1. Introduction
“Cumulative impact” claims have increased in the last decade in the construction industry.   As discussed herein, the cumulative impact claim is one of the most difficult to prove and to calculate relative to the damages incurred by the contractor.  The costs claimed must be demonstrated in the proofs of the case. Cumulative impact has been defined as:

“Cumulative impact costs are costs associated with the impact on the work not directly associated with the event itself and are not readily foreseeable or if foreseeable, are not readily computable as direct impact costs.”²

10. to become altered or modified...
20. a transformation or modification …
21. a variation or deviation …
22. the substitution of one thing for another …
23. a replacement or substitution …

Even those definitions, however, fall somewhat short for the construction industry. In construction, “change” is also routinely used to identify an addition or deletion to the contracted scope of work. In common usage in the industry, “change” means any alteration to the contract provisions or scope of work, including modifications, substitutions, additions, deletions, alterations, etc.⁴  The effect of a change depends upon the size of the change, the timing of the change, the nature of the change and the volume of the change.⁵

It is widely accepted within the construction industry that:⁶

The single most common cause of compensable delays is the decision of the owner or the architect-engineer to order changes in the contractor’s work. The additional cost of the changed work will ordinarily be covered by the changes clause or a similar contractual provision. But implementing a major change, or a large number of minor changes, will also frequently increase the contractor’s cost of performing the unchanged work. The contractor may, for instance, find it necessary to disrupt or delay the unchanged work, or may be forced to perform the unchanged work in a different manner or in a different sequence than originally planned.

The fact that change is the “single most common cause of compensable delays” is not surprising given that change in a construction setting takes on an importance that is not readily understood in other industries: ⁷

In most industries and business transactions, it would be unheard of to allow one of the contracting parties to unilaterally change the terms of the contract without the consent of the other party. In both the public and private sectors of the construction industry, unilateral change orders are widely accepted as part of almost every standard contract form.

But that unilateral right to change the terms of the contract is restricted to only one of the parties: ⁸

...the owner is given the right to issue changes within the general scope of the contract, by adding or deleting work, and this right is not dependent on the consent of the contractor to the change.

Most construction contacts give the owner the right to make changes within the general scope of the contract without invalidating or breaching the contract.⁹ The changes may be directed by the owner or its agent or they may be constructive, that is, inferred from or implied by the conduct of the parties. In making such changes the owner also may be responsible for the effect upon the contractor’s time and cost of performance.¹⁰ In the event that the owner has the unilateral right to direct changes to the work, this does not mean that the owner is given carte blanche to make changes without accepting the responsibility for the cost of those changes or the cost of the impacts that the introduction of those changes might have on the contractor’s time or budget.

A study undertaken and published by The Construction Industry Institute (CII) succinctly noted that:¹¹

Owners should not employ fixed-price contracting when they know the project will be subject to numerous changes. If they do, they can expect that excessive management attention will be consumed in change administration and claims.

As noted by the CII:¹²

...owners tend to treat changes as if they were isolated and non-critical events, and are unwilling to accept time extensions since the acceptance of such time extensions means allowances of additional costs...

Every change has an impact on a project’s cost and schedule. Impact, with regard to changes is defined as: ¹³

Impact: There may be two categories of added cost in any change order. The first is the actual cost of performing the changed work. The second is the effect a change order may have on other work due to sequence changes, etc., or delay to the project. The latter category is labeled variously as ‘impact,’ ‘ripple effect,’...

2. Defining the Impact of Multiple Changes
As noted by Charles A. Leonard in his paper on “The Effects of Change Order Productivity”:¹⁴

It is generally accepted that large, untimely, and numerous change orders can disrupt progress of the work and reduce productivity.…

And, owners often cannot make up their minds about the requirements of the final product, believing changes can be readily made in the field as construction progresses.…

While most owners insist on knowing the impact cost of proposed change orders prior to authorizing their performance, contractors prefer to submit single, all-encompassing impact cost calculations upon completion of the job. Such calculations are usually submitted on the basis that impact costs can be neither isolated for each change order nor calculated accurately in advance due to the interdependency of construction activities. In fact, few contractors maintain adequate job records to allow evaluation of impact costs for each change order. In addition, some contractors do not realize that they have incurred impact costs until the final profit and loss statements indicate a sizeable loss.

