Delays are a common occurrence on large, complex construction projects. There have been myriad cases where the project owner causes delays through its actions such as issuing change orders, supplying owner-furnished items late, or because of incomplete or defective design information for which the owner has assumed contractual responsibility. In the case of late or defective design, the ensuing consequences for the contractor can involve schedule slippage while awaiting the completion or correction of the design. But quite often if the design defect is discovered after the work has started, the contractor experiences delays and significant additional costs due to re-work and the knock-on disruption to the contractor’s overall work scope. In hotly disputed situations, proving that the owner is responsible for delay and disruption can present significant challenges for a contractor. But that is only part of the challenge. Once liability is established, the contractor faces the additional and crucial burden of credibly quantifying and proving the delay and disruption damages that it hopes to recover.

In a recently decided private arbitration case involving the construction of commercial vessels, the contractor retained a system dynamic modeling expert to prove and quantify the disruption attributable to the vessel owner’s late and changing design. System dynamics damage models have been employed in legal disputes since the 1970’s but are still a relatively unknown or unused methodology to calculate disruption damages even among experienced construction litigators. In a nutshell, in a construction dispute scenario, a system dynamics expert will work with the client to determine the dynamics that governed the client’s performance on the subject project, build a computer model that quantitatively captures those dynamics and then run the model to determine through simulation the performance would have resulted had there been no breach by the other party. The difference between what actually was the contractor’s cost and what it should have been absent the owner’s breach, as simulated by the model, is the measure of disruption damages.

One reason for the relatively low usage rate of system dynamics models in construction disputes is that, in order for the resulting model to withstand a Daubert challenge and be accepted by the trier of fact, such analyses must be rigorously performed by highly specialized and skilled experts that come at a premium cost. Therefore, system dynamics modeling and analysis may only be appropriate from a cost-benefit perspective in very large, high-dollar cases in which the contractor can expect a return on its investment. The upshot, according to the system dynamics experts we have dealt with, is that the majority of cases in which well-developed system dynamics models and expert reports were used resulted in high-claim-value settlements. As such settlements are almost always confidential, the system dynamics methodology operates well but out of the public eye.

In the private arbitration case mentioned above, the case did not settle and went to full trial. As a result, the arbitrator rejected the owner’s Daubert challenge and, instead, found that the system dynamics expert and the modeling contained in the expert report and testimony “provided a reliable indication of the disruption damages.” An award of over $13M was granted to the contractor for disruption part of the overall claim, which was over 70% of the amount claimed through the system dynamics analysis for disruption.