A/B Estimate Method for Calculating and Presenting Damages in a Construction Claim

When a contractor’s costs exceed its contract amount on a construction project due to owner-caused impacts, the contractor can choose from several damages methods in seeking equitable compensation.

If the claimant can show 1) entitlement to recover for the other party’s wrongful conduct, and 2) damage incurred because of that wrongful conduct, the claimant may recover even though the amount of the damage is uncertain or is based on estimates. There are several methods currently in use for the calculation of recoverable damages.

Previous blog posts discuss the Total Cost, Modified Total Cost, and Jury Verdict methods and Quantum Meruit. This blog post will focus on the A/B Estimates method, and future blog posts will address the Delta Estimate and Discrete Damages/Cost Variance Analysis methods.

The A/B Estimate method is generally utilized in cases where additional work is straightforward. For example, a lump sum contractor bids on a chemical plant expansion assuming that a large pressure vessel will be located at grade with its own foundation. After the job begins, the contractor discovers that the engineer has relocated the vessel in the structure above grade because of other process changes that the owner made. The contractor in such a case can prove its damages by subtracting an independent estimate of the work as planned at grade level (the “A estimate”) from the new estimate of the work with the vessel relocated in the structure (the “B estimate”). The B estimate is a fair and reasonable estimate of the value of the work at the time of the bid.

The contractor’s damages under this method are the difference between the two estimates, as Figure 1 below shows. By following this simple approach, the contractor can eliminate from the damages any costs not directly related to the vessel relocation itself, such as labor inefficiency not caused by the change.

The approach is advantageous because of its simplicity but is difficult to use where several different factors affect the contractor’s performance. Its conclusions may be deemed speculative, and care must be taken to avoid absurd damage results. Care must also be taken to ensure that the estimates are reasonable and consistent in method.

Figure 1: A/B Estimate Method

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