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www.aacei.o

ENGINEERING

December 20

THE JOURNAL OF AACE INTERNATIONAL -THE AUTHORITY FOR TOTAL COST MANAGEMENT

TM

COSTCOSTCOSTPRESIDENTS MESSAGE

MY FIRST [FULL]

BOARD MEETING

CAN A CONTRACTOR HAVE A

CRITICAL PATH DELAYWHEN THE GENERAL

CONTRACTOR DOES NOT?

CURRENCY FLUCTUATIONAND INFLATION IMPACTON INTERNATIONAL MEGA PROJECTS:

A MEXICAN CASE STUDY

CURRENCY FLUCTUATIONAND INFLATION IMPACTON INTERNATIONAL MEGA PROJECTS:

A MEXICAN CASE STUDY

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3/40COST ENGINEERING DECEMBER 2011

CONTENTS

COST ENGINEERING

TECHNICAL ARTICLES

11 Currency Flucuaion and InflaionImpac on Inernaional Mega Projecs:A Mexican Case Sudy

Dr. Carla Lopez del Puero, CCCThis aricle examines he challenges o accuraely esimaing consrucion coss or in-

ernaional projecs. A case sudy is used o illusrae he challenges ha consrucion projecsin Mexico aced wih he 2009 devaluaion o Mexican currency. I presens a hypoheical ex-

ample and a case sudy o he Durango-Mazalan highway; inds ha he consrucion coss ohighway Durango-Mazalan in Mexico increased by 20 percen because o cos increases ied ohe peso-dollar pariy; analyzes he impac o he projec and discusses sraegies ha cos en-gineers can use o minimize he risk o economic loss in inernaional consrucion projecs re-suling rom poliical and economic insabiliy. The sudy concludes ha using cos reimbursableconracs, ranserring he risk o cos uncerainy o he owner, mainaining conac wih localsubconracors and suppliers and mainaining inernaional projec daabases minimize he riskresuling rom currency lucuaions on inernaional mega-projecs. This aricle was irs pre-sened a he 2011 Annual Meeing as CSC-558.

19 Can a Conracor Have a Criical Pah DelayWhen he General Conracor Does No?

Chrisopher W. Carson, PSP; Mark Boe, PE; and Shannon L. Campbell, PSPTo prove enilemen o delay damages, i has been reasonably esablished (by bes

pracices, as well as case law) ha a conracor mus show a criical pah delay o projec com-pleion. Bu, wha happens when an owner-impac exends he ime a subconracor mus re-main on he job, bu doesn exend he projec compleion dae? Shouldn he owner be liableor any damages o he subconracor? I no he owner, wouldn he GC have some risk? Whaype o analysis would be required o prove enilemen o hese subconracor delays? Doescurren case law have any answers? This aricle will discuss he issues, examine exising caselaw, esablish how expers analyze and prove subconracor delays, and provide an example oan analysis or his condiion. This aricle was irs presened a he 2011 Annual Meeing asCDR-635.

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4/402 COST ENGINEERING DECEMBER 2011

5 Presidents MessageMy Firs [Full] Board Meeing

8 Women inProject ControlsSpoligh on Ania Zenger

28 The AACEInternational BulletinSecion News from Around he World

4 AACE Inernaional Board of Direcors

4 Cos Engineering Journal Informaion

18 AACEs 2012 Annual Meeing

27 Professional Services Direcory

27 Index o Adverisers

34 The AACE Inernaional Online Sore

CONTENTS

DEPARTMENTS

ALSO FEATURED

COST ENGINEERING

33 Article Reprintsand PermissionsSharing our Aricles and Experience

36 Calendar of EventsAACE Inernaional Evens and More

THE AACE INTERNATIONAL ONLINE BUTTON - This editon

of he Cost Engineeringjournal has access o additonal ma-

erial on he AACE Inernatonal websie, www.aacei.org.

Anytme you see he symbol a cener, here is additonal

conen online associaed wih ha artcle or feaure. Direc

your browser o www.aacei.organd look for he online bu-

on o access additonal resources. If you are already reading

he elecronic version, jus click he online buon direcly.

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COST ENGINEERING

4 COST ENGINEERING DECEMBER 2011

HEADQUARTERS1265 Suncres Towne Cenre Dr

Morganown, WV 26505-1876

800.858.COST ax - 304.291.5728

CONTENTSAACE INTERNATIONALBOARD OF DIRECTORS

PRESIDENTMichael R. Nosbisch, CCC PSP

562.733.2472 / [email protected]

PRESIDENT-ELECTMarlene Hyde, CCE EVP


PAST PRESIDENTSephen O. Revay, CCC CFCC


VICE PRESIDENT-ADMINISTRATIONMarin Darley, CCC FRICS


VICE PRESIDENT-FINANCEJohn J. Ciccarelli, PE CCE PSP


VICE PRESIDENT-TEC

George Whye, CCC CEP EVP301.957.7434 /[email protected]

VICE PRESIDENT-REGIONSJulie Owen, CCC PSP


DIRECTOR-REGION 1Ginee Basak, P.Eng. FAACE


DIRECTOR-REGION 2John C. Livengood, CFCC PSP


DIRECTOR-REGION 3James H. Carson, CCC CEP


DIRECTOR-REGION 4Duane R. Meyer, PE CCE

513.241.1230 x 620 / [email protected]

DIRECTOR-REGION 5Earl J. Seabrook, III, CCC


DIRECTOR-REGION 6Nicholas Kellar, CCC EVP PSP

[email protected]

DIRECTOR-REGION 7Philips Tharakan Mulackal, CCE EVP

+971.50.631.4830 / [email protected]

DIRECTOR-REGION 8Keih Webb

+61.8.93485045 / [email protected]

EXECUTIVE DIRECTORDennis G. Sork


Viewpoins expressed in columns, eaures, and aricles published in Cos Engineering journal are solely hose

o he auhors and do no represen an oicial posiion o AACE Inernaional. AACE Inernaional is no en-

dorsing or sponsoring he auhors work. All conen is presened solely or inormaional purposes. Columns,

eaures, and aricles no designaed as Technical Aricles are no subjec o he peer-review process.

Cos Engineering (ISSN: 0274-9696/11) is published monhly by AACE Inernaional, Inc, 209 Prairie Ave., Suie 100,

Morganown, WV 26501 USA. Periodicals posage paid a Morganown, WV, and a addiional mailing oice. POSTMASTER:

Send address changes o AACE Inernaional; 1265 Suncres Towne Cenre Dr, Morganown, WV 26505-1876 USA. Cusomer

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2011 by AACE Inernaional, Inc. All righs reserved. This publicaion or any par hereo may no be reproduced in any ormwihou wrien permission rom he publisher. AACE assumes no responsibiliy or saemens and opinions advanced by he

conribuors o is publicaions. Views expressed by hem or he edior do no necessarily represen he oicial posiion oCos

Engineering, is sa, or AACE Inernaional, Inc. Prined in York, PA, USA. Cos Engineering is a reereed journal. All echnical

aricles are subjec o review by a minimum o hree expers in he ield. To submi a manuscrip or peer review, see auhor

guidelines a www.aacei.org and submi a 200 word or less absrac o [email protected].. PHOTOCOPY PERMISSION:

Auhorizaion o phoocopy aricles herein or inernal or personal use, or he inernal or personal use o speciic cliens, is

graned by AACE Inernaional, Inc., provided ha he base ee o US$4.00 is paid direcly o Copyrigh Clearance Cener, 222

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reporing service is ISSN-0274-9696/02 US$4.00. Paymen should be sen direcly o CCC. Copying or oher han personal or

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orders may be sen o [email protected]. ADVERTISING COPY: Conac Nework Media Parners., Execuive Plaza 1, 11350

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raes. Adverisers and adverising agencies assume liabiliy or all conen (including ex, represenaion, and illusraions) o

adverisemens prined and also assume responsibiliy or any claims arising hererom made agains he publisher. Thepublisher reserves he righ o rejec any adverising ha is no considered in keeping wih he publicaions mission and

sandards. The publisher reserves he righ o place he word adverisemenwih copy which, in he publishers opinion,

resembles ediorial maer. All adverising acceped or publicaion in Cos Engineering is limied o subjecs ha direcly relae

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Cos Engineering mus be received a leas 8 weeks in advance o he issue dae. Send o: Edior, 1265 Suncres Towne Cenre

Dr, Morganown, WV 26505-1876 USA. Deadlines do no apply o echnical papers.

Policy Concerning Published Columns, Features, and Articles

Esablished 1958

Managing Edior Marvin [email protected]

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Adverising Sales Mark SouNework Media Parners Inc.410.584.1966 ax - [email protected]

Vol. 53, No.12/December 2011

AACE Inernaional - The Auhoriy for Toal Cos ManagemenTM

OUR VISION - To be he recognized echnical auhoriy in cos and schedule managemen

or programs, projecs, producs, asses, and services.

OUR MISSION - The members o AACE enable organizaions around he world o achieve

hier invesmen expecaions by managing and conrolling projecs, programs, and por-

olios; we creae value by advancing echnical knowledge and proessional developmen.

