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Construction is fraught with challenges; following a few best practices will go a long way if terminations occur.

  1. If it is worth doing, it is worth documenting: Project records are key to identifying and substantiating completion costs. Records will be requested and must be furnished to the defaulted party upon request. Good project records often include photographs and descriptive narrative in the daily field reports.
  2. Change order, or ticket work, should be coded separately from base contract work: In order to allow for segregation of base contract work and change order/ticket work, it is recommended that necessary rework of the principal’s issues should be documented sufficiently and separately, with photographs and descriptive narrative. Work should be documented in the daily field reports and separately in a change order/ticket work report.
  3. Any self-induced deficiencies or inefficiencies should also be properly noted and removed from the recoverable costs: Proper documentation and fair assignment of costs provide credibility to the recovery of completion costs. Typically, when a contractor is terminated, detailed daily reports will be kept by the completing contractor to substantiate all work performed, as these logs are the primary means of record keeping for activities occurring onsite and are especially important in disputes.[1]

In summary, when the work is not properly documented, it may create issues substantiating the cost reasonableness and necessity of the costs. To read more about determining the reasonableness of completion costs post a termination-for-cause, please read the White Paper, authored by VERTEX’s Jeffrey Katz titled, How to Measure the Reasonableness of Completion Costs Post Termination-For-Cause.

References:

[1[ Clough, Richard H., et al. Construction Contracting: A Practical Guide to Company Management (Eight Ed.) (pp. 323 – 324). United States of America: John Wiley & Sons, 2015.  

Reasonableness of Construction Completion Costs from The Vertex Companies, Inc.

Author

Jeffrey Katz, PE

Division Manager