Should All Claimed Costs Be Actual and Documented?

Project owners have started imposing contract language requiring documentation of actual costs in support of claims. These costs alone will be grounds for a price adjustment. Courts are enforcing this language. It is a challenge to some long-used techniques for quantifying construction claims.

The most recent example comes out of Virginia. A contractor was allowed to use “Blue Book” daily rental rates to determine the actual cost of idled, contractor-owned equipment, but only because the contractor presented expert testimony that these rates accurately reflect actual costs. The contractor was not allowed to calculate its extended job site overhead using an average daily rate. The contractor should have presented actual costs, although those costs could have been prorated over the period of delay.

At first glance, it seems perfectly reasonable for project owners to insist on paying only documented actual costs. Yet the increased costs of performance are not always simple or straightforward. It is a longstanding practice to use estimating guides such as the Blue Book. Will expert testimony always be required as a foundation for the use of this information? It is also a longstanding practice to use deductive or comparative methods for determining costs. Unabsorbed home-office overhead and lost-labor efficiency are examples. Will project owners be able to demand job-cost records for these items? I welcome your comments.

Featured in Next Week’s Construction Claims Advisor:

• Extended Overhead on Extra Work Must Be Percentage of Cost
• “Pay-if-Paid” Clause Enforceable Even Without Risk Transfer Language
• Contractor Disqualified Due to Political Contribution

Comments

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[Dennis A. Ross AIA]

Our specs only allow actual cost for change orders and carry a no damages for delay clause. No book values are allowed.

[Eden Milroy, President, Pilot Development.]

If there's not an actual cost, there's not an actual basis for claim. Using standard rates, if unsupported in their relationship to the specific case, become only the most general approximation. Requiring the contractor to establish the actual cost serves to prove that the contractor was actually damaged, and denies subjective contractual claims. If the contractor can't show cost, then he may be better off to sue for emotional pain and suffering.

[Andrew Goldsmith, Construction Mangement Speicalties]

Actual cost of Equipment is not as straight forward as Labor, materials and supplies. Many contractors do not keep sophisticated cost records of their equipment. Owner’s like the Texas Department of Transportation whom addresses many equipment related claims has rightfully acknowledge this fact. Under a doctrine of fair and reasonable compensation to the party being damaged, If it is established that a claim has entitlement, and project documents show what specific equipment, materials and labor, where impacted by the occurrence, then a standard like the Blue Book rates for equipment, that has pre-determined what is a reasonable rate for that equipment impacted seems reasonable means of determining equipment cost in an actual cost claim. Equipment does have a cost to own, to operate, and has a replacement value. What’s wrong with using a standard for determining what that cost is? If a contractor does not have cost records of his equipment, should he be barred from recovery of equipment damages in a claim? I think not.

[Plumber Edmonton]

If actual cost of equipments is not directly forward as materials, goods and supplies then there is no actual basis of claim. Plumber Edmonton

[AC Service ,North Houston]

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[HVAC Repair Wilmington]

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