Executive Summary: A claim is made because a contractor has lost money and/or time on a project. The method is chosen by the contractor to substantiate these costs can vary. Some popular methods of calculating cost are presented.
What and why do I have a claim? In a perfect world, and on most construction projects, contractors would like to have zero changes by the Engineer, would like to write zero letters, and would like to issue zero RFIs. Each of these items affects the project rhythm and takes away from the contractor’s efficiency relied upon to earn the fee they calculated at bid time.
A claim comes when someone or something gets in the way of that glorious eventless, hum-drum journey to timely and unimpacted completion of the project. Claims can be due to:
|Acts of God||Acceleration|
|Labor strike||Material changes|
|Excessive changes||Differing site conditions|
|Designer errors and omissions||Extended performance|
Entitlement for a claim is a different discussion completely. Here we discuss only method of calculating cost impact.
Methods to recoup costs. Recouping the cost of a loss from any of the above reasons is a simple process:
Substantiating the cost can use many different techniques:
Measured Mile – this is used when the Contractor’s production has been hindered. For example, say you are a subcontractor installing 6 doors a day, until the framer ahead of you on this building project started installing racked door jambs. Now you are only installing 2 doors a day. A measured mile approach would show evidence, through timecards and site photos, of production prior to the skewed door jambs versus after the faulty door jambs were installed. Most courts consider this the most effective method of cost capture.
MCAA (Mechanical Contractors Association of America) – MCAA published a bulletin which provided various labor factors. Factors included such impacts as labor rhythm, overcrowding, concurrent operations, morale and attitude, errors and omissions, and several others. To use this method, the user determines the manner in which their labor was impacted, and then the degree to which the labor was impacted (minor, average, or severe). This is qualitative in determining severity, and quantitative in the application of a pre-determined number provided by the MCAA publication. This method has varying success in our dispute and legal system.
USACE Impact Evaluation Guide – the U.S. Army Corps of Engineers published a document entitled Modification Impact Evaluation Guide, EP 415-1-3. The manual contains factors for use in forward pricing of change orders.
National Electrical Contractors Association (NECA) – like previous methods, this organization provided a checklist of some 25 factors affecting the project.
Mathews Curve – the Mathews Curve is a simple graph wherein percent of delay or disruption is shown on the x-axis while the percent increase in cost is shown on the y-axis. By taking the percent disruption (days of delay divided by scheduled contract duration), the corresponding percentage of increased cost can be determined on the vertical axis. This method usually cannot stand alone in an analysis – additional support of impact is likely necessary to be successful.
Cost Basis – this method (there are modified methods too) of analysis involves a simple calculation of actual cost minus bid cost. The difference in cost is marked up and submitted to the owner. Although simple in its approach and easy to substantiate from job cost accounting, it is generally frowned upon during dispute resolution proceedings.
My Story. There are certainly other methods used in claims analysis. Of the six listed above, I’ve used four of them. None of them stands on their own. In order to be successful, there must be a combination of narrative, supportive documentation, and financial calculations working together to tell the story clearly and succinctly to the audience (a Contracting Officer, a mediator, a judge, et cetera).