1. How Much Hidden Profit is There in Self-Performed Work?
Debbie Townsend
R.L. Townsend & Associates, LLC
September 10, 2019

2. What is self-performed work?
Construction Scopes Performed by the Prime Contractor
Benefits to the Owner per CM:
Control of Schedule
Cost Savings
Quality
Safety

3. What type of work is included?
Typical Bid Packages Include Concrete & Drywall
General Requirements or General Works
Examples include: Protection of work, Layout, Equipment, Cleanup, SWPPP, Safety Related Work
Miscellaneous Scopes of Work
Examples include: Scopes to assist other trades with their work

4. Story 1 BIo Containment project

5. Story 1 - Bio Containment care unit
18 Month Renovation Project
6 Rooms, State of the Art, Special Surfaces & Negative Airflow
$11MM to $12MM GMP
Heavy MEP - 50% of Cost of Work
Tight Budget
Contract Language for Self-Performed Work is “cost plus 7.5%”

6. Bio Containment Building – CMAR Contract
Out of State Contractor – Low balled GC’s & Fee
3rd Party Project Management Representative
Knowledgeable Owner

7. Owner problems from the start
Contractor Staffed the Job with Inexperienced College Graduates
The Project Manager that was “Sold” with the Job Moved to Another Project at about 25% Complete
The Replacement Project Manager was Fired Soon Thereafter
The Replacement for the Replacement PM was the Superintendent

8. You know you have a problem when…….
Contractor Submits a Self-performed Bid Package of $5MM. Many Components were Lump Sum.
Contractor agreed to $2MM Self-Performed Work (General Works) to be Billed Cost Plus 7.5%
Contractor then Billed Change Orders on a Lump Sum Basis
Contractor added General Works to 100% of the Change Proposals.
Contractor thinks the GMP is an Open Checkbook and the Contingency is “his money”
Contractor Does Not Provide Buyout Info, PC Log, Allowance Log, etc.
Owner Reps Position… “Will resolve in the audit”

9. General works Billing

10. The audit of self-performed work
The Audit Started when the Project was Close to Substantially Complete
The Lump Sum CO Issue had to be Resolved
The Pay Apps were Reviewed and Multiple Duplicates Identified
The Contractor Stated there were No Duplicate Charges

11. Examples of a duplicate – General Works
Base Contract Billed at Cost plus 7.5%
Lump Sum Change Orders
CM Billed $77,862 for Casework as a Base Contract Cost Plus 7.5% in Pay App 19
The Subcontract Amount was $77,862
CM billed a Lump Sum PCI for Drawing Updates in the Amount of $148,155 in Pay App 20
The $148,155 Included the Same $77,862 that was Billed in Pay Application 19

12. more examples Description of Work Amount Location of Billing Invoice #
Scaffolding
$9,760
Billed on Pay App 10
51A0175
Billed on Pay App 11
$2,318
Billed on Pay App 22
51E0143
Billed in a PCI on PA 25

13. Another duplicate – crane rental
Pay App #
Amount
Outcome of Cost Review 16
$12,826
Verified to Job Cost
$ 2,680
Previously billed to another project
$ 4,587
Also included in a PCI 19
$ 4,400 23
$ 2,835 25
Duplicate Charge from PA 19
Duplicate Charge from PA 23
Total
$34,563

14. Estimated Overcharges = $1,765,176
And then what happened?
We Considered the Pay Apps as Unreliable
Self-Performed Work Job cost was Requested Multiple Times but Not Received
We were at an Impasse with the Contractor
The Owner asked us to Write a Report with an ESTIMATE of the Overcharge
Estimated Overcharges = $1,765,176

15. The story continues. . .
Contractor Provided Job Cost and Labor Reports for Self-Performed Work
Based on the New Information, we Revised the Estimate of Overbilling to be $900,000
Contractor said the Job Cost Reports were Not Accurate as they did not Include All Costs

16. The real cost……according to the contractor
Contractor then Manually Prepared a List of Invoices, Payroll, Rental Charges, Job Cost Reports
This Report was Provided as “the Accurate Job Cost”

17. Example of contractor’s list of cost
Invoice Date
Invoice Description
Invoice Amount X
Job Costing Transaction Report
$ 23,052.53 $ $
Invoice $ $
Invoice Floor Mats $
Home Depot $
Hardware $
Sign $
Edge Guard Rental
$ 7,320.38
Supplies $

18. was the report accurate??
We Found:
Rental Equipment Charges were Overstated
Subcontract Charges were Overstated
Numerous Duplicates were Identified
Payroll was Overstated
Fee was Overstated
Lump sum CO was Added

