Proving Claims for Increased Equipment Costs

Whether proving the claim in court or persuading the right person on the job, submitting a claim for increased equipment costs can be tricky business.

On heavy construction projects, equipment costs may represent the contractor's largest cost item, exceeding even labor costs. And equipment costs represent a significant "variable cost" on most construction projects, since equipment costs almost always increase when a project is delayed.

On some delayed projects, equipment costs may go up even when labor costs do not, since a contractor will incur equipment costs even though the equipment is not operating.

And equipment costs will increase on some projects when productivity drops, since reduced productivity requires more labor, and increased labor will usually result in the need for more equipment.

Equipment costs will also increase when "additional work" is added to the scope of a project, requiring either more equipment or that certain equipment be used for longer periods of time.

Disruption of the work may also cause increased equipment costs. Here, it's about the costs of demobilizing, then remobilizing, then demobilizing, then remobilizing, and so on. Each such "demob" and "remob" may be viewed as a compensable cost.

The first place to look when preparing a claim for equipment costs (or any cost for that matter) is the contract. Some contracts limit the contractor's right to recover for extra costs due to delay or disruption. Some contracts specify that extra costs for equipment must be based on industry guides, such as AGC's Equipment Cost Manual.

Generally, in a claim situation, a contractor is entitled to recover the "actual increased cost" of equipment usage. If the equipment is rented, it's the increased rental cost, plus operating cost, and the "back up" (or proof) is the invoice. If the contractor owns the equipment the, "actual increased cost" often becomes the subject of dispute.

The contractor's cost accounting records should break down equipment costs for each "unit of work" so that additional costs may be shown by adding the additional units. In the absence of such records, claims may be prepared by taking the cost of the equipment over the period the work is performed, dividing by the number of work units, then multiplying by the number of additional work units.

In contrast to incurred costs due to extra or additional work, costs resulting from delays must subtract from the unit costs any operating costs that are not actually incurred (fuel, oil, gas, operators, etc.) while the equipment is idle.

Also, when proving a delay claim, the contractor must be able to show that "but for the delay," the equipment could have been used on a different job. If the contractor can "mitigate its damages" by moving its idle equipment to another job, it must do so, as long as it is reasonable to do so.

For example, in one case, a court denied part of a delay claim where the owner ordered the general contractor to temporarily stop work. The general contractor attempted to recover the increased cost of having his equipment sit idle on the job, but the court found that the contractor should have (and reasonably could have) moved the equipment to another job. For that reason, the equipment cost claim was denied.

It's tricky a business.

This article is intended to inform the reader of general legal principles applicable to the subject area. It is not intended to provide legal advice regarding specific problems or circumstances. Readers should consult with competent counsel with regard to specific situations.

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