrun Components /Hour X YVarianceBudgetHoursY,000HoursX,000Hours35 Moye, O’Brien, Pickert & Dillon, LLPZ,000Hours
Increased Labor CostsLabor Overrun Components /Hour XWageVariance ,000HoursX,000Hours36 Moye, O’Brien, Pickert & Dillon, LLPZ,000Hours
Increased Labor CostsLabor Overrun Components /HourWageVariance X ,000HoursX,000Hours37 Moye, O’Brien, Pickert & Dillon, LLPZ,000Hours
Jobsite Overhead Often called extended general conditions, jobsite overheadincludes:–––Facilities (office, trailer, utilities, furniture, computers, software,etc.)Management and administrative staffCars / trucks for management / administrative staffInsurance and bond costs (unless separately addressed by contract).–Eliminate one-time expenses––Averaging the costs over the entire project lengthSelecting a reasonable time covering the period(s) in which theimpact(s) occurredEvaluating the costs incurred after the original contract completiondate– Isolate the jobsite overhead (time-related) costsSelect aggregate period of costs used to determine the daily rateDifferent approaches:– No one-size-fits-all approach38 Moye, O’Brien, Pickert & Dillon, LLP
Jobsite Overhead Contracts may include provisions thatstipulate (or liquidate) an amount thecontractor will be paidFor some projects, the Bid Form includes aline-item for the contractor to specify thedaily overhead rate it will receive for acompensable delay– May be a consideration for determining theentity to whom the project will be awarded– Calculation, form and breadth of coverage mayvary substantially as they are creatures ofcontract39 Moye, O’Brien, Pickert & Dillon, LLP
Increased Field Overhead CostsTime Related Costs Calculation Identify Cost Components Which AreTime RelatedReview Indirect / Field Office OverheadCosts Over Time To Aid In DeterminingWhich Are Time RelatedScreen the Pool for One-Time CostsCalculate A Daily Or Monthly Rate ForTime Related Costs40 Moye, O’Brien, Pickert & Dillon, LLP
Jobsite Overhead CostsSample of Cost ClassificationsTime-relatedRentUtilitiesOffice SuppliesJanitorial ServicesProject ManagementSafety DepartmentNot Time-relatedInsurance based onContract PriceConsultant FeesTemporary StructuresJob Office Set UpMobilization41 Moye, O’Brien, Pickert & Dillon, LLP
Jobsite Overhead Costs Small tools?Expanded general conditions?Equipment costs?42 Moye, O’Brien, Pickert & Dillon, LLP
Home Office Overhead Costs that are expended for the benefitof the whole businessCannot be attributed or charged to anyparticular contractFixed costs that are allocated on a prorata basis among various contracts43 Moye, O’Brien, Pickert & Dillon, LLP
Home Office Overhead The Eichleay formula is most common method used for thecalculation of home office overhead costs:1.Delayed ContractBillingsContractor’s TotalBillings2.Overhead Allocableto the ContractDays of ContractPerformance3.Daily Overhead RatexDays of DelayxTotal HomeOfficeExpenditures Overhead Allocable Per Day Extended / Unabsorbed Overhead44 Moye, O’Brien, Pickert & Dillon, LLP OverheadAllocableto Contract
Home Office Overhead Three requirements for utilizing theEichleay formula:– Owner-imposed delay occurred;– The owner required the contractor to‘standby’ during the delay– While ‘standing by,’ the contractor was unableto take on additional work See Broward County v. Brooks Builders, Inc., 908 So. 2d 536, 540(Fla. 4th DCA 2005)See Martin County v. Polivka Paving, Inc., 44 So. 3d 126, 131 (Fla.4th DCA 2010)45 Moye, O’Brien, Pickert & Dillon, LLP
Agenda Damages Concepts––Proof of DamagesTypes of Damages Suffered by a Contractor –Types of Damages Suffered by an Owner Extra or Additional WorkDisruption, Inefficiencies and Losses of ProductivityDisplaced Activity Costs and EscalationDelaysExpanded Jobsite OverheadAccelerationConsequential DamagesDefective and/or Incomplete WorkDelays/Liquidated DamagesDamages Concepts Regarding Specific Causes of Action–––Breach of ContractNegligenceOther Damages Concepts46 Moye, O’Brien, Pickert & Dillon, LLP
Expanded Jobsite Overhead Distinct from extended jobsite overheadIncrease in the resources assigned to a project(facilities, equipment, management staff,administrative staff, supervisory staff, or otherwise) Typically intended to handle substantial amountsof extra work or to mitigate / overcome delays orimpacts encountered on the project.Usually readily-identifiable for purposes of pricing Ensure that the costs have not been duplicated 47 Moye, O’Brien, Pickert & Dillon, LLP
Agenda Damages Concepts––Proof of DamagesTypes of Damages Suffered by a Contractor –Types of Damages Suffered by an Owner Extra or Additional WorkDisruption, Inefficiencies and Losses of ProductivityDisplaced Activity Costs and EscalationDelaysExpanded Jobsite OverheadAccelerationConsequential DamagesDefective and/or Incomplete WorkDelays/Liquidated DamagesDamages Concepts Regarding Specific Causes of Action–––Breach of ContractNegligenceOther Damages Concepts48 Moye, O’Brien, Pickert & Dillon, LLP
