The sluggish economy has created significant challenges for contractors, including reduced opportunities to win work. Plus, when a contractor wins a project, there’s no guarantee of timely payment—unless the contract includes specific language.
Now is the time for contractors to review their business operations and ensure that best practices minimize losses and maximize profitability.
Many factors beyond a contractor’s control can play a role in costly construction delays. For example, a construction project may begin with good weather and supplies being delivered on time. But things can take a sudden turn for the worse if other contractors, vendors, safety inspections or even the owner cause delays—leading to higher expenses and the need to file a claim against the project.
Contractor Checklist From the beginning of a project, when no problems exist, contractors should ensure all agreements are in writing and have a clear understanding of each one.
All agreements made prior to committing to a final contract should be included in the documentation in case a contractor needs to present all of the job specifics to a third party. This is crucial because the law usually renders inadmissible any verbal changes made to a contract after the final writing.
Before beginning a construction project, contractors should keep in mind the following checklist of items needed for a claim.
- Keep all bid documentation and record any pre-contractual agreements.
- Ensure a fully signed written agreement is in place.
- Keep all project correspondence in a job folder specifically related to each project.
- Record all relevant conversations and send follow-up correspondence.
- Take pictures or videos of the project in all stages of development.
- Keep all plans and drawings and create a job diary documenting the progression of the project.
- Record all key events, especially the ones that might lead to a claim.
- Record all change orders and claims for extras that are outside the scope of the original contract. In addition, be sure to document any additional costs caused by these items.
- Include a detailed narrative of events along with documentation in case a claim is submitted.
- Utilize fully absorbed job costing, including indirect costs such as labor, contract supervision, tools and equipment, and insurance.
- Be consistent in applying job costing on other projects. Any inconsistency in accounting could greatly weaken a claim.
- Include all components of labor burden. Often, contractors underestimate their actual labor burden rate, which ends up as a period cost and incorrectly is excluded from the claim.
- Use accurate and appropriate equipment and tool costs. Remember to charge these costs to the claim at the contract rates rather than the standard rates.
- Account for repeated mobilization and demobilization at the jobsite.
- Include any excess engineering costs that stem from change orders and requested extras.
- Include a clear calculation of damages with easy-to-follow schedules and supporting documentation to back up the claim.
- Assemble a good team to work on the claim, including an attorney with construction expertise, an accountant familiar with job costing and claims, a project manager, and subcontractors or other contractors that can reinforce the claim.
By following this checklist, contractors can increase their chances of winning a claim and ultimately prevent costly litigation. Remember, 95 percent of claims can be avoided by documenting changes to the job before the project begins.