D etermination of overhead delaydamages is often burdensomeand argumentative. Both site orfield overhead (FOH) and home officeoverhead (HOOH) damages are typicallycalculated based upon daily rates.Unfortunately, a uniform daily overheadrate method sometimes yieldsunreasonable results.

This traditional method takes no effortto link delay responsibility to the context ofdelay. This article proposes an analyticalmethod to analyze FOH damages incurredby delay and suspension. This newmethod considers the context of delay thatincludes its timing, degree of suspension,and relative importance of delayedactivities. It integrates schedule windowanalysis and activity-specific field overheadallocation to apportion delay days andFOH damages between the parties ineither an ongoing basis or after-the-factanalysis.

The method is limited to calculationand apportionment of FOH damages sincethe nature of FOH and HOOH is ratherdifferent in construction delay claims. Itwill be a fairer approach in many instances.

The Context of Delay and Site OverheadDamages

Figure 1 illustrates the as-planned andas-built schedules of a simple case. Theplanned and actual project durations aresix weeks and 10 weeks, respectively. Theproject is delayed four weeks. It is ratherstraightforward to identify that four weeksof project delays consist of the following:

one week of compensable delay atweek three;

one week of concurrent delay at weekseven;

one week of concurrent delay at weeknine; and

one week of inexcusable delay at week10.

Schedule window analysis shows thesein detail (see table 1).

The context of delays plays a vital rolein apportionment of delay responsibility.Because resource requirements, resourceloading, work intensity, and constructiontempo are different during the course ofwork, the project field overhead level mayfluctuate over time.

Different portions of the project needdifferent types of managerial effort, whichin turn have different costs [5]. Thus, theowner-caused delay on activity A at weekthree and the contractor-caused delay onactivity F at week 10 likely incur differentfield overhead damages. This implies thattiming of a delay and relative importance,rather than duration of the delayed activity,can affect delay responsibility. The currentdaily rate method seems to ignore these.

Double overhead payment may occurunder the daily rate method. Because theowner is solely responsible for the one-week delay at week three, the daily ratemethod allows the contractor to receive fullfield overhead during that week, whichequals the daily rate times the number of

working days in that week. This partiallyduplicates overhead payment.

The as-built schedule shows that thecontractor still performed Activity E atweek three. Therefore, there is a part of theweek threes field overhead alreadyabsorbed by activity E. In other words,degree of delay and suspension should beconsidered in calculating field overheaddelay damages to avoid any doublepayment problem.

Another argument concerns whetheror not concurrent delay and its damagesshould be apportioned. There isconcurrent delay (compensable andinexcusable) at week seven (see figure 1).The traditional view treats concurrentdelays similar to excusablenoncompensable delays. That is, a noharm, no foul result is the outcome ofconcurrent delays, if both the owner andthe contractor cause them [6]. Thus, thecontractor will only be allowed a timeextension and the parties would each beartheir own costs of delay.

In Freeman-Darling, Inc., the GeneralServices Board of Contract Appeal(GSBCA) stated [t]he law is well-settledthat where both parties contribute to thedelay neither can recover damages, unlessthere is clear evidence by which we canapportion the delay and the expenseattributable to each party [1].

Several courts have supported the viewthat apportionment analysis should beattempted when concurrent delay occurs,and that such apportionment should berendered by a method more analytical thanthe jury verdict method [4]. The D.C.Circuit stated, a rule precluding a partyfrom recovering damages for delay, oncethe party itself delays, would leave the partyto a contract unnecessarily vulnerable todelay by the other. We see no wisdom in,nor authority for, such a rule of preclusion.Therefore, when both parties to a contractbreach their contractual obligations bydelaying performance, a Court must assessthe losses attributable to each partys delayand apportion damages accordingly [3].This proposed method enables systematicapportionment analysis, instead of a juryverdict method, which is subjective andsometimes incorrect.

Activity-Specific Allocation of FieldOverhead

Activity-specific allocation of FOH isthe basis to quantify field overhead

30 Cost Engineering Vol. 50/No. 3 MARCH 2008

TECHNICAL ARTICLE

Analysis of Delay Damagesfor Site Overhead

ABSTRACT: The current practice that uses a uniform daily overhead rate to calculate delay dam-ages is often inaccurate and may duplicate payment of site overhead in some circumstance.This article introduces activity-specific allocation of site overhead as an analytical method forestimating its damages, which will help overcome such limitations. This new method consid-ers timing of delay, degree of suspension, and relative importance of delayed activities that arein general ignored by the daily overhead rate method. This method assigns actual or estimat-ed project site overhead costs to specific schedule activities. The premise is that in delay claimsa contractual party may only be responsible for damages of site overhead to activities for whichhe/she causes critical delays. In addition, activity-specific allocation of site overhead can applyto apportionment analysis of delay damages in concurrent delays.

