When unanticipated conditions impact a contractor’s ability to perform its work as efficiently as expected, the contractor may consider pursuing a lost productivity or inefficiency claim. There are many ways to price or calculate a contractor’s inefficiency claim damages, some of which can be quite “creative.” Despite the temptation to calculate inefficiency damages in a manner that will create the biggest claim possible, contractors are best served to make their claims as accurate as possible. That is especially true when a contractor must submit its claim to a government owner such as the federal government. In a very recent case, Lodge Construction, Inc. v. United States, the contractor learned its lesson the hard way regarding the submission of inflated inefficiency claims to the government.

In Lodge, the United States Army Corps of Engineers awarded a project to a contractor to rehabilitate a levee in South Florida, which was part of the Corps’ overall “Everglades Update” restoration mission. During construction, the contractor’s cofferdam breached in two sections, flooding the project site. Later, the contractor submitted several claims to the government for three alleged conditions that impacted the contractor’s performance, including constructive changes to the contract specifications and a differing site condition. The contracting officer denied those claims, and the contractor appealed the decisions by filing lawsuits with the United States Court of Federal Claims. Those lawsuits were consolidated, and a five-day bench trial was held regarding the contractor’s claims.

After the trial, the court issued a 46-page opinion in which the court essentially threw out the contractor’s nearly $4 million in collective inefficiency claims against the federal government, because the court found the contractor’s claims were fraudulent. In particular, the court concluded that the contractor’s claims were fraudulent in at least four ways:

Continue Reading How NOT to Price an Inefficiency Claim

Many construction payment disputes come down to one key question—who is responsible for extra costs incurred while building a project? Parties frequently have competing breach-of-contract actions that focus on who is liable. But a recent federal court case shows that you should not give short shrift to the damages that flow from the alleged breach.

In Barlovento, LLC v. AUI, Inc., Civ. No. 18-1112 GJF/JHR, 2021 WL 3879072 (D.N.M. Aug. 31, 2021), the United States Air Force awarded a general contractor a $5.5 million contract to renovate a taxiway at a military base. The general contractor then subcontracted the removal and replacement of the taxiway pavement and base course. This required the subcontractor to place three layers – subgrade, base course, and concrete.

The subcontractor fell behind in its performance of the work, and ultimately, the general contractor held a meeting with the subcontractor and a potential replacement subcontractor that would perform almost all the remaining work. At that meeting, the general contractor announced that it would take the concrete paving work away from the subcontractor. Despite the decision to de-scope the original subcontractor, the general contractor ended up terminating the subcontractor for default.

Continue Reading General Contractor Awarded $22,000 of Its $1.3 Million Claim Against a Subcontractor

In Cano, Inc. v. Judet, the Florida Fourth District Court of Appeal recently reaffirmed that when a contractor breaches a contract and the owner sues for breach of contract, the owner has three options for calculating its damages as follows:

  1. the owner may obtain the difference between the contract price and the additional money the owner spent to complete the project; or
  2. the owner can seek the difference between the value the construction would have had if completed and the value of the construction that had been performed before the contractor was terminated; or
  3. the owner can treat the contract as void and seek damages that will restore the owner to the position it was in before entering into the contract.

Courts refer to the first two options as the benefit-of-the-bargain remedy, which is intended to put the non-breaching party in the position it would have been in had the contract been completely performed.

Continue Reading Project Owner Damages When the Contractor Breaches a Construction Contract

Resolving construction disputes through arbitration may be preferable under certain circumstances. I won’t go into the pros and cons of arbitration versus litigation, but one of the negatives of arbitrating a dispute is that the parties have to pay for the arbitrator(s) time. For larger construction disputes, the cost for the arbitrators is relatively small compared to the amount in dispute. And frequently, the extra cost to have arbitrators with significant construction experience is worth it for larger disputes. But for smaller disputes, the extra cost can be hard to justify and may discourage claimants from prosecuting their claim. In those situations, it may be smart to strike out any provision in a contract requiring the arbitration of disputes between the parties.

Continue Reading If You Don’t Want Arbitration, Make That Clear in Your Contract!

If you are a construction contractor on a federal government project that is default terminated, do not forget that you only have, at most, one year to appeal the termination.

Under the Federal Acquisition Regulations, the federal government, through its contracting officer, may terminate a construction contract for default. Frequently, the terminated contractor does not agree with the CO’s decision to terminate the contract, and the contractor will want to appeal the CO’s decision.

Continue Reading Contractor’s Appeal of Default Termination Dismissed as Time-Barred

One common request that I get from my contractor clients is to determine whether a client has a legitimate claim for additional time and money due to impacts arising out of a project. While each situation is unique, there are typically four steps a contractor should take to evaluate a potential claim or dispute:

Continue Reading Four Steps for Evaluating Construction Claims on Public Projects

Pay-if-paid clauses make a prime contractor’s payment to a subcontractor contingent on the prime contractor receiving payment from the project owner. A recent federal court case illustrates how the failure to include a pay-if-paid clause can end up with a prime contractor paying one of its subcontractors out of pocket.

In Phillips and Jordan, Inc. v. McCarthy Improvement Co., a prime contractor was awarded a design-build contract for the construction of a $31 million roadway project for the South Carolina Department of Transportation. The prime contractor, in turn, entered into a unit-price subcontract with a dirt-work contractor to excavate and place soil at the project.

Continue Reading Subcontractor Awarded $3.3 Million for Extra Work on a Roadway Project

In United States ex rel. Aarow/IET LLC v. Hartford Fire Insurance Company, an electrical subcontractor sued a general contractor and the payment bond surety for $2.9 million in additional labor costs incurred on a federal government project. The subcontractor alleged that the general contractor mismanaged the project and disrupted the subcontractor’s work. The general contractor filed a motion to dismiss, which the trial court granted because, among other reasons, the trial court believed that a no-damages-for-delay clause in the parties’ contract barred the subcontractor’s claim.

Continue Reading Court Concludes No-Damages-for-Delay Clause Did Not Bar Subcontractor’s Disruption Claim

Contractors and subcontractors that incur increased costs to complete their work due to delay or other impacts on a project sometimes have difficulty proving their damages. There are various ways to calculate those damages, but the surest way to have a claim rejected is by asserting a total cost claim.

Continue Reading Total Cost Claims—Frequently Rejected and Rarely Effective

After a general contractor on a federal government project allegedly terminated a subcontractor’s contract for convenience, the subcontractor sued the payment bond surety for the amounts owed to the subcontractor. In Maguire-O’Hara Construction, Inc. v. Cool Roofing Systems, Inc., the subcontractor claimed the surety was liable for the unpaid remaining balance on the subcontract of nearly $2.6 million, even though the subcontractor was only owed about $360,000 for completed work. The surety filed a motion for judgment on the pleadings seeking dismissal of the subcontractor’s $2.6 million claim, which asked the court to determine whether the subcontractor could assert a claim against the surety for unperformed work. The court’s answer? No way.

Continue Reading Federal Court Rejects Subcontractor’s Payment Bond Claim for Unperformed Work