19. What happened next?
Contractor Continued to Claim there were no Duplicates
We had a Meeting with Owner and Contractor to Discuss Next Steps
Owner made a Few Concessions to Resolve Issues and told the Contractor to Correct the Audit Issues
We Flipped our Audit Approach from Identifying Credits to Identify What Should be Billed

20. How did it get resolved?
Compared his Final Numbers with Our Final Numbers
He Continued to Present Additional Charges
Payroll from Another Job
Duplicates from his Job List
Duplicate Fringe Benefits
Costs Accounted for on the Main Job

21. Its not over until its over
Owner Agreed to some Small Concessions
Owner Finally said we are DONE.
Prepared a CO and PA
Contractor Retired

22. $5 MM Self Performed work
Story 1 - Final results
$12 MM Final GMP
$5 MM Self Performed work
$856 K in Overcharges Identified and Credited in Self-Performed Work
17% of Self-Performed Work
7% of GMP

23. Story 2 College Building

24. Story 2 – academic building on a college campus
New Construction
$25 MM GMP
Contract included Cost Plus a 7.5% Fee Language for Self-Performed Work
Contractor Previously Hired for Multiple Jobs by Owner

25. Academic building - Participants
Owner Senior Project Manager
Owner Project Manger
Contractor

26. You know you have a problem when…..
Contractor submitted multiple scopes of miscellaneous work which were not included in any bid package. Therefore, No Competition
Contractor Awarded Themselves Multiple Scopes on a Lump Sum Basis Totaling $1.5MM.
The Owner Rep Challenged the Scopes and the Lump Sum but was Overruled
After the Work Started, the Contractor Submitted Lump Sum CO’s with Minimal backup.
The Owner Rep Challenged the CO Process but was Overruled

27. At 50% completion……. The CM wanted to Convert the GMP to Lump Sum
The Owner PM Requested us to Audit the Terms
The Conversion was not in the Best Interest of the Owner
The Owner PM had a Difficult Time Convincing the Owner Senior PM not to Convert

28. The audit of self-performed work
At Substantial Completion we were asked to Perform a Close Out Audit
Contractor would Not Provide Job Cost for Self-performed Work
Contractor Only Answered Questions they wanted to Answer
We Identified Many Duplicates Billings
We Identified Potential Duplicate Scope
We Identified Excess Pricing of Scope

29. Who Rents a crane on an hourly basis for 3 months?
Self Performed Work
Who Rents a crane on an hourly basis for 3 months?

30. Duplicate charges – contractor gave credits
Contractor billed the Scope of Work in SPW CP 11 AND as a direct cost in the Main Job
Scope
Amount
SPW Change Proposal
Direct Cost – Main Job
Provide Select Fill
$ 4,113
CP 11
Pay App 6
Fill Dirt Delivered to Site
$ 8,754
$ 4,759
Grading & Compacting
$ 6,569
Haul Off Drilling Spoils
$10,400
Total Duplicate Cost
$34,595

31. Duplicate charges – contractor gave credits
Contractor billed the same Costs to Self-Performed Work and the Main Job
Scope
Amount
Temporary Labor
$ 27,975
Trailer Decks
$ 6,898
Temporary Fencing
$ 4,759
Remove Elevator Spoils
$ 6,400
Building Pad Prep
$ 9,237
Total Duplicate Cost
$55,269

32. Is this Duplicate scope?
Self-Performed Scope included “Weekly Cleaning & Debris Removal” $150,421 PLUS $25,822 for “Supplemental Clean Up”
$76,650 was also billed to General Conditions for Trash Removal and Dumpster
The GMP included $108,262 for Weekly Cleanup & Dumpster
AND…….
Subcontracts included daily cleanup plus composite clean-up crew

33. Is this Duplicate scope?
Self-Performed Subcontract included “Install HM Frames” $20,247
Drywall Subcontract:

34. Is this overstated cost?
Self-Performed Work Subcontract
GMP
Self-Performed Scope included “Roof Blocking” $150,525
In wall blocking = $61,115
Roof blocking = $89,410
Total In Wall & Roof Blocking = $150,525

35. Was this scope performed?
Self-Performed Scope included “Commissioning” $99,528
Owner PM Maintained that Commissioning was Performed by the Contractors General Conditions Personnel
Contractor said they Received a Bid, and it was too high so they “self-performed” commissioning without Owner approval.
Contractor did provide a credit of $49,764 for work they couldn’t support.

