Chapter 20 - § 20.3 • ELEMENTS OF CONSTRUCTION DAMAGES
| Jurisdiction | Colorado |
§ 20.3.1-Labor
Under certain conditions, a contractor may be entitled to recover its direct labor costs for work performed outside the original scope of work. These costs are generally established by proper record-keeping relative to the additional work performed, using applicable labor rates; they typically include employee-related costs such as fringe benefits, field supervision, taxes, and insurance.
Where payroll expenses were incurred by a contractor to complete a subcontractor's performance, the subcontractor was held to be liable for those costs under the terms of the contract.182 However, where there was no evidence that the subcontractor unjustifiably fell behind the schedule or that the contractor would otherwise have completed the project prior to scheduled wage increases, recovery of the wage increase was denied.183
§ 20.3.2-Materials
Claims for additional material costs typically result from changes in the scope of work directed by the owner, or from defective plans and specifications.184
§ 20.3.3-Equipment
Equipment costs often comprise a large part of construction claims. Equipment costs are distinguishable from small tool costs. Whereas tools are assumed to be consumed on a project, equipment typically is charged only for so long as the equipment actually performs work on the project. Additional equipment costs are generally recoverable as a result of a breach of contract by the owner.185
Equipment costs for extra work are determined from the time the equipment is used and applicable equipment rates. Equipment rates upon which a contractor would normally base its bid are a reasonable estimate of the contractor's cost to complete a project.186 A claim for loss of rental revenue caused by idle equipment was denied where a contractor presented no evidence that there were third parties ready and willing to rent the equipment had it been available as a result of the defendant's delays.187
§ 20.3.4-Other Direct Costs
Contractors typically incur costs in addition to the costs of equipment and labor as a result of breach of contract, and these may also be recoverable. For example, where a subcontractor failed to obtain workers' compensation insurance and an employee was injured, the contractor, who was the statutory employer, was entitled to recover its actual costs in procuring the insurance, notwithstanding that it was a higher "retrospective" premium.188 And, under a cost-plus contract, where a contractor reduced its workers' compensation premium by its safety records but billed for reimbursement under its prior rates, the contractor was entitled to the higher rates and the owner was not entitled to the benefit of the downward adjustment in accordance with the contract.189 A surveyor was held not to be entitled to computer charges and electro-tape rental costs where the contract provided that he would be paid a flat fee for some work, while others would be paid on an hourly basis plus travel time.190 Where a leaking pool had to be removed and replaced due to soil conditions and defective construction, the contractor was held liable for the costs of the study to determine the cause of the leak. However, the cost for the soil tests to design a new pool, and not connected with the original contract, was held not recoverable.191
§ 20.3.5-Overhead
It is the custom in the construction industry to mark up costs of changes in the work for overhead and profit, including supervision time.192 Overhead costs are generally incurred at the job site and at the home office. Job site overhead consists of costs for a particular project that cannot reasonably be allocated to any direct element of work. These costs include supervisory and clerical personnel, office equipment and supplies, and general utilities. Calculation of job site overhead is dependent upon the total indirect costs for the project and the total direct job costs.
Home office overhead is a recoverable indirect cost. The basis for calculating home office overhead must be reasonable and within industry practice. For example, if a company establishes its overhead over a period of time, and that overhead cost bears a ratio to its variable expenses for labor and materials, and the amount of labor and materials applicable to a particular transaction, the company can allocate to overhead the portion of direct costs.193 Where a court found that the subcontractor's default did not cause the contractor to incur additional overhead and administrative expenses than it would otherwise have incurred, the contractor's claim for such expenses was denied.194
§ 20.3.6-Interest
An award of interest is controlled entirely by statute and is not available on a common law or equity basis.195 In the absence of a contract provision, interest is only recoverable as enumerated in the statute.196 Statutory language regarding interest is strictly construed.197 A party is entitled to statutory interest on any amount that should have been paid from the date the funds were wrongfully withheld under C.R.S. § 5-12-102. If the contract specifies a rate, that rate will apply.198
The date of the wrongful withholding is a key determination in the damages calculation because it is the date when prejudgment interest begins accruing. In Goodyear Tire & Rubber Co. v. Holmes, the supreme court addressed the determination of the date when funds are wrongfully withheld under C.R.S. § 5-12-102(1)(b).199 The court explained that the date of the "wrong" and the date of the "wrongful withholding" are not always the same date, and are only the same date when damages are measured as of the date of the injury.200 Thus, the prejudgment interest accrual date depends on the measure of damages, as different measures of damages may quantify a plaintiff's injury as of different dates.201
The court's decision in Goodyear limited, but did not overrule, its prior decision in Mesa Sand & Gravel Co. v. Landfill, Inc. In Mesa Sand, the court held that the non-breaching party in a breach of contract case is entitled to recover prejudgment interest from the date of the breach.202 Thus, although Goodyear refocused the court's inquiry from the basis of the claims to the basis of the calculation of damages, the law still stands that prejudgment interest in breach of contract actions begins to accrue on the date of the breach. This measure was recognized in Goodyear, but begs the question as to entitlement to prejudgment interest when diminution in value is measured by estimated cost to repair.
In other causes of action, prejudgment interest accrues, depending on the measure of damages, at the date of the wrongful withholding. For example, diminution in market value damages are measured by the difference in value of the property before and after the injury to the property occurs, and thus the damages are measured, and prejudgment interest accrues, as of the date of the harm.203
Thus, following the court's decision in Goodyear, a plaintiff should carefully consider not only its causes of action, but also its measure of damages, because both can determine the accrual date for its prejudgment interest.
Where the purchasers' repair costs resulting from a homebuilder-vendor's negligence were prospective, not retrospective, the purchasers were not entitled to prejudgment interest because purchasers did not undertake the replacement expenditure themselves or spend money to repair their home.204
In circumstances in which statutory interest would not be available, it may be sought as moratory interest.205 "Moratory interest is an element of damage in itself which is allowed as compensation for the detention and use of money."206 In E.B. Jones Construction Co. v. City & County of Denver,207 the city was found liable for moratory interest where the contractor notified the city of delays and increased costs, and the contractor was advised to submit the claims, but the city decided not to pay such claims and did not notify the contractor so as to induce the contractor to continue work. The allowance of moratory interest is left to the sound discretion of the court.208
A contractor is entitled to recovery of interest that recognizes the gain and benefit realized by the person withholding such money from the date of wrongful withholding to the date of payment or date of judgment, whichever occurs first.209 Where a subcontractor was found entitled to recovery, the subcontractor was also entitled to interest from the date that the balance became due.210 However, a contractor was held not to be entitled to interest from a subcontractor's surety on funds withheld by the state as a result of the subcontractor's default because the surety did not benefit from the contractor's loss of funds.211 A completing contractor is entitled to interest on the amounts due from the time its invoices were submitted to the surety.212 It was held that a contractor was entitled to interest on the balance owed at a statutory rate from the date of the default judgment.213
In addition to interest on the principal sum in dispute, there are many forms of interest that can be recovered as traditional damages. Both owners and contractors can incur substantial costs for interest and other financing costs on construction projects. For example, it was held that an owner was entitled to recover its loss of a favorable interest rate on a loan where such damages are the natural and probable result of injury sustained by reason of a tortious act.214 The court of appeals held that the trial court correctly applied an interest rate of 9-1/5 percent per annum in determining the present value difference between the original loan the plaintiffs sought and acquired, and the second loan the plaintiffs were forced to acquire to cover the increased costs of the house upon completion. Applying these principles in a construction context, any additional interest paid as a consequence of a default could be recovered.
Interest may...
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