Acceleration Any action taken to increase the rate workis accomplished (compared with theplanned rate)Normally implemented in an effort tomitigate / overcome delays or impactsTypical acceleration measures:– Re-sequencing the work– Extending work hours / paying premium time– Offering incentives / bonuses for increasedproductivity– Other creative solutions.49 Moye, O’Brien, Pickert & Dillon, LLP
Acceleration Discretely added resources or changes to how the work isperformed are, for the most part, readily-identifiable forpurposes of pricing– Debates sometimes arise when the acceleration measures wereimplemented, but were unsuccessfulWorking longer hours, crowding crews and other accelerativemeasures can have diminishing returns on the productivityachieved per worker or per crew– However, disputes may arise as to whether the originally-providedresources were sufficientSegregating the inefficiency costs from the acceleration costs can bechallengingAnother challenging situation arises when acceleration measuresare implemented (to overcome / mitigate delays), but new orfurther impacts occur, which delay the accelerated workCare must be taken to ensure that costs are not duplicatedthrough pricing the discrete components of a claim.50 Moye, O’Brien, Pickert & Dillon, LLP
Acceleration Contractor reasons:–––– Make up for contractor delaysAchieve bonus incentivesAvoid unfavorable weatherCoordinate with another projectOwner reasons:– Need facility – political forces– Regulatory requirements– Mitigate impacts Debates often arise due to mixed responsibilityfor project impacts51 Moye, O’Brien, Pickert & Dillon, LLP
Agenda Damages Concepts––Proof of DamagesTypes of Damages Suffered by a Contractor –Types of Damages Suffered by an Owner Extra or Additional WorkDisruption, Inefficiencies and Losses of ProductivityDisplaced Activity Costs and EscalationDelaysExpanded Jobsite OverheadAccelerationConsequential DamagesDefective and/or Incomplete WorkDelays/Liquidated DamagesDamages Concepts Regarding Specific Causes of Action–––Breach of ContractNegligenceOther Damages Concepts52 Moye, O’Brien, Pickert & Dillon, LLP
Consequential Damages Are separate from increased activity-related costsand time-related costsGenerally, consequential damages are those that donot “naturally flow” from breach of a contractSpecific to a contractor, examples may include:–––––––Financing costsReputational damageLoss of goodwillLost profits on other projectsLosses of or impaired bonding capacityLost bidding opportunitiesInsolvency and bankruptcy53 Moye, O’Brien, Pickert & Dillon, LLP
Consequential Damages Due to the inherent nature of consequentialdamages (not flowing directly from a breach),recovery is difficult– Typically only be available in limited circumstances. Claimant must prove that:– Any loss was (or should have been) within thereasonable contemplation of the parties– Loss was not remote, contingent or conjectural– Damages are reasonably certain Waivers of consequential damages are common inconstruction contracts– Valid and enforceable under FL law Must be clearly and unambiguously drafted54 Moye, O’Brien, Pickert & Dillon, LLP
Agenda Damages Concepts––Proof of DamagesTypes of Damages Suffered by a Contractor –Types of Damages Suffered by an Owner Extra or Additional WorkDisruption, Inefficiencies and Losses of ProductivityDisplaced Activity Costs and EscalationDelaysExpanded Jobsite OverheadAccelerationConsequential DamagesDefective and/or Incomplete WorkDelays/Liquidated DamagesDamages Concepts Regarding Specific Causes of Action–––Breach of ContractNegligenceOther Damages Concepts55 Moye, O’Brien, Pickert & Dillon, LLP
Types of Damages Suffered by an Owner Defective and/or incomplete work– Reasonable Costs of Construction– Economic Waste Delays/Liquidated Damages56 Moye, O’Brien, Pickert & Dillon, LLP
Agenda Damages Concepts––Proof of DamagesTypes of Damages Suffered by a Contractor –Types of Damages Suffered by an Owner Extra or Additional WorkDisruption, Inefficiencies and Losses of ProductivityDisplaced Activity Costs and EscalationDelaysExpanded Jobsite OverheadAccelerationConsequential DamagesDefective and/or Incomplete WorkDelays/Liquidated DamagesDamages Concepts Regarding Specific Causes of Action–––Breach of ContractNegligenceOther Damages Concepts57 Moye, O’Brien, Pickert & Dillon, LLP
Defective and/or Incomplete Work The Florida Supreme Court case:– Grossman Holdings Ltd. v. Hourihan, 414 So. 2d1037 (Fla. 1982) Establishes the measure of an owner’s damageswhere the contractor’s breach involves defective orunfinished construction. Contractor infamouslybuilt a mirror image of the house purchased by theHourihansHourihans sued for specific performance (i.e., tearingdown and rebuilding the home facing the properdirection)Trial court found that the contractor breached thecontract, but refused to require specific performance.It would be economically wasteful58 Moye, O’Brien, Pickert & Dillon, LLP
