Budget structures vary by the type of construction a contractor performs. For example, subcontractors typically have a significant amount of their costs allocated to direct labor and materials while general contractors’ budgets are likely to have more subcontracted work on their books.
However, despite the differences in where the budget is weighted, every contractor, no matter its specialty, is vulnerable to cost overruns.
Weather delays
When serious rain, snow or other weather events keep contractors from making progress on their jobs, it’s not uncommon that both subs and GCs have those lost days tacked onto their schedules. But what about the extra costs?
“If we get a rain day, it’s not like we can send the superintendent home and not pay him,” said Chuck Taylor, director of operations for Englewood Construction in Illinois. “If we have a construction trailer, it’s not like we can tell the rental company, ‘Hey, it rained today, so we’re not going to pay for the rental on the trailer.’ It doesn’t work that way.”
Additional costs, which also include items like water remediation, wrapping an exposed building in protective material or bringing in expensive heaters, are often compounded by having to spend even more money on extra labor to make up lost time. That could mean paying for additional crews or paying workers overtime.
This is an area of contract or subcontract negotiations that deserves attention, and it never hurts to ask the owner or GC for reimbursement beyond just adding time to the schedule.
Joe McLaughlin, chief financial officer of Austin Industries in Dallas, said contractors need to take into consideration where they’re building and factor in potential weather issues. But, he said, it all goes back to what’s in the contract, so it benefits contractors to try to make the terms as flexible as possible.
Continue reading at: Construction Dive
In a case of first impression, a Court of Appeals has held that a government subcontractor’s claim for reimbursement of its actual indirect costs was time-barred.
In conducting a cost realism evaluation, an agency was entitled to use an offeror’s historic approved indirect rates and current incumbent direct labor rates to upwardly adjust the offeror’s evaluated cost, in a case where the offeror’s proposed rates were significantly lower.
The solicitation said that offerors’ proposed costs would be evaluated for realism, to determine whether the overall costs were realistic for the work to be performed, reflective of the offeror’s understanding of the requirements, and/or consistent with the technical proposal. To facilitate the evaluation, the RFP required offerors to substantiate their proposed direct and indirect labor rates through payroll verification, contingent offer letters, Defense Contract Audit Agency (DCAA) rate verification or approval letters, or other detailed justification methods. The cost realism analysis would then involve a calculation of each offeror’s evaluated costs, to reflect the estimated most probable costs. This determination would include an evaluation of the offeror’s cost information — including its substantiated labor rates.