Prove Your Damages With Actual Costs: The United States District Court For The District Of New Jersey Rejects Both The Cumulative Impact Theory Of Causation And The Total Cost Method To Prove Delay Damages In A Tort Action
Construction Group Newsletter
January 29, 2010
In AMEC Civil, LLC v. DMJM Harris, Inc., 2009 U.S. Dist. LEXIS 55410 (D.N.J., June 30, 2009), the court categorically rejected a general contractor’s attempt to use the cumulative impact theory1 to prove causation and a “modified” total cost method2 to prove its delay damages in claims asserted against the design consultant on a public construction project. In doing so, the Court held that plaintiffs seeking recovery for delay damages must demonstrate which of their specific damages, proven to a reasonable degree of engineering certainty, are causally related to defendant’s alleged negligence. While the AMEC decision disposed of a total cost claim against a design consultant, the decision potentially has broader application for any plaintiff seeking to assert a cumulative impact or total cost claim under New Jersey law.
Defendant DMJM+Harris, Inc. (“Designer”) was the design consultant retained by the owner in connection with the design of a replacement bridge structure for the bridge over the Shark River in Belmar, New Jersey (“Project”). When disputes arose during construction of the project, the contractor, AMEC Civil, LLC (“Contractor”), filed an action against the Designer. In its complaint against the Designer, the Contractor alleged that it suffered damages in excess of $52 million based on the Designer’s negligence design for the Project. Following discovery, the Designer filed a motion for summary judgment. The crux of the Designer’s argument was twofold: (1) that the Contractor failed to apportion its alleged damages between the alleged negligence of the designer and other contributory sources, including the contractor’s own negligence; and (2) that the Contractor had failed adequately to contemporaneously track impacts and associated additional costs while the alleged delay causing events occurred during the course of the Project.
While noting that the total cost method is disfavored and that other federal courts had emphasized that actual costs is the preferred method of proving damages, the Court noted that since no New Jersey court had addressed whether the total cost method could be utilized in a negligence action and, as such, the Court considered whether it was appropriate in this case. Describing the elements of the total cost method the Contractor sought to employ, the Court observed:
To recover under a total cost approach, the contractor must meet four criteria: The acceptability of the total cost or modified total cost method hinges on proof that (1) the nature of the particular losses make 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 costs were reasonable; and (4) it was not responsible for the added expenses.
In concluding that AMEC had failed to comply with these four criteria and, thus, could not utilize the total cost method, the Court made a number of significant conclusions:
- Where a plaintiff fails to accurately maintain its records, the court will be disinclined to accept a party’s attempt to use the “highly disfavored” total cost method of recovery, “based on a bed of its own making;”
- A proponent of the total cost method must be prepared to demonstrate the reasonableness of its bid, and may not benefit from its own failure to anticipate the level of difficulty that a reasonable contractor should have anticipated;
- The plaintiff must not only be prepared to verify the actual additional costs that it has incurred, but must also demonstrate that those costs were reasonable in response to the required changes; and
- The plaintiff must maintain and produce records demonstrating that the alleged delays are attributable solely to the party from whom recovery is sought.
The Court similarly rejected the Contractor’s attempt to use a cumulative impact theory of causation which the plaintiff described as a “ripple effect” attributable to numerous design deficiencies, finding that there were “substantial questions” regarding the Contractor’s ability to show causation. While the Court concluded that the Contractor could proceed to trial on other aspects of its claim, the Court cautioned that it would not allow the Contractor to avoid its own negligence or other potential causes of delay and damage unrelated to the Designer’s negligence by asserting that there was a “cumulative impact” of delay and damages that was solely the Designer’s fault.
The AMEC decision suggests that New Jersey courts will be highly skeptical of parties attempting to utilize the total cost method or cumulative impact theory to prove delay and damage claims and likely will be compelled to prove such claims using actual costs in both contract and tort claims. Although parties to a construction project seldom start off the project believing that it will end up in litigation, the AMEC decision provides the following important lessons for contractors, owners, and designers alike with respect to the need to timely, accurately, and consistently track and record all developments and costs on the project so that, if litigation ultimately occurs, the parties are in a position to prove or refute claims of damage and delay based upon contemporaneous and accurate project records:
- Contractors must be diligent in maintaining accurate records during the course of a project documenting both the cause(s) of any delays as well as the costs and impacts directly attributable to those delays.
- Conversely, owners must be assiduous in insisting that contractors adhere to contractual claims notification procedures, and contemporaneously document a contractor’s failure to adhere to those requirements.
- Third parties, such as designers and subcontractors, faced with claims that they have delayed a general contractor’s performance should aggressively pursue the contractor’s contemporaneous project records during litigation in an attempt to establish that contractor failed to maintain documentation of the cause of delay and associated costs.
- Contractors should be prepared to demonstrate the reasonableness of their bids by maintaining records of the efforts devoted to developing each component of their bid estimates.
1 “Cumulative impact is basically defined as the unforeseeable and indirect disruption caused by multiple changes and delays, and that such disruption and impacts may not have been apparent on an individual change basis. The claimed result is a further cumulative disrupting effect on anticipated performance and labor productivity.” J.M. Wickwire, et al, Construction Scheduling: Preparation, Liability and Claims, § 8.06 at p. 243 (2d Ed. 2003)
2 “Under the total cost approach the estimated total cost of a project is subtracted from the actual total cost.” Wickwire, § 12.05 at p. 489. The modified total cost method purports to use the total cost method as a starting point, while making some adjustments to account for increased costs attributable to factors other than the actions of the party from whom damages are sought (e.g., the general contractor itself or subcontractors).