How Reliable Is the Total Cost or Modified Total Cost Method?

The total cost or modified total cost method is the most common contractor used means of quantifying contract damages, due to its simplicity. But the judiciary has placed limits on its use. In theory, before it can be used by a contractor in a court of law, the contractor must show that 1) all damages were the result of actions by the owner; 2) the project was sufficiently complex that there is no other way to satisfactorily quantify the damages; 3) the contractor's bid is correct; and 4) the costs are reasonable. This note focuses only on the correctness of the contractor's bid. The authors recently completed a benchmarking study of union interior system specialty contractors. The study relied on the use of a reference project and an accompanying shopping list of 10 commonly constructed items. In theory, all contractors were developing a bid on the same thing. The study was distributed nationally. Based on an analysis of 57 responses (and subsequently cleansed to 42 responses) the range of workhours to construct the shopping list was 1,247–2,500 with an average of 1,805. There is a twofold increase from the low to high bid. There are also significant differences between regions in close proximity to one another (e.g., northern and southern California and San Diego, Pittsburgh and Philadelphia, Chicago and St. Louis). The range in the total database is 1,253--a surprisingly large amount. The standard deviation in some regions of the United States was as large as the standard deviation of the total database. Based on these results, it is concluded that a contractor could make a sizable mistake in its bid and still be within the range of “correct” estimates. Almost any bid could be argued as correct. This hardly seems to be a reasonable standard of proof.

  • Availability:
  • Supplemental Notes:
    • Abstract reprinted with permission from ASCE
  • Authors:
    • Thomas, H Randolph
    • Volkman, Robert C
  • Publication Date: 2007-1

Language

  • English

Media Info

Subject/Index Terms

Filing Info

  • Accession Number: 01045086
  • Record Type: Publication
  • Files: TRIS
  • Created Date: Mar 6 2007 5:37PM