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

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