Court Clarifies Use of Measured Mile Theory, Notice of Claims Provisions

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1 Select 'Print' in your browser menu to print this document The Legal Intelligencer Online Page printed from: Back to Article Court Clarifies Use of Measured Mile Theory, Notice of Claims Provisions John k. Gisleson and David Holliday For more than 20 years, it has been accepted practice in construction litigation to measure damages through the "measured-mile" method of damages calculation. However, despite its widespread use within the industry, no Pennsylvania appellate court had ever ruled that the measured mile was an appropriate measure of damages in Pennsylvania. The Commonwealth Court of Pennsylvania finally closed this gap in James Corporation v. North Allegheny School District when, in a matter of first impression, it adopted the measured mile as the preferred measure of damages in construction disputes tried in Pennsylvania courts. In the same opinion, the court considered whether a contractor could assert a viable claim against a project owner when the parties' contract contained a provision requiring the contractor to make a written claim for damages within 21 days after the event giving rise to the claim, and file:///h /Word/Articles%20and%20Media%20Coverage/Measured_Miled_Legal_Intelligencer.htm (1 of 5)9/4/2008 3:25:14 PM

2 the contractor failed to strictly comply with the provision. Despite the prevalence of 21-day notice requirements in construction contracts, the court refused to enforce that limitation based on the owner's knowledge of the underlying facts giving rise to the claim. The Measured-Mile Approach The measured-mile gauge of damages is used in cases where a contractor claims an owner or another contractor prevented it from completing a project or caused disruptions that resulted in the contractor incurring extra expense in the completion of a project. The basic theory behind the measured mile is fairly simple: A plaintiff contractor takes a measurable period of time on a project during which its work was not impacted by a defendant contractor or owner, and compares it with a period of the same length and work scope when the contractor alleges that its work was disrupted by another contractor or the owner. Any increase in costs and/or losses of profits during the allegedly impacted period is the measure of damage. By directly measuring unimpeded work against impeded work, the measured mile takes into account a plaintiff contractor's own inefficiencies and thus is more appealing than other methods of damage calculation. By contrast, plaintiff contractors could also attempt to prove their damages by using the disfavored total cost method. This measure allows a contractor to recover the difference in its total costs on a project and its bid price and is disfavored by Pennsylvania courts because it assumes that the contractor worked efficiently and properly bid the job. The measured-mile theory eliminates these potentially false assumptions. PA Commonwealth Court The James Corp. case had its roots in a fairly typical dispute between a school district and a contractor involving renovations to a school. The plaintiff was one of the prime contractors on a file:///h /Word/Articles%20and%20Media%20Coverage/Measured_Miled_Legal_Intelligencer.htm (2 of 5)9/4/2008 3:25:14 PM

3 school renovation project; the defendant was the North Allegheny School District. The contractor alleged the school district caused significant delays that damaged its productivity and, as a result, reduced its profits. The school district asserted that it was not responsible for any of the alleged delays. It further argued that the contractor could not reliably establish what damages it had suffered on the project. In an opinion that addressed a range of topics, including the validity of a 21-day notice of claims provision, the Commonwealth Court officially adopted the measured-mile measure of damages as the preferred method of computing damages when a contractor alleges a loss of productivity. In so holding, the court relied heavily on the testimony of the plaintiff's expert at trial. In fact, the court adopted his calculations and reasoning into its opinion, as well as his assertions about why the measured-mile analysis is a good approach to determining damages. This heavy reliance on the plaintiff's expert, and the lack of citation to any testimony by any expert that may have been offered by the school district, underscores the importance of having a respected, credible and knowledgeable expert in a construction dispute. Without its expert, the plaintiff may well have recovered nothing. In James Corp., the school district attempted to challenge the expert's measured-mile approach and calculation by questioning its validity and accuracy. The expert was able to overcome both of these challenges by coherently explaining his calculations, and how his methodology complied with industry standards. The court noted that he did not have to identify damages with mathematical precision; rather, "the law simply requires the claim be supported by a reasonable basis for the calculation." The plaintiff's expert was able to set forth a reasonable basis for his measured-mile calculation, and the court found plaintiff's claimed damages were recoverable as a result. Taking Out the Teeth file:///h /Word/Articles%20and%20Media%20Coverage/Measured_Miled_Legal_Intelligencer.htm (3 of 5)9/4/2008 3:25:14 PM

4 In addition to attacking the plaintiff contractor's damages methodology, the school district argued that any and all of the plaintiff's claims were barred because the construction agreement required any claims against the district to be made in writing and within 21 days of the event giving rise to the claim. There was no dispute that the plaintiff did not strictly comply with this provision. The question thus was whether strict compliance with the 21-day notice provision was necessary. The Commonwealth Court held that it was not. Citing to a Court of Claims decision, the court explained that "to adopt the severe and narrow application of the notice requirements would be out of tune with the language and purpose of the notice provisions, as well as with this court's wholesome concern that notice provisions in contract-adjustment clauses not be applied too technically and illiberally where the government is quite aware of the operative facts." In James Corp., the evidence established that the school district knew of and even caused many of the delays that led to the plaintiff's claims for damages when it continually changed the project schedule, causing the project contractors to re-sequence their work on multiple occasions. As such, the school district had constructive notice of the plaintiff's claims, and could not be surprised or prejudiced when the plaintiff actually presented those claims, regardless of its failure to formally comply with the 21-day notice of claims provisions. The plaintiff's claims were therefore not barred by the 21-day notice provision. The Commonwealth Court's holding with regard to the notice of claim provision obviously means that a school district - and potentially other owners - cannot rely on such a provision to insulate it from claims, at least when the school district is actively involved in the project and knows the day-to-day progress of the project. file:///h /Word/Articles%20and%20Media%20Coverage/Measured_Miled_Legal_Intelligencer.htm (4 of 5)9/4/2008 3:25:14 PM

5 John K. Gisleson is vice chairman of Schnader Harrison Segal & Lewis litigation services department and a trial lawyer with an active litigation practice. His caseload involves a broad range of business litigation on behalf of both plaintiffs and defendants involving tort, contract and statutory claims. David Holliday is an associate in the firm s litigation and bankruptcy, workout and reorganization practice groups and resident in the firm s Pittsburgh office. He concentrates his practice on the areas of commercial litigation, employment litigation and bankruptcy and workout. file:///h /Word/Articles%20and%20Media%20Coverage/Measured_Miled_Legal_Intelligencer.htm (5 of 5)9/4/2008 3:25:14 PM