AASHTO Subcommittee on Construction • San Francisco • August 14, 2012
Meet Your Instructor, Scott Lowe, P.E.
• Principal , Trauner Consulting Services
• 30 Years Experience
• Professional Engineer
• Instructor, Scheduler, Author,
Analyst, Expert Witness
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What Will We Be Talking About?
• What is a claim and why would home office overhead
be a part of the claim costs?
• What is the legal framework upon which recovery would
be based?
• How is unabsorbed home office overhead calculated?
• Some possible contractual language to consider with
regard to addressing unabsorbed home office overhead.
• Offsets
• Fraud
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What is a Claim?
A claim is an unresolved dispute.
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Call it Macaroni
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What are the Parts of a Claim?
•Entitlement
•Impact
•Cost
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Entitlement answers the question…
Was there a Change?
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An Impact is…
the effect or consequence
of the change.
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The cost of a change is …
the price or value assigned
to the change.
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Impacts
• The need for more or different materials
• The need for more labor or labor with different skills
• The need to operate equipment longer or the need for
different equipment
• Delays
• Inefficiencies
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Delays have Two Causes
• Delays caused by the addition of work
• Delays caused by the suspension of work
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Delays Come in Two Types
• Non-critical Delays
• Critical Delays
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Delays Come in Several “Flavors”
• Excusable
• Non-excusable
• Compensable
• Non-compensable
• Concurrent
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Example Provision: The Contract
108.6.1 General*
If warranted, the engineer will extend the contract completion date by issuing a
"Contract Amendment" (Form E_61). The engineer will do so only if an excusable
delay extends the scheduled late finish date beyond the lattermost contract
completion date or its most recent extension. The engineer will not consider a
request to revise partial or contract completion dates without notice as specified in
subsection 104.2.7, "Contractor-Department Notification," and without
documentation from the project schedule, including updates, supporting the need
for a revision. The engineer will evaluate the information submitted and determine
the time extension due, if any.
* Excerpted from the Wyoming Department of Transportation, Section
108.6, Extension to the Contract Completion Date
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Example Provision: The Contract
108.6.1 General*
If warranted, the engineer will extend the contract completion date by issuing a
"Contract Amendment" (Form E_61). The engineer will do so only if an excusable
delay extends the scheduled late finish date beyond the lattermost contract
completion date or its most recent extension. The engineer will not consider a
request to revise partial or contract completion dates without notice as specified in
subsection 104.2.7, "Contractor-Department Notification," and without
documentation from the project schedule, including updates, supporting the need
for a revision. The engineer will evaluate the information submitted and determine
the time extension due, if any.
* Excerpted from the Wyoming Department of Transportation, Section
108.6, Extension to the Contract Completion Date
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The Contract
108.6.1 General
The engineer will not grant a time extension based on pleas that the contract
specified insufficient time for the completion of the project.
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The Contract
108.6.2 Excusable Delays
Excusable delays are delays that the contractor cannot reasonably foresee or avoid
and are not the contractor's fault or responsibility; they include, but are not limited
to:
1. delays due to floods, tornadoes, lightning 5. delays from industry-wide strikes affecting
2.
3.
4.
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strikes, earthquakes, fires, epidemics, or
similar natural phenomena;
weather delays as specified in subsection
108.6.5, "Working Day Extensions for
Increased Quantities";
extraordinary, unforeseen, and
unavoidable delays in material deliveries;
delays due to the acts of government
entities other than the department;
6.
7.
the contractor's (or subcontractors' or
suppliers') workforce that are beyond the
contractor's power to settle;
if time allowances are not specified, or if
specified allowances are exceeded, delays
caused by the noncompletion of work by
utilities or other third parties;
delays arising from a contract amendment
in accordance with subsection 104.2,
"Contract Amendments."
The Contract
108.6.2 Excusable Delays
Excusable delays are delays that the contractor cannot reasonably foresee or avoid
and are not the contractor's fault or responsibility; they include, but are not limited
to:
1. delays due to floods, tornadoes, lightning 5. delays from industry-wide strikes affecting
2.
3.
4.
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strikes, earthquakes, fires, epidemics, or
similar natural phenomena;
weather delays as specified in subsection
108.6.5, "Working Day Extensions for
Increased Quantities";
extraordinary, unforeseen, and
unavoidable delays in material deliveries;
delays due to the acts of government
entities other than the department;
6.
7.
the contractor's (or subcontractors' or
suppliers') workforce that are beyond the
contractor's power to settle;
if time allowances are not specified, or if
specified allowances are exceeded, delays
caused by the noncompletion of work by
utilities or other third parties;
delays arising from a contract amendment
in accordance with subsection 104.2,
"Contract Amendments."
The Contract
108.6.3 Nonexcusable Delays
Nonexcusable delays are delays caused by the contractor or that the contractor
could reasonably have foreseen or avoided. The engineer will not make an extension
to partial or contract completion dates for nonexcusable delays.
