T ECHNICAL A RTICLE

Analysis of Delay Damages for Site Overhead

Dr. William Ibbs and Long D. Nguyen
ABSTRACT: The current practice that uses a uniform daily overhead rate to calculate delay damages is often inaccurate and may duplicate payment of site overhead in some circumstance. This article introduces activity-specific allocation of site overhead as an analytical method for estimating its damages, which will help overcome such limitations. This new method considers timing of delay, degree of suspension, and relative importance of delayed activities that are in general ignored by the daily overhead rate method. This method assigns actual or estimated project site overhead costs to specific schedule activities. The premise is that in delay claims a contractual party may only be responsible for damages of site overhead to activities for which he/she causes critical delays. In addition, activity-specific allocation of site overhead can apply to apportionment analysis of delay damages in concurrent delays. KEY WORDS: Claims, delay damages, field overhead, concurrent delays, and delay analysis

etermination of overhead delay damages is often burdensome and argumentative. Both site or field overhead (FOH) and home office overhead (HOOH) damages are typically calculated based upon daily rates. Unfortunately, a uniform daily overhead rate method sometimes yields unreasonable results. This traditional method takes no effort to link delay responsibility to the context of delay. This article proposes an analytical method to analyze FOH damages incurred by delay and suspension. This new method considers the context of delay that includes its timing, degree of suspension, and relative importance of delayed activities. It integrates schedule window analysis and activity-specific field overhead allocation to apportion delay days and FOH damages between the parties in either an ongoing basis or after-the-fact analysis. The method is limited to calculation and apportionment of FOH damages since the nature of FOH and HOOH is rather different in construction delay claims. It will be a fairer approach in many instances.

one week of compensable delay at week three; one week of concurrent delay at week seven; one week of concurrent delay at week nine; and one week of inexcusable delay at week 10.

Schedule window analysis shows these in detail (see table 1).

The Context of Delay and Site Overhead Damages Figure 1 illustrates the as-planned and as-built schedules of a simple case. The planned and actual project durations are six weeks and 10 weeks, respectively. The project is delayed four weeks. It is rather straightforward to identify that four weeks of project delays consist of the following:

The context of delays plays a vital role in apportionment of delay responsibility. Because resource requirements, resource loading, work intensity, and construction tempo are different during the course of work, the project field overhead level may fluctuate over time. Different portions of the project need different types of managerial effort, which in turn have different costs [5]. Thus, the owner-caused delay on activity A at week three and the contractor-caused delay on activity F at week 10 likely incur different field overhead damages. This implies that timing of a delay and relative importance, rather than duration of the delayed activity, can affect delay responsibility. The current daily rate method seems to ignore these. Double overhead payment may occur under the daily rate method. Because the owner is solely responsible for the oneweek delay at week three, the daily rate Activity-Specific Allocation of Field method allows the contractor to receive full Overhead Activity-specific allocation of FOH is field overhead during that week, which equals the daily rate times the number of the basis to quantify field overhead

working days in that week. This partially duplicates overhead payment. The as-built schedule shows that the contractor still performed Activity E at week three. Therefore, there is a part of the week threes field overhead already absorbed by activity E. In other words, degree of delay and suspension should be considered in calculating field overhead delay damages to avoid any double payment problem. Another argument concerns whether or not concurrent delay and its damages should be apportioned. There is concurrent delay (compensable and inexcusable) at week seven (see figure 1). The traditional view treats concurrent delays similar to excusable noncompensable delays. That is, a no harm, no foul result is the outcome of concurrent delays, if both the owner and the contractor cause them [6]. Thus, the contractor will only be allowed a time extension and the parties would each bear their own costs of delay. In Freeman-Darling, Inc., the General Services Board of Contract Appeal (GSBCA) stated [t]he law is well-settled that where both parties contribute to the delay neither can recover damages, unless there is clear evidence by which we can apportion the delay and the expense attributable to each party [1]. Several courts have supported the view that apportionment analysis should be attempted when concurrent delay occurs, and that such apportionment should be rendered by a method more analytical than the jury verdict method [4]. The D.C. Circuit stated, a rule precluding a party from recovering damages for delay, once the party itself delays, would leave the party to a contract unnecessarily vulnerable to delay by the other. We see no wisdom in, nor authority for, such a rule of preclusion. Therefore, when both parties to a contract breach their contractual obligations by delaying performance, a Court must assess the losses attributable to each partys delay and apportion damages accordingly [3]. This proposed method enables systematic apportionment analysis, instead of a jury verdict method, which is subjective and sometimes incorrect.

