Comparison of Methods for Calculating and Presenting Damages in a Construction Claim

When a contractor’s costs exceed its contract amount on a construction project due to owner-caused impacts, the contractor can choose from several damages methods in seeking equitable compensation.

If the claimant can show 1) entitlement to recover for the other party’s wrongful conduct, and 2) damage incurred because of that wrongful conduct, i.e., causation, the claimant may recover even though the amount of the damage is uncertain or is based on estimates. As discussed in previous blog posts, there are several methods currently in use for the calculation of recoverable damages, including the Total Cost, Modified Total Cost, Jury Verdict, Quantum Meruit, A/B Estimate, Delta Estimate, and Discrete Damages/Cost Variance Analysis methods. These methods involve analyzing either part or all of the costs comprising the in-place value of the project.

With the Total Cost approach, a claimant merely requests the difference between the bid price, with possible adjustments for approved and pending change orders, and the in place value, which is defined as the total field costs plus overhead and profit.

The Modified Total Cost and Jury Verdict methods deduct estimates of bid errors and noncompensable costs from project costs, leaving a lump sum claim amount.

Where Quantum Meruit recovery is sought, the contractor sets forth its determination of the reasonable value of the benefit conferred upon the owner. The court usually considers all competent evidence of actual contractor expenditures in determining that reasonable value.

With the A/B Estimate approach, the analyst tries to evaluate the claim value from independent estimates of damages, hopefully falling between the adjusted value (in-place value less noncompensable costs) and the adjusted bid (bid plus bid error).

Delta estimates divide claims into pieces, with separate costs for each compensable problem, without showing how each claim fits into the total actual costs for the project. This calculation fails to demonstrate that the sum of the parts does not exceed the total cost overrun.

The Discrete Damages/Cost Variance Analysis method analyzes the entire cost spectrum, addressing all components of bid error, noncompensable costs, and compensable claims.

Figure 1 below shows a comparison of these various damages analysis methods, except for the Quantum Meruit method, which is determined by the adjudicator. However, given a set of facts that cause problems to occur on a project, an assessment of the owner’s design and scope of work/bid package, the contractor’s supporting bid calculations and assumptions, the contractor’s actual cost supporting documentation, and the contractual requirements, the claim values using each method may not necessarily be the same.

Figure 1: Comparison of Damage Analysis Methods

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