BRUCE W. FICKEN: While generally, courts have not required "mathematical certainty" in proof of damages,¹ some methods of proof have had more success than others in the courts. When available, actual cost data form of proof is superior to any of the methods that estimate increased costs. The United States Court of Appeals for the Federal Circuit has stated that "the preferred way for a contractor to prove increased costs is to submit actual cost data because such data "provides the court, or contracting officer, with documented underlying expenses, ensuring that the final amount of the equitable adjustment will be just that - equitable - and not a windfall for either the government or the contractor."² While it would be ideal to contemporaneously identify and track all costs associated with a particular owner-caused delay or disruption, due to the realities of complex construction projects, it is often impractical.

Total Cost Method:  The Total Cost Method assesses damages by subtracting the total estimated cost of performance from the total actual cost of performance, assuming that the contractor is owed the difference.³ It is generally disfavored by courts and boards because of its inherent risk of potentially allowing a contractor to recover all costs arising from its performance rather than just those caused by the acts or omissions of the owner. For example, the total cost method does not account for potential inaccuracies in the original bid estimate, or contractor inefficiencies not caused by the other party's delay. Further, the pure form of the total cost method does not make any adjustments for delays caused by the contractor itself. For these reasons, courts have held that the total cost method of proving damages will only be permitted in limited circumstances, or as a "last resort."⁴ However, it may be used "under proper safeguards where there is no other alternative, since we recognized that the lack of certainty as to the amount of damages should not preclude recovery."⁵

There are four prerequisites to the use of the total cost method: "(1) the nature of the particular losses makes it impossible or highly impracticable to determine them with a reasonable degree of accuracy; (2) the plaintiff's bid or estimate was realistic; (3) its actual losses were reasonable; and (4) it was not responsible for the added expenses." ⁶ The party seeking damages bears the burden of demonstrating that each of the criteria has been satisfied.⁷ If it is able to do so, the total cost method may be used to calculate a disruption claim. But because errors in bid calculations or instances of mischarged costs can wound the contractor's credibility and keep the test from being met, the burden is a heavy one.⁸

Despite that the total cost method is not well received when used to calculate damages on the entire contract, it may still be useful as applied to specific scopes of work where the standards for its use could be more easily met.

Modified Total Cost Method: A version of the total cost method that is more favored is the modified total cost method, which seeks to address some of the difficulties encountered by use of the total cost method. Under the modified total cost method, adjustments are made to correct errors in the original bid, or actual costs are adjusted to exclude costs for which the owner was not responsible. By deducting for the costs that are attributable to the contractor, the contractor appears more reasonable and its calculations more credible. Yet, despite increased acceptance of the total cost method with these adjustments, because of the weak link between the impacts suffered and the loss incurred, it is still preferable to attempt to prove individual elements of damage, where possible.

In order to use the modified total cost method, the prerequisites of the total cost method must still be met.⁹ In Southern Comfort Builders, Inc.,¹⁰ the contractor's expert used both the modified total cost method and the measured mile approach in computing the contractor's loss of productivity damages. The government argued that by virtue of using more than one method, the contractor had shown that use of the modified total cost method was improper because it was not impracticable for the contractor to calculate its damages using an alternative method. The court found both calculations to be flawed and declined recovery.¹¹

Even where a total cost claim is denied, the parties' right to damages is not necessarily extinguished. The court, with the benefit of a full record, will look to whether there is any reasonable basis upon which it can award damages. For example, in Lichter v. Mellon-Stuart Company,¹² the court denied the plaintiff's claim for total costs on the stone contract, but nevertheless afforded the plaintiff certain damages based on the additional evidence introduced at trial.¹³

Measured Mile Approach:  The measured mile approach is becoming increasingly accepted and is preferable to the total cost method of calculating a claim for lost productivity because the link between the impact and actual damages can be demonstrated more readily. The calculation is performed by comparing the contractor's activities during the disrupted performance period to the same or substantially similar activities during a period of performance without disruption. After calculating the performance measurement during a non-impacted or "measured mile" period, it is then subtracted from actual performance during the impacted period. The difference in productivity, and therefore performance achieved and performance costs incurred, is the measure of damages.  

