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CUMULATIVE IMPACT CLAIMS AND DEFINITION BY CERTAIN BOARDS

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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.

HOW THE CUMULATIVE IMPACT THEORY HAS BEEN DEFINED

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Largely in the federal contract arena, there is a theory referred to as “cumulative impacts” used by a contractor to recover unforeseeable costs associated with a multitude of changes that have an overwhelming ripple effect on its efficiency, particularly efficiency dealing with its original, base contract work.  In other words, by dealing with extensive changes, there is an unforeseeable impact imposed on the contractor relative to its unchanged or base contract work.  Under this theory, the contractor oftentimes prices its cumulative impact under a total cost approach with an examination on its cost overrun. However, this is not an easy theory to prevail on because there needs to be a focus on the sheer number of changes, causation supporting the impact, and whether there were concurrent impacts or delays that played a role in the ripple effect.  See, e.g., Appeals of J.A. Jones Const. Co., ENGBCA No. 6348, 00-2 BCA P 31000 (July 7, 2000) (“However, in the vast majority of cases such claims are routinely denied because there were an insufficient number of changes, contractor-caused concurrent delays, disruptions and inefficiencies and/or a general absence of evidence of causation and impact.”).

To best articulate how the cumulative impact theory has been defined, I want to include language directly from courts and board of contract appeals that have dealt with this theory.  This way the contractor knows how to best work with their experts with this definition in mind–and, yes, experts will be needed–to persuasively package and establish causation and damages stemming from the multitude of changes.  While many of these definitions are worded differently, you will see they have the same focus dealing with the unforeseeable ripple effect of the extensive changes.

Any contractor seeking an equitable adjustment from the Government must prove liability, causation, and resultant injury.  An impact claim—often characterized using other names, such as, “cumulative impact,” “ripple effect,” “loss of labor efficiency,” or “loss of productivity”—is based upon the theory that  individual compensable changes to a Contract, taken as a whole, can have such a disruptive effect on the contractor’s performance that the contractor has a compensable claim for costs in addition to the amounts of its individual change orders.

In order to recover on an impact claim, a contractor must do more than present evidence of the sheer number or scope of changes.  Nor is it sufficient to compare the cost of the work, as changed, to the original contract price.  A contractor must also present evidence of causation and impact. Cumulative impact claims are fact-intensive and require the contractor to substantiate its claims that its work was delayed or was performed in an inefficient, unproductive, or more costly manner as a result of the individual changes to the Contract. As one board observed, “[t]here must be testimony and contemporaneous documents evidencing the type and extent of disruption to the work, and a showing that the disruption resulted from Government actions.” 

Jackson Const. Co. v. United States, 62 Fed.Cl. 84, 103–04 (2004) (internal quotations omitted).

Or:

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.

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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 [the contractor] are excluded. Thus, we must carefully examine any claim of cumulative impact under a total cost approach to assure that the four factors generally recognized for its use have been met.

Mcmillin Bros. Constructors, Inc., EBCA No. 328-10-84, 91-1 BCA P 23351 (Aug. 31, 1990).

Or:

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. 

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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. 

Appeal of Centex Bateson Const. Co., Inc., VABCA No. 4613, 99-1 BCA P 30153 (Dec. 3, 1998).

 

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.