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How to succeed against the odds (and experts)

By: WISCONSIN LAW JOURNAL STAFF//May 10, 2016//

How to succeed against the odds (and experts)

By: WISCONSIN LAW JOURNAL STAFF//May 10, 2016//

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Halloin Murdock case proves you don’t always get what you pay for

By Scott Halloin
Halloin Murdock

Halloin Murdock S.C. has completed the litigation of a construction-delay claim against a supplier involved in one of the largest projects in the country: the 31st Street Breakwater in Chicago, Ill.

Halloin Murdock’s client, Ozaukee County-based Edward E. Gillen Co., asserted a delay claim against one of its suppliers using the new but seldom-used Actual Cost Method. What’s more, it went on to defeat an opposing expert using a scheduling analyst’s more commonly used Modified Total Cost Method.

The outcome signals a huge change in how delay claims are proved.

Because delay claims derive from complicated fact scenarios, a small cottage industry has developed around “scheduling analysts.” These analysts, often called to be expert witnesses, typically calculate delay damages using the Modified Total Cost Method, including the Critical Path Method. In other words, scheduling analysts usually compare project schedules to find a disruption point, and then calculate the amount of work that was performed out of sequence because of that disruption.

Scheduling analysts have come under scrutiny both because they often have little financial training and because their methods seem to not be governed by objective standards. The Federal Court of Claims, and industry leaders, have spoken highly of an alternative — an accounting-based damage formula called the Actual Cost Method.

In the past, claims involving the Actual Cost Method have been limited to large government contracts that have professional cost coders trained in Government Accountability Office compliance. For that reason, the method has been rarely used in the more typical sorts of construction-delay claims.

Halloin Murdock, working with theories developed by accounting firm The VanderBloemen Group, recognized that accounting and management software has advanced enough that compliance with the Actual Cost Method’s more rigorous coding requirements is now possible for many projects.

In the Gillen case, the VanderBloemen Group prepared a detailed Actual Cost Method evaluation and eventually concluded that Gillen had incurred just more than $14 million in damages. The supplier in the case responded by asserting that the Actual Cost Method involved nothing more than adding up a pile of checks for each cost code, and contended that only a scheduling analyst was competent to testify on the question of delay damages. Gillen replied that the Actual Cost Method provides a conservative, and more accurate, approach for calculating delay damages.

Two months before scheduled arbitration in the matter, the defendant supplier provided a 649-page expert report from the renowned scheduling analyst Andrew Engelhart. The report contained thousands of discrete data points. It is believed that the total cost of Engelhart’s work, combined with that of the specialty counsel hired to present the argument, exceeded $1 million.

Rather than conduct a detailed examination of Engelhart for the purpose of possible impeachment, a decision was made that, in light of his substantial experience in testifying, such a procedure would yield little fruit. Instead, Engelhart was merely asked to identify the primary fact assumptions used to create his timeline in his massive report. He identified 37.

Halloin Murdock then structured the entire arbitration around those 37 assumptions, reviewing each assumption with each lay witness. During Engelhart’s cross-examination, Halloin Murdock showed that any minor variance in the 37 assumptions, even if it only altered the timeline by a few days, greatly changed his damage assessment.

Meanwhile, the supplier confronted VanderBloemen with three days of examination on cost coding and Actual Cost Method theory.

Nine months after the start of the arbitration, retired Federal Court Judge Robert Coar found in favor of Gillen, and awarded it $14,005,860. Coar stated that Engelhart had essentially “reviewed voluminous records and wove them into a cloud.”

The arbitrator, for his part, noted his preference for the Actual Cost Method and cost coding under the circumstances, and found that “Gillen is entitled to recovery the full amount of its claimed damages.”

The lawsuits are far from finished. About a dozen claims relating to the project continue to be litigated in Cook County Circuit Court and other venues.

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