How To Price a Federal Government Construction Claim
How To Price a Federal Government Construction Claim
Pricing Labor and Equipment Cost for Government Construction REA or Claim (Part 2)
By Kay Kendall
After establishing the legal basis and causation of a REA or Claim, the damage costs must be quantified. The costs in the REA or Claim should be in sufficient detail to permit an analysis of all material, labor, equipment, subcontract and overhead costs, as well as profit, and should cover all work involved in the proposal, whether such work was deleted, added or changed.
In a previous article titled “That’s Not in the Contract, Do I Still Have To Do It?” we discussed one of the differences between a REA and a Claim: costs incurred in preparing and supporting the cost in a REA are generally allowable costs to include in the REA. Therefore, it is best to put as much supporting documentation and explanation into the REA as is available.
That way, when/if a Claim or even an appeal is pursued, the detail has already been done and it was done in the REA where the preparation costs are generally allowable. If the contractor prepares and submits the REA without adequate documentation to support the costs and then decides to go the Claim route, a more detailed document will need to be prepared for the Claim, or the same result may occur.
When possible, the contractor should set up a separate cost code to track the changed or delayed work. If there are multiple changes or delays, then multiple cost codes should be set up to track the costs.
If it is not possible to set up cost codes, the costs should be documented in other ways. Contractors Quality Control Reports are a good place to discuss costs and personnel working on changed or delayed items.
In this article, we will discuss labor and equipment costs.
When direct labor costs can be identified by the names of the personnel who performed the work, the actual labor rate of those personnel should be used to calculate the actual cost. Be sure to add costs related to labor, such as payroll taxes and fringes. Those employees who are not a part of direct labor or whose hours are not tracked to a specific project should compile contemporaneous notes of the time spent on the projects, were claims will be submitted.
Equipment usage and idle time related to the change or delay should be tracked. If the equipment is company owned, hourly rates can be obtained from the Corps of Engineers Construction Equipment Ownership and Operating Expenses Schedule.
It is also known as EP-1110-1-8 and has a volume for 12 different regions in the US and US territories.
It can be downloaded from the following website: http://22.214.171.124/publications/eng-pamphlets/EP_1110-1-8/toc.html.
The contractor will have to determine which region the project is in to apply the rates, and the appropriate year of the publication should be used for the time the work was performed. The Corps Equipment Schedule is referenced in many government contracts as the source to use for pricing equipment costs for changes.
Construction equipment rented from third parties should include an hourly rental rate based on the monthly, weekly or daily rate – whichever was invoiced. If the equipment was active (or operating), the fuel costs should be added. The Corps Equipment Schedule is a good source for obtaining hourly fuel costs, as it has some cost elements broken out of the rate.
If the fuel costs used in the Corps Equipment Schedule are significantly lower than the actual current fuel costs, the fuel costs can be adjusted by dividing the fuel cost in the schedule by the cost per gallon used in the Corps Equipment Schedule, then multiplying by the current fuel cost. On smaller REA’s and Claims, the difference is not significant, but on larger REA’s/Claims that include many pieces of equipment performing work for a large change, the increased fuel cost could make a sizable difference.
If the construction equipment used in the change or sitting idle during a delay is not specifically listed in the Corps Equipment Schedule, then a similar piece of equipment can be used. In determining a similar piece of equipment, such as a bulldozer, comparing HP, weight, purchase price and similar functions and attachments can be used to determine a comparable piece of equipment to use in the REA/Claim price.
Standby rates are applicable to periods when the equipment is dedicated to the change or delay and the equipment is idle. Standby costs for equipment are not applicable if the equipment would have been idle anyway.
In the next article we will discuss material costs, subcontractor costs and job site overhead costs.
Kay Kendall is currently president of Kendall-Dinielli Consulting, providing consulting services to government and commercial clients. She has extensive experience in preparing requests for equitable adjustment proposals and claims for government construction contractors. She has also consulted Contractors with DCAA audits and resolving audit disputes. You can visit Kendall-Dinielli Consulting at www.kendall-dinielli.com.
Vince – the blogger Reality Bite: We as a company went nearly 10 years without having to file a Certified Claim on a federal project. Fortunately, we were prepared with good documentation and we were eventually made whole. I think the biggest issue we have encountered with claims is making sure that we recover those costs of non-direct job cost personnel.
As a company you need to make sure non-direct personnel involved keep daily detailed notes including hours spent working on your claims. Don’t allow your profits to take a hit because you underestimate the non-direct expenses incurred as a result of REA’s and claims.
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