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My firs ull Board o Direcors meetng asPresiden is now behind me, and Ihough i was very successul on manylevels. Firs o all, we contnued he re-vival o a pas AACE raditon by holdingi in Morganown, WV, where our head-

quarers office is locaed. No only does doing so on an annual

basis allow us o expand our relatonships wih headquarerssaff, bu his tme i was even more significan in ha we wereable o see he new office we moved o his pas summer. Inadditon o being more convenien or several saff members,boh in erms o commue and parking, he new locaton reallydoes provide or a more proessional seng ha is definielyappropriae or where he Associaton is headed in he nearerm uure.

A ew oher key developmens ha came ou o he BoD

meetng in Morganown are as ollows:

We reviewed he pre-final draf o our operatng budge or

2012, a process ha has been shepherded by VP Finance,

John Ciccarelli, in conjuncton wih our Conroller Carol Sue

Rogers. The curren version o nex years budge once again

provides a sound basis o achieve a conributon o surplus nex

year. Even more imporanly, i does so while providing or a

significan equiy adjusmen o he salaries and benefis o our

excellen headquarers saff, allowing us o move oward more

compettve compensaton when compared o similar ypes o

COST ENGINEERING DECEMBER 2011

PRESIDENTS MESSAGE

Michael R. Nosbisch, CCC PSP, Presiden

MY FIRST[FULL]

BOARDMEETING

MY FIRST[FULL]

BOARDMEETING

My firs ull Board o Direcors

meetng as Presiden is now be-

hind me, and I hough i was very

successul on many levels.

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organizatons and associatons in similar markes.

Afer an excellen presenaton by he Chair o he Ineror-

ganizatonal Liaison Commiee, Alexia Nalewaik, he Board

unanimously approved a recommendaton o renew he ac-

crediaton o our certficatons by he Inernatonal Cos Engi-

neering Council (ICEC). The Board also approved he

nominaton o Pas Presiden Seve Revay as our ICEC Repre-

senatve. Seve has commied o enhancing and improving

our relatonship wih ICEC in he near erm uure, which heentre Board hough was exremely imporan in ligh o our

decision o end our official relatonship wih he Royal Instu-

ton o Charered Surveyors (RICS) due o inconsisencies in he

way our memorandum o undersanding (MOU) was being in-

erpreed in differen geographical regions.

Seve Revay also presened, along wih Region 2 Direcor

John Livengood, some inital consideratons ha have been de-

veloped by he Governance Task Force ha Seve chairs. Even

hough ormal recommendatons rom he Task Force are no

due untl nex year, i was ruly impressive ha so much early

hough and effor had already been pu ino ways ha he As-

sociaton can do hings beer in he uure. John Livengood

(who contnues o be one o he mos actve members on heBoard) also presened a new cooperatve agreemen or my sig-

naurehis one wih he American Bar Associaton (ABA).

Specifically, he agreemen is wih he ABAs Forum Commiee

on he Consructon Indusry (Please see or visi,

(hp://www.americanbar.org/groups/consructon_indusry.h

ml), and promises o lead o ocused ineracton beween our

wo groups ha will no doub add value o boh.

One o my own responsibilites was o nominae a chair

or he Ehics Commiee ha will ormally be ormed afer he

firs o he year, and I was exremely happy ha Donald Mc-

Donald was unanimously approved he Board o assume his

role. Unorunaely, his means ha Donald will no longer be

able o suppor he Educaton Board, where he has ruly beena driving orce or he pas several years. I have been assured

by he curren Educaton Board chair, Pee Griesmyer, however,

ha he is already executng a succession plan o ensure ha

Donalds multple responsibilites are backfilled, especially in

relaton o he recenly unveiled Seminar in a Box program

ha is really sartng o ake off in suppor o our Sectons.

On a personal level, one o he mos satsying resuls o

my firs ull BoD meetng was he ac ha, despie a slow sar,

we were acually able o adjourn a hal hour early on he final

daya ac ha is crucial or someone ha go heir sar in

projec scheduling a long tme ago. Now i I could only learn

hose pesky Robers Rules o Order!

EDITORS NOTE: To engage in oher discussions, check ou AACEInernaionals Online Forums a www.aacei.org/orums.

2012 Electon Preparatons Are Underway

A new program, entled Ask Your Candidaes, will allow

individual members, untl Dec. 31, 2011, o pos a queston

online o candidaes running or a 2012 board o direcors po-

sitons. Afer he Dec. 31 deadline, he Nominatng Commieewill review he submied questons and pos a maximum o

10 questons or each candidae by Jan. 11, 2012. The ques-

tons will be posed in a Discussion Forum on he AACE Iner-

natonal websie, se up or his partcular purpose.

Candidaes will have untl Jan. 30, 2012, o develop heir

responses o each queston. All candidae responses will be

posed in he Discussion Forum on Jan. 31, 2012, on he AACE

Inernatonal websie. Ballotng or he electons opens on Feb.

1, 2012 and closes a 4 p.m. Easern US tme on March 15. All

candidaes or a similar positon will be asked he same ques-

tons.

According o Seve Revay, Chair o he Nominatng Com-

miee, The commiee is o he opinion ha his recommen-

daton offers a poental mehod o increasing membership

ineres in he electon process while allowing members an

opporuniy o ge a beer undersanding o heir candidaes

views.

To submi a queston or he candidae review process,

send an email wih he ex o he queston and o which can-

didae positon i should be addressed o. All emails should be

sen no laer han Dec. 31 o: [email protected].

AACE Board Recommends Amendmen o Constuton

The AACE Inernatonal Board o Direcors voed Oc. 16

o recommend o he membership o approve an amendmen

o he Associatons constuton o require ha he process o

amend he Constuton be he same as he requiremen or aBylaws amendmen. The proposal was a recommendaton

ha came rom he Governance Task Force chaired by Pas

Presiden Seve Revay.

Currenly, he AACE Inernatonal Constuton saes: An

affirmatve voe o hree-ourhs o he valid voes cas shall

be required or adopton o an amendmen o he Constu-

ton. Currenly, he Bylaws sae: An affirmatve voe o wo-

hirds o he valid voes cas shall be required or adopton o

an amendmen o he Bylaws.

According o Revay, The inconsisency beween he Con-

stuton and he Bylaws has he poental o creatng a siua-

ton where amendmens affectng boh documens could be

approved o change he Bylaws, bu ail o reach he hreshold

o amend he Constuton. The Governance Task Force be-

lieves ha requiring he wo/hirds affirmatve voe o all voes

cas o amend he Constuton and he Bylaws provides sae-

guards o assure a consensus exiss while giving he Associa-

ton reasonable flexibiliy o adap is governing documens o

new opporunites and challenges in he uure.

Revay noed ha a review o similar proessional associa-

tons revealed ha mos organizatons require wo-hirds, no

hree-ourhs, o amend heir constuton and bylaws.

ANNOUNCEMENTS FOR THE AACE INTERNATIONAL 2012 ELECTION

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I n c a n d i t s a l i a t e d e n t i t i e s A l l r i g h t s r e s e r v e d

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I heres a heme o Ania Zengers career, i is he

drive o optmize, wheher i be an opporuniy, an

effor o ge he bes deal, finding he bes roue or

ensuring projec operatons. Ania ound her passion

or optmizaton hanks o an electve class in Oper-

atons Research she ook as a senior a he Universiy

o Illinois, Urbana-Champaign, where she earned a Bachelor

o Science in Civil Engineering.

Afer graduatng, Ania ollowed in her ahers oosepsas a U.S. Naval officer in he Civil Engineer Corps (CEC). During

her 5 years o service in he Navy, Ania gained experience in

a variey o roles. Her las assignmen was as an Assisan Res-

iden Officer in Charge o Consructon. In his te period she

also obained her Proessional Engineer license. Following her

service in he U.S. Navy, Ania and her young amily moved

rom Charleson, SC, o Livermore, Cali., where she sared

working or her curren employer Lawrence Livermore Na-

tonal Laboraory (LLNL), an applied science natonal deense

laboraory.

Her firs positon a LLNL was Consructon Subconrac

Adminisraor, allowing her o contnue optmizing solutons

as she negotaed and awarded consructon conracs. A ewyears laer, Ania joined he Projec Managemen Division. This

was a partcularly busy tme in Anias lie. Married, a moher

o hree daughers, and working ull-tme, Ania had o learn

how o balance and optmize her work and home lie. Opt-

mizaton appears o be a amily rai. Two o her daughers

have compleed college and are working in heir fields o sudy,

engineering and accountng. Her younges daugher is cur-

renly a sophomore and sudying mechanical engineering.

Ania was a projec manager or more han 15 years. The

las consructon projec she managed was he Terascale Sim-

ulaton Faciliy, a $91 million aciliy ha houses some o he

worlds mos powerul supercompuers. Anias pas experi-

ence wih he Navy gave her an early inroducton o schedul-

ing and earned value. Ania contnued o develop her

expertse in projec conrols and projec managemen hrough

proessional organizatons such as AACE Inernatonal. Ania

has her Earned Value Proessional (EVP) certficaton rom

AACE and Projec Managemen Proessional certficaton rom

PMI. She used his knowledge, along wih her passion or op-

tmizaton, o successully complee he TSF projec wihin he

scope, budge, and schedule baseline.