36. When you don’t hear what you expect, ask around
Talked to: Contracts Manager Attorney Regional Manager Associate Chancellor Other Owners

37. What did we find out?
Attorney said the Audit should trump the Approvals by the Owner PM
The Associate Chancellor not happy with Sr. Project Manager converting GMP contracts to lump sum on Previous Projects
Regional Management not Aware of Sr. Project Manager allowing Contractor to Modify Contract Language
Sr. Project Manager – Not Fond of Audits. Not Fond of Controls. Has Friends in High Places
Prior Employee of Contractor said they automatically add 33% OH&P to all Self-Performed Work

38. They Deemed this to be a “Lessons Learned” Project
The decision…
Management tried to Obtain the Self-Perform Work Job Cost Multiple Times
After Numerous Meetings, Phone Calls, etc. it was Decided, Since the Owner PM had Approved the lump sum Self- Performed Work, they would not change that decision
They Deemed this to be a “Lessons Learned” Project

39. How did it end?
Credits from the Contractor were Limited to $170,000
Senior Project Manager has been Moved to a New Position
Regional Management is Going to Minimize use the Contractor
Regional Management has Started Training on Contract Language, etc.

40. Story 3 New High School

41. Story 3 - High School New Construction GMP $107,000,000
27 Month Schedule
Contract Language for Self-Performed Work is “Cost Plus 15%”
Audit involved prior to the CM Award

42. The contract language is the key to success
The maximum fees payable to the Contractor on self-performed work will be 15% on the contractually defined reimbursable cost of self-performed labor, labor burden, materials, and equipment.  The maximum fees payable to the Contractor on specialty sub-subcontract work necessary for the self-performed scope of work will be at 5% of the cost of the sub-subcontract work.  If the contractor does not self-perform the majority of the scope of self- performed work and as a result subcontracts a significant portion of the scope of work to another trade contractor, then no self-performed work fees will apply to the cost of any such sub-subcontracted work.

43. High school participants
Texas Contractor they had worked with before
Owner – District Superintendent
Owner – District Assistant Superintendent
Owner – CFO
Owner – Project Manager
Owner – Attorney

44. You know you have a problem when…….
The Contractor wants to Renegotiate the Contract Language for Self-Performed Work
The Owner said NO

45. You know you still have a problem when…….
The Contractor doesn’t turn in the GMP until 4 Days Prior to the Board Meeting
They Submit a Letter to the PM with $7MM of Potential Self-Performed Scope
The Assumption and Clarifications included Language which Changed the Self-Performed Work to Lump Sum
They include a fixed Labor Burden Percentage

46. 3 days of intense Battle between Owner, Attorney & Contractor
What to Do?
3 days of intense Battle between Owner, Attorney & Contractor
On day 3, the Attorney said follow the Contract or be Terminated

47. 3rd time is the charm….or not
Letter from the contractor after the sub bids were vetted

48. Strategies to Make up Fee – Charge for work not done
Audit Actions taken to Prevent Charges Billed for Work Not Done:
Walk the Site Monthly
Drone Pictures Uploaded Weekly
Assistant Superintendent attends OAC Meetings

49. Strategies to Make up Fee – Excess charges for work performed
Review of Pay App Identified
40% Labor Burden on Hourly Workers
Training Cost Billed
Temp Labor Billed with a 37% MU
Subs used for the Main Jobs were also used for SPW
25% for Indirect Cost Billed
15% fee on All Cost

50. Estimate of overcharge as of 8/31/19
$300,000 in Overhead Cost
12% overcharge for Labor Burden
$100,000 for Cell phone, IT, Travel & Truck Allowance
$10,000 in OH&P for Sub already working on the project
$10,000 for Equipment Training
$10,000 for Drone Pictures
$15,000 for General Conditions Costs
Contractor Owned Equipment to be Calculated

51. Estimate of overall cost avoidance by not going with lump sum SPW
Description
Amounts
Original Budget
$4,230,797
Estimate of Spend based on current billings
($2,800,000)
Estimated Savings
$1,430,797
Plus: Estimate of Overhead Recovered
$ 500,000
Estimate of Total Savings
$1,930,797

52. What is currently being done?
The Owner has put the Contractor On Notice Regarding the OH&P
The Owner Is Waiting Until the End of the Project to Negotiate the Final Amounts

53. Summary Cost Plus a Fee Contract Language
What is the right fee if any?
Require REAL competitive pricing
Do not Modify the GMP
Do not Allow any Letters, Change Orders, etc. which Modify the Terms of the Agreement

54. Summary - Continued Develop a Strong Advocate
Review the Work Being Done Monthly
Review How the Work is Being Billed Monthly
Communicate on a Regular Basis with the Owner

55. questions