Rustler Construction, Inc. v. District of Columbia, a case out of the District of Columbia, provides a lesson on the importance of documenting project delays, additional work and actual cost data in real time. There, Rustler Construction, Inc., agreed with the District to reconstruct a three-quarter mile stretch of a six- lane highway in exchange for $5.2M. The project, however, was plagued with problems from the get-go.

Shortly after work began, the District, in effort to provide enough room for buses to pass through during construction, changed the as-bid plans by narrowing Rustler’s work area by nearly seven feet. Consequently, the heavy machinery Rustler planned to use for things like curb installation, paving and excavating manholes could no longer fit. Instead, the Contractor now had to perform these tasks primarily by hand, an indisputably much more costly and labor-intensive method.

Thereafter, a variety of problems arising from differing site conditions and deficient specifications caused additional work and delays. To name a few, the specifications failed to identify a high-pressure gas line in Rustler’s construction path and wrongly identified 41 manholes as “abandoned” when these were, in fact, active.

Based on the additional, unforeseen work, Rustler filed the claim with the District of Columbia Contract Appeals Board. The CAB, following a hearing, awarded Rustler only $155,000 of the more than $1.2 million it sought. The CAB rejected Rustler’s “overall delay” theory but relied upon the “jury verdict method” for calculating damages to salvage some of Rustler’s claim.

Rustler’s Appeal

On appeal from the CAB, Rustler again argued that it was entitled to the full amount claimed based on an “overall delay” theory. The appellate court flatly rejected this argument, holding that Rustler could not recover on a theory of overall delay because it failed to proffer any documentation or other evidence to show that the additional work impacted “critical path” portions of the project, a prerequisite to recovery on an overall delay theory. According to the appellate court, Rustler’s updates to the CPM schedule were infrequent and sporadic and, therefore, not reliable “critical path” evidence; and the proffered expert on this subject, Rustler’s owner, was deemed un-credible due to lack of experience in engineering and scheduling.

The District’s Cross-Appeal

The District’s cross-appeal centered on the application of the jury verdict method. The jury verdict method refers to a variety of techniques, all grounded in equitable considerations, that a court relies on to calculate damages when liability is clear but damages are not. As the appellate court noted, the CAB employed the “most common” such technique to Rustler’s claim, which is to “make its own detailed computation of the [price] adjustment, based on all of the data provided by the parties.”

The District argued that the CAB erred in relying on the jury verdict method because this method for calculating damages should not apply where the contractor fails to provide actual cost data and cost estimates in support of its claim. The appellate court rejected this argument and affirmed Rustler’s award, reasoning that “an absolute ban on the use of the jury verdict method in cases where a contractor has presented substantial evidence, but fails to present actual costs or cost estimates broken down by task, is contrary to the purpose of equitable adjustment.” In doing so, the court stressed that this was not a case where the application of the jury verdict method was based on “unrealistic assumptions” that “greatly multiplied an award beyond reason.” Nor, the court emphasized, was this a case where doubt existed as to whether the claimant suffered any damage. For the court, the clear, albeit inexact, proof of injury alleviated any such concerns.

Takeaways for Contractors and Owners

For contractors, the principal takeaway from this case is the importance of establishing a paper trail of changes and impacts. Rustler’s failure to regularly update CPM schedules and provide actual cost data may have caused it to lose upwards of $1 million. Updating CPM schedules and cost data in real time as unexpected conditions are encountered or changes occur is no small task, but such diligence is essential to optimal recovery. As this case shows, courts are reluctant to rely on the jury verdict method to calculate damages and, when they do, they do so with great restraint.

For owners facing a claim from a contractor based on differing site conditions and/or deficient specifications, this case highlights the importance of pressing the claimant-contractor to produce actual cost data, cost estimates and critical path impact evidence early in the claims process and in litigation. The contractor-claimant who struggles to produce sufficient documentation in response to such requests will have difficulty proving its damages. On the other hand, the owner who establishes that the claimant-contractor lacks cost data and critical path impact evidence can more easily leverage the case for settlement and otherwise position itself for success in arbitration or at trial.