INTEREST ON CAPITAL INVESTED IN CONSTRUCTION AS DELAY DAMAGES

The potential for contractors to recover extended financing costs that result from a construction delay is investigated. Legal case histories arising from the federal courts and boards of contract appeals are reviewed, and recent developments related to federal construction contract procedures are presented. Legal case studies are cited that indicate that delay damages can be recovered under the suspension-of-work clause even though no written directive is issued. Delay damages under the change clause are generally not recoverable, although the general conditions of construction contracts of the General Services Administration and the Department of Defense do permit recovery of cost of delays related to change orders. Legal precedents are reviewed that suggest that interest on borrowed funds that was necessitatied by a delay can also be recovered. Regulations that prohibit recovery of interests on borrowed funds governed by most federal construction contracts are reviewed. These have been challenged and upheld in the U.S. Court of Claims. Since 1976, boards of contract appeals have awarded imputed-interest damages. These damages result when a contractor is required by a delay to increase the capital investment in a construction project. This increased investment represents a loss of profit because these funds could otherwise be invested in short-term securities and treasury notes. Cost Accounting Standard 417, effective December 1980, provides for the recovery of imputed-interest damages resulting from a delay. The calculation procedure presented in CAS 417 is illustrated with a construction example. It is shown that on a project that costs $2,380,750 and experiences a three-month suspension-of-work delay, the contractor is entitled to $29,702 in imputed-interest damages in addition to any other damages that may have been incurred. (Author)