About | HeinOnline Law Journal Library | HeinOnline Law Journal Library | HeinOnline
LOG IN
LOG IN

15 Int'l Bus. Law. 400 (1987)
Calculating Impact Costs

handle is hein.journals/ibl15 and id is 458 raw text is: CONSTRUCTION LAW Calculating Impact Costs Stephen G Revay Revay and Associates Ltd, Montreal Introduction At the 1985 Annual Conference of the Canadian Society for Civil Engineering, the author presented a paper about calculating impact costs that was subsequently published in the Construction Law Reports.' In writing that paper he says that he assumed, apparently erroneously, that the notion of impact cost is generally accepted and that the difficulty owners and, at times, the courts or arbitrators have with impact costs originates in the imprecision of their quantification. He later came to realise that the problem lies much deeper and probably goes back to the concept itself. As a result, he decided to make a second attempt at clarifying the issue, but this time concentrating more on the concept and less on the intricacies of calculation. A certain amount of duplication in the scope of the two papers was unavoidable; readers involved in quantifying or evaluating impact cost claims may nevertheless find it beneficial to read the first paper as well. Definition mpact costs are the increased costs of one or several related construction activities, in excess of what those costs would have been but for an incident, action or omission relating to a separate (discrete) item of work. Impact costs are often referred to as the ripple effect, because they originate in one or more isolated problems and spread unabated through a project like ripples across a pond. Some authors refer to them as disruption costs, loss of productivity, or, less often, loss of labour output. Some time ago, particularly in the United States, impact costs were regarded as acceleration costs, whereas in most European countries they are thought of as consequential losses caused by delays. This apparent confusion has probably created an unnecessary hurdle for those trying to assert an impact cost claim. It is, of course, simpler to define what impact cost is not; it is not the direct cost of making a change or otherwise altering work but rather the cost impact those changes may have had on the rest of the project. 'Direct', in this context, means 'discrete', as opposed to directly related. Any of these definitions might be valid in describing specific circumstances, but they are not necessarily all-inclusive; hence the term 'impact cost'. Impact costs could result from a simple one-to-one relationship, such as the effect an increased quantity of embedded conduit might have on the cost of formwork or an increased quantity of rock could have on over- burden excavation in a slurry trench. Impact costs can also be one step removed, such as when increased quantities (eg concrete or masonry) compel a contractor to accelerate (eg to employ additional resources or to work overtime). Impact costs need not originate in an affirmative action, such as a change in design, or from an incident such as encountering changed soil conditions. They may also be the result of an omission (eg delay in supplying the required drawings or pre- purchased material/equipment). In the latter case the delay may simply extend the duration of the project without other effects. It is possible, however, that the extension will carry the work into inclement weather, thus giving rise to weather-related productivity losses. Similarly, a given incident or delay can interrupt the orderly sequence and momentum of a construction process, creating inefficiencies. The cost impact at times may be limited to a single item, such as working in inclement weather; on the other hand, the causes triggering impact costs may be numerous. As long as a contractor is entitled to additional compensation for the direct costs of those causes pursuant to the governing term(s) of the contract (or to damages in law), he is probably entitled to be paid for the consequent impact costs as well. This was not always so. In the United States, for example, contractors were not entitled to claim impact costs until 1968: such claims were prohibited by the Rice doctrine. The situation was changed by revising the language of the Changes and Differing Site Condition clauses in standard contracts. Contracts used elsewhere, such as that of the British Institute of Civil Engineers (and similarly, that of the Fdration Intemationale des Ing~nieurs-conseils - FIDIC), always had enabling provisions, such as Article 13, specifically setting out the right of the contractor to impact costs, as follows: '(3) If in pursuance of Clause 5 or sub-clause (1) of this Clause the Engineer shall issue instructions or directions which involve the Contractor in delay or disrupt his arrangements or methods of construction so as to cause him to incur cost beyond that reasonably to have been foreseen by an experienced contractor at the time of tender, then the Engineer shall take such delay into account in determining any extension of time to which the Contractor is entitled under Clause 44 and the Contractor shall subject to Clause 52(4) be paid in accordance with Clause 60 the amount of such cost as may be reasonable. If such instructions or directions require any variation to any part of the Works the same shall be deemed to have been given pursuant to Clause 51' (emphasis added). Under US federal contracts today, the contractor is entitled to equitable adjustment, meaning that the Note:The opinions expressed in this article are based on the author's experience and are for general information only. They ought not be applied to specific situations without the advice of legal counsel. INTERNATIONAL BUSINESS LAWYER October 1987

What Is HeinOnline?

HeinOnline is a subscription-based resource containing thousands of academic and legal journals from inception; complete coverage of government documents such as U.S. Statutes at Large, U.S. Code, Federal Register, Code of Federal Regulations, U.S. Reports, and much more. Documents are image-based, fully searchable PDFs with the authority of print combined with the accessibility of a user-friendly and powerful database. For more information, request a quote or trial for your organization below.



Short-term subscription options include 24 hours, 48 hours, or 1 week to HeinOnline.

Purchase Access

Contact us for annual subscription options:

Contact Us

Already a HeinOnline Subscriber?

Log In

profiles profiles most