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damages considering the context of delay. Overhead costs are typically calculated at the project and/or contract level. This leads to the fact that calculation of field overhead damages cannot consider the timing of delay, degree of suspension, and relative importance of schedule activities. On the contrary, our approach attempts to allocate field overhead costs to each schedule activity based on a reasonable basis. Only time-related FOH is evaluated since it is associated with delay claims [2]. Time-related overhead refers to overhead incurred through and directly connected to the passage of time; e.g., supervision, administration, and utilities. Time-related costs that are not allowed by the contract or regulations must be precluded [5]. In view of that, our analytical method allocates time-related field overhead onto schedule activities in direct proportion of their labor hours, labor costs, direct costs, or whatever cost driver is reasonable. Time-related overhead per time unit (i.e., day, week, and month) for each schedule activity are calculated based on the corresponding activity duration. FOH damages can be calculated based on either original estimates or actual cost records. The allocation process is similar, except that the activity duration for calculating FOH per time unit is the planned duration for estimated FOH and the actual duration for actual FOH. If the estimated FOH is used (i.e., in case of forward pricing or unavailability of project cost records), the contractors cost estimate has to be reasonable and/or acceptable. In addition, the time-related FOH per time unit of each schedule activity is assumed to remain unchanged at the extended period. This can be a realistic assumption since time-related FOH is the function of the passage of time. The following example describes the application of this proposed method. This example has the as-planned and as-built schedules as shown in figure 1. The use of both estimated FOH and actual FOH is illustrated in the same example. Labor hour is selected as the cost driver. Estimated project labor hours (actual project labor hours) are 4,420 hours (4,200 hours). Estimated FOH (actual project FOH) is $120,000 ($150,000). Table 2 shows the activity specific allocation of field overhead. A value of column 6 (8) equal the corresponding

value of column 2 (3) multiplied by the fraction of the estimated project FOH (actual project FOH) and the planned project labor hours (actual project labor hours). Values of column 7 (9) are those of column 6 (8) divided by those of column 4 (5) in the same rows. A general formula for allocating timerelated FOH onto schedule activities is as shown in equation 1. Figure 2 displays levels of time-related FOH over the course of work. The asplanned (as-built) time-related FOH

level is obtained based on column 7 of table 2 and the timing of the activities in the as-planned (as-built) schedule on figure 1. Similarly, the actual time-related FOH level is derived based on column 9 and the timing of the activities in the asbuilt schedule. It should be noted that the asplanned and as-built FOH levels can be determined when estimated FOH is used for calculating damages. In addition, we differentiate as-built and actual FOH levels to indicate whether estimated or

Figure 1 As-Planned and As-Built Schedules

Table 1 Result of Schedule Window Analysis

Table 2 Result of Schedule Window Analysis

Table 3 Result of Field Overhead Damages (in US dollars)

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(equation 1)

actual project FOH is used. Noticeably, the fact that the FOH levels fluctuate over time implies that FOH damages quantified based on a uniform daily overhead rate are unreasonable. Activity-specific allocation of FOH is now employed to determine its delay damages. In other words, FOH delay damages are calculated at the schedule activity level. The authors premise in this article is that in delay claims, a project party should only be responsible for FOH damages to activities for which he/she causes critical delays. That is, he/she should only pay for time-related FOH incurred on those activities during the delay period. If estimated project FOH is used, weekly activity FOH on column 7 (table 2) is the basis for compensation. Otherwise, actual weekly activity FOH on column 9 (table 2) is the basis. Table 3 compares FOH damages determined by the uniform daily overhead rate method and the proposed method outlined in this article.. The estimated and actual project FOH rates are $20,000 and $15,000, respectively (see table 2). Recoverable damages resulting from a uniform FOH rate and activity-specific allocation of field overhead can be different when compensable delays occur. For example, FOH damages incurred due to one week of the compensable delay in window one at weeks 1-3 (table 3). Either estimated or actual project FOH is used; FOH damages from the proposed method are less than those from the daily rate. This is because the degree of delay and suspension is ignored in the daily rate method. By allocating FOH onto schedule activities, the proposed method is able to consider degree of delay and suspension and, as a result, avoid duplicating field overhead payment by the owner. The proposed method enables apportionment analysis of concurrent delays. As previously discussed, the trend is that damages incurred by concurrent delays should be apportioned. The current

