DELAY COSTS ON CONSTRUCTION CONTRACTS

In the October 2017 case of MW Builders v. United States, the Court of Federal Claims held that the government's attempt to shift its contractual responsibility to execute utility agreements breached the government's implied duty of good faith and fair dealing and gave rise to a compensable delay claim under the Changes clause.  The court said:

"The duty of good faith and fair dealing includes 'the duty not to interfere with the other party's performance and not to destroy the reasonable expectations of the other party regarding the fruits of the contract.'  Centrex Corp. f. United States, 395 F.3d 1285, 1304 (Fed. Cir. 2005).  'Both the duty not to hinder and the duty to cooperate are aspects of the duty of good faith and fair dealing.'  Metcalf Construction Co. v. United States, 742 F.3d 984, 991 (Fed. Cir. 2014)."

Suspension of performance for time to execute utility agreements for which the government is responsible is a change under the Changes clause in that it changes the manner of performance of the work.  FAR 52.243-4(a)(2).  It also is a government caused delay of work and an admission the government has failed in its implied by law duty not to interfere with the contractor's performance.

The contractor should prepare a request for equitable adjustment (REA) for reasonable costs associated with demobilization, standby, remobilization and acceleration costs and profit on those costs as a result of the suspension and resumption of performance after the period of suspension.  Notice should be given under FAR 52.243-4(b) of the change and the right to the REA should be asserted as required by FAR 52-243-4(e).  Cost projections should be included and additional time to further refine the cost estimate should be requested.  FAR 52-243-4(e).

Among the types of costs allowed are unabsorbed overhead and G & A.  Calculating these costs requires the services of an expert.  However, the formula used for government contracts, know as the Eichleay formula, can be summarized as follows:

Divide total contract billings by total company billings times total overhead or G &A (fixed) for the period of contract performance to arrive at allocable overhead for the project.  Then, arrive at daily allocable overhead or G & A by dividing allocable overhead by the number of days of actual contract performance including delay days.  Then multiply the daily allocable overhead or G & A costs by the number of compensable delay days to arrive at the unabsorbed overhead or G & A cost for the period of delay and include the calculation in the REA.

bill@spriggsconsultingservices.com    bill@spriggslawgroup.com