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Concurrent Delay
8. Concurrent Delays. Concurrent delays are separate delays
to critical activities occurring at the same time. When a nonexcusable delay is concurrent with an excusable delay, the
Contractor is not entitled to a time extension for the period the
non-excusable delay is concurrent with the excusable delay.
When a non-compensable delay is concurrent with a
compensable delay, the Contractor is entitled to a contract
time extension but not entitled to compensation for the period
the non-compensable delay is concurrent with the
compensable delay.
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Compensation for Delay
• Labor (Idle, Extended, Cost Escalation)
• Equipment (Idle, Extended)
• Material (Cost escalation and Storage)
• Overhead (Field and Home Office)
• Profit
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Overhead
• Field Office Overhead costs are the costs of
maintaining operations in the field that cannot be
assigned to a particular item of work.
• Home Office Overhead costs are the costs of
maintaining operation in the field that cannot be
assigned to a particular project.
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How Do Contractor’s Bid Overhead?
Contractor’s traditionally bid field and home office
overhead differently. Field office overhead is bid much as
any “item.” The contractor estimates the cost of providing
field office services. In contrast, home office costs are
usually included as a “mark up,” sometimes labeled as
G&A (General and Administrative). Sometimes, this
number includes profit, as well.
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Entitlement to Recovery of Home Office Overhead
United States Court of Appeals for the Federal Circuit
02-1290, -1401
P.J. DICK INCORPORATED, Appellant,
v.
Anthony J. Principi, SECRETARY OF VETERANS AFFAIRS, Appellee.
--------------------------------------------------------------------------------------------------Anthony J. Principi, SECRETARY OF VETERANS AFFAIRS, Appellant,
v.
P.J. DICK INCORPORATED, Appellee.
__________________________
DECIDED: April 7, 2003
_________________________
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And What Does This Case Say?
To show entitlement to … Eichleay damages, the contractor must:
1. …first prove there was a government-caused delay to contract performance…
2. …that was not concurrent with a delay caused by the contractor or some other
reason…
3. …The contractor must also show that the original time for performance of the contract
was thereby extended, or that he finished the contract on time or early but
nonetheless incurred additional, unabsorbed overhead expenses because he had
planned to finish even sooner…
4. …it must then prove that it was required to remain on standby during that delay.
5. If the contractor proves these three elements it has made a prima facie case of
entitlement and a burden of production shifts to the government to show that it was
not impractical for the contractor to take on replacement work and thereby mitigate
its damages.
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What Else Does it Say?
Our case law allows recovery where there has been a suspension
of work on the contract but no delay to completion of the contract
where, in addition to all of the other prerequisites to Eichleay
damages, a contractor shows from the outset of the contract it:
“(1) intended to complete the contract early; (2) had the capability
to do so; and (3) actually would have completed early, but for the
government’s actions.” In other words, “to show that any portion
of the overhead was unabsorbed, such a contractor must prove
that the bargained for ratio of performance revenue to fixed
overhead costs during the stipulated performance period . . . has
been adversely affected by the delay.”
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What Else?
This court has previously discussed the requirement in great detail
and we direct the reader to that discussion for more guidance. All
State Boiler, 146 F.3d at 1373-81, 1381-82; see also id. at 1381
(“[W]e clarify that it is the delay at the end of performance
resulting from that suspension that results in unabsorbed
overhead expenses which a contractor may recover under
Eichleay. Thus, the relevant time frame for replacement work
analysis begins at the start of the suspension period and continues
to the end of the extension period.”).
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And…
In short, a court evaluating a contractor’s claim for Eichleay damages should
ask the following questions: (1) was there a government-caused delay that was
not concurrent with another delay caused by some other source; (2) did the
contractor demonstrate that it incurred additional overhead (i.e., was the
original time frame for completion extended or did the contractor satisfy the
Interstate three-part test); (3) did the government CO issue a suspension or
other order expressly putting the contractor on standby; (4) if not, can the
contractor prove there was a delay of indefinite duration during which it could
not bill substantial amounts of work on the contract and at the end of which it
was required to be able to return to work on the contract at full speed and
immediately; (5) can the government satisfy its burden of production showing
that it was not impractical for the contractor to take on replacement work (i.e.,
a new contract) and thereby mitigate its damages; and (6) if the government
meets its burden of production, can the contractor satisfy its burden of
persuasion that it was impractical for it to obtain sufficient replacement work.
Only where the above exacting requirements can be satisfied will a contractor
be entitled to Eichleay damages.
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And…
Turning to PJD’s specific legal argument, our review of the law
makes clear that the Board applied the correct legal standard for
standby. Our case law clearly requires that the contractor must
show a suspension, whether formal or functional, of all or most of
the work on the contract.
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What Do the States Do?
From NCHRP Synthesis 315, Compensation for
Contractors’ Home Office Overhead, states approach
this issue three ways:
• Avoidance Model
• Compliance Model
• Proactive Model
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Specifications
There are four basic solutions to the question of how to
handle unabsorbed home office overhead:
1. Silence
2. Denial of reimbursement
3. Allowance as a mark up, only
4. Reimbursement by formula
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Silence
The Wyoming DOT standard specification does not
explicitly use the phrase “home office overhead.” It
does not expressly forbid payment of home office
overhead, but also does not expressly provide for its
payment.