WOMEN IN PROJECT CONTROLS

SPOTLIGHT ON

ANITAZENGERANITAZENGER

Julie Owen, CCC PSP

Ania has ound he raining and

seminar opporunites, certfica-

tons, echnical producs and ne-

working opporunites available

hrough AACE exremely valu-

able. Since her organizaton is

over 70 percen women, Ania is

especially excied abou AACEs

ocus group Women in Projec

Conrols anoher opporuniy

she ully inends o optmize.

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A he completon o he projec, Ania was asked o esab-

lish a projec conrols organizaton a LLNL. I was very easy or

her o answer YES! Ania enjoys alking and eaching projec

conrols ideas, especially earned value and risk managemen.

Wih his new assignmen, she is now able o help spread he

word and each he echniques o projec conrols o ohers.

For he pas 7 years, Ania has led he growh and maura-

ton o he projec conrols organizaton. She and her eam have

suppored he ANSI 748B Complian Earned Value ManagemenSysem a LLNL, as well as providing peer review suppor o

oher sies. She is graeul or he menoring provided by her

supervisor and has ried o pass i on, serving as a menor o

her saff.

Ania spends a grea deal o tme and effor working boh

one-on-one and in eams providing growh and learning oppor-

unites or her saff. She encourages he members o her eam

o use all resources available o contnue on a lie-long learning

journey, and o consanly work on mainaining a srong work-

lie balance.

Ania has also ound he raining and seminar opporuni-

tes, certficatons, echnical producs and neworking opporu-

nites available hrough AACE exremely valuable. She is actvewih several AACE LinkedIn groups. Since her organizaton is

over 70 percen women, Ania is especially excied abou AACEs

ocus group Women in Projec Conrols anoher opporuniy

she ully inends o optmize.

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AACE Inernatonals Member-Ge-A-Member campaign

contnues o be a grea success wih he hird random draw-

ing, and a $250 gif card o Lands End or AACE logo mer-

chandise being awarded o he winner.

This quarers winner is Thomas Mac Sumrall, Lead

Projec Estmaor or Souhern Nuclear Company ou o

Birmingham, Alabama.

The random drawing was made rom among all AACE

members who recommended a leas one new member who

joined he associaton during he hird quarer o 2011.

Members rom 36 US saes, 7 Canadian provinces, and 32

oher counries were eligible in his firs drawing.

Theres stll tme o ener he cones, which will con-

tnue hroughou 2011 wih one more drawing or a $250 gif

card rom Lands End. The cones will culminae wih a grand

prize being awarded a he end o he year. The grand prize

is a rip o he 2012 Annual Meetng in San Anonio, Texas

(including airare, hoel, meetng regisraton, and meals). I

will be awarded o one individual who recommended a leas

one new member during 2011.

Join your colleagues in recruitng newmembers o AACE Inernatonal, and

you, oo, may be a winner!

For more informaton on he Member-Ge-A-Member Program go o

www.aacei.org/mbr/ge-a member.shml

CONGRATULATIONS TOTHOMAS MAC SUMRALL

THE AACE INTERNATIONAL THIRDQUARTER MEMBER-GET-A-MEMBER

CAMPAIGN WINNER

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Developing a pracical esimae o

a large consrucion projec is a

dauning ask or even he mosexperienced esimaors in he

consrucion indusry; his is

compounded by he ac ha odays

esimaors are required o ake ino

accoun a muliude o nonradiional

acors when developing esimaes.

D eveloping a pracical esimae o alarge consrucion projec is a dauning

ask or even he mos experienced

esimaors in he consrucion indusry;

his is compounded by he ac ha

odays esimaors are required o ake

ino accoun a muliude o

nonradiional acors when developing

esimaes.

One o hese acors ha can

inensiy his ask even urher is he

eec inlaion has on maerials, labor,

and equipmen renals [11]. In addiion

o inlaion, a job ha is locaed ouside

o he US mus ake ino accoun currency

lucuaions which are oen unsable

because inlaion is no seady in a global

economy [17].

Inlaion is deined as he generalchange in prices caused by debasemen

o he value o currency [7] and ends o

lucuae erraically making i diicul o

predic or any period o ime. Even

hough inlaion has been eviden

hroughou hisory, he consrucion

indusry believes he eecs o inlaion in

he curren economic climae, as many

common consrucion maerials have

oupaced inlaion many imes over [13].

Esimaors mus keep hemselves

inormed on curren pricing inormaion

by saying in conac wih suppliers and

subconracors and appropriaely

adjusing allowances or inlaion [11].

As echnology becomes a larger

acor in he consrucion indusry more

companies are reaching arher across

he globe or projecs which open up an

enirely new se o logisical challenges

involved wih procuring maerials and

equipmen. Currency lucuaions have

long been recognized as an imporan

acor in projecs involving he global

economy [17].

Many esimaors are capable o

pricing consrucion projecs based on

previous experiences, provided ha he

work is similar in naure, size, and

demographics. However, he esimaor

mus ake ino consideraion acors such

as he currency exchange rae i heprojec is locaed ouside o he US, and

he diering rae o inlaion i such a

change has occurred.

In some cases, a lucuaion in he

exchange rae beween he US dollar and

an inernaional currency may occur

during he negoiaion phase leading o a

dierence in he esimae [17]. This

lucuaion may or may no be

emporary; here is no way o deiniely

ell.

The esimaor may no be able o

predic a change in currency lucuaion

or inlaion, increasing he projecs risk

and in mos cases a percenage o money

is added o he budge o ose hese

poenial coss [11].

Owners in odays economic climae

are more cauious wih unding han in

recen years. Inlaionary pressures and

increased consrucion aciviy are

causing many building projecs o come in

well over owners budges.

Incidences o building projecs

coming in over budge are no expecedo cease [18]. Under cerain

circumsances a poenial soluion o his

unquaniiable risk o he conracor is

he use o cos reimbursable conracs.

These have many advanages or boh he

owner and he conracor. One is a

reducion o he eec inlaion has on

capial cos by allowing a ee o be paid as

a percenage o incurred cos.

Cos reimbursable conracs are used

in siuaions vulnerable o rapid change

o allow or lexibiliy o deal wih he

diverse demands o he owners andconracors [8].

When analyzing consrucion coss,

maerials have a huge eec on he

overall cos o he projec. This is rue

regardless o he ype o conrac being

used. Wih he consrucion boom in

China creaing a worldwide demand or

maerials, prices are even more volaile.

This has pushed owners and conracors

o look or more eicien ways o

obaining maerials [13].

Currency Flucuaion andInlaion Impac onInernaional Mega Projecs:

A Mexican Case SudyDr. Carla Lopez del Puero, CCC

Absrac: This aricle: examines he challenges o accuraely esimaing consrucion coss or in-ernaional projecs. A case sudy is used o illusrae he challenges ha con-srucion projecs in Mexico aced wih he 2009 devaluaion o Mexican currency. Presens a hypoheical example and a case sudy o he Durango-Mazalanhighway. The projec consiss o 143 miles o highway, 115 bridges and 63 un-nels. Finds ha he consrucion coss o highway Durango-Mazalan in Mexico in-creased by 20 percen because o cos increases ied o he peso-dollar pariy. Analyzes he impac o he projec and discusses sraegies ha cos engi-

neers can use o minimize he risk o economic loss in inernaional consrucionprojecs resuling rom poliical and economic insabiliy.

The sudy concludes ha using cos reimbursable conracs, ranserring herisk o cos uncerainy o he owner, mainaining conac wih local subconrac-ors and suppliers and mainaining inernaional projec daabases minimize herisk resuling rom currency lucuaions on inernaional mega-projecs. This ar-icle was irs presened a he 2011 Annual Meeing as CSC-558.

Key Words: Consrucion coss, devaluaion, esimaion, inlaion, inernaional

and risk

TECHNICAL ARTICLE

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14/40

Procuremen o boh maerials and

equipmen in he global economy

increases exposure o naural disasers

and ranspor incidens. Conracors ace

hese challenges when rying o secure

maerials wihou having o pay an

excessive price, as a resul o inlaion

and currency lucuaions [17].

Inlaion is no uncommon andpeople have come o expec i as a ac o

lie [13]. I is sill diicul o predic, and

one ool esimaors may use o help

miigae he risk is he creaion o a cos

daabase. I is especially imporan or

cos daabases o be updaed regularly in

order o be eecive agains poenial

inlaion and currency lucuaions when

esimaing he cos o inernaional

projecs ouside your own counry [6].

When developing and mainaining a

cos daabase, he projec should be

analyzed in regards o is size, year beingbuil, inlaion rae, local marke

condiion, complexiy, procuremen

mehod, and sie condiions. This is in

order o obain an applicable and up-o-

dae inlaion index, and curren

exchange raes or inernaional

currencies [1].

Some counries reac o inlaion by

devaluaing heir currency, making heir

expored maerials cheaper and

hereore more aracive or oher

markes o purchase in large quaniies.

This may emporarily boos he counrysgrowh, bu in acualiydevaluaion

aggravaes inlaion and causes he

currency rae o be even more erraic

[16]. The main goal is ypically o boos

a counrys economy, no damage

ohers buying power, bu devaluaion

creaes more harmul eecs han good

oucomes [5].