According to the CII the problems associated with predicting the full impact of any specific change on a project is exacerbated in situations where multiple changes are introduced into the project:¹⁵

When there are multiple changes on a project and they act in sequence or concurrently, there is a compounding effect – this is the most damaging consequence for a project and the most difficult to understand and manage. The net effect of the individual changes is much greater than a sum of the individual parts. Not only may there be increases in cost and time required, but the project logic may have to be redone

Another study by the CII found that:¹⁶

...when a large amount of change occurs on a project there is a compounding and negative effect on total project efficiency. This compounding effect may occur in all phases of a project, but this study focused on the detailed design and construction phases of a project...

This compounding effect of multiple project changes is poorly understood, difficult to measure, and seldom reflected in the estimated cost of individual project changes. It becomes apparent when work cannot be completed on time and labor productivity does measure up to the anticipated level of efficiency.

Leonard, in his study cited earlier, also noted:¹⁷

In an earlier study reported by Baldwin et al. [5], general contractors ranked design changes as the most important factor influencing progress, behind weather, labour supply and subcontractors….

Cumulatively, delays and disruptions to individual work activities caused by change orders were found to bring about gradual deterioration of original schedules….

The effect of individual change orders was generally found to depend on the timing of the instruction to proceed in relation to the planned start of the affected activity….

On delayed and disrupted projects, productivity losses due to individual change orders cannot be accurately estimated in advance. Productivity losses are best calculated on a global basis, after the fact and, when accurate data on physical progress is available…

Since the effect of an individual change order depends upon its timing, all parties should direct their efforts toward identifying, processing and approving change orders as expeditiously as possible to minimize their impact.

Other experts in the industry share a view similar to Leonard’s. The CII published a paper entitled “Quantitative Effects of Project Change,” which discussed the cumulative effect of small changes. As noted in the research:¹⁸

One possible explanation is that estimates and pricing for individual changes are produced under time pressure, and the scope definition of the change may not be complete. If each change estimate fails to identify items of work associated with a scope change, multiple changes will compound the difference between the adjusted budget and the actual requirements of the work...

However, many small changes accumulate, the project schedule is not adjusted, and the additional work is executed by means such as short-term hiring, overtime and double or split shifts, which are inherently less productive than normal, well-planned methods.

...projects cannot endure numerous changes without suffering a decline in overall project cost performance.

That research further discussed the impact on schedule and budget recovery:¹⁹

...project managers often discount the early trends of a project, believing that time remains to recover schedule losses or negative cost trends. Because of this general attitude of optimism, project managers, even on projects that are trending behind schedule or over budget, will allow changes to be introduced, further aggravating the situation.

Part of the reason for this false optimism is that the cumulative effect of multiple changes, especially their effect on schedule, is extremely difficult to monitor or calculate … Most project mangers, when looking at an individual change, are optimistic about the ability to incorporate the change without affecting schedule….

Although the industry acknowledges that the later a change occurs on a project the less efficiently it is implemented, many projects execute significant amounts of changes late in project life cycles. This is especially counter-productive since it can be demonstrated that projects have a significantly reduced ability to recover schedule losses or budget pressures as they approach completion.

As shown by the CII, multiple and late changes have a schedule impact and a cost impact.

Other organizations, such as the Committee on Construction Building Research under the National Research Council, have arrived at similar conclusions:²⁰

The cost of contract modifications probably has increased in recent years because of the demise of the so-called “Rice Doctrine,” which limited a contractor’s cost recovery on changes to the costs directly associated with the change. Now, contractors can claim ‘ripple’ … damages for the impact of a change on work not directly affected by the change.

The CII summarized the issue of change impacts on projects in a study done in October 2000:²¹

Often, the contractor fails to foresee, and the owner fails to acknowledge, the “synergistic effect” of changes on the work as a whole when pricing individual changes. That is, a change order for one area of the project may likely affect other areas of the project as well as the specific area where the change will actually occur. Consequently, projects that exceed cost or schedule targets are likely to lead to claims. Determining the impacts that changes can have on contract price and time can be arduous due to the interconnected nature of the construction work and the difficulty in isolating factors to quantify them. As a result, it is difficult for owners and contractors to agree on equitable adjustments, especially for cumulative impact.

A common statistic quoted is that a normal project should expect to encounter changes which amount to 5 to 10 percent of the total value of the project. There are two immediate problems with that statistic:

• The absolute value of an individual change may bear no direct relationship to the disruptive impact of the change. For example; a large standby diesel generator may cost many hundreds of thousands of dollars. However, because it is intended to be a stand-alone piece of equipment to be placed outside the primary operating center of the facility with only minimal connections to the primary operating system, it may have no direct disruption impact on the critical project systems. Conversely, a relatively inexpensive change to a control instrument, if made late in the project and in an area already too densely packed to accommodate the instrument change, may have a tremendous disruptive impact on the project.
  
