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1.
INTRODUCTION
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Nobody
talks about damages. The fight is always about liability,
but the issue of damages is where a construction dispute
can be won or lost. Construction disputes are about money,
and the amount of money awarded or not awarded determines
whether the dispute was won or lost.
A
contractor can win on liability but lose the claim when
it is awarded none or only a small fraction of its claimed
damages. Conversely, an owner can lose on liability but
win the claim if the contractor is awarded none or only
a small fraction of its claimed damages.
No
contractor wins a claim if the owner is found liable but
pays nothing or only pennies of what the contractor is
claiming. By focusing on the damages, contractors can
avoid winning the battle but losing the war, and owners
can win the war even after losing the battle.
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2.
A CONTRACTOR MUST PROVE ITS DAMAGES
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A contractor
cannot simply show that the owner did something wrong and
that the contractor lost money on the project and then expect
to be awarded the amount of its loss. (See Tele-Sentry Security,
Inc., GSBCA No. 10945 (7703)-REIN, 91-2 BCA para. 23880).
Instead, the contractor must prove (1) the owner did something
wrong, (2) that whatever the owner did wrong caused it damage,
and (3) the amount of that damage. (See James A. Boyajian,
191 Ct. Cl. 233 (1970). The contractor must prove all three.
If it fails to prove either of the last two, even if it
proves the owner did something wrong, its chances of winning
the claim decrease dramatically.
Courts
may refuse to award damages to a contractor if the contractor
fails to either (1) prove that the damages were caused by
the owner's wrongful act or (2) reasonably substantiate
the amount of those damages. (See Joseph Pickard's Sons
Co. v. United States, 209 Ct. Cl. 643 (1976)). In other
words, the contractor must directly connect the owner's
wrongful act to the damage it suffered and then must substantiate
the amount of that damage. If the contractor fails to prove
either of those two elements, it will lose because even
if it proves the owner is liable, it may recover nothing
or only a small fraction of what it claims.
From
the owner's perspective, those two required elements give
it two opportunities to break links in the contractor's
chain of proof and if either link is broken, the contractor
may recover little or nothing. The owner can defeat the
contractor's claim by showing that the contractor failed
to prove either of those two elements or by affirmatively
proving that either (1) the wrongful act did not cause the
claimed damage or (2) the contractor cannot substantiate
the amount of that damage. Even if found liable, the owner
will win if it defeats the contractor's efforts to prove
(1) that the wrongful act caused the claimed damage or (2)
the amount of that damage.
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3.
WHEN DOES THE PROOF BEGIN?
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When
should the contractor begin collecting its proof to show
that the owner's wrongful act caused it damage and to substantiate
the amount of that damage? -- At the time the wrongful act
occurs.
The
most reliable and accepted method of proving damages is
by the contractor maintaining separate records of its costs
as they are being incurred as a result of the owner's wrongful
act. The contractor must also maintain records that establish
the causal connection between the owner's wrongful act and
the damage the act is causing.
This
method of proving damages requires the contractor to have
a system that allows it to immediately recognize occurrences
that may lead to claims so it can begin to separately track
costs attributable to that occurrence when the it first
arises. Tracking costs means identifying, segregating, and
the tracking costs specifically caused by the occurrence.
At the
time the occurrence arises, the contractor must be able
to break out, from its overall cost accounting system, those
costs arising directly from the occurrence. Having a cost
accounting system that can do no more than dump costs into
general categories of labor, materials, and equipment, without
any ability to more precisely identify categories of cost
or attribute them to specific occurrences, will do a contractor
little good when it is required to prove the damages caused
by the occurrence.
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| DISCLAIMER:
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