GII Industries (“Grace”) contracted with the State (“DOT”) to reconstruct a portion of the West Side Highway in New York City. The project was to be completed in five stages. Six months into the job Grace encountered pipe not shown in the contract documents. As a result of the pipe the project was changed to fourteen stages and was extended by 579 days. Grace claimed that it had incurred delay damages due to the vastly different staging of the job which was a Significant Change under the contract. Grace and the DOT negotiated for 17 months in an unsuccessful attempt to resolve Grace’s claim. Eventually Grace filed a petition under Chapter 11 of the Bankruptcy Code. Grace commenced this adversary proceeding against the DOT seeking damages in the amount of $10.8 million for increased costs due to the restaging. After failing to reach a settlement in mediation the parties requested the court to determine the appropriate method to calculate Grace’s damages. However, as a threshold issue the court had to respond to the DOT’s argument that Grace was not entitled to any compensation because it had not kept detailed records in compliance with DOT’s Manual for Record Keeping (“MURK”). That is to say, DOT argued that compliance with MURK was a condition precedent to recovery, which Grace failed to perform. In response, the Court held that (1) while Grace was required to “provide adequate records to properly substantiate it claims, this Contract did not require Grace to maintain records in the form prescribed by MURK as a prerequisite to recovering additional costs, and (2) further even if compliance with MURK had been required the DOT had waived that requirement by its conduct. The next issue for the court was the method to calculate Grace’s damages, and the court determined that the correct method for this matter was the total cost method. The DOT argued that the total cost method should not be used because it was not provided for in the contract. However, the court stated: “The determination of the appropriate methodology to use to calculate damages is a question of law.”  Regarding the total cost method the court stated: Here, Grace seeks damages incurred as a result of the Project’s restaging, which Grace asserts delayed work and rendered its performance on the Project less productive and less efficient than anticipated, thereby increasing costs.  In Thalle [Constr. v. Whiting – Turner Contr. Co., 39 F.3d 412 (2d Cir. 1991)], the Second Circuit explained that, in the context of delay damages, “the most precise method of calculating” damages in construction cases “involves tracing particular cost items to the delay” or using a related method [that] measures damages as the difference between total costs when delays are taken into account and total costs absent delays.”… However, the court noted that “[o]ften [ ] these two methods prove prohibitively difficult or speculative.” Id. In those circumstances, courts frequently turn to the “total cost” method. Under the total cost method, the injured party, while limited to recovering damages actually sustained, is relieved “from the necessity of matching each individual increase in cost to a discrete breach.”…  Instead, the total cost method measures damages by calculating the “difference between the contract price…and…total job costs.  The court then apportions damages “according to each party’s responsibility for them.”  Id. In applying the total cost method, New York courts require use of the contract price rather than bid estimates or bid figures… Thus, “[a]s long as the contract price is available… the total cost approach is feasible. “ Id. (Emphasis added.)  Thus the total cost method of recovery for a delay claim is alive and well in NY, and is available to contractors in appropriate cases.   A couple of other points in the decision are also worth mentioning: In the course of their dealings the DOT sent a letter to Grace proposing to cap Grace’s claim at $7.1 million, which Grace countersigned.  This letter, which the DOT attempted to enforce, was held in an earlier decision (In re GII Industries, Inc., 416 B.R. 84, 92) to be an unenforceable agreement because of a lack of consideration (Going back to law school Contracts 101). Regarding the period to calculate prejudgment interest, DOT argued that under State Finance Law §179-f(2)(a) the period should not begin until after the audit by the State Comptroller (“OSC”), which had concluded that nearly $3.3 million in costs claimed by Grace were disallowed.  That section of the SFL states that the commencement of the interest period is extended in the event that “the state comptroller in the course of an audit determines that there is reasonable cause to believe that payment may not properly be due…” to the contractor. Grace argued that reasonable cause did not exist because “the team that conducted the review was inexperienced and unqualified and failed to follow generally accepted government accounting standards (“GAGAS”) or generally accepted accounting principals (“GAAP”). The court agreed stating “The glaring deficiencies of the OSC”s audit render it an insufficient basis for the OSC to ‘determine that there is reasonable cause to believe’ that payment to Grace was not due.” Therefore the court held that the period for prejudgment interest should begin following the 30-day inspection period after completion of the project and the 75-day period as provided  in SFL §179-f(2).