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.
Labor 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 Costs
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://140.194.76.129/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.
The Punch List is Triune’s proprietary blog for discussing issues and providing insights specific to the commercial construction industry. Copyright 2014 TMV, LLC (Triune). Any and all rights reserved.
How To Prepare a Federal Government Construction Claim
Request for Equitable Adjustment and Construction Claims (Part 1)
By Kay Kendall
In the last article, “That’s Not In the Contract, Do I Still Have To Do It?” we discussed Requests for Equitable Adjustment (REAs) and Certified Claims.
The Federal Acquisition Register (FAR) provides government contracting guidelines for the government and contractors, including standard clauses for changes, differing site conditions, suspensions and terminations. The FAR also provides detailed cost principles for costs that are allowable and allocable to government contracts.
Documentation, Documentation, Documentation!
Let’s take a quick sidebar into contract administration. In this age of email and text messaging, it may seem convenient at the moment to send informal texts and emails for short communications, but when trying to piece events back together for documentation of REAs or Claims, often the communications are lost or difficult to find.
Many times those short communications make sense at the time because a phone call or a face-to-face conversation took place immediately before, but six months or a year later, they are unintelligible. Therefore, contractors should establish an organized method for tracking communications and documentation for each project.
Letters should be assigned serial numbers and include the serial number and the purpose of the letter in its subject or reference line. Request for Information (RFI) logs should be used to track RFI submissions and responses. Other useful tracking systems should be established for common documents transmitted to and from the government.
Formal Notification
Now back to the REA/Claim preparation. One very important step is to make sure that formal notification is given to the government if a change (directed or constructive) or even a delay/suspension/stop work order has occurred and that the contractor reserves its right to submit a REA or Claim. Once the notification is made, the government can remedy the situation, provide some sort of direction or just be notified that the contractor reserved its right.
Executive Summary
When preparing the REA or Claim, it is always good to start with an Executive Summary. It should briefly discuss the contract, the reason for the REA or Claim, how the issue arose and how it impacted the contractor. It should also include a summary of the costs included in the REA or Claim.
If a Certified Claim is being submitted, then the claim certification should be included. The certification language should match exactly that of the Disputes Clause of the contract and be signed by someone duly authorized to sign on behalf of the contractor.
Every REA and Claim should include these three basic elements: legal basis for the Claim, causation and damages.
Legal Basis of Claim
In order to present the REA or Claim, the legal basis must be established. The contractor must make sure that it has not waived its legal basis for the REA or Claim. Extreme caution should be taken not to waive the rights to the REA or Claim by signing other contract modifications that include blanket waivers of all prior issues. Another thing to watch out for is signing contract modifications for time extensions that waive time extensions for previous events.
The legal basis of the REA or Claim should be identified. If there was a change directed by the government or a constructive change, then the Changes Clause of the contract would apply and should be listed as a contract clause relevant to the REA or Claim. There are other contract clauses that entitle a contractor to an equitable adjustment, such as the Suspension Clause, Stop Work Order Clause and the Differing Site Conditions Clause, to name a few.
Claim Causation
After identifying the legal basis, the causation needs to be established – the contractor needs to be able to connect the dots and show how the government’s actions (or inaction) were responsible for the cost and/or time impact.
Damage Calculation
Next, the contractor needs to accurately quantify the cost impact. In the event that a change is directed to the contract to add an element of work, if the contractor can track those costs in the job cost report by creating a job cost code specifically for costs related to the change, this will help make the quantification process easier.
Sometimes it isn’t that simple, though. In the event of a change that increases the quantity of an existing work item, and not necessarily at an identifiable point in time, it is hard to identify how much labor was spent on increasing the quantity.
An example would be an electrical change to a project. Let’s say each room in an office building had three electrical outlets shown on the plans, and before the work is performed a change is issued stating that now some rooms will have five, some seven and some two. It is not possible to track the actual cost for performing the changed work because it is co-mingled with the original work. In situations like this, estimates must be used.
More discussion on pricing the government REA and Certified Claim will be provided in the next article.
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: As I have said many times before one of the keys to successfully completing construction contracts is through documentation, documentation and more documentation.
You should approach each contract with a litigious mindset, i.e. hope for the best but plan for the worse. This mindset should be common practice for all personnel who work on any component of a project.
The Punch List is Triune’s proprietary blog for discussing issues and providing insights specific to the commercial construction industry. Copyright 2014 TMV, LLC (Triune). Any and all rights reserved.
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