Case Study: A Strategic Claim Analysis
Pinnell/Busch was recently contacted by a 2nd tier subcontractor to help prepare a claim. They were experiencing significant delays and cost overruns on an out-of-state project and needed expert guidance to ensure a fair settlement.
What we discovered was typical of many disputes. The Contractor needed to receive payment for changes while preserving the business relationship. The key was improving communication and working relationships.
Improve Terminology
First, we suggested changing terminology. Rather than submitting a ‘claim,’ we recommended presenting it as a ‘Change Order Request.’ This would utilize the contract’s ‘Changes’ instead of ‘Disputes’ clause, setting a more positive tone.
Give Timely Notice
Be certain to give notice within the time specified in the contract. Otherwise, you may be denied recovery in some states and will have more difficulty collecting in any case.
Facilitate Communicat
ion
Next, we discussed the benefits of pro-actively communicating with the 1st tier sub and General Contractor. We recommended informal discussions about the pending request to ensure timely notice and clearly communicate the expectation of prompt, fair payment. A ‘heads up’ would avoid the appearance of a surprise attack.
Calculate Lost Productivity
Quantifying the amount of the change order request was the final task. Computing delay damages was straight- forward. Calculating loss of productivity (inefficiency), however, was difficult, as productivity cannot be recorded separately from bid work.
Use The Measured Mile
The most common method, a ‘Modified Total Cost Claim,’ is often contested and acceptable only if no other way to prove the loss is possible. We recommended a better approach – the ‘Measured Mile.’ The Contractor would measure the productivity under both impacted and un- impacted conditions, then claim the difference.
Measure Weekly Production
The Measured Mile requires Contractors to record weekly production rates, which few Contractors record. To use it: (1) estimate hours by cost code; (2) record labor hours against cost codes with enough detail to differentiate between impacted and un-impacted work (by floor number, sector, or when impacted); and (3) record quantities of work completed each week.
Control Costs
The importance of ongoing cost control was also discussed. Even without the need to prove lost productivity, Contractors should determine their productivity weekly in order to take corrective action if over budget. This is the only effective way to control costs; otherwise a Contractor will not know where they are cost-wise until work items are complete. This had been a factor in untimely notice of change and losses on previous projects.
In the above consultation, a request for help preparing a claim led to some ideas for far-reaching improvements to the Contractor’s processes. Applying these lessons to your business could aid in improving your bottom line.
Bottom Line Management For Long-Term Profitability
Although this case study reflects specific, separate tasks, we recommend that Contractors adopt our 'Bottom Line Management' approach. Instead of seeking higher volume or short-term savings, this approach focuses on satisfying the customer, investing in your people, and developing systems and procedures for long-term profitability.
Key features include:
- Knowing your market
- Knowing your competition
- Knowing your assets
- Determining your needs
- Prioritizing your needs
- Investing in the future
