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  • Writer's pictureDick Lieberman,Consultant

Mistakes in Contractors' Methods of Calculating Claims

When a contractor has a claim against the government, that contractor must prove three things: (1) liability-the government did something that changed the contractor’s costs for which the government is liable; (2) causation-there exists a causal relationship between the basis for liability and the claimed increase in costs; and (3) resultant injury-how much the first two elements increased the contractor’s cost. Servidone Constr. Corp. v. United States, 931 F 2d 860, 861 (Fed Cir. 1991). The contractor, as the party claiming the adjustment of the adjustment, must prove the amount of loss with sufficient certainty so that the determination of the amount of damages is more than mere speculation. Wilner v. United States 24 F 3d 1397 (Fed. Cir. 1994).

There are normally three methods used to calculate the claim: (1) actual costs incurred (the preferred method), (2) total cost method or (3) a jury verdict method. For most claims, “actual costs incurred” must be shown to the Board or Court’s satisfaction. Don’t make the mistake of thinking you can avoid proving your actual costs. The last two methods are only used in special situations warranting them). A case at the Armed Services Board (“ASBCA”) demonstrates the type of information that can be used to support these methods. RLB Contracting, Inc., ASBCA No. 57638, Jan. 3, 2014. In RLB, the Government admitted liability and causation, so the only issue was the damages.

RLB had a contract from the Corps of Engineers to enlarge a levee using material excavated from an adjacent ditch. When the government realigned the ditch, RLB incurred additional costs, and submitted a claim for $2.8 million. The basic method of proving quantum (amount) of the claim is to prove the difference between the reasonable cost of the work as originally required, and the reasonable cost to perform the work as changed. B.R. Servs, Inc., ASBCA No. 47673, 99-2 BCA para 30,397. However, RLB found it impossible to break out the specific costs from the realignment and the resulting changes.

RLB therefore chose to employ the Total Cost method, stating it was entitled to the reasonable value of the work as measured by the total cost of excavation minus the amount already paid for the work. The Board noted that the Total Cost method is not preferred “because it assumes that all additional costs of performance are solely the government’s fault.” The Board noted four safeguards that a claimant must prove in order to use the Total Cost Method:

  • Nature of the cost is impossible or highly impracticable to determine with certainty

  • Contractor’s bid was realistic

  • Contractor’s actual incurred costs were reasonable

  • Contractor was not responsible for any of the added costs.

Raytheon Co. v. United States, 305 F. 3d 1354 (Fed. Cir. 2002). The Board noted that a Total Cost claim should be equal to the difference between the bid cost of the contract and the actual cost of performing the work as changed. But this was impossible to determine because RLB’s total bid amount was indeterminate and was based on the final actual number of cubic yards of dirt placed. Furthermore, the board noted that it was unclear whether all of the incurred cost in excess of the (estimated) bid were solely the fault of the government. So the Board rejected the total cost method and examined whether it could make award based on a jury verdict, the last, final and least preferred method it could use.

There are three elements required for a jury verdict. Grumman Aero. V. Wynne, 497 F.3d 1350, (Fed. Cir. 2007): (1) clear proof of injury (the government had conceded this); (2) there is no more reliable method for computing damages (the Board acknowledged this); and (3) evidence is sufficient for the Board to make a fair and reasonable approximation of damages. The Board stated that there was sufficient evidence for it to make a fair and reasonable approximation. The Board found that RLB could recover 65% of its total embankment costs as a result of the government’s actions—or $2.1 million.

TIPS: When proving your claim, actual incurred costs for the revised/changed work is the best thing to use for proof of the claim, if your accounting system can support that method. Only if you are forced by lack of actual data should you use the total cost method, and only if that method is not permitted should you seek a jury verdict method.

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