  
• Changes are not done in isolation from one another or in isolation from the original fixed scope of work. One must consider such things as the gross number of changes made; the fundamental nature of each change being made (an entire process subsystem or a simple change in wall color); and, the location of the change (in the heart of the process flow or in the parking lot). For example: it is entirely possible in complex facilities to have multiple changes in the same process area that each impact the contractors ability to execute the original fixed scope of work, yet each of the individual changes may have a relatively minor direct cost.

3. Cumulative Impact of Multiple Changes
Cumulative impact or disruption is the effect of a series of changes, design clarifications, or owner late responses to a Requests For Information (RFIs) on labor productivity and project cost.²²  Extraordinary numbers of change orders, design changes or even the failure to respond to reasonable contractor RFIs are factors that contribute to loss of labor productivity and schedule delays.  Unlike the direct impact claim, which can be recognized when a change order is issued, the cumulative impact claim represents a claim for lost productivity on unchanged work that contractors claim is not foreseeable at the time the change order is issued.  Specifically, unchanged work refers to the contract work not covered by a specific contract change order.²³ The theory of a “cumulative impact” claim is the contractor, when pricing changes individually and negotiating compensations for the direct changes, fails to consider the synergistic effect of all changes, fails to foresee the so-called cumulative impact costs, and thereby obtains less than full compensation for the change order.²⁴

The theory of cumulative disruption holds that the issuance of an unreasonable number of change orders creates disruption that exceeds the disruption caused by the individual change orders when viewed independently.  The theory of cumulative disruption holds that the issuance of a large number of changes is itself a constructive change wholly separate and distinct from the individual changes themselves. 

The cumulative impact effect occurs when multiple changes have so disrupted the administrative and field management that the contractor may not control its costs or account for its overruns until the project is completed.  The cumulative effect of multiple changes is primarily caused by the owner’s failure to provide a complete and final set of design drawings and specifications.  Work on an activity is adversely affected by another activity or by the mere nature of the site environment that impose performance, accounting, and control burdens.

When there are multiple changes on a project and they act in sequence or concurrently, there is a compounding effect; that is the most damaging consequence for a project and the most difficult to understand and manage,  The net effect of the individual changes is much greater than the sum of the individual parts.  Not only may there be increases in cost and time required, but the project schedule may have to be redone. The contractor may attempt to recover any excess costs via a claim for the “cumulative impact”: of the numerous changes.²⁵

Other definitions used by the courts and boards on cumulative impact include:

[The] costs associated with impact on distant work [that] are not readily foreseeable or, if foreseeable, not as readily computable as direct impact costs.  The source of such cost is the sheer number of and scope of changes to the contract.  The result is an unanticipated loss of efficiency and productivity which increases the contractor’s performance costs and usually extends his stay on the job.²⁶

In Triple “A” South, the Armed Services Board of Contract Appeals (ASBCA) explained the conceptual framework in greater detail:

It is undisputed that the costs of performing changed work include both (a) those costs directly related to the accomplishment of the changed work, called “hardcore costs,” and (b) those costs arising from the intertie between the changed work and unchanged work or expended to offset inefficiencies experienced as a result of changes, called “impact.” Viewed broadly “impact” embraces:
           
The manhours, labor costs, and material costs that are expended to offset inefficiencies experienced as a result of Government-caused or contractor-caused changes or other departures from the plan.  Included is the process by which the above inefficiencies in the performance of contract work are created.

Among other things, “Impact” includes:

Inefficiencies due to overcrowding, or undermanning, skill dilution, extended overtime, shift work, and local and cumulative disruption.

“Local [or direct] disruption” refers to the direct impact that changed work has on other unchanged work going on around it.  Conceptually, for purposes of this appeal “cumulative disruption”:

Is 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 change on the unchanged work and on other changes.”²⁷

While the courts appear to be struggling to reach a definitional core of cumulative impacts, we observe that “synergistic effect” is at the core of the issue. Synergism is defined as “the simultaneous action of separate agencies, which together, have greater total effect than the sum of their individual effects.²⁸

The Veteran’s Affairs Board of Contract Appeals (VABCA) also defines cumulative impact with such a definition:

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 the 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 the entitlement to recover additional costs resulting from the turbulence spontaneously erupts… This result is unforeseeable and indirect.²⁹

