USE OF ESTIMATES IN PRICING CHANGES

Nearly every changes claim, request for equitable adjustment and breach of contract claim we have handled have involved estimated labor costs.  In the heat of battle, while the change or breach is occurring, most people do not take the time and trouble to set up a separate account for the change or breach to which they charge their time.  Prudent contractors, on the other hand, quickly identify the change and require all people to charge to a separate account which can be used later to collect the change/breach related costs.

Of course, the claim or equitable adjustment must be based on actual costs.  The time must have been recorded somewhere so the reality of the cost can be demonstrated.  The people who charged the time must then estimate (and testify if necessary) that they spent the time working on the changed work or the breach claim.

The case law on estimating is solid and goes back to the seminal case of Wunderlich v. United States, 351 F.2d 956 (Ct, Cl. 1965) where the court (now the Court of Federal Claims) said: "A claimant need not prove his damages with absolute certainty or mathematical exactitude . . . .  It is sufficient if he furnishes the court with a reasonable basis for computation, even though the result is only approximate . . . ."

In this sense it reasonably may be said that because the proof of costs is required, estimates must be backed up by some cost data.  The time spent must be recorded somewhere and the estimates must be based on a reconstruction of the change/breach account where they should have been charged.

Most sophisticated contracting officers are aware of these rules and allow discussion of estimated actual costs in negotiation of equitable adjustments and claims.  However, it may be necessary to remind some contracting officers of these rules.  If necessary, in an appeal to a board or court, you should be able to demonstrate the efficacy of your calculation of estimates to the judge.

We should add that the cost of preparing these estimates may be charged as a cost of contract administration in the request for equitable adjustment.  As a reminder, costs of preparing the equitable adjustment may be recovered as part of the equitable adjustment.  These costs also may be based on estimates.  However, such costs are not allowed once the negotiations fail and the equitable adjustment becomes a claim.

bill@spriggsconsultingservices.com                                  bill@spriggslawgroup.com