Defective and/or Incomplete Work On review, the Florida Supreme Court adopted Subsection346(1)(a) of the Restatement (First) of Contracts:(1) For a breach by one who has contracted to construct aspecified product, the other party can get judgment forcompensatory damages for all unavoidable harm that thebuilder had reason to foresee when the contract was made, lesssuch part of the contract price as has not been paid and is notstill payable, determined as follows:(a) For defective or unfinished construction he can get judgment foreither(i) the reasonable cost of construction and completion inaccordance with the contract, if this is possible and does notinvolve unreasonable economic waste; or(ii) the difference between the value that the product contracted for would have hadand the value of the performance that has been received by the plaintiff, ifconstruction and completion in accordance with the contract would involveunreasonable economic waste59 Moye, O’Brien, Pickert & Dillon, LLP
Reasonable Costs of Construction “Reasonable cost[s] of construction” has beenthe subject of dispute in numerous Florida casesGeneral rule:– Non-defaulting party must show actualexpenditures incurred due to the breach– Defaulting party may present their evidence toprove waste, extravagance and lack of good faith Actual costs may include items reasonablynecessary to accomplish the work, such asengineering and architectural fees, among otherthings.60 Moye, O’Brien, Pickert & Dillon, LLP
Economic Waste Where the actual cost of correcting the work wouldresult in economic waste (out of proportion to thegood to be attained) – Appropriate measure of damages is the differencebetween the value of the defective structure and that ofthe structure if properly completed– “Diminution in value” damages Florida Supreme Court expressly found that thedoctrine of economic waste is not limited tocommercial construction– Applies to residential construction as well– See Grossman Holdings Ltd. v. Hourihan, 414 So. 2d 1037(Fla. 1982)61 Moye, O’Brien, Pickert & Dillon, LLP
Agenda Damages Concepts––Proof of DamagesTypes of Damages Suffered by a Contractor –Types of Damages Suffered by an Owner Extra or Additional WorkDisruption, Inefficiencies and Losses of ProductivityDisplaced Activity Costs and EscalationDelaysExpanded Jobsite OverheadAccelerationConsequential DamagesDefective and/or Incomplete WorkDelays/Liquidated DamagesDamages Concepts Regarding Specific Causes of Action–––Breach of ContractNegligenceOther Damages Concepts62 Moye, O’Brien, Pickert & Dillon, LLP
Delays/Liquidated Damages Where a contractor fails to complete a project timely, theowner may be entitled to delay damages, including:––Out-of-pocket costs directly associated with the project (e.g.,extended project office, administrative staff, architectural,engineering and/or inspection costs)Owner may also suffer loss of use damages, which may takeseveral forms: Extended rental / lease costs for another facility until construction iscomplete;Loss of income from the uncompleted project;–––Loss of toll income;Loss of income from a sports stadium / arena;Loss of rental income for an office building or apartment complex; and––Extended construction loan period (at higher rate than permanent loan); orIncreased rate due to expiration of guaranteed rate periodIncreased financing costsDepending on the circumstances, the delay damages incurred maybe consequential (rather than direct) damages63 Moye, O’Brien, Pickert & Dillon, LLP
Delays/Liquidated Damages Due to the uncertainties with the types /amounts of delay damages, parties often agreeto liquidated damages (LD) rateFlorida law is well-settled –parties may agree inadvance on an amount to be paid as LD’sTwo-part test for whether LD’s clause will beupheld (or stricken as an unenforceablepenalty):– The damages due to a breach must not be readilyascertainable.– The LD rate must not be so grosslydisproportionate to any damages that mightreasonably flow from a breach64 Moye, O’Brien, Pickert & Dillon, LLP
Delays/Liquidated Damages LD’s provisions are creatures of contract––May specify varying assessments of LD’s for different types of failuresDistinct LD’s can be set for failure to meet: Specified interim milestones,Substantial completion, and/orFinal completionA party cannot recover both LD’s and actual damages for the sameharm–However, an LD’s provision may be designed to cover only certain categories ofdelay damages –And leave other categories to be assessed based on actual costs incurredExample, a toll road owner could specify that contractor-caused delays wouldresult in: Assessment of actual damages for extended administrative, engineering and inspectioncosts, ANDLD’s for the anticipated loss of toll income resulting from delayed completionKEY: counsel drafting such provisions must ensure they are unambiguous65 Moye, O’Brien, Pickert & Dillon, LLP
Damages Concep
Expanded Jobsite Overhead Acceleration Consequential Damages - Types of Damages Suffered by an Owner Defective and/or Incomplete Work Delays/Liquidated Damages Damages Concepts Regarding Specific Causes of Action - Breach of Contract - Negligence - Other Damages Concepts. 2
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