When i comes o developing an

esimae or an owner, projec

esimaors have no conrol over

inlaion, or over he ac ha building

consrucion is a risk o much higher

maerial cos increases han he general

rae o inlaion [13]. In a perec global

economy, money would no be

suscepible o inlaion or delaion and

every counry would have equal buying

power [10]. All consrucion projecs are

suscepible o he eecs o inlaion and

esimaing he cos o inernaional

projecs is even more complex as i

involves working in inernaional

currencies [6].

The eecs o inlaion and currency

lucuaions are paricularly hard on

counries such as Mexico. For example,

Mexico experienced an unprecedened

devaluaion beween 2008 and 2009.

The exchange rae reached MX$15 per

dollar (see igure 1). This led o an

inlaion increase o 40 percen,

compared o he previous year [4].

Mexicos Public Works and Relaed

Services Law

In order o address cos lucuaions

in Mexico, and o eliminae speculaion

abou he coss o consrucion projecs

resuling rom inlaion and currency

lucuaions, Mexicos Public Works and

Relaed Services Law allows or coss o

be increased or reduced.

Aricle 56 o he Public Works and

Relaed Services Law saes ha coss

can be adjused aer proposals have

been submied when he work has no

been perormed according o he agreed

o schedule by boh he owner and he

conracor.

The hree possible cos adjusmens

procedures, as saed in Aricle 57,

include he ollowing.

Review o each conrac price o

obain he adjusmen.

Review per price group, which

muliplied by he corresponding

volume o works o be perormed,

represens a leas 80 percen o he

oal remaining amoun o he

conrac. And,

In he even o works where he

proporion in which he elemens

paricipaing in he oal direc cos

hereo is se ou, he corresponding

adjusmen may be deermined by

updaing he cos o he elemensparicipaing in such proporion. (p.

37) [9].

As saed in aricle 58, work ha has

been delayed, according o he schedule

submied as par o he bid documens,

can only be cos adjused i he delay was

no aribuable o he conracor.

I he delay was aribued o he

conracor, only he porion o he work

ha would have no been perormed

according o he original schedule can be

adjused.

The Bank o Mexico publishes on a

bi-weekly basis cos adjusmens or

many iems, including maerials ypically

used in consrucion processes. I a

maerial is no included in his price lis,

he conracor shall calculae he price

adjusmen based on he guidelines and

mehods issued by Bank o Mexico. For

cos revision and adjusmen purposes,

he original dae o he prices shall be


Figure 1Mexican Peso-US Dollar Exchange Raes

Beween Augus 2008 and Augus 2009

7/22/2019 ce11-12


he dae o presenaion and opening o

proposals [9].

A hypoheical example will be used

o illusrae he eec o Mexicos Public

Works and Relaed Services Law. The

example will look a wo opposing

siuaions. Firs, when he Mexican peso

is sronger han when he conrac was

awarded during he consrucion phase

and secondly, when he Mexican peso is

weaker han when he conrac was

awarded han during he consrucion

phase.

Hypoheical Illusraive Example

In order o illusrae he impac o

he dollar-peso pariy lucuaions and

he Public Works and Relaed Services

Law cos adjusmen clause, consider he

ollowing hypoheical illusraive

example.

Case #1

The peso was sronger during he

consrucion period han when he

conrac was awarded.

A consrucion company bids

and is awarded a

MX$100,000,000 highway

projec in Augus 2008, he

consrucion period is wo years

and he company is expecing

o make a 10 percen proi on

he projec. I was assumed halabor was 40 percen o

consrucion cos, 40 percen o

maerial cos and 20 percen

equipmen cos.

Consider he ollowing acs in

reerence o his Case #1 example:

Consrucion equipmen used in

Mexico is oen rened in dollars;

hereore i is subjec o dollar-peso

currency lucuaions.

In Augus 2008, he exchange rae

was MX$10 per dollar, hereore

MX$20,000,000 equaled

USD$2,000,000, which was wha

was budgeed in he original

esimae.

In Augus 2009, which was he

midpoin o consrucion,

USD$2,000,000 equaled

MX$25,074,000 (using an exchange

rae o MX$12.87). This increased

he oal consrucion cos rom

MX$100,000,000 o

MX$105,074,000, which is a 5.5

percen cos growh.

In his case, he conracor had o

ake a $5,074,000 loss.

Using he same example, les add o

he conrac wording esablishing ha

he cos will be adjused ollowing he

indices published by Bank o Mexico, as

allowed in aricle 56 o he o he Public

Works and Relaed Services Law.

Including his adjusmen provision

would have he ollowing impacs on he

Case #1 example:

During his ime period, Bank o

Mexico adjused he index o

equipmen renal rom 113.4 o

129.36, which is a 14.07 percen

increase. In his case he public owner

adjused he conracors bid rom

MX$20,000,000 o MX$28,000,000.

Because o equipmen renal cos

increases, he oal budge

increased rom MX$100,000,000 o

MX$108,000,000.

In his case, he public owner is

responsible or he MX$8,000,000

cos growh.

Now, les use basically he same

example, bu during a ime period whenhe Mexican peso was sronger during

he consrucion period han when he

projec was awarded.

Case #2

The peso was sronger when he

conrac was awarded han during he

consrucion period. Consider he

ollowing acs in reerence o his Case

#2 example:

In Augus 2009 he exchange rae

was MX$12.87 per dollar, hereore

MX$20,000,000 equaled

USD$1,554,002, which was wha

was budgeed in he original

esimae.

In Augus 2010, which was he

midpoin o consrucion,

USD$1,554,002 equaled

MX$19,471,645 (using an exchange

rae o MX$12.53). This decreased

he oal consrucion cos rom

MX$100,000,000 o

MX$99,471,645, which is a -0.5

percen cos growh.

In his case he conracor had

$528,355 exra proi.

Using he same example, excep

esablishing in he conrac ha he cos

will be adjused ollowing he indices

published by Bank o Mexico, as allowed

in aricle 56 o he o he Public Works

and Relaed Services Law. Then he

impac would be as ollows:

During his ime period, Bank o

Mexico adjused he index o

equipmen renal rom 129.36 o

126.78, which is a 2 percen

decrease. The public owner

adjused he conracors bid rom

MX$20,000,000 o MX$19,601,113.

In his case, he public owner savedMX$398,887.

As saed earlier in his aricle, and

as shown in he example, Mexicos Public

Works and Relaed Services Law allows

conrac amouns o be increased or

reduced according o he indexes

published by Bank o Mexico.

Governmen Pays LessWhen he

Mexican peso is sronger agains he

dollar during he consrucion

period han when he conrac wasawarded, he conrac is reduced

and he governmen pays less han

wha i originally agreed o pay in

he conrac.

Governmen Pays MOREWhen

he Mexican peso is sronger agains

he dollar when he conrac was

awarded han during he

consrucion period, he

governmen pays more han wha i

agreed o in he conrac.

Having walked he reader hrough

hese hypoheical examples, we now

presen he highway Durango-Mazalan

case sudy. This highway was being buil

during he 2009 Mexican peso

devaluaion; hereore he Mexican peso

was weaker during he consrucion

phase han when he conrac was

awarded.

Case Sudy: Highway Durango-Mazalan

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The Highway Durango-Mazalan

projec was he larges consrucion

projec le o dae in Mexico. I was

designaed by Mexicos presiden as he

projec o commemorae he

bicenennial anniversary o Mexicos

independence.

This mega projec was designed and

i is being buil o highligh Mexicos

capabiliy o designing and buildingsae-o-he-ar ransporaion projecs.

The planning and procuremen phase or

Highway Durango-Mazalan sared in

2000 when he governmen decided o

make a naional prioriy o modernize

Mexicos highway inrasrucure,

generae employmen, and encourage

developmen.

The only exising ravel roue

beween he ciy o Durango and he

por o Mazalan was a narrow highway

buil in 1960. The old highway consisedo 340 kilomeers (211 miles) and i akes

approximaely six hours o ravel

beween Durango and Mazalan. The

new highway cus hrough he mounain

range reducing he ravel disance o 267

kilomeers (166 miles) wih a prediced

ravel ime o less han hree hours [12].

During he early planning sages o

he projec, he Mexican Minisry o

Communicaions and Transporaion

(Secrearia de Comunicaciones y

Transpores in Spanish or SCT)

acknowledged he need o righ-o-way

hrough ejidos.

Ejidos are communal armland

which was expropriaed in he 1920s by

he governmen rom large propery

owners and corporaions and given o

communiy members o work he land.

This land could no be sold unil 1992,

when a legislaion change lied his ban[15].

Expropriaion o ejidos or some

public projecs has resuled in clashes

beween he governmen and

communiy members causing signiican

delays and someimes even

cancellaions o he projecs. Wih hese

in mind, SCT sared buying righ-o-ways

in 2002, six years beore consrucion

sared.

Highway Durango-Mazalan

required complex echnical soluions omee he ransporaion inrasrucure

requiremens o is physical locaion. The

highway will cross he Sierra Madre

Occidenal mounain range. The highway

connecing Durango and Mazalan in

Mexico consiss o 143 miles o highway,

115 bridges, and 63 unnels.

The projec includes he

consrucion o he Bicenennial Basion

Bridge across he Baluare River canyon.

This is a cable sayed bridge, reerred o

as he Puene Baluare, which has a oal

lengh o 1,124 m (3,688 ) wih a cener

span o 520 m (1,706 ) a a heigh o

390 m (1,280 ). In addiion o he

Basion Bridge, he projec includes

seven bridges wih heighs greaer han

90 m (300 ) [14].

