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

By using the Delta Estimate method, a contractor can establish specific cause-effect relationships and estimates of damages or actual costs for several problems that may occur on a project. For this method to be feasible, the contractor must keep cost documentation that clearly distinguishes the damages related to each problem. Simply said, the Delta Estimate method is no different than adding up several change order requests. The method becomes difficult to apply if several problems and their effects are interrelated, and it is often criticized because the sum of the parts may exceed the whole (cost overrun). Figure 1 below illustrates the Delta Estimate method.

Figure 1: Delta Estimate Method

Problems may include scope changes that the contractor submitted as change order requests but the owner did not approve; delays for which the contractor seeks recovery of time-related costs; and loss of productivity resulting from the following alleged impacts and more:

• Cumulative impact of multiple changes
• Excessive and sustained overtime
• Stacking of trades
• Overcrowding
• Temperature

The claimant evaluates each of these causes of productivity loss and sums the calculated loss from each cause to yield the overall productivity loss claim.

It is essential to compare the resulting total labor increase associated with all claims to the actual labor man-hour variance between the contractor’s control budget and the total actual labor man-hours expended, including consideration for approved and pending changes, because the calculation of the sum of the parts may yield a result that is greater than the whole variance.

An owner should insist on a review of the contractor’s job cost report to evaluate the actual variance between the control budget man-hours and actual labor man-hours for individual work activities and each labor discipline.

The Discrete Damages/Cost Variance Analysis method, which the next blog post will address, overcomes these problems.

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