What is a cumulative impact claim? This is commonly referred to as the unforeseeable ripple effect of changes, i.e., the death by a thousand cuts. Cumulative impact claims refer to a disruption on productivity based on the cumulative impact of changes and their impact on unchanged work. Cumulative impact claims are difficult claims to prove, particularly based on the causation standpoint (and argument they could be released based on change order language). If pursuing or considering a cumulative impact claim, you will need to work with a consultant(s) and lawyer that understand the dynamic of these claims to best maximize your arguments and recovery from a causation and damages standpoint. Cumulative impact damages are real. They occur. But they are not damages you can just throw out there or use loosely and expect to develop traction on compensation.
Below is how cumulative impact claims are defined by certain Boards of Contract Appeals. The definitions are important.
In Appeal of Centex Bateson Construction, Co., Inc., 9901 BCA P 30153, VABCA 4613 (VABCA 1998), the Board explained:
Direct impact, as the immediate and direct effect of a change on unchanged work, is considered foreseeable.
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Direct impact is generally characterized as the immediate and direct disruption resulting from a change that lowers productivity in the performance of the changed or unchanged work. Direct impact is considered foreseeable and the disrupting relationship to unchanged work can be related in time and space to a specific change Cumulative impact is the unforeseeable disruption of productivity resulting from the “synergistic” effect of an undifferentiated group of changes. Cumulative impact is referred to as the “ripple effect” of changes on unchanged work that causes a decrease in productivity and is not analyzed in terms of spatial or temporal relationships. This phenomenon arises at the point the ripples caused by an indivisible body on two or more changes on the pond of a construction project sufficiently overlap and disturb the surface such that entitlement to recover additional costs resulting from the turbulence spontaneously erupts. This overlapping of the ripples is also described as the “synergistic effect” of accumulated changes. This effect is unforeseeable and indirect. Cumulative impact has also been described in terms of the fundamental alteration of the parties’ bargain resulting from changes. This approach is highlighted by the ASBCA’s discussion of cumulative impact in Atlantic Dry Dock Corporation:
The Board has long recognized the concept of so-called cumulative disruption. In Triple “A” South, [citation omitted] we defined this type of impact as the disruption, which occurs between two or more change orders and basic work and is exclusive of that local disruption that can be ascribed to a specific change. It is the synergistic effect… of changes on the unchanged work and on other changes. Describing appellant’s evidence of such impact as merely ‘anecdotal/ the Board held that to recover for cumulative disruption, a contractor must show that the Government exceeded the permissible limits of its discretion under the Changes clause and ordered changes that ‘materially alter the nature of the bargain agreed upon.’ [citation omitted]
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Causation, in the context of a cumulative impact, can be an elusive commodity because the concept of cumulative impact is, in itself, somewhat amorphous. Several points relevant to cumulative impact and causation, however, are clear. First, the mere existence of numerous contract changes in and of themselves, whether or not the number of changes is considered to be reasonable or unreasonable and whether or not the changes resulted from defective specifications, establishes no right to recover cumulative impact costs. Consequently, contract changes alone, regardless of their number or nature combined with Government liability do not serve as a substitute for causation and do not necessarily give rise to cumulative impact damages. Second, it is clear that demonstrating an overrun in labor and the existence of numerous changes without some evidence linking the changes to the overrun is insufficient proof of causation. Finally, there must be some proof of a causal connection established showing that the undifferentiated group of contract changes affecting the changed and unchanged contract work resulted in the loss of productivity on that work. This proof may take the form of demonstrating that there are no other reasons for a loss of productivity for which the Government is not responsible.
In Appeals of Norman Engineering Co., 92-BCA P 24900, NASA BCA No. 1189-12 (NASA 1992), the Board noted:
As a matter of law, an “impact” claim or a “cumulative impact” claim is a claim based on the constructive change theory that is asserted separately from individual compensable changes. Cumulative impact arises from changes which had such an effect on performance that there is a separately compensable impact claim that does not include the direct costs of the changes.
In Appeal of Bechtel Nat., Inc., 90-1 BCA P 22549, NASA BCA No. 1187-7 (NASA BCA 1989), the Board found:
Cumulative impact need not be traced to specific causes of increased performance costs, but can arise from changes which, when viewed retrospectively, were so many and had such effect on performance that there is a separately compensable impact claim. We do not require the specificity here that would otherwise be necessary for Appellant to prevail on entitlement. The sheer number of change orders, however, cannot establish the validity of a cumulative impact claim. Impact is not demonstrated solely by showing the number of changes or clarifications to the contract. General unsupported statements that a contractor suffered impact are not sufficient proof that it did, and the absence of contemporaneous documentary evidence of the disruptive effects to the work may provide reason for rejecting the claim.
In McMillin Bros. Constructors, Inc., 91-1 BCA P 23351, EBCA No. 328-10-84 (EBCA 1990), the Board maintained:
Since 1968, when the Changes clause was amended to include the above phrase “whether or not changed by any order”, boards have experienced an increasing number of claims of cost “impact” on unchanged work, which allegedly was not priced and settled as a cost of performing the changed work. In cases involving a multitude of changes, these alleged added costs have been commonly referred to as “cumulative impact” costs. Because contractors are required to include known and generally foreseeable impacts on unchanged work in pricing the cost of a change, the term “cumulative impact” has come to mean, in a generic sense, the impact on unchanged work which is not attributable to any one change but flows from the synergy of the number and scope of changes issued on a project. The underlying theory is that numerous changes cause a cascading ripple-type of impact on performance time and efficiency which is too uncertain or diffuse to be readily discernable at the time of pricing each individual change.
We do not question that such impacts from cumulative changes do, in some instances, occur and should be compensated. However, we are mindful that impacts, whether on changed or unchanged work, which flow directly from individual changes are, with few exceptions, legally compensated by the price negotiated for the change and, thus, should be excluded from recovery under a cumulative impact claim. We are also mindful that even when a compensable cumulative impact is found, proof of damages under a total cost approach (an approach often relied upon in this type of claim) is acceptable only where safeguards for its use have been clearly established. The total cost method is not favored, in part, because it is extremely difficult to assure that the contract is not transformed into a de facto cost reimbursement contract and that costs which should be borne by Appellant are excluded.
Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.