Since Highway Durango-Mazalan is

in a remoe locaion, maerial and

equipmen access is challenging. RubioRodriguez, projec direcor or Highway

Durango- Mazalan, employed by SCT,

saed ha in he sae o Sinaloa he

conracor had o build 160 kilomeers

(99 miles) o access roads o be able o

build 45 km (28 miles) o highway. [A.

Rubio Rodriguez, personal

communicaion, Sepember 13, 2010].

SCT is also paying paricular

aenion o public oureach. Highway

Durango-Mazalan is in he news oen

and was branded as he projec ocommemorae he bicenennial

anniversary o Mexicos independence

rom Spain. The Bicenennial Basion

Bridge receives paricular aenion

because o is large span and echnical

complexiy.

Conrac Type and Cos Adjusmens

Highway Durango Mazalan was a

design-bid-build lump-sum conrac.

However, as saed earlier in his aricle,


Table 1 Consrucion Conracs for Highway Durango-Mazalan [14]

7/22/2019 ce11-12


Mexicos Public Works and Relaed

Services Law allows adjusmen o he

coss ha make up he uni prices in he

conrac, based on he index published

by he Bank o Mexico.

SCT decided o adop his approach

o eliminae speculaion abou he cos

o he projec because o inlaion and

currency lucuaions. This conrac ype

makes SCT a risk or cos lucuaions.

The projec was also unded by he

naional und or inrasrucure (Fondo

Nacional de Inraesrucura or Fonadin)

and he Trus Durango-Mazalan

(Fideicomiso Durango-Mazalan or

Fiduma) [14].

As shown in able 1, he

consrucion phase was divided ino our

conracs o minimize he risk o a

company deauling and o allow several

companies o paricipae in he

consrucion phase. The reques orproposals sipulaed ha no company

could be awarded more han one

projec. SCT awarded each conrac o

he lowes bidder who me he crieria

saed in he RFP.

Highway Durango- Mazalan was

being buil in 2008, when he Mexican

peso was devaluaed. This change in he

peso-dollar pariy caused he indices

published by Bank o Mexico o increase,

which resuled in a cos increase rom

$15 billion pesos o $18 billion pesos [3].

Since he public owner was a risk orcos lucuaions, i had o pay 20

percen more o he conracors.

Even hough inernaional consrucion

projecs may be riskier han naional and

local projecs, oen he rewards o doing

business in inernaional markes make

hese projecs aracive o consrucion

companies.

Inernaional consrucion projecs

allow companies o smooh business

cycles when he economy is slow in he

naional marke and grow heir boomline.

In he case o he highway Durango-

Mazalan, he public owner was a risk

or cos lucuaions which eliminaed

speculaion abou he cos o

consrucion projecs because o

inlaion and currency lucuaions. This

allowed he conracors o bid he

projec wihou escalaing heir coss or

adding a coningency or unpredicable

currency lucuaions.

As shown in his aricle, esimaing

he cos o inernaional consrucion

projecs adds anoher layer o

complexiy or cos esimaors. In

addiion o aking ino accoun he

radiional acors, esimaors mus also

ake ino accoun oher acors such as

currency lucuaions and increased risk

or maerial being damaged during

ransporaion. In order o reduce he

economic risk or consrucion

companies doing business in

inernaional counries, cos esimaors

may consider he ollowing

recommendaions:

Consider using cos reimbursable

conracs. This ype o conrac

minimizes he risk o conracors

resuling rom inlaion andcurrency lucuaions. Typically, he

conracor ee is a percenage o he

consrucion cos.

Invesigae wheher he counry

allows clauses similar o Mexicos

Public Works and Relaed Services

Law ha allows conracs o be

increased or reduced, based on an

index.

Mainain conac wih local

subconracors and suppliers ha

can provide curren pricing

inormaion. And, Develop and mainain an

inernaional projec daabase ha

includes inormaion abou he

projec including, locaion, size, year

buil, inlaion rae, currency rae,

local marke condiions, ec.

REFERENCES1. Assiskumar, S., Hisorical

Consrucion Cos Daabase and IsApplicaion, AACE InernaionalTransacions, AACE Inernaional,

Morganown, WV, 2008.

2. Banco de Mxico, ndices de Preciosal Consumidor y UDIS: Acualizacinde cosos de las obras pblicas,reerenced on December 6, 2010,

rom:

hp://www.banxico.org.mx/polmo

neinlacion/esadisicas/indicesPrec

ios/CosObrasPub.hml.

3. El Economisa, Consruccin deauopisa Durango-Mazaln se

encarece, 2010, reerenced onSepember 6, 2010, rom:

hp://eleconomisa.com.mx/indus

rias/2010/03/01/consruccion-

auopisa-durango-mazalan-se-

encarece.

4. Explorando Mexico (n.d.),

reerenced on Sepember 6, 2010,

r o m :

www.explorandomexico.com/abou

-mexico/6/264/

5. Gandel, S., A Currency Race o heBoom, Academic Search Premier,January 17, 2001.

6. Hewi, P.M., Developmen o anInernaional Cos Daabase, AACEInernaional Transacions, AACE

Inernaional, Morganown, WV,

2001.

7. Hollmann, J.K., and L.R. Dyser,

Escalaion Esimaion: Working

Wih Economics Consulans, AACEInernaional Transacions, AACEInernaional, Morganown, WV,

2007.

8. Nkuah, M.Y., Progress andPerormance Conrol o a CosReimbursable ConsrucionConrac, Cos Engineering, AACEInernaional, Morganown, WV,

pages 13-18, May 2006.

9. Public Works and Relaed ServicesLaw, 2009, reerenced onSepember 6, 2010 a:

hp://www.dipuados.gob.mx/LeyesBiblio/pd/56.pd

10. Rahn, R.W., A Consan Uni oAccoun, Cao Journal , pages 521-533, Fall 2010.

11. Rajpay, S.J., The Role o heEsimaor in Today's ConsrucionIndusry, AACE InernaionalTransacions, AACE Inernaional,

Morganown, WV, 2008.

12. Revisa Consulora, PueneBaluare: Un Gran Reo para laIngeniera Mexicana, 2010,

reerenced on Sepember 5, 2010, r o m :

hp://www.revisaconsuloria.com.

mx/ariculos/puene-baluare.hml.

13. Rowse, B., Consrucion MaerialCoss: Recen Years and Beyond,Cos Engineering, AACE

Inernaional, Morganown, WV,

January 2009.

14. Secreara de Comunicaciones y

Transpores, Auopisa Durango-

7/22/2019 ce11-12

18/40

Mazaln, 2008, reerenced onSepember 6, 2010, rom:

hp://www.sc.gob.mx/uploads/m

edia/080722_Conerencia_de_pren

sa_-_Durango-Mazalan.pd.

15. Secreara de la Reorma Agraria,

Reorma consiucional de 1992: La

cmara de dipuados, 2009,

reerenced on Sepember 6, 2010,

rom:

hp://www.sra.gob.mx/sraweb/con

oce-la-sra/hisoria/la-camara-de-

dipuados/.

16. Seymour, R., Currency Wars, The

Middle Eas, pages 44-45, January

2011.

17. Thompson, D.M., Plan Local, BuyGlobal, AACE Transacions, AACEInernaional, Morganown, WV,

1996.

18. Waddle, T. W., The Conracor's Role

in Building Cos Reducion AerDesign (Bringing a Projec InoBudge), Cos Engineering, AACEInernaional, Morganown, WV,

pages 14-21, February 2008.

ABOUT THE AUTHORDr. Carla Lopez del Puero, CCC, is

wih he Colorado Sae Universiy. She

can be conaced by sending e-mail o:

[email protected]


Expertise. Technology. Results.

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I is a generally acceped principle in

consrucion ha only delays criical

o projec compleion can be

considered compensable, or liable, rom

he owner. Non-criical delays simply

absorb projec loa, and do no allow

recovery o delay (ime-relaed)

damages. As such, a subconracor ha is

exended on a projec because o a non-

criical delay, may no be able o recover

or he coss o is superinenden, oice

sa, railers, and someimes equipmen.

Anoher concern or subconracors

is ha GCs oen insis on conrac

language ha delay coss are only

reimbursable i liabiliy exiss and delay

coss are acually recovered rom he

owner. The inclusion o such language

can shi he risks o delay on

consrucion projecs o subconracors

he pary ha may have he leas

amoun o conrol over he progress oconsrucion. Bu ha doesn mean he

subconracor does no acually incur

delay-relaed coss, including when he

subconracor incurs delays o is work

ha is no on he projecs criical pah.

A common example o his ype o

delay is when a drywall subconracor

who is delayed on a paricular loor

because o an owner change in he

rough-in elecric, bu he projec

schedule shows he drywall aciviies

have suicien loa remaining o absorb

he delay. The overall projec compleion

dae is no exended, bu he drywall

conracor is orced o be on he projec

longer han anicipaed. In his siuaion,

he quesion becomes: Is he

subconracor eniled o recover or he

exra coss i has incurred because o

hese delays?

To address such quesions and

aciliae he discussion, his aricle is

organized ino he ollowing secions:

Pass-hrough claims: The conracual

relaionship beween a

subconracor and an owner.

