Aug 2010 , Vol. VI, No.1

Total Support For the “Modified Total Cost Method”Pricing of Claims

Builders and Contractors Exchange
Weekly Bulletin: 30 AUG 2010

Total Support For the “Modified Total Cost Method” Pricing of Claims
By: Dave Lanetti

LAW TIPS

The “total cost method” of quantifying construction claims historically has been disfavored.  This methodology compares the bid price of the project work with the total cost of the project work as performed, attributing the entire cost increase to the acts or omissions of the project owner.  Although advantageous to contractors, courts (as well as arbitrators and administrative boards) consistently have declared the method imprecise, and frequently have rejected it.  A variation on the method—known as the “modified total cost method”—nevertheless continues to enjoy success.  This modified version of claim quantification addresses the shortfalls of the total cost approach by segregating the aspects of the work affected by the project owner’s shortcomings.  Further, the modified approach does not blindly accept the contractor’s pre-bid cost estimates or the contractor’s as-performed job cost records.

A recent Ohio case illustrated the effective use of the modified total cost method in the context of pricing an acceleration claim.  The contractor’s expert segregated the aspects of the work where labor costs were affected by the accelerated pace.  He examined the contractor’s pre-bid labor hour estimates and adjusted them upward in accordance with industry cost data publications, making the estimates more reasonable.  He then tested and confirmed the accuracy of the contractor’s job cost tracking system as it applied to labor hours.  Finally, he itemized and broke out labor hours incurred in the correction of defective work and other efforts unrelated to the acceleration.  The result was a claim quantification that was reasonable, and that ultimately was accepted.

Although the best method of claim quantification remains the maintenance of segregated cost records by contractors for any changed work, it is reassuring to know that the modified total cost method is a viable alternative when maintaining such segregated records is not possible (or simply was not done).

Authored by attorneys, these articles are meant to bring awareness to these topics and are not intended to be used as legal advice. For more information, contact Mike at 757-446-8626 or Bill Franczek at 757-446-8600. Visit www .vanblk.com , for our library of Construction Law Tips.  Suggestions for a topic? E-mail bfranczek@vanblk.com