By Bruce Jervis
The “total cost” method of pricing changed work is controversial because it attributes all costs in excess of the contractor’s bid price to the owner’s change. The method is allowed only if: (1) it is highly impracticable to itemize and document the actual increased costs; (2) the contractor’s bid price was realistic; (3) the contractor’s actual costs were reasonable; and (4) the contractor was not responsible for any of the increased costs.
These requirements present a high bar. Add judicial antipathy (“not preferred” or even “last resort”) and it is surprising the total cost method is ever used. A recent decision by a federal administrative board adds another wrinkle.
A contract to enlarge an existing levee by placing and compacting excavated material was unit priced. After contract award and prior to excavation, the government changed the location of the borrow pit. This clearly increased the cost of the contractor’s performance, and the impact was so pervasive it wasn’t feasible to itemize the costs. Yet, the total cost method could not be used.
There was no accurate measurement of the actual quantity of material placed, only conflicting, flawed quantity surveys. Unable to multiply the bid unit price by the work performed, it was impossible to establish the baseline price for purposes of comparison to the actual cost.
What is your opinion? Given all of the prerequisites and restrictions, is the total cost method of pricing changed work still viable? From a standpoint of fairness, is it appropriate to take the increased costs and put them on the owner’s tab? What techniques can be used to modify the method to break out the contractor’s contribution to the increased costs? I welcome your comments.
