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Chap 16 Proving costs and damages How do you calculate damages?? Inability to prove with certainty may prevent full recovery Need to determine true cost.

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Presentation on theme: "Chap 16 Proving costs and damages How do you calculate damages?? Inability to prove with certainty may prevent full recovery Need to determine true cost."— Presentation transcript:

1 Chap 16 Proving costs and damages How do you calculate damages?? Inability to prove with certainty may prevent full recovery Need to determine true cost to evaluate the benefit of litigation

2 Basic premises on theory of damages On breach of contract, the Court will generally attempt to put the claimant in the same position as if all parties performed the contract as intended On a tort case, the Court will generally put the injured party in the same position as if the tort had not been committed Tort damage is harder to define so Courts have limited to injury or damage and not economic loss so most suits are breach

3 Categories of damages Direct or general damages – immediate impact of breach and are recoverable when proven Consequential or special damages- indirect source of loss – to recover these must have been contemplated in contract and these are harder to prove Punitive – awarded for fraud, bad conduct and negligence but rare in construction- intended to punish to prevent similar action in the future

4 Direct damages Contractor - idle labor and equip - labor or mat’l escalations - extended general conditions Owner - cost to correct work - delay costs

5 Consequential damages Contractor - loss of another project and profits - higher interest rates Owner - loss of use of building - labor if employees cannot work

6 Recovery for consequential damages requires Proof that the consequence was foreseeable in the normal course of events Proof that the loss would not have occurred but for the breach Proof that the amount of loss can be reasonably ascertained Much higher burden of proof – except with express language

7 Issues related to recovery Causation- prove the damages flow from the breach Proper cost accounting records to document loss Mitigation of damages- recovery is limited to the loss that was unavoidable Betterment- cannot expect recovery for more than loss – can’t get “better” building than plans/specs

8 Methods of pricing claims Total cost method Segregated Cost Method Modified total cost method Quantum merit claims

9 Total cost method Seeks to convert a fixed price contract to a fully reimbursed deal Due to overly generous approach it is not frequently accepted by the Courts- does not account for any errors by the Contractor All expenses are total and fee and overhead are added

10 Total cost method Requirements Other methods are impractical or impossible Recorded costs are reasonable Contractors bid must have been reasonable Actions of the plaintiff-Contractor or sub – must not have caused any of the cost overrun

11 Segregated cost method More difficult than total cost but more accurate and persuasive All costs with the claim are segregated or separated- can be actual or estimation Can be difficult to separate without detailed cost records Good idea to separate costs as items come up- use cost codes

12 Modified total cost method Combination of total and segregated Modifies the calculation to show the cause and effect relationship with the costs and the cause of the claim Must adjust the Contractor’s bid for any error to establish fair basis for claim Focus on just the scope of work that impacts the claim More favored by theCourts

13 Quantum merit As much as deserved Reasonable value approach Measures damages under an implied contract based on theory that no one should unfairly benefit Unjust enrichment- TV studio HVAC example Often used when for subs with an owner where there is no contract

14 Contractor damages Change in quality or quantity of the work Changes in the method or sequence which includes delays, disruption and acceleration- floor changes example Inefficiency is hard to prove actual costs- overtime, restricted access, trade stacking Extended general conditions

15 Contractor damages Breach before starting/ stopped job- lost profits, mobilization costs, estimating Must be reasonable and use standard cost factors – unit prices, cost plus Fee/GC Extra costs to track changes and home office support

16 Owner direct damages Fail to start or fail to complete Poor quality or defective work Owner is due the difference between the contract and the cost to finish or correct For substantially complete work use the cost and value rule –cost to complete or repair and value of actual work done Fail to finish on time- delay costs- continue to rent in old location

17 Owner – consequential damages Loss of use of the facility- profits Cost of employees that are not productive Increased interest rates or refinancing

18 Owner- liquidated damages Agreed upon sum put in the contract Established as actual damages cannot be determined Must be reasonable estimation Cannot be punitive Courts will not uphold if Owner has a part in the delay or after substantial completion or final payment

19 Chap 17 Environmental and safety concerns Many laws related environmental and safety issues Have to have plan to address these in your projects May involve permitting or licensing which is before you start work Need to get the contract and insurance with correct language

20 Laws, Regulations, Agencies Comprehensive Environmental Response, Compensation and Liability Act of 1990 CERCLA or “superfund” - mostly deals with clean –up Resource Conservation Act of 1976 RCRA – deals with current handling Clean Water Act Clean Air Act OSHA –Occupational Safety and Health Agency EPA –Environmental Protection Agency

21 CERCLA -responsibilities Current owner and operator Owner and operator at the time the hazardous substance was dumped Any party that arranged for the disposal of the hazardous substance owned by them or another party Any person that accepted any hazardous substance for transport or disposal that results in a release

22 Superfund site liability Very broad liability One contractor held liable for just cut and fill on contaminated site even though they did not know and was years earlier Any firm that sent waste there or if you bought a firm that did- Chicago hospital Joint and several liability- liable as a whole not separable so if you contributed 20% then you are also liable for 100%

23 Other potential risks Storm water run-off – applies to storm water run-off from constr. Sites > 1 acre- must get a permit and control run-off File proper notices or penalties- $25k per day- civil and $25k per day plus 1 year in jail- criminal

24 Other potential risks Air quality- dust from site or concrete dust from crushing for LEEDS Asbestos- from demolition or hauling Lead from paint Mold exposure PEL – Permissible exposure level- parts per million Worker and public exposure risks

25 Asbestos abatement

26 Bag and tag

27 Asbestos abatement of floor tile- VAT- vinyl asbestos tile

28 Lead paint abatement

29 Minimizing risks Prebid steps – review documents, site investigation, document asking the question or for reports Test materials in question AIA 201 has provision that addresses unanticipated hazardous substances that indemnify the contractor if no negligence Stop work and notify the owner in writing Obtain insurance or sub out if known

30 Toxic mold Mold is common in nature and buildings but can be risky in some cases- confined spaces No PEL so vague on exposure and damages Some insurance has exclusions- “pollution exclusion” - check??

31 Mold loves drywall

32 Mold!!

33 Who is responsible for project safety? The contractor and subs Best to prevent accidents: - reduces exposure to fines -reduces premiums for workers comp and liability insurance -reduces risk for accidents not covered by insurance Send everyone home alive

34 Steps you can take Safety manager Written procedures Training – before work and on the job Work plans – before starting work Preconstruction meetings Risk assessments and mitigation plans before you start Insurance Emergency response plans Legal reviews of contracts before you sign

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