4. Pricing Cumulative Impact
The compounding effect of multiple project changes is poorly understood, difficult to measure, and seldom reflected in the estimated cost of individual project changes.³⁰  Courts and Boards have consistently held that the number of changes does not establish impact.  The cumulative effect becomes apparent when work cannot be completed on time and labor productivity does not measure up to the anticipated level of efficiency.  With each change, a contractor will estimate the work-hours required, but due to the inability of project personnel to fully anticipate the consequential effects of multiple changes, the actual work-hours may be much greater than originally anticipated.  As the number of changes increases the differential between estimated work-hours and actual work hours widens at an increasing rate (“ripple effect”).  As a result, determining, if and when, the “ripple effect” has occurred is often limited to a post-project analysis.  It may be impossible to accurately estimate all hidden costs associated with implementing change orders prior to their implementation. Even after project changes orders are implemented, it is difficult to capture and account for the “rippleeffect.”³¹

The effect of variations or changes on the remaining or unchanged work may also entitle the contractor to a time extension.³² It is often difficult to make this determination since it was not one single change or change order that delayed the project, but rather the disruptive effect of numerous change orders.³³  Not all changes affect the contract time and a contractor must prove the time impact of the changes attributable to the owner to recover any additional costs of performance.³⁴ The principle factor that connects change orders to disruptions and lost efficiency is timing.  Late changes can be particularly detrimental. Changes occurring late in the job have a progressively more disruptive impact on productivity.³⁵

However, change impact costs typically cannot be quantified and often are not even known until the completion of the project since, by its definition, impact is a ripple effect. Research by the CII found that:³⁶

...few contractors maintain adequate job-site records to allow evaluation of impact costs for individual change orders. In addition, some contractors do not realize that they have incurred impact costs until final profit and loss statements indicate a sizable loss.

In a later study, the CII reported on what it identified as the “hidden costs” of changes on a project:³⁷

Hidden costs are defined as costs not readily apparent or missed when evaluating project change implementation. A major problem with the execution of project change is failure to consider all the costs associated with implementation. Direct costs such as material, equipment and labor or established indirect costs the form of overhead are fairly easy to identify and account for in project change estimates. The more difficult task is estimating or predicting the hidden cost associated with change implementation; i.e., delays, lowered productivity, poor communications or rework.

The first research objective was to identify and quantify the hidden cost of change. We quickly discovered that it was impossible to accurately estimate all hidden costs associated with implementing change prior to change implementation. Even after project change is implemented, it is difficult to capture and account for the “ripple effect”...

The CII also concluded in another study it performed that the owner’s perception of the cost of change was not consistent with the actual cost of change:³⁸

Pricing methodologies for changed work are often weak. Owners frequently think that contractors make money on changes because their estimates are too high. In reality, contractors often lose money on changes because their estimates are too low.

Finally, the hard money value of a particular change does not address either the timing of when the change is introduced into the project.  It is unfair to require contractors to price changed work on a unit price basis as part of their original bids or to price it using the unit cost of original changed work. Conditions applying at the time of making changes are seldom the same as those prevailing at the time the original work was bid or anticipated to be accomplished.³⁹

It is assumed that cumulative disruption is caused by an unreasonable or unforeseeable number of changes. Wunderlich Contracting Co. v. United States,⁴⁰ the court indicated:

There is no exact formula for determining the point at which a single change or a series of changes must be considered to be beyond the scope of the contract and necessarily in breach of it.  Each case must be analyzed in its own facts and in light of its own circumstances, giving just consideration to the magnitude and quality of the changes ordered and their cumulative effect upon the project as a whole.”

The attempt to value multiple change orders by the cost of performing changed work is difficult if not impossible.  As noted above, the CII study concluded that it was only at the end of the project when all costs are known that the real impact of multiple change orders can be determined. The CII study also indicated that it was essentially impossible to include all the additional performance costs of multiple change orders in any one change order estimate. 

The Court in Kit-San-Azusa, J.V. v. United States⁴¹ found that there “was no meaningful or accurate way to extract from KSA’s actual costs the impact of Government-caused delay for an unreasonable number of changes to a pipeline distribution system that undoubtedly impacted on the efficient prosecution of the work.⁴²  Cumulative impacts are unique in that disruption to the work does not necessarily result from the first, second, third or even tenth change order.  At some point, however, contractors assert that the changes cumulate and slow their ability to proceed in an orderly fashion.  The question then becomes at what point the contractor should have become aware that multiple change orders, in the aggregate, are causing additional labor costs on the project.

