Collaboration of Entitlement and Cost Efforts in Claims Analysis Rubino & McGeehin Consulting Group June 27, 2005

June 27, 2000Rubino & McGeehin Consulting Group2 Cost Expert’s Role Understand the story behind the claim Understand the story behind the claim Understand the pricing of the claim Understand the pricing of the claim Understand the contractual relationships between the various parties Understand the contractual relationships between the various parties Analyze the cost data and underlying support to assess reasonableness and accuracy of the claim Analyze the cost data and underlying support to assess reasonableness and accuracy of the claim Assess the pricing methodologies for reasonableness Assess the pricing methodologies for reasonableness

June 27, 2000Rubino & McGeehin Consulting Group3 Typical Claim Issues Delay Delay Suspension Suspension Extra Work Extra Work Differing Site Conditions Differing Site Conditions Defective Specs Defective Specs Acceleration due to Delay Acceleration due to Delay Cumulative Impacts Cumulative Impacts

June 27, 2000Rubino & McGeehin Consulting Group4 Typical Claim Methods Total Cost Total Cost Modified Total Cost Modified Total Cost Inefficiency Percentage Estimates – Job Personnel/Experts/Published Manuals Inefficiency Percentage Estimates – Job Personnel/Experts/Published Manuals Measured Mile Measured Mile Other Discretely Priced Approaches Other Discretely Priced Approaches –Extra Work –Escalation –Overtime Premium due to Acceleration

June 27, 2000Rubino & McGeehin Consulting Group5 Typical Claimed Cost Types 1. General Conditions Costs – Extended Site Support and Supervision Extended Site Support and Supervision Additional Support due to Acceleration Additional Support due to Acceleration 2. Equipment Costs – Extended Time Extended Time Additional Extra Work Hours Additional Extra Work Hours Additional Fleet Items Brought to Job Additional Fleet Items Brought to Job Acceleration or Sequencing Changes Acceleration or Sequencing Changes

June 27, 2000Rubino & McGeehin Consulting Group6 Typical Claimed Cost Types (cont.) 3. Direct Labor Costs – Inefficiency Inefficiency Loss of Productivity Loss of Productivity Extra Work Extra Work 4. Home Office Overhead – Eichleay Eichleay Others Others 5. Subcontractor Costs – Pass thru Claims 6. Materials Costs – Increased Quantities

June 27, 2000Rubino & McGeehin Consulting Group7 What Value Does a Good Cost Expert Provide? Understanding of Construction Accounting and Impacts on Claims Understanding of Construction Accounting and Impacts on Claims Ability to Drill into Accounting Detail to Identify Actual versus Estimated Costs Ability to Drill into Accounting Detail to Identify Actual versus Estimated Costs –Equipment at Actual in Lieu of Rate Manuals –Labor Rates, including Insurance and other Fringe Issues Ability to Fully Evaluate and Consider Accounting Impacts on Claim Method Ability to Fully Evaluate and Consider Accounting Impacts on Claim Method –Eichleay Example on Billings versus Revenues Ability to Identify Cost Variances and Trends and Compare to Claimed Amounts and Events Ability to Identify Cost Variances and Trends and Compare to Claimed Amounts and Events

Construction Accounting Flow Divisional General Ledger Project Specific Job Cost Ledger Labor and Labor Burden Costs Permanent Material Costs Subcontractor Costs Equipment Costs Timesheets, Daily Reports Labor Distribution Reports Check Stubs, Cancelled Checks Burden Allocation Calculations Gov’t Filings, WC Audits, Other Invoices Purchase Orders Check Stubs Cancelled Checks Payment Applications Check Stubs Lien Release Cancelled Checks Rental Roll, Equipment Utilization Reports Contractor Daily Reports Internal Rate Memo and Support Vendor Invoices & Cancelled Checks Field Trailer Compound Vendor Costs and Typical Support Audited Corporate Financial Statements Divisional Financial Statements General Conditions Costs Supervisory Labor Costs and Typical Related Support

June 27, 2000Rubino & McGeehin Consulting Group9 General Conditions Costs Home Office Overhead versus Field Office Overhead (“FOO”) Home Office Overhead versus Field Office Overhead (“FOO”) –How are they different? –Items for Consideration What should be included in Field Office Overhead? What should be included in Field Office Overhead? –Thoroughly Check the Contract - twice (AIA Contract often Prohibits Home Office Folks from Charging Job) –Home Office versus Field Office Personnel Markup or Daily Rate Approach? Markup or Daily Rate Approach? –One or the other –If Use Both, Must Apply a Credit –One Time Costs – a few examples

June 27, 2000Rubino & McGeehin Consulting Group10 Extended General Conditions – Coordination of Cost and Scheduling Difference between incremental supervision and extended supervision Difference between incremental supervision and extended supervision Discussion of delay periods Discussion of delay periods –No damage for delay, Excusable, Compensable, Non-Compensable –Actual versus Claimed time periods –Post Completion field overhead –Effect of LD’s and/or overhead paid on previous changes –Weather days during extended period

