Effective Allocation of Damages for Federal Contract Claims

Losses red notebook

A comprehensive damages analysis is less about having a perfect methodology and more about making judgment calls contemporaneously about what the impact was and exactly how many dollars are associated with the impact.

October 25, 2021
Dirk D. Haire, Joseph L. Cohen & Jane Han - ConsensusDocs

Federal construction contracts law generally recognizes four basic methods for pricing damages: (1) Actual Cost Method (ACM); (2) Total Cost Method (TCM); (3) Modified Total Cost Method (MTCM); and (4) Jury Verdict Recovery Method (JVRM). In practice, it is difficult to obtain significant recoveries on TCM and JVRM claims, and only marginally easier on MTCM claims. That is because the courts and boards that hear federal government contracts cases have developed a clear preference for the ACM. Despite this preference, many contractors do not have systems in place to maximize their opportunity to recover damages under the ACM. This article introduces various strategies for tracking and allocating damages during project performance in a manner that will support an ACM analysis if a federal construction claim is litigated.

Background: Four Basic Methods for Pricing Damages

The four methods for pricing damages are described, below:

1. Actual Cost Method

The actual cost method claims damages based on records of “actual costs” that were documented during the performance of the contract. All additional costs must be separately recorded from the costs incurred in the normal course of contract performance. Because contractors provide the court or board with documented underlying expenses under the actual cost method, courts and boards prefer this method. However, the actual cost method may not always be feasible where a contractor is confronted with drastic changes early and often in a project.

Reprinted courtesy of Dirk D. Haire, Fox Rothschild LLP, Joseph L. Cohen, Fox Rothschild LLP and Jane Han, Fox Rothschild LLP

Mr. Haire may be contacted at dhaire@foxrothschild.com
Mr. Cohen may be contacted at jlcohen@foxrothschild.com


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