Payne Hackenbracht & Sullivan
Entitlement to Profit on Delay Claims
Under the "Changes" clause, a contractor would be entitled to profit as an element of its quantum recovery if delays are compensable. Owen L. Schwam Construction Co., Inc., ASBCA No. 22407, 79-2 BCA 13919. Under the "Suspension of Work" clause, however, profit on the delay damages is expressly prohibited as an element of quantum.
The Boards of Contract Appeals and the Claims Court have analyzed and categorized delays in order to determine under which clause to permit recovery and a price adjustment. It is a well settled principle that delays arising after the issuance of a change and which are the direct result of the change are compensable under the "Changes" clause of the contract. Generally, for those delays occurring prior to the issuance of the change order, recovery of delay damages has been allowed under the "Suspension of Work" clause, Timmons Butt and Head, Inc., ASBCA 15948, 72-1 BCA 9247. Dravo Corporation, Eng BCA 3915, 79-1 BCA 13,603. Gunther and Shirley Company and E. V. Lane Corp., Joint Venture, Eng BCA 3691, 78-2 BCA 13,454. Such recovery necessarily excludes profit by operation of the clause. This recovery under the "Suspension of Work" clause has been distinguished partially on the theory that delays prior to the change were not caused by the change. Therefore, the Boards have reasoned that the "Changes" clause is an inappropriate basis for recovery and that relief would be pursuant to the "Suspension of Work" clause or another type of delay of work clause.
A distinction, however, has been made for a specific type of delay occurring prior to the issuance of a change order. Model Engineering & Manufacturing Corp., ASBCA No. 7490, 1962 BCA 3363. The "Suspension of Work" clause does not apply to delays and delay damages caused by defective specifications. This concept was adopted in the legislative history regarding the revisions to the "Changes" clause. It was specifically noted that:
Except for defective specifications, the Changes clause as revised will continue to have no application to any delay prior to the issuance of a change order. An adjustment for such type of delay, if appropriate, will be for consideration under the provisions of the Suspension of Work clause. (32 Fed. Reg. 16269, Nov. 29, 1967).
Thus, it must also be determined whether the specifications are defective. Defective specifications are specifications which, if followed by the contractor as designed by the owner, will not result in a usable product. Centre Manufacturing Company, Inc. v. United States, 183 Ct. Cl. 115 (1968). The concept of the owner's responsibility for defective specifications is based upon the implied warranty by the owner that the specifications it furnishes are suitable for the intended purpose. U.S. v. Spearin, 248 U.S. 132 (1918).
If the specifications are defective, then the "Changes" clause would apply and profit on delay damages could be considered. Otherwise, the delays prior to the issuance of the change orders would be recognized under the "Suspension of Work" clause. If the design revisions are due to a defective design, then the change orders issued to implement these design revisions are compensable under the Changes clause. Dynalectron Corp., ASBCA 11766, 69-1 BCA 7595, R.C. Hedreen Co., ASBCA 20594, 77-1 BCA 12,328.