June 27, 2000Rubino & McGeehin Consulting Group11 Equipment External versus Internal External versus Internal –Very different analysis required –Internal Rates may have some embedded overhead, profit recovery Is External Really External? Is External Really External? Internal Rates Internal Rates –How are rates set and charged to job cost –Comparison of charged and actual rates –How Internal Rates Used in the Bid? Appropriateness of Internal Rates - Contract Appropriateness of Internal Rates - Contract

June 27, 2000Rubino & McGeehin Consulting Group12 Owned Equipment Pricing Internal Rate Alternatives – Blue Book Internal Rate Alternatives – Blue Book Application of Blue Book Rates Application of Blue Book Rates Consistency of claim pricing and accounting methodologies Consistency of claim pricing and accounting methodologies –i.e. Was generator direct costs to job at 10K and then discretely claimed on an hourly basis resulting in a claim of $15K?

June 27, 2000Rubino & McGeehin Consulting Group13 Owned Equipment Utilization Hours – Contemporaneous Documents Hours – Contemporaneous Documents –Usage Reports for Hours – Rental Rolls, Daily Reports, Equipment Utilization Reports, etc. Rental Rolls, Daily Reports, Equipment Utilization Reports, etc. –Operating Time versus Standby Time – Need to know the difference and how the contractor accounts for the difference

June 27, 2000Rubino & McGeehin Consulting Group14 Equipment Collaboration Discussion of claimed equipment Discussion of claimed equipment –Extra Work or Delayed Work? Standby versus Operating Standby versus Operating –Stored Equipment versus Standby Equipment –Variations in planned and actual equipment usage Bid small loader, use large loader Bid small loader, use large loader Discussion of support for claimed hours, time frames Discussion of support for claimed hours, time frames –Daily Reports, Equipment Utilization Reports, Etc.

June 27, 2000Rubino & McGeehin Consulting Group15 Labor Costing Issues Direct Labor Versus Supervisory Labor Direct Labor Versus Supervisory Labor General Foremen – Direct or Overhead? General Foremen – Direct or Overhead? Provisional versus Actual Labor Rates Provisional versus Actual Labor Rates Overtime Premiums Overtime Premiums Evaluation of Claimed and Bid Wage Rates and Burden Markups Evaluation of Claimed and Bid Wage Rates and Burden Markups How does claimed labor burden markup compare to actual cost? How does claimed labor burden markup compare to actual cost?

June 27, 2000Rubino & McGeehin Consulting Group16 Labor Charging Issues What contemporaneous information is maintained by contractor to account for time? What contemporaneous information is maintained by contractor to account for time? –Timesheets, daily reports, job cost reports, etc Does labor data used in claim quantification make sense based on accounting information? Does labor data used in claim quantification make sense based on accounting information? Does Contractor Separately Account for Rework, Backcharge Work, etc.? Does Contractor Separately Account for Rework, Backcharge Work, etc.?

June 27, 2000Rubino & McGeehin Consulting Group17 Labor Collaboration Discussion of Claimed Hours Discussion of Claimed Hours –Hours expected versus actual –Timing of hours relative to the claim events –Are labor overruns consistent with claimed areas? Time sequencing of labor hours using accounting data Time sequencing of labor hours using accounting data Discussion of bid and actual productivity rates Discussion of bid and actual productivity rates

June 27, 2000Rubino & McGeehin Consulting Group18 Home Office Overhead Costs Markup Method Markup Method Eichleay – Eichleay – 1. 1.Delays sudden and of uncertain duration (standby) 2. 2.Stage of project completion 3. 3.Supervisory personnel dedicated during delay period 4. 4.Effects of change orders or substituted work

June 27, 2000Rubino & McGeehin Consulting Group19 Collaboration on Home Office Overhead Discussions regarding timing of standby period Discussions regarding timing of standby period –Ability to mitigate Discussion regarding replacement work Discussion regarding replacement work –Other active jobs and staffing –Change Order Work

June 27, 2000Rubino & McGeehin Consulting Group20 Subcontractor Costs Understand Subcontract Agreement Lump Sum, Cost Plus Understand Subcontract Agreement Lump Sum, Cost Plus Schedule of Values Billings – AIA G702, G703 Schedule of Values Billings – AIA G702, G703 Retention – Why do we care? Retention – Why do we care? Waivers Waivers GC, Equipment, Labor Issues all apply GC, Equipment, Labor Issues all apply

June 27, 2000Rubino & McGeehin Consulting Group21 Summary Need dialogue between experts to Need dialogue between experts to –Coordinate efforts –Develop mutual understanding of claim and job events and costs Accounting data can be used by entitlement/scheduling expert to analyze claims Accounting data can be used by entitlement/scheduling expert to analyze claims

June 27, 2000Rubino & McGeehin Consulting Group22 Summary (cont.) Actual Cost and actual losses preferred method to measure damages Actual Cost and actual losses preferred method to measure damages –Cost expert’s job is to determine actual cost and loss on project, subject to contract provisions giving definite approach to pricing of an element of cost Questions Questions