The case of Amelco Electric v. City of Thousand Oaks had first established that under California law, a contractor could recover in quantum meruit for the effect of numerous changes from a private owner under the theory that the owner had effectively abandoned the contract.⁴³ In the Amelco case, the court held that when an owner imposes an excessive number of changes, a court may find an abandonment of the contract and allow the contractor to recover the reasonable value of its work to complete the project.⁴⁴  The court found that there was substantial evidence to support abandonment by the city because it changed every aspect of the electrical work.  In support of its decisions, the court cited the number of changes, witness testimony that corroborated that 1,018 detail sketches were an unusually high number, and the city’s deviation from the procedures outlined in the Changes clause.⁴⁵  However, while the Court of Appeal, Second Dist. Div. Six, No. B129406 affirmed the decision, the California Supreme Court reversed the judgment of the Court of Appeals.   Although private parties may impliedly abandon a contract when they fail to follow change order procedures, the abandonment theory of liability does not apply to the public entity since such theory is fundamentally inconsistent with the purpose of the competitive bidding statutes and could provide contractors with a means of avoiding the requirements of those statues. The city was liable for a breach in contract in the same manner as a private party. However, recovery for a specific breach, with its requirements of causation and damages, is far different from abandonment, in which the entire competitively bid contract is set aside, and the contractor recovers on quantum meruit basis from the beginning of the project onward.⁴⁶

In another matter, C. Norman Peterson Co. v. Container Corp. of America, a contractor sought to recover its cost overruns at a paper mill modernization project.  The California Court of Appeals for the First District held that the private owner had imposed hundreds of changes upon the contractor and thereby so altered the scope of the work under the contract that the owner had effectively abandoned the contract. The court explained:

In the specific context of construction contracts...It has been held that when the owner imposes upon the contractor an excessive number of changes such that it can be fairly be said that the scope of the work under the original contract has been altered, an abandonment of the contract properly may be found.  In these cases, the contractor, with the full approval and expectation of the owner, may complete the project.  Although the contract may be abandoned, the work is not.  Under this line of reasoning, the trial court was well justified in determining that, by their course of conduct, the parties abandoned the terms of the written contract.⁴⁷

Other cases confirm that courts do accept the cumulative impact theory and that a contractor can be awarded damages.  In Appeal of Atlas Construction Co. Inc.,⁴⁸ the contractor did receive additional compensation for lost labor efficiency as a result of the cumulative impact of changes, the cost of updating critical path (CPM) schedules, and additional field office costs. 

5. The Importance of “Proof” in the Cumulative Impact Claim
However, despite a general recognition of the legal entitlement, little agreement exists as to how the claim should be characterized and what the contractor must prove in order to prevail on such a claim.  In general, a contractor seeking to recover for the impact costs of numerous changes on unchanged work must prove three essential elements: liability, causation, and resultant injury.⁴⁹  Of these three elements, causation and resultant injury present the largest obstacles to recovery of damages.  Causation and quantum of loss poses a problem because cumulative impacts remain largely an ill-defined concept.⁵⁰ As a result, Boards and Courts have not been able to identify a definite formula to determine whether numerous owner-caused changes are the underlying cause of lost productivity.

In Coates Industrial Piping, the VABCA explained that it is a “change order’s unforeseeable impact on [this] unchanged work that lies at the core of the cumulative impact claim.”⁵¹ According to this theory of recovery, the “Issuance of an unreasonable number of change orders creates a synergistic disruptive impact such that the total disruption caused by the changes exceeds the sum of the disruptive impacts caused by the individual change orders when looked at independently.⁵²

The contractor seeking to recover must submit evidence that “the number, timing, and effect of the changes that were issued” impacted its ability to plan and perform the work.⁵³ Much like the difficulties of demonstrating resultant injury, the biggest problem with proving causation involved separating internally (contractor) caused inefficiencies from externally (Government or private owner) caused inefficiencies.

