INTRODUCTION

The concept of ‘cumulative impact’ is a significant issue facing the construction industry today. Cumulative impact is often referred to as ‘Death by a Thousand Cuts’, however it’s important to clarify that this term bears no connection to the historical tortures and executions of medieval times. Instead, it refers to a series of events and/or conditions that, in isolation, may not cause a significant impact but can combine to prove catastrophic for a construction project. These events can occur either simultaneously or sequentially.

These types of events can cause widespread disruptions to construction projects, resulting in delays and increased costs. These disruptions, along with other factors, form the basis of cumulative impact claims brought forward by contractors and subcontractors. This can be a complex issue for both contractors and principals, as these claims are typically global in nature and require a detailed analysis of all the events that contributed to the delay or disruption.

This article provides guidance on how to recognise the signs of cumulative impacts and the actions that can be taken to maximise your ability to successfully claim relief.

WHAT IS A CUMULATIVE IMPACT CLAIM?

Cumulative impacts refer to the combined effects of multiple individual impacts, which can have a greater overall effect in than when considered individually.

In the context of construction disruption claims, cumulative impacts refer to the combined effects of multiple disruptions to a construction project, which can lead to additional costs and delays. Most often, this takes the form of a claim for lost productivity.

THE THEORY

A cumulative impact claim arises after a series of individual disruption events combine to cause a loss of productivity to the contractor’s progress. The sources of cumulative impacts that can affect both changed and unchanged work on a construction project are diverse. Some examples of these sources include:

• inclement weather;
• labour shortages;
• supply chain disruptions;
• changes in the scope of work or design;
• variation directions;
• the performance of other contractors or subcontractors;
• unexpected site conditions or unforeseen events; and
• unforeseen events such as natural disasters.

These are just a few examples, and it is important to note that there can be any number of other events or factors that can contribute to a cumulative impact claim.

Generally, contractors only become aware of a cumulative impact claim when the commercial and financial recommendations are realised – that is when the effect has peaked or subsided. As a result of this, there is generally not a process in place to identify and manage the components required to demonstrate a cumulative impact claim.

Often it is necessary to conduct a retrospective analysis and frequently a cost-based approach is taken to measure the extent of loss incurred. Unfortunately, the complexity of proving causation and apportioning makes it difficult for contractors to successfully make a cumulative impact claim. While the concept of cumulative impact claims is acknowledged in theory, they are rarely successful in practice due to the difficulty of demonstrating specific causation. Fundamentally a cumulative impact claim is global in nature and the key task in pursuing this type of claim is disentangling each disruptive element and apportioning appropriately.

IN PRACTICE

In practice, cumulative impact claims are generally presented as ‘Total Cost Claims’. This involves presenting the difference between the planned (or expected) and actual costs for a given task or the overall project and positioning this as a direct consequence of the various disruptive impacts.

Most cases that recognise the risk of cumulative impact claims end up rejecting the claim due to a lack of evidence. This because of the absence of a clear causal link between the events that led to the delay or disruption and the resulting impact on the project schedule. Additionally, it can be difficult (often impossible) to apportion between compensable and non-compensable impacts. This is a common reason why Total Cost Claims fail.

The first step when faced with pursuing a cumulative impact claim is to ascertain if certain stronger limbs of the claim can be separated out and pursued as discrete claims under the contract such as extension of time and/or variation claims. In most circumstances, pursuing these as discrete claims will be a simpler process and will avoid clouding (or contaminating) more straightforward claims with the less discerning cumulative impact claim.

When pursuing a cumulative impact claim, there are a number of key elements crucial to its success. These include:

• demonstrating contractual (or legal) entitlement for the relevant causes and compensation (including compliance with notification requirements);
• proof that distruptive acts caused (or where likely to have caused) you to suffer loss;
• establishing that the baseline or cost basis is a reasonable measuring points for the claim – that is could you have achieved the planned outcome if not for the disruptive acts;
• establishing the loss incurred is properly calculated, reasonable and excludes any effects for which there is no entitlement; and 
• demonstrating it is impractical (or even impossible) to pursue this claim in any conventional manner.

The last point requires the claimant to consider how to demonstrate why the cumulative impacts cannot be disentangled and that this has not been caused by the claimant (e.g. by the failure to keep detailed records that may have been required by the contract).

It is crucial to provide evidence and analysis that clearly links the cause and effect. Simply comparing the contract budget to actual costs will not be sufficient. A detailed analysis of the impact of each disruptive element is required prior to considering the resultant cumulative impact.

PROVIDING THE EVIDENCE

What sort of information and data must be kept?

The crucial element of any cumulative impact claim is the availability of clear and accurate contemporaneous records. The type of information that must be kept to support a cumulative impact claim will vary depending on the specific circumstances. However, as a minimum, contractors should keep detailed daily diaries that reflect more than just the weather and work progress. These diaries should document all known impacts and impediments to the progress of the work, including any delays caused by the contractor themselves. This information can be used retrospectively to apportion the costs and impacts of these events and can be used as evidence in the event a delay or productivity claim proceeds to litigation.

To achieve this, it may be necessary to establish individual cost codes and to review them frequently with the project team. Some contractors also maintain productivity data for certain job events from multiple projects and may use this data for future project tenders.

In recent years, contractors have also used technology such as CCTV, time-lapse cameras, daily diaries, electronic attendance registers, and GPS data to assist with tracking data. While no contractor enters into work with the intention of seeking delay or productivity claims, it is recommended that contractors recognise and prepare for the possibility of a claim as early as possible. It is imperative that contractors consider the most significant risks prior to commencing or early in the works and adapt their construction and project control systems appropriately. This might involve implementing additional monitoring systems and customizing site diary templates that prompt the project team to record specific disruptive impacts.

Implementing these processes early and while the work is ongoing will save both time and cost later if there is a requirement to build the case for a claim. Otherwise, the contractor will be required to either reconstruct these records or undertake a significant forensic investigation process.

A general, unsubstantiated claim, such as ‘contractor suffered impact’, is likely to be inadequate evidence in a delay or productivity claim. A lack of specific, contemporaneous, and well-documented evidence of disruptive activities may provide reasoning for rejection.

CONCLUSION

In summary, cumulative impact claims emerge when a series of individual disruption events amalgamate, resulting in a loss of productivity within the contractor’s scope of work. These claims are intricate and often challenging to substantiate, necessitating a clear linkage between the events and their resultant impact, along with the precise apportionment of costs and impacts.

To succeed, contractors must furnish comprehensive evidence and analysis demonstrating how the various events contributed to the delay or disruption and interacted to influence the project schedule. Keeping meticulous daily diaries, establishing distinct cost codes, and leveraging technology for data tracking are essential practices to bolster a potential claim. If properly undertaken, these practices may avoid the need to resort to a cumulative impact claim altogether.

Despite the inherent difficulty in proving these claims, their prevalence is on the rise, fuelled by recent occurrences such as the material/labour escalation, adverse weather conditions, and labour shortages. It is imperative for contractors to grasp the concept of cumulative impact claims to adequately prepare for such eventualities.

To learn more, please contact the Calibrate office at info@calibrateconsulting.com.au or call +61 9188 7444.