Major construction projects generate major
construction litigation. Management of either is perilous. Morse/Diesel,
Inc. v. Trinity Industries, Inc., 67 F.3rd 435, 437 (2nd Cir.
1995).
Consider what many of us have faced when digging into or preparing
a complex construction claim: piles of schedules with hundreds
or thousands of activities; stacks of diaries and daily reports
covering months or even years; hundreds of serial letters among
the owner, contractor, designer, subcontractors and suppliers;
radically conflicting opinions on relative fault; cost records
showing an unprofitable job; and massive change order files.
We all know that imposing a workable analytical framework or
narrative line on the day-to-day activities of a construction
project is necessary to bring sense and order to what at times
appears chaotic. Achieving the best possible results in resolution
of construction claims requires being able to explain (and understand)
the claim and its equities in a simple, understandable form.
It's not enough to simply pile the project documentation in a
neat stack and hope for the best; a structure and a narrative
is crucial.
The question, always, is how?
Fortunately, a basic framework for the analysis of complicated
construction claims exists: set out the original plan and show
that it was (or was not) reasonable, compare that original plan
to what actually happened on the project, identify the differences
between the two, assign cause for the differences, and then demonstrate
the impact and cost to the project. The classic statement of
that framework, which involves CPM scheduling, comes from Messrs.
Wickwire, Driscoll and Hurlbut in CONSTRUCTION SCHEDULING: PREPARATION,
LIABILITY AND CLAIMS, § 9.1 at 202:
The basic technique used in evaluating contract claims with
CPM is to compare the as-planned CPM schedule with the as-built
CPM schedule. The technique can be summarized in the following
five questions:
1. How was it planned that the project would be constructed?
2. How did construction actually occur?
3. What are the variances, or differences, between the plan
for performance and the actual performance with respect to activities,
sequences, durations, manpower and other resources?
4. What are the causes of the differences or variances between
the plan and actual performance?
5. What are the effects of the variances in sequence, duration,
manpower and so on as they relate to the cost experience both
by the contractor and the owner for the project?
A recent 10th Circuit case demonstrates just how important
it is to use CPM methodology. In Morrison Knudsen Corp. v. Fireman's
Fund Insurance Co., 175 F.3rd 1221 (10th Cir. 1999), the Tenth
Circuit ruled that in order to be excusable, any delay complained
of must extend the project's overall completion; that is, the
delay must be on the critical path. In that case the Tenth Circuit
stated:
A critical delay is one which may delay not just a particular
activity at issue, but the overall completion date of the Work.
Many activities may be performed on a project at any time without
any effect on the completion of the project. A delay in such
non-critical activities will not delay the project overall and
cannot constitute an excusable delay. Only delays to activities
on the critical path - activities with no leeway in the schedule
- may give rise to excusable delay.
The Tenth Circuit then went on to state:
Courts often use CPM scheduling to resolve disputes over excusable
delay claims. CPM provides a useful, well-developed nomenclature
and analytical framework for expert testimony. While CPM has
generated technical terminology, the legal requirement that is
used to analyze is general and commonsensical: contractor must
prove that a delay affected not just an isolated part of the
project, but its overall completion. Courts often do not use
formal CPM terminology, but simply an informal, CPM-like analysis
to determine whether a contractor has met its burden of proof
on that general requirement.
The Tenth Circuit expressly required the subcontractor to examine
each specific delay claim, determine whether the contractor caused
each delay in a manner authorized by the contract, and then determine
whether each delay caused the subcontractor to incur reasonable
costs which were properly allocable to the contract. The lesson
from that case is that a critical path analysis is often essential
to a clear, effective claims presentation and also, oftentimes,
can be an absolute legal requirement.
While this may appear to be obvious and fundamental, two points
are worth noting. First, the case law shows clearly that not
just juries, but courts, boards and other fact finders, want
to hear from those lawyers and witnesses who are objective and
base their opinions on (and also understand) what actually happened
day to day on the project. See ABA Section of Litigation, Jury
Comprehension in Complex Cases 41 (1990); Neal & Company,
Inc. v. U.S., 36 Cl. Ct. 600 (1996); Williams Enterprises, Inc.
v. Straight Manufacturing & Welding, Inc., 728 F. Supp. 12
(D.C. Cir. 1990). Next, one of the best, if not the best, method
of doing so can be through the use of the CPM technique described
above.
Negotiation is easier and more fruitful, mediation has a better
chance of success and litigation can be kept to a minimum and
turns out better when the CPM analysis referred to above is used.
One of the reasons, of course, is because that analysis lets
those involved with the claim see and understand what was happening,
day to day, on the project.
In that regard, no matter what the measure of damages, no matter
what the style of the lawyers; whether the playing field is mediation,
arbitration, negotiation, bench trial, board hearing, summary
proceeding or jury trial, the same factors which ultimately persuade
fact finders are stated repeatedly. Courts and mediators want
to hear in the simplest possible terms what actually happened
day to day on the project (in the form set out above) from objective,
credible persons who have first-hand knowledge of the project
or the project documentation, who back their testimony with relevant
project data, facts and records. Again, one of the best ways
of doing so can be a CPM analysis.
Dan Frost is
a partner in Holland & Hart's Construction and Real Estate
Litigation Department. He has handled construction claims across
the Intermountain West for the last 22 years. |
