The “total cost method” of quantifying construction claims has always had a bad reputation. The technique compares the cost of the work as bid with the cost of the work as performed and attributes all the cost increase to the acts or omissions of the project owner. It has been considered a bad practice because it is imprecise and it lacks proof of causation by the owner. Now, however, the technique has been resurrected as the “modified total cost method.” And it is enjoying success.
The modified version of the claim quantification method addresses the concerns that led to the previous version’s ill repute – and lack of persuasive effect with courts, arbitrators and administrative boards. The modified method confronts both the imprecision and causation issues by segregating the aspects of the work affected by the project owner’s shortcomings. And the modified approach does not blindly accept the contractor’s pre-bid cost estimates or the contractor’s as-performed job cost records.
A recent Ohio case illustrated the effective use of the modified total cost method in the context of pricing an acceleration claim. The contractor’s expert segregated the aspects of the work where labor costs were affected by the accelerated pace. He examined the contractor’s pre-bid labor hour estimates and adjusted them upward in accordance with industry cost data publications, making the estimates more reasonable. He tested and confirmed the accuracy of the contractor’s job cost tracking system as it applied to labor hours. And he itemized and broke out labor hours incurred in the correction of defective work and other efforts unrelated to the acceleration.
As always, I invite your comments. Does the modified total cost method effectively address the weaknesses of the original method? Or is it merely a dressed up quantification method, subject to the same criticisms? Is the modified total price method appropriate for pricing all types of claims? Or should it be used only in limited circumstances?
Featured In next week's Construction Claims Advisor:
- Acceleration Labor Costs Proved Through Modified Total Cost Approach
- Anti-Indemnification Law Applied to Construction Equipment Rental Agreement
- Mechanic’s Lien Valid Despite Void Underlying Contract
Bruce Jervis, Editor
Construction Claims Advisor