As discussed in the previous article, impact damage claims are alive and well, but successful recovery rests on proof of causation and contemporaneous documentation of damages—not just “I bid X and spent Y.” Claimants must also overcome a number of challenges, many of which project owners may raise as defenses.

Impact damage claims share the same basic requirements as other construction claims: notice, entitlement, causation, and damages. Each must be supported by appropriate documentation.

Any time an event arises that may affect—or has affected—productivity, claimants must provide the contractually required written notice to the owner. If notice is not provided promptly or is put off until the end of the project, claimants are likely to hear a familiar response from the owner’s attorney: “No notice, no claim!” This defense may be enforceable in some jurisdictions.

Providing notice, however, is only the first step. The claimant must also demonstrate that the event leading to lost productivity is one that, under the terms of the contract, entitles it to seek recovery of damages.

The claimant must document that the event caused the claimed productivity loss. The damages must, in turn, be well documented and tied directly to each event. Simply showing that actual costs exceeded the bid does not establish why the additional costs were incurred or who is responsible for them.

The Measured Mile Study is a widely used methodology for meeting this challenge. It compares productivity on impacted work with productivity on comparable, unimpacted work to help establish the loss attributable to the impact.

If the claimant does not meet these basic requirements, owners will probably deny recovery. The time and cost expended to pursue the claimed impact damages can then rise rapidly.

Even when a claimant has documented its productivity losses, contract provisions may create additional obstacles to recovery. These provisions deserve attention throughout the project, particularly when providing notice and negotiating change orders.

Clauses requiring written notice within “ten days of when the contractor knew or should have known of the event” are frequently included in contracts and may be enforceable in the jurisdiction where the project is being constructed.

A slightly different version states: “A change order shall not be allowed for any cost incurred more than ten days prior to written notice being provided to the owner.” While the first provision may bar an untimely claim, the second may limit the costs recoverable before notice was given. Both underscore the importance of providing notice promptly.

If an impact damage claim is filed for the first time at the end of the project, the claimant risks encountering “waiver of further claim” language in previously issued change orders. Owners may assert that this language bars an end-of-the-job claim for impacts associated with those changes.

The issue is particularly important when the full productivity effects of a change have not yet become apparent. The wording of the change order and any reservation of rights may become central to the dispute.

Closely related to change order waivers is the question of foreseeability. If the alleged impact damages arose from previously issued change orders, owners may take the position that the claimant should have accounted for those impacts when the changes were priced.

Owners may also argue that the claimant did not “expressly reserve the right to request cumulative impact costs when they signed the earlier change orders.” A claimant that waits until project completion to address these costs may therefore face disputes over both what was foreseeable and what rights were preserved.

Construction contracts commonly contain consequential damages waivers, which may expressly preclude recovery of “cumulative impact damages.” Claimants and owners should review the actual language to determine whether it addresses these damages and how broadly the exclusion is written.

A no-damages-for-delay clause, if enforceable in the relevant jurisdiction, is intended to preclude time-driven delay costs. However, if the alleged impact damages arose from prior project delays, the owner may argue that the clause also extends to productivity losses resulting from those delays.

Liability caps are intended to restrict total recoverable damages under a contract. They may not specifically bar lost productivity damages, but they may cap or otherwise limit the amount recoverable. As a result, establishing entitlement and proving the loss may still leave the claimant unable to recover the full amount claimed.

In addition to contractual restrictions, claimants may face disputes over how impact costs were recorded and whether productivity losses are recoverable without a corresponding project delay.

Impact costs must be identifiable within the claimant’s project records. If an alleged productivity loss arose from a change to structural steel connections, for example, simply including those costs in the general structural steel account may make it difficult to distinguish the impact from other costs.

The owner may then characterize the request as a “total cost claim”—a generally disfavored way to calculate damages. Segregating and documenting the costs associated with the event strengthens the connection between the alleged impact and the amount claimed.

Many owners take the position that if the impact events did not cause a project delay, then there would be no impact damages. This is not necessarily true unless the contract contains such language. Productivity can decline, and costs can increase even when the project finishes on time.

If the owner refuses to back off this position, the claimant may be forced to move beyond negotiations to mediation, arbitration, or litigation. Doing so can substantially increase the time and cost required to recover the claimed impact damages.

Owners seeking to limit impact damage claims may want to review their contracts to determine whether to include provisions such as those outlined above. They would be well advised to seek legal advice concerning enforceability in the relevant jurisdiction and to have counsel harmonize those provisions with the remainder of the contract.

For claimants, these same provisions reinforce the importance of timely notice, careful review of change order language, and contemporaneous documentation. Addressing those requirements as the work proceeds puts the claimant in a stronger position than attempting to reconstruct the claim at the end of the project.