that states, “Damages need to be incurred during the delay period which is defined within the policy.” This is problematic if we intend to measure the difference between projected revenue and actual revenue for months one through 16 when you only have a six-month delay period. This would leave you with 10 months of damages that may fall outside of your delay period. The accurate way to measure this loss — which would avoid this potential problem — is to measure stabilized months that are lost due to the delay in completion of the building. As you can see in our example, had no event occurred we would have reached stabilized net income in month 10. But due to the event, we don’t actually reach stabilized net income until month 16 — six months later than we would if the loss event had not occurred. This period coincides with our delay period and would avoid the potential problem of having damages fall outside of the delay period. Exhibit A shows another way to consider this comparison. Using Methodology 1, the monthly 5 4 damages continue at approximately 40 percent of lost stabilized net income for the entire period – six times the monthly stabilized net income. Methodology 2 shows we arrive at the same total of 600 percent by considering 100 percent of lost stabilized monthly net income. Not only does Methodology 2 measure the full amount of the damages, but it also falls within our delay period of six months. Important Considerations Calculating lost net income due to a delay in completion on a construction project can be a complex process. There are pros and cons of using different methods. Every project is different and the best way to measure lost net income may vary. We hope this discussion explains important options for you to consider in preparing your analysis.
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