Recovering delay damages hrough

he Miller Ac.

Combaing he no damage or delay

clause. And,

Overall sraegies or proving a

subconracors delay claim.

The recommendaions in his aricle

are echnical scheduling suggesions

based on he auhors experience wih

consrucion delay and disrupion cases.

We recommend ha paries ha may be

involved wih hese issues seek guidance

relaed o any poenial legal implicaions

rom a knowledgeable consrucion

aorney.

Pass-Through Claims: The Conracual

Relaionship Beween a Subconracor

and an Owner

In general, a subconracor does no

have sanding o bring a sui agains he

owner or damages caused by he owner

because o a lack o priviy o conrac.

See Erickson Air Crane Co. o Wash. v.

Unied Saes, 731 F.2d 810, 813(Fed.Cir.1984).

However, under cerain

circumsances, subconracors are able o

recover damages caused by he owner

hrough he use o pass-hrough claims.

A pass-hrough claim is a claim:

by a subconracor who has incurred

damages resuling rom he acions

o he owner/governmen wih

whom i has no conrac; and

submied by he GC who has a

conracual relaionship wih boh

he subconracor and he

owner/governmen.

See: Inersae Conracing Corp. v.

Ciy o Dallas, 135 S. W.3d 605, 610 (Tex.

2004).

As such, he claim rom he

subconracor passes-hrough he

prime conracor o he

owner/governmen.

In order o submi a pass-hroughclaim o he owner, he general

conracor mus, sponsor and ceriy he

subconracors claim and bring he

acion in is own name [6]. This

ceriicaion, mus be submied wih

he prime conracors belie ha here is

good ground or he claim, which is

dieren rom he prime conracors

belie ha he claim is cerain [6]. In

addiion, a conracor is limied o passing

hrough only hose suis or which i is

liable o he subconracor. See Severin v.

Unied Saes, 99 C. Cl. 435 (1943).

The Severin Docrine

Wih respec o conracs wih he US

ederal governmen, he Severin docrine,

developed rom he case o Severin v.

Unied Saes, 99 C. Cl. 435 (1943),

places limis on he governmens

exposure o pass-hrough claims.

In he Severin case, he cour held a

subconracor could no recover agains

he governmen in a represenaive

Can a Conracor Have aCriical Pah Delay When heGeneral Conracor Does No?

Chrisopher W. Carson, PSP; Mark Boe, PE;and Shannon L. Campbell, PSP

Absrac: To prove enilemen o delay damages, i has been reasonably esab-lished (by bes pracices, as well as case law) ha a conracor mus show a criicalpah delay o projec compleion. Bu, wha happens when an owner-impac ex-ends he ime a subconracor mus remain on he job, bu doesn exend heprojec compleion dae? Shouldn he owner be liable or any damages o hesubconracor? I no he owner, wouldn he GC have some risk? Wha ype oanalysis would be required o prove enilemen o hese subconracor delays?Does curren case law have any answers? This aricle will discuss he issues, ex-amine exising case law, esablish how expers analyze and prove subconracordelays, and provide an example o an analysis or his condiion. This aricle wasirs presened a he 2011 Annual Meeing as CDR-635.

Key Words: Claims, conracs, conracors, criical pah delay, damages, and sub-

conracors

TECHNICAL ARTICLE

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lawsui i he prime conracor was no

also liable o he subconracor on he

same claim. See Severin, 99 C.Cl. a 443.

Thus, under he Severin docrine, a

prime conracor may sue he

governmen on behal o is

subconracor, in he naure o a pass-

hrough sui, or coss incurred by he

subconracor [because o he

governmens conduc] . . . [i] he prime

conracor proves is liabiliy o he

subconracor or he damages susained

by he laer . . . a showing [which]

overcomes he objecion o he lack o

priviy beween he governmen and he

subconracor. See Harper/Neilsen-

Dillingham, Builders, Inc. v. Unied

Saes, 81 Fed. Cl. 667, 674-6-75 (2008);

see also E.R. Michell Consr. Co. v.

Danzig, 175 F.3d 1369, 1370 (Fed. Cir.

1999).

The burden o proo under hisdocrine has shied o he owner o

prove ha he prime conracor is no

liable o he subconracor or he

respecive claims. See Erickson Air Crane

Co. o Wash. v. Unied Saes, 731 F.2d

810 (Fed.Cir.1984); Bloun Bros. Consr.

Co. v. Unied Saes, 171 C.Cl. 478, 346

F.2d 962, 964-65 (1965).

Liquidaing Agreemens

Through he years, he Severin

docrine has been reined o narrow he

severe consequences o is sricapplicaion.

One example o his narrowing is

ha he Severin docrine requires a

complee release or conrac provision

immunizing he prime conracor rom

any liabiliy o he subconracor. See

E.R. Michell Consr. Co. v. Danzig, 175

F.3d a 1370 (Fed. Cir. 1999).

Thus, he Severin docrine does no

bar a sui agains he governmen i he

GC and he subconracor ener ino a

well craed liquidaing agreemen.

The concep surrounding aliquidaing agreemen is ha he

subconracor releases he GC rom

liabiliy, and in exchange, he GC agrees

o pursue he claims agains he owner

on behal o he subconracor.

A liquidaing agreemen has wo

seemingly opposie purposesirs, o

saisy he Severin docrine requiremen

ha he GC is echnically and legally

liable o he subconracor or he claim

being passed hrough; second, o limi

he risk o he GC in he even ha he

pass-hrough claim is no successul.

One New York Supreme Cour

sipulaed wha was required in a

liquidaing agreemen:

he prime conracor acknowledges

liabiliy o he subconracor or

increased coss;

he prime and sub agree o

liquidae ha liabiliy o he

amoun he prime is able o recover

rom he projec owner; and,

he prime agrees o pursue he subs

claim and pass hrough he

recovery, i any, o he sub.

See, e.g., Bovis Lend Lease LMB Inc.

v. GCT Venure, Inc., 285 A.D.2d 68, 728

N.Y.S.2d 25, 27 (N.Y.App.Div.2001).

In enering hese agreemens i is

imporan or a subconracor o make

cerain ha i has some auhoriy or

inluence over he owner/GCs abiliy o

sele claims. Wihou his auhoriy, he

owner/GC may sele claims wihou

regard o he ineres o he

subconracor.

The ollowing are examples o how

pass-hrough claims are handled in he

US ederal cours:

E.R. Michell Consr. Co. v. Danzig, 175F.3d 1369, 1370 (Fed. Cir. 1999)

In his case, he US Federal Circui

ound he governmen liable or

unabsorbed home oice overhead coss

o a subconracor whose work was

delayed by he owner, even hough he

prime conracor was no delayed in he

compleion o he overall projec.

The subconracor, Clonz-Garrison

Mechanical Conracors, Inc., (CG), was

delayed 60 days by owner-caused poor

plans and speciicaions. CG submied a

pass-hrough claim o E.R. MichellConsrucion Co., (Michell), who

brough a sui agains he governmen

on behal o CG.

The cour ound ha:

There was no dispue regarding he

governmens liabiliy or he auly

plans and speciicaions or he

number o days ha he

subconracor was delayed.

The governmen had approved he

schedule which sipulaed he

imerame in which CG was

supposed o work.

The governmen was pu on noice

ha he delay was increasing he

coss o boh Michell and CG.

The subconracor saisied all o he

requiremens or enilemen o

Eichleay damages. And,

i should be clear ha our

decision on he legal issue in his

case is dependen on he operaive

acs o his case, which include he

awareness and approval by he

governmen o CGs duy o have

compleed is work by a dae

cerain.

While his case clearly shows an

example o case law where he owner is

responsible or delay damages resulingrom owner issues ha were no on he

criical pah, he case has limied

applicaion because he governmen

ailed o raise he Severin docrine as a

deense in he case. Thus, he appeals

cour did no allow i o hen raise his

deense on appeal. Had he governmen

raised his deense a rial, he

governmen may have been able o

prove ha he conracor was no liable

o he subconracor or hese delay

coss. Assuming ha he governmen

succeeded in his asserion, he oucomeo his case may very well have been

dieren.

J.L. Simmons v. Unied Saes, 304 F.2d

886 (C. Cl. 1962)

In J.L. Simmons v. Unied Saes, he

cour deined he basic requiremens o

a liquidaing agreemen. The cour held

ha where a prime conracor agreed o

reimburse is subconracor or damages

suered a he hands o he governmen,

bu only as and when he prime received

paymen or he subconracor rom hegovernmen, he prime may mainain is

acion agains he US on behal o he

subconracor.

The cour urher held, under he

speciic acs o ha case, ha a waiver

o lien and release did no negae an

acion by he prime conracor on behal

o is subconracors where he

subconracs did no expressly negae

he primes liabiliy, even hough he


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waivers provided ha i he prime was

unsuccessul in prosecuing he

subconracor claims he prime's liabiliy

would be exinguished.

In US sae cours, he exen o

which a conracor mus admi liabiliy o

a subconracor beore sponsoring a

claim varies. As saed elsewhere in his

aricle, a subconracors success is

wholly dependen on he circumsances

o he subconracors case and he

jurisdicion in which he case will be

heard.

There are wo basic argumens

which avor he sponsorship o

subconracor pass-hrough claims.