Boards have also found that a contractor’s attempts to prove causation can be undermined by the prime contractor’s failure to maintain a CPM schedule.⁵⁴ When the contractor started the project with a CPM schedule, the schedule must be maintained and the subcontractors must receive copies of the schedule. If the contractor abandons the schedule, a Board has found it impossible to determine whether the original completion date was possible.  Moreover the Board was unable to distinguish between the contractor-caused delays from the Government-caused delays.⁵⁵

While multiple change orders may have been issued on a project, just showing that there are numerous change orders for which a contractor may claim cumulative impact may not necessarily mean acceptance by the court.⁵⁶  In Wunderlich, the court held that the 35 change orders amounting to 6 percent of the contract value did not prove that the Government was responsible for all the losses on the contract.  The court reasoned that even though the contractor’s performance had been lengthier and costlier than anticipated at the time the bid was submitted, it ultimately constructed essentially the same project as agreed upon in the contract.  Therefore, the changes neither materially altered the nature of the bargain nor were they so beyond the scope as to constitute a breach of contract, that is, “Cardinal Change.”⁵⁷ The court also held that there was a critical lack of proof of the cause and effect relationship between the events and the claimed impact in labor productivity and other costs.⁵⁸

In Pitman Construction Co. v. United States,⁵⁹ the court denied the contractor’s claim for inefficiencies and disruptions due to multiple change orders.  Pitman’s contract price was increased by $3 million to a total of $25.6 million (12 percent increase) and the time of performance was increased by 102 calendar days to a total of 1,102 calendar days (10 percent increase) because of the issuance of 206 change orders by the Government.  The court held that these changes did not amount to a fundamental change in the character of the work and that the additional costs were foreseeable.⁶⁰ The GSBCA borrowed foreseeability from the tort law concept of proximate causation.  Because causation is difficult to determine, Boards began to focus on whether the contractor could foresee a potential impact when it negotiated the forward-priced change order most closely related in time to the disruption.  If an impact is foreseeable, it is considered a direct impact and any right to the claim the costs associated with the disruption is either priced, settled, or waived with the execution of a change order.  If an impact is unforeseeable, it is considered to be indirect and the right to recover for an indirect impact must be reserved, or at a minimum, the contractor must not waived the right, so that the possibility of recovery exists.⁶¹

In Southwest Marine, Inc.,⁶² the DOTBCA denied the contractor’s cumulative impact claim, concluding that the contractor failed to (1) show that after 202 change orders the work differed significantly from the work anticipated under the original contract and (2) present evidence sufficient to convince the Board that the change orders had actually caused Southwest Marine to experience labor inefficiency and other disruptive effects.⁶³

In the case of Dyson & Co.,⁶⁴ Gulf Coast Mechanical Contractors had a subcontract to perform the mechanical work on a hospital construction project in Pensacola, Florida.  The Government issued 39 change orders involving Gulf Coast’s portion of the project, which resulted in a 19 percent increase in its contract value.  The Board of Contract Appeals found that Gulf Coast was not entitled to damages for the impact / ripple effect of the changes.  The Board found that contract language precluded Gulf Coast from seeking an equitable adjustment for claims not included in the previous change orders. ⁶⁵

In another Board case, Appeal of Freeman-Darling, Inc.,⁶⁶ it was ruled that the contractor was not entitled to additional compensation as a result of numerous change orders.  The reason given that although the change orders were numerous, when taken as a whole, they did not have a substantial cumulative impact on the contractor’s work.⁶⁷  Similarly, in Centex Bateson Construction Co., Inc., a contractor’s claim for impact costs was disallowed because of an absence of proof⁶⁸ of causation. The Board stressed that the mere existence of numerous changes in and of themselves, regardless of their number of nature, establishes no right to recover cumulative impact costs.  Also, 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. Rather, there must be a proof of a casual connection showing that the contract changes affecting the changed and unchanged contract work resulted in the loss of productivity on that work.⁶⁹

If change orders contain general waiver and release language, and a contractor signs off on the change orders, they will usually operate to waive the right to impact costs unless the contractor expressively reserved that right.⁷⁰ In Vanlar Construction, Inc. v. County of Los Angeles,⁷¹ a public owner issued 81 change orders and seven supplemental agreements.  Each document contained general waiver and release language and was signed by the Contractor.  The California Court of Appeal acknowledged that the large number of changes may have had a cumulative impact on the contractor’s performance costs but added that right to such a claim had been waived.  The court felt that if the contractor contemplated a future claim for impact costs, it was obligated to request a suitable reservation clause be included before signing the change order.⁷² In Central Mechanical Construction,⁷³ the contractor realized the cumulative cost impact of the multiple changes after it had entered a negotiated settlement of the changes that included a waiver and release.  Because the contractor did not reserve its right to a cumulative impact claim, the Board determined that the waiver and releases barred any subsequent claim.⁷⁴

