Accurately estimating construction costs requires a thorough understanding of project specific criteria, including the scope of work, project plans, applicable specifications, scheduling, project phasing, site-specific restraints, and construction methods. Based on the complexity of the process and the value of construction projects, these estimates are frequently disputed.
In this article, Civil Engineer Michael Tuttman discusses the key criteria considered when forensically investigating a construction cost dispute.
Resolving Construction Cost Disputes for Extra Work on Highway Projects – Expert Article
Extra work may be required on construction projects when unexpected conditions arise. In order to avoid costly delays, extra work usually needs to be attended to right away, by the general contractor, without a formal bidding process. Accepted methods for estimating the costs of extra work include Force Account Work, Agency Weighted Item Average Prices, and nationally recognized construction cost data.
Force Account Work
Sometimes costs can be determined by the contractor, and accepted by the Owner, before the work is done. This results in an Agreed Price that will pay for what’s needed. If an Agreed Price cannot be arrived at, and the work needs to start before an agreement between the Owner and the Contractor can be negotiated, construction activities, including costs for labor, equipment and materials, can be tracked, and documented, with the reasonable total actual cost calculated after the fact. This process is sometimes referred to as Extra Work on a Force Account basis, or simply Force Account Work.
A Force Account tracks Labor (regular and overtime hours plus fringe benefits), Equipment, Material and other costs, and often includes a markup to cover the Contractor’s Overhead and Profit (O&P).
On public works, Prevailing Wages are set for various trades (Laborer, Equipment Operator, Carpenter, Iron Worker, and many others) in four different areas of construction (Residential, Heavy, Building, and Highway). They are calculated by the United States Department of Labor. Prevailing Wages can, and usually do, differ by county and sometimes even by smaller areas within a particular county, such as a city. It’s possible for a project, such as a highway or a bridge, to be in more than one county leading to different Prevailing Wage rates applying to different locations throughout the job site. In such cases it is a common practice for a contractor to pay the higher rate to all workers throughout the project to simplify bookkeeping.
The cost of equipment used comprises a significant portion of overall construction costs. Equipment Costs are typically taken from the Rental Rate Blue Book for Construction Equipment published by Primedia. The “Blue Book” is an industry-wide accepted resource and contains rate tables for most types of equipment found on construction sites, from large excavators to pick-up trucks to pumps and compressors. The tables give Ownership Cost (subdivided for Monthly, Weekly, Daily, and Hourly usage) and Operating Cost (per hour). Ownership Costs can be factored to account for the age of a particular piece of equipment and the region in which the project is located.
Generally, equipment cost is only calculated for the number of hours a piece of equipment is used on tasks directly related to the claim; however idle time is sometimes accounted for, primarily in cases when a piece of equipment is specially required and brought to the site only for Force Account work. Costs for mobilization and demobilization can also be included in the claim when specific equipment is specially brought in.
Material Costs come in three different categories: Materials Incorporated into the Work, Temporary Materials, and Consumables.
- Materials Incorporated into the Work will remain in-place after the project is complete. You can think of materials such as steel girders, windows, and any other materials that comprise the finished project. Applicable sales tax and transportation costs may also be reimbursable as part of the total permanent material cost.
- Temporary Materials are those used during construction activities. These items may be purchased specifically for the project or taken from the contractor’s stock (such as scaffolding or bridge overhang brackets). If these materials have salvage value, once they are finished being used, this can be deducted from their claimed cost. Temporary Materials are typically taxable and this cost can be included in a claim.
- Consumable Materials are construction materials used in the course of the contractor’s work such as welding gases, grinding wheels, drill bits and disposable protective suits. Their costs can be included in a claim. Durable items such as hand tools are not considered Consumables.
In addition to labor, materials, and equipment there are a number of other costs considered when estimating the cost of extra work.
- Subcontracting Costs are reimbursable if a portion, or all, of the Force Account work is performed by an approved subcontractor. A contractor mark-up may be applied to these costs as part of the claim.
- Service Costs associated with outside companies that are not necessarily subcontractors, usually for specialty tasks such as concrete cutting, tree trimming, etc. may also be reimbursable. Professional services, such as those provided to the contractor by an outside engineer, can also be part of a Force Account claim.
- Overhead and Profit (O&P) accounts for contractor’s expenses not covered in the above categories plus an allowance for the contractor to make a profit. Included in O&P are such costs as superintendent and management salaries, administrative costs, and office expenses. The O&P markup is typically applied as a percentage of direct labor costs (straight time), equipment, and material costs. These are multiplied by set factors for labor, materials, and equipment. O&P is also applied to subcontractor costs and services at a lower percentage.
Other Cost Estimating Options
Agency Weighted Average Item Prices - Sometimes Owners, usually government agencies such as state Departments of Transportation, publish information on Weighted Average Item Prices. This is a history of previously awarded unit costs for work items defined in the Owner’s specifications. As part of the price negotiation for extra work, the Contractor and owner may agree to unit prices to perform work using the applicable Weighted Average Item Price in lieu of tracking the work as a Force Account claim.
Nationally Recognized Construction Cost Data - Cost estimating for private (non-public works) projects can be done using nationally recognized estimating sources such as the RSMeans Catalog. This is an industry-wide accepted resource that is published yearly. In the Catalog construction activities are divided into 16 Divisions, with each subdivision divided into hundreds of tasks. Each of these tasks is assigned a unit cost which can then be multiplied by the required quantities.
COST ESTIMATING CASE EXAMPLES
Site Damage Caused by Vehicle Crash - A contractor claimed more than $350,000 in costs for damage caused by an errant vehicle. The investigation included documenting, and quantifying, actual damages incurred in comparison to what was claimed, establishing an appropriate scope of work for repairs, and estimating a reasonable cost for that work. Using the Contractor’s bid prices for that specific project the cost estimate was reduced to under $50,000.
Replacement of Underground Vault – A brick vault, located under a city sidewalk, was replaced by excavating, demolishing, and subsequently constructing a new cast-in-place concrete structure, and site restoration. The contractor invoiced for construction costs of $198,000, plus $275,000 for engineering services yielding a total claimed cost of $473,000. Taking into account betterments, unnecessary work, and an unapplied credit, the reasonable construction cost for the as-built new vault was estimated as $163,000, plus an estimated reasonable engineering cost of $79,000, for a total as-built project cost of $242,000. Our expert also proposed an alternative construction method that was estimated at $107,750 total for both construction and engineering costs.
Repair to Highway Overpass – A highway overpass was damaged from underneath by an over-height vehicle. A dispute arose regarding the Force Account claim for the repair. Robson Forensic was retained to review documented costs for emergency response and temporary stabilization, engineering, demolition, and replacement. The result of our expert’s investigations confirmed the Force Account estimate was reasonable.
Investigating Cost Estimating Disputes
Within the context of a construction claim or dispute, Robson Forensic is positioned to provide a thorough investigation of your case, evaluating areas from improper procedures to estimates of reasonable costs involved, specialty aspects of construction techniques, and forensic investigation of damages claimed.
For more information, call us at 800.813.6736 or submit an inquiry.
CIVIL ENGINEER, HIGHWAY & BRIDGE ENGINEERING EXPERT
Michael has more than 25 years of engineering and design experience in a diverse group of civil engineering disciplines including transportation design, heavy construction, design-build projects, construction inspection, materials testing, and more. As a project engineer on heavy-highway construction projects, Mike’s work has included hands-on experience including developing construction plans and specifications, scheduling, project safety, work zone traffic control, project management and dispute resolution. Michael earned his civil engineering degree from Union College and is a licensed Professional Engineer in more than a dozen states.