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.
For example, in Hill York Service Corp. v. Critchfield Mechanical, Inc., a contractor sued one of its subcontractors for increased labor and material costs that allegedly resulted from its subcontractor’s delays on a project for the United States Air Force. The subcontractor filed a motion for partial summary judgment as to the general contractor’s damage and breach claims. The subcontractor argued that the general contractor should not be allowed to present its alleged damages at trial using a “total cost” or “modified total cost” method.
The court noted the following regarding the total-cost and modified-total-cost methods:
Under the total cost approach, the original bid cost is subtracted from the actual cost of the entire project. Essentially, the difference between the two amounts, after various modifications and adjustments, is the amount of damages incurred as a result of the owner or construction manager’s breach. The modified total cost approach allows for the adjustment of the amount calculated under the total cost approach to compensate for bid errors, specific costs arising from the subcontractor’s actions, and specific costs arising from actions of parties other than the party against whom damages are sought.
Under Florida law, a court or jury may consider the total-cost approach “when the nature of the excess costs is such that there is no other practicable means of measuring damages, the original bid was realistic, the actual costs were reasonable, and the plaintiff is not responsible for any of the additional expense.” The court further noted that “the modified-total-cost approach imposes the same requirements, except that it subtracts any identifiable costs for which the plaintiff contractor is responsible.”
The court held that the general contractor could not prove the fourth element for asserting a total cost claim—that the contractor is “not responsible for any of the additional expenses, or has otherwise reasonably accounted for that portion of the total costs for which it is responsible.” The court listed several problems that were attributable solely to the general contractor. The court reasoned that since the general contractor made zero effort to account for its own issues, the general contractor could not “show that damages may be fairly calculated here using a total-cost or modified-total-cost approach.” Thus, the court granted the motion for partial summary judgment and held that at trial, the general contractor could not offer evidence of damages based on a total-cost or modified-total-cost theory.
Bottom Line: When asserting claims for increased costs due to impacts while constructing a project, contractors and subcontractors would be best served by asserting a claim that is based on the actual costs incurred. Taking the position that a project owner or other party is responsible for every dollar that the contractor incurred without deducting any self-inflicted costs is a sure-fire way for a claim to be quickly rejected.