However, if cumulative effect of multiple changes or any lost productivity costs cannot be recognized until the end of the project, contractors cannot be expected to protect their rights by notifying the owner that additional costs due to the cumulative effect of the changes are being experienced or waiving “all” claims related to any particular modification.⁷⁵ Courts have recognized this inability to notify as shown in David J. Tierney,⁷⁶ the General Services Administration Board said cumulative impact costs had never been discussed or considered as part of the contract modification negotiations and as a result the release did not apply to a contractor’s cumulative impact claim. The GSA Board indicated that because of the nature of the cumulative impact claims, they would not have expected to exclude those costs from discussion.⁷⁷ This was also true in Saudi Tarmac Co., Ltd.,⁷⁸ where they had been considerable discussion of cumulative impact claims, but no agreement had ever been reached. The Board ruled that in the absence of a general meeting of the minds, a general waiver or release, the contractor was entitled to subsequently claim cumulative impact costs even though the contractor did not expressively reserve the right to do so. 

To prove a cumulative disruption associated with negotiated change orders, the contractor should show that (1) the changes, although not necessarily constituting a “Cardinal Change,” were so numerous or overlapping or both that it obtained less than a full recovery for the individual changes because it was unable to foresee all of the disruption resulting from the individual changes; (2) at the times the contractor negotiated the changes, it had no reason to know it was not fully pricing the changes; 3) a reasonable calculation of damages without duplicating other costs included in its other claims can be produced; (4) the existence of a cumulative impact caused by the excessive and frequent changes can be proved; (5)  the cumulative impact of the excessive changes affected the work; (6) the cumulative impact of the excessive changes increased the cost of performance; (7)  the impact was not foreseeable when the change orders were priced; and (8)  the contracting officer or owner’s representative exceeded the permissible limits of discretion under the changes clause when the changes were issued and materially altered the nature of the contractor’s original bargain.⁷⁹

In regard to cumulative impacts claims:

• Cumulative impact is simply defined as the effect of a series of changes, design clarifications, or late responses to RFIs on labor productivity and project cost;
  
• The basis of a cumulative impact claim is that the contractor, when pricing changes individually and negotiating compensation for direct change may not have taken into consideration the synergistic effect of all changes, failed to see the cumulative impact costs and thereby obtained less than full compensation for the change order; 
  
• The effect of a large number of changes may be held as a constructive change wholly separate from the individual changes themselves;
  Cumulative impact costs are those costs associated with the impact on distant work that was not readily foreseeable and if it was foreseeable, was not readily compensated as direct impact costs;
  
• The result of the cumulative impact is the unanticipated loss of efficiency and productivity which increases the contractor’s performance costs and typically extends his planned performance period;
  
• The Courts and/or Boards have yet to agree on an exact formula for calculating cumulative impact changes and that each case must be analyzed on its own set of facts and in light of its own circumstances, giving just consideration to the magnitude and quality of the changes ordered and their cumulative impact on the project as a whole;
  
• An excessive number of change orders does not guarantee the contractor the right to a cumulative impact claim;
  
• In general, the contractor must prove three essential elements: liability, causation, and resultant injury;
  
• While no specific proofs have yet to be agreed by the Courts and/or Boards, multiple case review demonstrates that at a minimum, the contractor must prove:
  That the number, timing and effect of the changes issued impacted its ability to plan and perform the work;
  
  • That there is a causal connection showing that the contract changes affecting the changed and unchanged contract work resulted in the loss of productivity on that work;
    
  • The changes were so numerous or overlapping or both that it obtained less than full recovery for the individual changes because it was unable to foresee all of the disruption resulting from the individual change order;
    
  • At the time the contractor was negotiating the changes, it had no reason to know it was not fully pricing the change;
    
  • A reasonable calculation of damages without duplicating other costs in the claim can be produced;
    
  • The impact was not foreseeable when the individual change orders were priced;
    
  • The owner’s representative exceeded the permissible limits of discretion under theChanges Clause where the changes were issued and materially altered the contractor’s original bargain.

