The “total cost method” of pricing reduced labor productivity, sometimes known as lost efficiency, is held in low regard. It simply compares labor hours bid with actual hours expended and assigns all responsibility for the overrun to the project owner. There is no evidence of the reasonableness of the contractor’s bid or the causation of the overrun. Many state courts have expressly repudiated the method. But what happens if state law is silent? Can the method be used?
A Missouri court applying Kansas law recently addressed this issue. While there is no Kansas precedent regarding use of the total cost method, Kansas law does require breach of contract damages to be proved with reasonable certainty. The total cost method is too speculative to meet this standard. A contractor employing the method could not recover for breach of contract and could not enforce its mechanic’s lien.
The other case in this issue involved a federal office’s use of a commercial item contract form for the procurement of construction services. Although this resulted in some awkward language, the clear intent of the overall agreement was unit-priced payment for actual quantities placed. This was not a fixed-price contract.
The staff of Construction Claims Advisor wishes you a
Safe, Happy and Healthy 2023.