Firs, i aciliaes he selemen o

claims among he owner, prime and

subconracors, by bringing all he

paries ogeher in he same orum o

resolve dispues. Second, i allows he

conracor o avoid he wo-sep processo liigaing wih he subconracor and

hen urning o he owner o reclaim

hese damages [11].

Recovering Delay Damages Through he

Miller Ac

Mos people in he consrucion

business are amiliar wih he inen o

he Miller Ac, 40 U.S.C. 3133. On non-

ederal projecs, irs and second ier

subconracors can ypically add a lien o

a projec o secure paymen or labor

and maerials which were provided orha projec.

Because mechanics liens are no

allowed on US ederal projecs, he

Miller Ac was passed requiring a GC o

secure paymen bonds as a means or a

subconracor o receive paymen or

labor and maerials urnished [5]. A

discussion on paymen bonds is relevan

o his aricle based on he success

subconracors have had in recovering

delay damages hrough he use o he

paymen bond.

The general rend wih regard o

recovering delay damages on a Miller Ac

paymen bond is ha hey are

recoverable especially i hey are

characerized as increased labor and

maerial coss [3]. The ac ha he

delay may be he owners aul and no

he prime conracors is no relevan [3].

There are some general policy

consideraions ha have suppored a

broader inerpreaion o he Miller Ac

wih regard o delay damages.

The ollowing raionale would allow

or ypical delay coss o be recovered by

he Miller Ac:

The cos o labor and maerial

on a consrucion projec

includes supervision, job sie

oice, and oher overhead

coss, which are recoverable

agains a Miller Ac bond as par

o conrac coss. Increased or

exended overhead coss are

ypically recoverable on a Miller

Ac bond and should sill be

recoverable when increased by

delays [3].

In one case, a cour awarded delay

damages because o acive inererence

o he prime conracor despie heexisence o a No Damage or Delay

clause [4] (discussed more ully below).

Anoher cour deermined ha wihou

he abiliy o recover delay damages

hrough he paymen bond, he

subconracors opions or recovery o

said damages would oherwise be

inadequae [4].

On non-ederal cases, sae cours

have had diering opinions wih regard

o wha exen, i any, a subconracor

can recover delay damages on a

paymen bond [3]. Some saes haveenaced lile Miller Ac saues,

which allow heir sae cours o

inerpre he sae saues based on he

US ederal ac. As previously menioned,

i is wholly dependen on he

circumsances o he subconracors

claim.

There are cerain issues which a

subconracor mus be aware o wih

respec o paymen bonds i i plans on

claiming agains a GCs paymen bond o

recover delay damages:

I is he subconracors

responsibiliy o be aware o

wheher or no a paymen bond is

required or a projec which i is

considering working on. For

insance, a paymen bond is no

required under he Miller Ac or

projecs awarded under $100,000

[4].

I required by he conrac, i is

equally imporan ha a

subconracor ollow up and ensure

ha he paymen bond is aained

by he prime conracor despie he

ac ha aainmen o a bond may

be required by he conrac.

In Greenville Independen

School Disric v. B&J Excavaing,

Inc., he subconracors and

suppliers were unable o recover

damages on a public job because o

a ailure by he prime conracor o

obain a paymen bond.

Cerain conrac language may

be included o require a conracor

o urnish a copy o he bond o he

subconracor (or oher beneiciary)

such as he language included in

A201-207 Secion 11.4.2 [13].

Filing sui or a Miller Ac paymen

bond mus be iniiaed wihin 12monhs o he subconracor

providing he las work on he

projec [3]. A subconracor should

be aware o any conrac language

aemping o require dispue

resoluion which would preclude i

rom iniiaing he Miller Ac

paymen bond in ime.

The amoun o liabiliy ha a surey

has under he paymen bond is

limied o he penal sum se orh on

he bonds ace. Consequenly, in a

siuaion where here are mulipleclaims such ha he amoun o

claim is higher han he penal

amoun, hen he oal pool o

successul bond claimans will ake a

pro raa share o he penal sum [4].

Combaing he No Damage for Delay

Clause

The exisence o he No Damage

or Delay (NDFD) clause is o proec he

owner or GC rom paying moneary

damages when a projec is delayed.

However, he exisence o widely

acceped excepions and lack o

enorceabiliy in some saes has

muddied he waers wih respec o

he success, or lack o success, ha an

owner/GC may have wih using his

clause as a deense.

In any case, i is good business sense

or a subconracor o plan ha he

NDFD clause will be enorced. Possible

locaions in a conrac or he NDFD


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clause are he ollowing secions: Time

or Compleion; Scheduling and

Delays; and Claims.

The ypical clause may read as

ollows:

No paymen or compensaion

o any kind shall be made o he

conracor or damagesbecause o hindrance or delay

rom any cause in he progress

o he work, wheher such

hindrances or delays be

avoidable or unavoidable [12].

Since subconracors are ypically a

a negoiaing disadvanage and since

hese clauses merely shi all delay risk o

he conracor/subconracor, some

saes have deermined ha hese ypes

o clauses are void and unenorceable

(law varies rom sae o sae regardingvalidiy o his clause on boh public and

privae conracs) [12].

Even in saes where he clause is

enorceable, here are common

excepions o is enorceabiliy. The

ollowing are he our mos recognized

excepionshey involve siuaions

where he delay was:

no conemplaed by he paries;

so unreasonable in lengh as o

amoun o an abandonmen o he

projec by he owner;

caused by acs o bad aih or raudby he owner; or

caused by acive inererence by he

owner. And,

A ih excepion is also someimes

cied-delays caused by gross

negligence [12].

Someimes he NDFD clause is

incorporaed by reerence or as a low-

down provision. As wih mos legal

dispues, here is diering case law as o

wheher or no hese low-down

provisions or incorporaions by

reerence are enorceable [12].

Language providing disclaimer

clauses may occur in various places:

Insrucions o Bidders, Terms and

Condiions, or elsewhere in he conrac.

In addiion, a subconracor mus be

aware o how a NDFD clause will aec a

conracors abiliy o submi a pass-

hrough claim o he owner. I he owner

can prove ha he conracor is no

liable o pay damages o a subconracor

because o a NDFD clause, a pass-

hrough claim may no be allowed [12].

A prime conracor in New York was

able o circumven his siuaion by

enering ino a liquidaing agreemen

wih is subconracor wherein i

acceped liabiliy o he subconracoror delays caused by he owner. In his

case, he cour ruled ha he prime

conracor could sponsor a pass-hrough

claim by acceping liabiliy in he

liquidaing agreemen despie he

exisence o a NDFD clause in he

conrac beween he prime and he

subconracor [10].

In conclusion, awareness o he

erms o he conrac and rules by which

a subconracors sae is governed is

essenial o ensuring ha a

subconracor has he abiliy o pursuedamages or delays in he uure.

Overall Sraegies for Proving a

Subconracors Delay Claim

Implemenaion o sraegies or

ensuring success in proving a delay claim

sars a he very beginning o he

projec and coninues hrough o he

end. There are imporan acors o

consider a every phase o he projec.

Review and Negoiaion of he Conrac

A he beginning o he projec, asubconracor should ensure ha a

careul review o he conrac is

conduced (assised by a knowledgeable

consrucion aorney). Assume ha a

No Damage or Delay clause will be

enorced. A subconracor should

aemp o remove, or a leas lessen,

he scope o he clause such ha he

subconracor only assumes risk or

speciic causes o delay.

One represenaive clause prohibis

he recovery o delay damages unless

here is acive owner inererence as

deined by he ollowing:

Anoher clause allows a grace

period beore delay damages

are riggered. This would allow

he conracor/subconracor

he abiliy o calculae a

coningency or he delay coss

during his aoremenioned

grace period. The ollowing is a

porion o he clause

reerencing he exisence o a

grace period:

The Conracor shall be

permied an adjusmen in he

Conrac Sum i any Delays,

eiher individually or aken inhe aggregae, cause he

Conrac Time o be increased

by more han ( ) days (he

Grace Period) [2].

While no speciic o he siuaion in

quesion where a subconracor is

delayed bu he overall projec is no

delayed, cerain alernae conrac

provisions may be worh considering in

order o overall increase he likelihood o

success in seling dispues aer he ac.

These ypes o provisions includehe ollowing, bu are cerainly no

limied o hem:

include more speciic deiniions o

evens ha jusiy a ime exension;

describe he proo required o

jusiy a ime exension or

excusable and compensable delay;

or,

inser a provision on pricing o delay

claims [2].

An example o he provision orpricing delay claims is as ollows:

For each day o delay o he

criical pah caused by [inser a

descripion o he relevan

delay evens], Conracor shall

be eniled o (a) $ per day

or is general condiions or

jobsie overhead wihou any

addiional markup or proi or

overhead; and (b) is increased

coss or Subconracor Work

caused solely by he applicable

delay wih a markup o % or

proi and overhead [2].

While he clauses are generally

mean or he owner/conracor

agreemen, hey could cerainly be

changed o be applicable o he

subconracor agreemen.

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A subconracor should also review

he conrac or conlics. For example,

he conrac may sae one hing, bu an

incorporaion o a clause rom he

owners conrac o he GC may sae

somehing dieren. In addiion, i i is a

US ederal projec, be aware o wheher

or no a paymen bond will be required.