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Dr. Patricia D. Galloway is Chief Executive Officer and a Principal of The Nielsen-Wurster Group, Chief Executive Officer of Nielsen-Wurster Asia-Pacific Pty. Ltd., and Director of Pegasus Global Holdings, Inc. Her career history includes roles as Nielsen-Wurster’s President, Chief Financial Officer, Chief Marketing Officer, arbitrator on numerous construction cases, member of dispute review boards, expert witness in arbitrations and court presentations, facilitator for partnering workshops, instructor in several forums such as seminars, course instructor for private and public entities, a past guest professor at the University of Wisconsin, Madison and the University of Bologna, Italy, and is currently a visiting professor at Kochi University of Technology in Kochi, Japan and Harbin University of Technology in Harbin, China. Dr. Galloway is an internationally recognized leader in civil engineering and construction, and in November 2003, was inducted as the first woman President (2003-2004) of the American Society of Civil Engineers (ASCE), the oldest national engineering society in the United States. Dr. Galloway was recently appointed by President Bush to the National Science Board. (more...)

Professional Organization Activities
Nielsen-Wurster is pleased to recognize the following personnel who have recently received Certified Forensic Claims Consultant (CFCC) from AACE International.

CFCC is AACE International’s newest certification program and is designed to recognize the Certified Forensic Claims Consultant. This certification program offers specialty credentials for the professional who wants to validate his/her skills in the claims and dispute resolution arena. While a number of professionals work in the claims and dispute field or serve as expert witnesses, until now there was no way to effectively measure their capabilities - except through real-life performance. AACE’s new designation provides experience validation and an exam that lets industry and users identify those who are competent professionals.

		John R. Cunningham, CFCC Vice President of Operations Texas - Tel: +1 (281) 248-2873 - E-mail: cunningnwg@aol.com - View Bio
		Jack L. Dignum, CFCC Senior Vice President and Chief Quality Officer Washington - Tel: +1 (509) 857-2235 - E-mail: dignumnwg@aol.com - View Bio
		Maria Petrov, P.E., CFCC Vice President and Managing Director of Europe California - Tel: +1 (858) 638-9440 - E-mail: mpetrovnwg@aol.com - View Bio
		Tom Papachristos, CFCC Senior Associate and Mid-Atlantic Regional Manager New Jersey - Tel: +1 (609) 497-7300 - E-mail: tpapanwg@aol.com - View Bio
		Bill Hart, P.E., PMP, CFCC Senior Associate New Jersey - Tel: +1 (609) 497-7300 - E-mail: hartnwg@aol.com
Nielsen-Wurster is pleased to recognize Pradip Mehta who recently became certified as a Project Management Professional (PMP). A Project Management Professional has met specific education and experience requirements, has agreed to adhere to a code of professional conduct, and has passed an examination designed to objectively assess and measure project management knowledge.
		Pradip Mehta, PMP Senior Associate New Jersey - Tel: +1 (609) 497-7300 - E-mail: pradipnwg@aol.com

AACE 51st Annual Meeting
Presentation: The Great Debate - TIA vs. Windows for Retrospective Analysis
Presented by: Bruce Hallock, CFCC, PSP, and Pradip Mehta, CFCC
Gaylord Opryland - Nashville, Tennessee
July 15 - 18, 2007 (more...)

4th Annual Project Management Australia Conference
Presentation: The Attributes of Governance that Promote Organisation Success and the Effective Mitigation of the Underlying Threats to Success
Presented by: Ed F. Blow
Conrad Jupiters - Gold Coast, Australia
August 28 - 31, 2007 (more...)

Associated Owners & Developers (AOD) 2007 National Conference
Presentation: Delivering Value on Construction Projects
Presented by: Reza Nikain, PE, PMP, MIEAust, PSP, CFCC
Four Seasons Hotel - Atlanta, Georgia
October 15 - 16, 2007 (more...)

2007 San Francisco Construction Superconference
Sponsorship Level: Silver
Panel: The Great Debate of Schedule Delay Analysis – Window Analysis vs. Time Impact Analysis
Session Chair: Dr. Patricia D. Galloway Ph.D., P.E., CPEng, PMP, MRICS, F.ASCE, FIEAust, F.ICE, F.AACEI, CFCC
Panelists: Reza Nikain, PE, PMP, MIEAust, PSP, CFCC, and Bruce Hallock, CFCC, PSP
Palace Hotel - San Francisco, CA
December 12 - 14, 2007 (more...)

The Nielsen-Wurster Group has more than 30 years of experience providing private and public clients independent expert advice required to effectively manage the risks inherent in projects, operations and technology, as well as provide expert analyses in disputed situations. Our extensive experience in power, process, infrastructure, resource, industrial, telecommunications and transportation matters have involved analysis of large and complex projects from all perspectives, including analysis of project changes and changed conditions, design and constructability issues, assessments associated with project and schedule delays, costs overruns, resource efficiency and work quality.

For more information, please go to http://www.nielsen-wurster.com.