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Denial of Reimbursement
PennDOT’s standard specifications deny payment of
home office overhead:
“111.02 General Conditions Concerning Delay
Claims…the following items of damage cannot be
included in any delay claim against the Department:
• home office overhead, including but not limited to
costs of any kind for home office personnel…
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Allowance as a Mark Up, Only
• The new Michigan DOT standard specifications
(2012), limit compensation for home office overhead
to a mark up.
“109.05.G Unrecoverable Costs. The Contractor is
not entitled to compensation of costs not specifically
allowed or provided for in this subsection
including…”
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109.05.G Unrecoverable Costs.
“5. Unabsorbed or extended home of field office
overhead or any damages using an Eichleay or similar
equation, except as otherwise provided in the mark
ups specified…”
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Reimbursement by Formula
• Ohio DOT
• Florida DOT
• Minnesota DOT *
*Minnesota DOT has contemplated the use of this approach for its shutdown claims.
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Questions
“The one thing I’ve always looked for or considered
were any deductions for HOH and profit that would
have been paid as a result of quantity overruns. For
example, if a pay item overran by $100,000, could you
assume that 15% was built into that item for profit and
OH, and therefore a deduction for $15,000 (or $8,000
assuming 8% for OH) should be deducted from any
“absorbed” costs, or is it all contractor profit?”
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Discussion
This is the foundation upon which most DOT’s base
their delay compensation provisions – that the mark
ups provided on the costs of the change provide full
and complete (or at least adequate) compensation for
home office overhead.
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Further Discussion
1. What if the delay was the result of a suspension of
work? Would a “mark up” based approach work?
2. Is the compensation provided via a mark up
adequate to compensate a contractor for home
office overhead?
3. What is a “typical” contractor’s home office
overhead cost as a percentage of a contractor’s
revenue?
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Questions
2. Court decisions or policy updates related to
falsification of claims.
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Discussion
White Construction Company, Inc. won the three projects in Marion
County with a combined bid price of $31,876,176.81. The Department of
Transportation paid White Construction $34,064,038.51 for the total job.
The additional money was paid for changes and unforeseen problems. At
the conclusion of the projects, William Cooper prepared claims which
White Construction Company, Inc. filed against the FDOT for an additional
$30,636,440.97. Investigation revealed that Cooper had committed fraud
by double and triple billing DOT for labor and equipment and by filing
claims for incidents which did not occur.
White Construction won the Walton County project bid for $4,009,218.16.
White Construction Company, Inc. was paid the contract amount and then
filed claims against the FDOT for another $3,658,666.42.
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Outcome
Attorney General Charlie Crist today announced that White Construction Company, a major road
builder headquartered in Chiefland, FL has pled guilty to six counts of Grand Theft. As a result of
the plea agreement, White Construction was placed on probation for 30 years and is barred from
doing business with the Florida Department of Transportation (FDOT) for 30 years. In addition, the
company was ordered to pay restitution as well as costs of the investigation and prosecution
totaling almost $1.5 million and fined $60,000.
The company was charged with making inflated, fraudulent claims for extra compensation on
state highway contracts. White Construction was also charged with filing claims that detailed
double and triple-billing for every laborer and piece of equipment used on certain state projects…
In addition to the sanctions on the company, Luther M. White, Jr., 59, was placed on probation for
30 years and barred from doing business with FDOT for 30 years. As the family member who ran
the company, he was separately fined $10,000 and also made liable with the company for the
restitution and costs.
The charges against the company and family members resulted from an investigation initiated and
conducted by the Office of Inspector General of the Florida Department of Transportation,
assisted by the Office of Inspector General of the U.S. Department of Transportation and the
Florida Department of Law Enforcement. The case was prosecuted by the Attorney General's
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Office of Statewide Prosecution.
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New Jersey False Claims Act
a. Knowingly presents or causes to be presented to an employee, officer or agent of the
State, or to any contractor, grantee, or other recipient of State funds, a false or
fraudulent claim for payment or approval;
b. Knowingly makes, uses, or causes to be made or used a false record or statement to get
a false or fraudulent claim paid or approved by the State;
c. Conspires to defraud the State by getting a false or fraudulent claim allowed or paid by
the State…
e. Is authorized to make or deliver a document certifying receipt of property used or to be
used by the State and, intending to defraud the entity, makes or delivers a receipt
without completely knowing that the information on the receipt is true…
g. Knowingly makes, uses, or causes to be made or used a false record or statement to
conceal, avoid, or decrease an obligation to pay or transmit money or property to the
State.
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Questions?
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More Information?
Please contact me at:
(215) 814-6400
or
scott.lowe@traunerconsulting.com
Or visit our website:
www.TraunerConsulting.com
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