The more difficult part of the process is pinpointing an appropriate benchmark. The more similar the non-impacted work, the more reliable the comparison, so it is important that the relationship to the type of work used not be too broad. Further, if the benchmark selected is early in the project, adjustments should be made to account for effects of the learning curve so that lower productivity rates, which are normal at the start of a job, do not improperly skew the calculation. An as-bid performance rate cannot be used as this would result in the calculation mirroring the total cost method and then being subject to all its associated flaws. Common bases of attack on the validity of the benchmark rate are that the rate is unreasonable or that it was derived from a few discrete points rather than being representative. Another frequent challenge is that the work from which the performance rate was measured is too dissimilar from the disrupted work. But because it is not required that the work be identical, as long as the work being compared is substantially similar, the use of the measured mile approach will be permitted.

The benefit of using the measured mile approach is that it is based entirely on the contractor's actual performance data rather than on the contractor's planned productivity rate. For this reason, problems such as bid errors or problems with performance caused by the contractor itself that would weaken a claim calculated under the total cost method do not impact the measured mile calculation.

In Southern Comfort Builders, Inc.,¹⁴ the contractor's measured mile calculation was rejected by the court as fundamentally flawed. First, rather than comparing the contractor's unimpacted work with its own impacted work, the calculation compared the contractor's work with work performed by another contractor. Secondly, the total reached under the measured mile analysis was greater than the total reached using the total cost method. Because the result of a total cost method calculation represents the highest possible recovery to which a contractor could be entitled, the higher measured mile calculation could not have been accurate.¹⁵

"Should Cost" Estimates: When it is impossible to apply the measured mile approach because there are so many disruptions that there is no available non-impacted work to use as a benchmark, the "should cost" estimate methodology is often utilized. The should cost estimate compares the costs of labor actually incurred with what the costs should have been, absent the disruption. The estimate should not be based on the bid estimate; again, this would create the same problems as encountered in using the total cost method. Rather, the should cost estimate should based on the actual cost of similar work on a similar project. A contractor using this approach must be able to stand up to the same "substantial similarity" challenges faced when using the measured mile approach. When it is able to do so, in cases with pervasive disruptions, the should cost method of calculating inefficiency or lost productivity claims can be quite persuasive and is becoming increasingly accepted.

Expert testimony may be useful to establish should have cost production rates. However, general expert testimony will not be adequate. In order to be persuasive, the expert's rates must be sufficiently correlated with the contractor's actual rates on the job during unaffected periods, or with actual unaffected rates on other similar projects.

When it is not possible to establish a benchmark using a measured mile or should cost estimate, productivity rates published in industry sources may be used.¹⁶ As with the other methods, it is particularly important to make sure that the benchmark rate used is for work that is substantially similar to the project work performed. In addition to establishing that the estimates are applicable to the work actually performed, it is especially helpful to the success of the contractor's claim if it can also establish the overall reliability of the industry estimate utilized.

Another method for obtaining a reasonable estimate when a contractor is unable to produce actual performance rates is to perform time and motion studies that simulate as closely as possible the work performed and the conditions and disruptions under which it was performed.

Jury Verdict Method: When damages are not clearly ascertainable from the proof supplied by the contractor, but it is clear that damages are appropriate, the trier of fact may use the jury method to calculate the appropriate damages award. To do so, the trier of fact considers the various claim elements to set a total claim value, then determines which portions of the claim should not be recoverable due to their being attributable to the contractor's own inefficiencies, or other causes for which the owner is not responsible. The remaining figure represents the contractor's damages.  
 
While a claim is not necessarily destroyed by failure to prove a claim through the selected method because of the availability of the jury verdict method, the contractor must still provide enough support of the extent of the damages to enable the fact finder to make an award. Three prerequisites to use of the jury verdict method must be met. First, the contractor must show that it is entitled to compensation. Second, it must be established that there is no more reliable method for calculating damages. Third, the record must afford a basis for a fair and reasonable approximation of damages.¹⁷

Regardless of which method is applied, the availability and precision of contemporaneous records, and where used, the closer the similarity of the comparisons, the greater the likelihood of success in proving and recovering delay and disruption damages.