KEY WORDS: Claims, delay damages, field overhead, concurrent delays, and delay analysis

Dr. William Ibbs and Long D. Nguyen

damages considering the context of delay.Overhead costs are typically calculated atthe project and/or contract level. Thisleads to the fact that calculation of fieldoverhead damages cannot consider thetiming of delay, degree of suspension, andrelative importance of schedule activities.On the contrary, our approach attempts toallocate field overhead costs to eachschedule activity based on a reasonablebasis.

Only time-related FOH is evaluatedsince it is associated with delay claims [2].Time-related overhead refers to overheadincurred through and directly connected tothe passage of time; e.g., supervision,administration, and utilities. Time-relatedcosts that are not allowed by the contract orregulations must be precluded [5].

In view of that, our analytical methodallocates time-related field overhead ontoschedule activities in direct proportion oftheir labor hours, labor costs, direct costs,or whatever cost driver is reasonable.Time-related overhead per time unit (i.e.,day, week, and month) for each scheduleactivity are calculated based on thecorresponding activity duration.

FOH damages can be calculatedbased on either original estimates or actualcost records. The allocation process issimilar, except that the activity duration forcalculating FOH per time unit is theplanned duration for estimated FOH andthe actual duration for actual FOH.

If the estimated FOH is used (i.e., incase of forward pricing or unavailability ofproject cost records), the contractors costestimate has to be reasonable and/oracceptable. In addition, the time-relatedFOH per time unit of each scheduleactivity is assumed to remain unchanged atthe extended period. This can be arealistic assumption since time-relatedFOH is the function of the passage of time.

The following example describes theapplication of this proposed method. Thisexample has the as-planned and as-builtschedules as shown in figure 1. The use ofboth estimated FOH and actual FOH isillustrated in the same example. Laborhour is selected as the cost driver.Estimated project labor hours (actualproject labor hours) are 4,420 hours (4,200hours). Estimated FOH (actual projectFOH) is $120,000 ($150,000).

Table 2 shows the activity specificallocation of field overhead. A value ofcolumn 6 (8) equal the corresponding

value of column 2 (3) multiplied by thefraction of the estimated project FOH(actual project FOH) and the plannedproject labor hours (actual project laborhours). Values of column 7 (9) are those ofcolumn 6 (8) divided by those of column 4(5) in the same rows.

A general formula for allocating time-related FOH onto schedule activities is asshown in equation 1.

Figure 2 displays levels of time-relatedFOH over the course of work. The as-planned (as-built) time-related FOH

level is obtained based on column 7 oftable 2 and the timing of the activities inthe as-planned (as-built) schedule onfigure 1. Similarly, the actual time-relatedFOH level is derived based on column 9and the timing of the activities in the as-built schedule.

It should be noted that the as-planned and as-built FOH levels can bedetermined when estimated FOH is usedfor calculating damages. In addition, wedifferentiate as-built and actual FOHlevels to indicate whether estimated or

Cost Engineering Vol. 50/No. 3 MARCH 2008 31

Figure 1 As-Planned and As-Built Schedules

Table 1 Result of Schedule Window Analysis

Table 2 Result of Schedule Window Analysis

Table 3 Result of Field Overhead Damages (in US dollars)

32 Cost Engineering Vol. 50/No. 3 MARCH 2008

actual project FOH is used. Noticeably,the fact that the FOH levels fluctuate overtime implies that FOH damages quantifiedbased on a uniform daily overhead rate areunreasonable.

Activity-specific allocation of FOH isnow employed to determine its delaydamages. In other words, FOH delaydamages are calculated at the scheduleactivity level. The authors premise in thisarticle is that in delay claims, a projectparty should only be responsible for FOHdamages to activities for which he/shecauses critical delays. That is, he/sheshould only pay for time-related FOHincurred on those activities during thedelay period.

If estimated project FOH is used,weekly activity FOH on column 7 (table 2)is the basis for compensation. Otherwise,actual weekly activity FOH on column 9(table 2) is the basis. Table 3 comparesFOH damages determined by the uniformdaily overhead rate method and theproposed method outlined in this article..The estimated and actual project FOHrates are $20,000 and $15,000, respectively(see table 2).

Recoverable damages resulting from auniform FOH rate and activity-specificallocation of field overhead can bedifferent when compensable delays occur.For example, FOH damages incurred dueto one week of the compensable delay inwindow one at weeks 1-3 (table 3).