I i is, ollow up o ensure ha i isobained.

Anoher consideraion is o be

aware o he jurisdicion where he

conrac saes ha a dispue will be

seled. In one case, a projec was in

Georgia, bu he conrac saed ha any

dispues would be seled by Ohio law.

The subconracor was awarded wo

million dollars because an Ohio saue

did no enorce a No Damage or Delay

clause when i is he owner or

conracors ac or ailure o ac which

caused he delay [9].The auhors have seen cases where

he GC pu he owner on noice and

requesed ha he subconracor

paricipae in preparing documenaion

o secure is delay and disrupion coss,

bu he subconracor didn respond

unil well aer he projec was complee.

Because he GC negoiaed wih he

owner, he subconracor los he abiliy

o pursue is pass-hrough claim, and

was orced o negoiae or liigae only

wih he GC.

Timely Noice

During he projec, here are also

many issues o consider. As wih he No

Damage or Delay clause, a

subconracor should assume ha

Timely Noice clauses will be enorced.

In ac, here are muliple cases where

such clauses have been enorced.

I is especially imporan o keep a

prime inormed: A lack o inormaion

regarding a subconracors delay claim

may compromise he prime conracors

abiliy o obain a remedy rom he

projec owner [8]. I an owner is no pu

on noice regarding he delays ha have

occurred, he owner has no opporuniy

o remedy he problem, ake acion o

miigae he damages ha delay causes,

or know ha he conracor inends o

seek addiional compensaion or a ime

exension [7].

Many o hese suggesions are

imporan or any ype o claim o be

pursued wheher i is agains he prime

conracor or inended o be passed

hrough o he owner. In paricular, a

second look a Michell vs. Danzig serves

as a reminder ha an owner mus be

made aware o cerain issues a he ime

hey are occurring. Par o he success

or he subconracor in ha case is

because o he ac ha he governmenwas made aware o he delay

conemporaneously.

Waiver of Righs

During and aer a projec, a

subconracor should be aware o a

possible waiver o is righs o pursue a

claim. This could be in he orm o a

waiver as par o a paymen applicaion

or when execuing a change order

reques. A subconracor should ensure

ha here is some orm o a reservaion

included i i is conemplaing submiinga delay claim.

Good Documenaion

Good documenaion is anoher key

o ensuring ha he subconracor is

able o prove he damages i has

incurred as a resul o an owner change

or decision. Accurae record keeping in

he orm o bid documenaion, daily

repors, pay requisiions, ime and

maerials invoice slips, correspondence,

inpu o schedule updaes (preerably in

he orm o wrien correspondence),and weekly and/or monhly meeing

minues are examples o he ypes o

documens ha are needed o increase

he success in documening damages. A

subconracor should also rack

expenses by base conrac, change order

and/or dispued work.

Involvemen in he Baseline Schedule

and Subsequen Updaes

Finally, i is imporan or he

subconracor o be involved in he

developmen o he baseline and

subsequen updaes o he schedule o

be approved by he owner. In one case,

a subconracor relied on one schedule

while he prime conracor relied on a

dieren schedule. In his case, he

boards decision was avorable o he

governmen. Fru-Con Consr. Corp.,

ASBCA 53544, 02-1 BCA 31729.

From he subconracors poin

o view, his case emphasizes

one reason why a sub should

paricipae in he creaion o

he conracors CPM schedule.

The sub needs o be sure ha

adequae ime is available or

is work and, i early compleion

is conemplaed by he sub,wheher i will be prevened

rom doing so by oher

aciviies on he schedule [1].

The subconracor should provide

deailed needs o he GC or any

scheduling eors, careully ideniying

he subconracors period o

perormance, and he basis o ha

period. This includes sizes o crews,

number and makeup o workers on he

crews, and sequencing needs such as he

number o crews planned o workconcurrenly. The phasing and

sequencing o he subconracors work

is essenial; i he subconracors work

requires sockpiling o maerials, hen

changes in he sequencing required by

he projec will likely cos he

subconracor addiional labor and ime

o re-sockpile maerials. Shiing rom

an orderly low o work o an irregular

schedule will decrease he

subconracors labor eiciency and

increase coss o he subconracor.

Mos subconracors plan or regularwage raes or heir workers, bu many

subconracs include language ha

permis he GC o orce he

subconracor o work as direced by he

GC. This includes requiremens o work

weekends and holidays, absorbing any

overime required, even i he delays are

no he aul o he subconracor.

In addiion, wih he preparaion

and publicaion o he periodic schedule

updaes, i is no unusual or he GCs

scheduler, as direced by he projec

manager, o reduce subconracor

aciviy duraions, or o overlap he

aciviies, changing he planned

sequenial work o concurren work.

This will rapidly increase labor

requiremens, generally reduce labor

eiciency and increase coss. I is

imperaive ha he subconracor

reviews each and every schedule updae

or revision o ensure ha no changes are


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made ha will decrease produciviy or

increase risk o he subconracor.

Anoher risk ha may occur wih he

schedule updaes is movemen o he

subconracors sar dae or compleion

dae because o inererence rom oher

rades, he GC, or he owner. I his

occurs, a he earlies recogniion o he

problem, noiy he GC i he changed

dae will cause addiional coss.

Oher ways o minimize risks o he

subconracor include insising on

baseline and updae prinous ha show

oal loa values o deermine i he

subconrac work is on he projecs

criical pah, and i no, how close he

work is o criical.

An imporan quesion ha a

subconracor may ask is how o porray

he delay i is experiencing in he

schedule updaes. The irs quesion is

wheher or no he owner inererencehas added scope o he subconracors

work. In his siuaion, he answer may

be easier. A change order could be

negoiaed or he exra work which

would include an appropriae markup or

overhead and proi.

However, his markup may no cover

he cos o mobilizaion/demobilizaion

which may be required dependan on

when he exra work occurs. In his case,

an inserion o a ragne ino he

schedule may be appropriae. This

ragne migh show previous compleiono base conrac or non-dispued work

and a subsequen remobilizaion o a

work orce o complee he new work.

A more diicul siuaion would

occur i here is no change o he scope

o work o he subconracor. Perhaps

he subconracors ime o perormance

is exended on he conrac because o

issues beyond is scope o work.

In his case, he subconracor

would need o show on he schedule

how he duraion or is scope o work

has increased. The subconracor wouldalso need o be able o explain and

documen ha he increased duraion

was no merely because o is own

inabiliy o complee he work on ime.

A ragne migh be necessary o

show a soppage o work and

subsequen resar because o he owner

change. In he example used in he

inroducion regarding he delay o he

drywall subconracor, he ragne could

show he ollowing: a sar o work by

he drywall subconracor; a soppage o

work o ix he change in he rough-in

elecrical; and a subsequen resar o

work on he drywall. The eec is he

drywall subconracor is on he jobsie

longer han anicipaed.

For ha example, he abiliy o show

his sequence o evens on he

conemporaneous schedule updaes

would be very helpul in proving he

subconracors delay. However, his

ype o deail may no have been added

conemporaneously. I is hen up o he

subconracor o show he delay using

conemporaneous documenaion (in

paricular, meeing minues,

correspondence, daily repors, ec.), and

migh require some ype o orensic

schedule analysis o deermine he

acual eecs o delay or disrupion.

Loss o eiciency problems can moseasily be demonsraed hrough he use

o a measured mile ype o disrupion

analysis, which requires good

documenaion o boh he original plan

o resources, as well as he acual

consumpion o resources, on he

projec.

In sum, cerain acors are key o a

subconracors successul pursui o a

delay claim:

Conracual negoiaions prior o

he sar o work. Involvemen in, and documened

eedback or, he baseline schedule

and subsequen updaes.

Awareness o he righs and

obligaions o he subjec conrac.

And,

Timely noice and good

conemporaneous documenaion

which shows how he subconracor

was aeced by a speciic change.

These are general recommendaions

o ensure ha a subconracor has hebes chance a recouping is delay coss

because o owner changes on a projec.

As has been demonsraed, here

is no clear-cu answer as o wha

delay damages a subconracor

may be able o recover because o

owner-caused issues. The speciic se o

circumsances and he jurisdicion o he

individual case are he deermining

acors o he oucome or each

siuaion.

However, a subconracor should do

everyhing i can o increase is chances

o aaining a avorable oucome (or any

damages i is seeking). The ollowing

recommendaions should be ollowed:

Negoiae he Conrac Try o

include language ha is more

avorable o he subconracor

especially in erms o a possible No

Damage or Delay clause.

Know he Conrac Follow he

requiremens o he conrac

including giving imely noice o

presen and uure claims.

Be involved in he generaion o he

baseline schedule and give inpu or

he schedule updaes. Know how

your scope o work is included in he

schedule and undersand how i isincorporaed wih he work o oher

subconracors. And,

Mainain accurae documenaion.

Finally, as noed earlier, i is

recommended ha paries ha may be

involved wih his issue seek guidance

relaed o any poenial legal

implicaions rom a knowledgeable

consrucion aorney.

REFERENCES

1. Allen, Randall C. e al. (edior),Failure o Incorporae Schedule SinksLock and Dam Claim; GovernmenGes 84 Days Credi in Reverse DelayCase, Consrucion Claims Advisor,Apr

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