Figure 2 Levels of Time-Related Field Overhead

method based on a daily overhead rate cannot divide these damages. In contrast, delay damages are now evaluated at the activity level. That is, the new method ensures that a party may only have to pay FOH incurred on activities that are critically delayed by him/her. Therefore, apportionment of delay damages is feasible. For example, apportionment analysis applies to the above case example. There were concurrent delays at weeks seven and week nine. At week seven, the contractor caused a delay on activity C and the owner caused a delay on activity D. Thus, the owner would be responsible for timerelated FOH expensed for activity D at that week. Numerically, the owner would owe the contractor $13,032 or $9,821 which depends on whether estimated or actual project FOH is employed. On the other hand, the contractor would owe the owner a maximum of one week of liquidated damages. At week nine, both owner and contractor caused delay on the same activity - activity F. As such, the FOH of activity F incurred in that week ($8,145 or $2,976) can be equally divided by the two parties. In sum, the new method facilitates apportionment analysis in any circumstance of concurrent delays. Finally, the proposed method is based upon several assumptions. First, the contractor is unable to remobilize their

resources in some way as to absorb overhead. Second, periods of delays are relatively small or in short durations if the estimated FOH is used. This ensures that cost extrapolations for calculating FOH damages are plausible. M.J. Lankenau recommends that a 10 - 25 percent increase in project duration is acceptable [5]. Third, the project owns float. That is, float is used in a first-come, first-served basis. Lastly, activity costs are uniformly distributed across the duration of the activity. roper analysis of field overhead enables accurate calculation of delay damages. Activity-specific allocation of field overhead proposed in this article is a promising solution. It ensures that delay damages are evaluated under the context of delay. The context of delay in this article includes timing of delay, degree of delay and suspension, and relative importance of delayed activities. Unfortunately, the daily rate method fails to consider this issue. In addition, field overhead payment may be duplicated in some circumstance, for example, partial suspension. On the contrary, the proposed method eliminates these limitations. This method can also serve as a good alternative for apportionment analysis of delay damages when concurrent delays occur.

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REFERENCES 1. Freeman-Darling, Inc., GSBCA No. 7112, 89-2 BCA, 21882 (1989). 2. Harris, J.W. and A. Ainsworth. Practical Analyses in Proving Damages. AACE International Transactions, CDR.04.1-10, 2003. 3. Heller Electric Co. Inc. v. William F. Klingensmith, Inc., 670 F2d 1227 (D.C.Cir. 1982). 4. James, D.W. Concurrency and Apportioning Liability and Damages in Public Contract Adjudications. Public Contract Law Journal, 20, 4 (1991): 490-531. 5. Lankenau, M.J. Owner Caused Delay Field Overhead Damages. Cost Engineering, AACE International, 45, 9 (2003): 13-17. 6. Zack, J. G. (2000). Pacing Delays - The Practical Effect, Cost Engineering, AACE International, 42, 7 (2000): 2328. ABOUT THE AUTHORS Dr. William Ibbs is president of the Ibbs Consulting Group, 5932 Contra Costa Rd., Oakland, CA 94618-2137. He can be contacted by calling: 510 420-8625, or by sending an e-mail to: DRCWIbbs@aol.com. Long D. Nguyen is with the Department of Civil and Environmental Engineering, 407 McLaughlin Hall, University of California, Berkeley, CA, 94720-1712. He can be contacted by calling: 510 710-9932, or by sending an email to: duylong@berkeley.edu.
Technical Articles - Each month, Cost Engineering journal publishes one or more peerreviewed technical articles. Unless noted otherwise, these articles go through a blind peer review evaluation prior to publication. Experts in the subject area judge the technical accuracy of the articles, advise the authors on the strengths and weaknesses of their submissions, and what changes can be made to improve the article before publication.

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