Either estimated or actual projectFOH is used; FOH damages from theproposed method are less than those fromthe daily rate. This is because the degree ofdelay and suspension is ignored in the dailyrate method. By allocating FOH ontoschedule activities, the proposed method isable to consider degree of delay andsuspension and, as a result, avoidduplicating field overhead payment by theowner.

The proposed method enablesapportionment analysis of concurrentdelays. As previously discussed, the trend isthat damages incurred by concurrentdelays should be apportioned. The current

method based on a daily overhead ratecannot divide these damages. In contrast,delay damages are now evaluated at theactivity level. That is, the new methodensures that a party may only have to payFOH incurred on activities that arecritically delayed by him/her. Therefore,apportionment of delay damages is feasible.

For example, apportionment analysisapplies to the above case example. Therewere concurrent delays at weeks seven andweek nine. At week seven, the contractorcaused a delay on activity C and the ownercaused a delay on activity D. Thus, theowner would be responsible for time-related FOH expensed for activity D at thatweek.

Numerically, the owner would owe thecontractor $13,032 or $9,821 whichdepends on whether estimated or actualproject FOH is employed. On the otherhand, the contractor would owe the ownera maximum of one week of liquidateddamages. At week nine, both owner andcontractor caused delay on the sameactivity - activity F. As such, the FOH ofactivity F incurred in that week ($8,145 or$2,976) can be equally divided by the twoparties. In sum, the new method facilitatesapportionment analysis in anycircumstance of concurrent delays.

Finally, the proposed method is basedupon several assumptions. First, thecontractor is unable to remobilize their

resources in some way as to absorboverhead. Second, periods of delays arerelatively small or in short durations if theestimated FOH is used. This ensures thatcost extrapolations for calculating FOHdamages are plausible. M.J. Lankenaurecommends that a 10 - 25 percentincrease in project duration is acceptable[5]. Third, the project owns float. That is,float is used in a first-come, first-servedbasis. Lastly, activity costs are uniformlydistributed across the duration of theactivity.

P roper analysis of field overheadenables accurate calculation ofdelay damages. Activity-specificallocation of field overhead proposed inthis article is a promising solution. Itensures that delay damages are evaluatedunder the context of delay.

The context of delay in this articleincludes timing of delay, degree of delayand suspension, and relative importance ofdelayed activities. Unfortunately, the dailyrate method fails to consider this issue.

In addition, field overhead paymentmay be duplicated in some circumstance,for example, partial suspension. On thecontrary, the proposed method eliminatesthese limitations. This method can alsoserve as a good alternative forapportionment analysis of delay damageswhen concurrent delays occur.

(equation 1)

Figure 2 Levels of Time-Related Field Overhead

Cost Engineering Vol. 50/No. 3 MARCH 2008 33

REFERENCES1. Freeman-Darling, Inc., GSBCA No.

7112, 89-2 BCA, 21882 (1989).2. Harris, J.W. and A. Ainsworth.

Practical Analyses in ProvingDamages. AACE InternationalTransactions, CDR.04.1-10, 2003.

3. Heller Electric Co. Inc. v. William F.Klingensmith, Inc., 670 F2d 1227(D.C.Cir. 1982).

4. James, D.W. Concurrency andApportioning Liability and Damagesin Public Contract Adjudications.Public Contract Law Journal, 20, 4(1991): 490-531.

5. Lankenau, M.J. Owner Caused Delay -Field Overhead Damages. CostEngineering, AACE International, 45,9 (2003): 13-17.

6. Zack, J. G. (2000). Pacing Delays - ThePractical Effect, Cost Engineering,AACE International, 42, 7 (2000): 23-28.

ABOUT THE AUTHORSDr. William Ibbs is president of the

Ibbs Consulting Group, 5932 ContraCosta Rd., Oakland, CA 94618-2137. Hecan be contacted by calling: 510 420-8625,or by sending an e-mail to:DRCWIbbs@aol.com.

Long D. Nguyen is with theDepartment of Civil and EnvironmentalEngineering, 407 McLaughlin Hall,University of California, Berkeley, CA,94720-1712. He can be contacted bycalling: 510 710-9932, or by sending an e-mail to: duylong@berkeley.edu.

Technical Articles - Each month, CostEngineering journal publishes one or more peer-reviewed technical articles. Unless noted otherwise,these articles go through a blind peer reviewevaluation prior to publication. Experts in thesubject area judge the technical accuracy of thearticles, advise the authors on the strengths andweaknesses of their submissions, and what changescan be made to improve the article beforepublication.

New and Updated PPGs Available

PPG#02 Risk, Second Edition PPG#17 Public Sector Estimating PPG#18 Green Building

Purchase online at www.aacei.org/book-store, or contact AACE InternationalHeadquarters, Sharon Hardman at

shardman@aacei.org