ConstructionPro Week, Volume: 3 - Issue: 6 - 02/07/2014

Is the ‘Total Cost’ Method Still Viable?

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.

 

COMMENTS

Bruce,

What is the name (or better yet, the citation) of the case that you are referring to? Thanks
Posted by: Mark Guevara - Friday, February 07, 2014 11:54 AM


A question that screams out to me is why didn't the owner issue a bid addendum prior to bid submittal, or at least negotiate the changed work with the Contractor prior to the start of work? I am curious also why there were conflicting, flawed quantity surveys..To me these are the more curious issues surrounding this case rather than the appropriateness of the Total Cost method to quantify the claim
Posted by: Phil L - Friday, February 07, 2014 12:07 PM


The government decision to relocate the borrow area occurred after contract award, so it was too late to amend the bid documents. The cost impact of the change on the unit-priced work was uncertain, so no attempt was made to prospectively negotiate a price change. The conflicting quantity surveys are curious. They were prepared after-the-fact and in anticipation of litigation. The Armed Services Board said the surveys submitted by each party were flawed and not persuasive. The citation is: Appeal of RBL Contracting, Inc., ASBCA No.57638 (January 3, 2014).
Posted by: Bruce Jervis - Saturday, February 08, 2014 8:43 AM


The contractor should have been immediately requested a delayed start and attempted to re-negotiate the bid price.

The additional cost would consist of labor, equipment, and fuel which are all a factor of the increased time/distance to/from the new borrow pit location.

The total cost method does not seem entirely fair because the contractor may be able to hide cost associated with "self-inflicted" wounds.

A good contractor should always be able to identify their increased cost in a manner that can be presented to the owner.
Posted by: Will G - Tuesday, February 11, 2014 5:48 PM


 









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