Total cost methods and presenting a claim

The previous three lessons built the pieces of a claim: entitlement to time, the delay quantum and the disruption quantum. This lesson deals with two related questions. First, what can a contractor do when it cannot separate its losses event by event, and is tempted to claim the difference between what the job cost and what it bid? Second, once the analysis is done, how should the claim be written and presented so that a reviewer can follow it, test it and agree with it?

The answers are connected. Most claims fail not because the contractor suffered no loss, but because the claim document does not show, in an order a reviewer can follow, which events happened, why the owner is responsible, how each event affected time and cost, and what records support each figure. A total cost claim is often the symptom of a project where those records were never kept.

Total cost and global claims

A total cost claim calculates damages as the contractor's actual cost of the work minus its bid, plus markup. It assumes that the whole overrun was caused by the owner. A global claim, the Commonwealth term, is similar: it lists many events and claims a single sum for their combined effect without linking each event to its own cost. Both are attractive to contractors because they need little analysis, and both are viewed with deep suspicion by owners, courts and arbitrators, because they assume what should be proved.

The weaknesses are obvious once stated. The bid may have been too low. The contractor may have managed the work badly. Some of the overrun may have been caused by events that are the contractor's risk, such as its own subcontractor's default or weather that was not abnormal. A total cost claim lumps all of these together and charges them to the owner.

US courts and boards apply a four-part test for total cost claims, usually traced to WRB Corp. v. United States (Ct. Cl. 1968): the contractor must show that it is impractical to prove its actual losses directly, that its bid was realistic, that its actual costs were reasonable, and that it was not responsible for the added costs. The method is described as disfavored and is allowed only where all four elements are proved.

Modified total cost

The modified total cost method starts from the same calculation but adjusts it for the known weaknesses: it corrects the bid for errors, removes costs caused by the contractor's own problems, and removes costs already paid through change orders. What remains is a more defensible estimate of the owner-caused overrun. Courts and arbitrators accept it more readily than total cost, but it still requires that direct proof was impractical.

# Total cost and modified total cost for Kestrel Ridge's structural concrete package (illustrative)
actual_cost = 4_820_000          # audited job cost for the package
bid = 3_960_000                  # concrete package in the tender
approved_cos = 245_000           # change orders already paid for this package

total_cost = actual_cost - bid - approved_cos
print(f"Total cost claim before markup:    ${total_cost:,.0f}")

adjustments = {
    "Bid error: formwork reuse assumed 6 uses, realistic 4": 118_000,
    "Rework of honeycombed walls (contractor)":             46_000,
    "Formwork subcontractor default (contractor risk)":      52_000,
    "Delay costs claimed separately (lesson 6)":             19_000,
}
mtc = total_cost - sum(adjustments.values())
for k, v in adjustments.items():
    print(f"  less {k:<52} ${v:>8,}")
print(f"Modified total cost claim before markup: ${mtc:,.0f}")
print(f"With 10% markup: ${mtc * 1.10:,.0f}")

Total cost claim before markup:    $615,000
  less Bid error: formwork reuse assumed 6 uses, realistic 4 $ 118,000
  less Rework of honeycombed walls (contractor)             $  46,000
  less Formwork subcontractor default (contractor risk)     $  52,000
  less Delay costs claimed separately (lesson 6)            $  19,000
Modified total cost claim before markup: $380,000
With 10% markup: $418,000

The adjustments cut the claim from $615,000 to $380,000. That is still a large claim, and it now survives the first questions a reviewer will ask: was the bid realistic, did Kestrel Ridge cause any of the overrun, and has any of it been paid already? The adjustment for delay costs claimed separately is a reminder that a modified total cost claim must not overlap with the other heads of claim. If extended field overhead for the concrete period is in the delay claim, it must come out of the concrete overrun.

Even so, a modified total cost claim is weaker than a claim that ties each event to its cost. If Kestrel Ridge could have used a measured mile for the concrete crews, as lesson 7 did for tiling, it should have. The modified total cost method is best used for a residual part of a claim, where other parts are proved directly and the remainder genuinely cannot be separated.

Pricing the claim

Whatever method is used, the quantum must be priced consistently. A few rules apply on most projects.

Interest can be significant on a claim that takes years to resolve. Some contracts specify a rate for late payments. Statutes may provide interest on unpaid amounts and on court awards. The contractor's own financing costs are a separate head that some contracts allow and others exclude.

# Simple interest on the Ashford claim components from the date each was due (illustrative rate)
from datetime import date
rate = 0.055                       # illustrative annual rate; check the contract and statute
settled = date(2027, 6, 30)
items = [
    ("Fill change balance",         62_400, date(2025, 6, 30)),
    ("Delay quantum (lesson 6)",   329_300, date(2025, 11, 30)),
    ("Tiling disruption",           51_000, date(2026, 2, 28)),
    ("Concrete modified total cost", 418_000, date(2026, 4, 30)),
]
total_interest = 0
for name, amt, due in items:
    days = (settled - due).days
    i = amt * rate * days / 365
    total_interest += i
    print(f"{name:<29} ${amt:>9,}  {days:>4} days  interest ${i:>9,.0f}")
principal = sum(a for _, a, _ in items)
print(f"Principal ${principal:,}; interest ${total_interest:,.0f}; total ${principal + total_interest:,.0f}")

Fill change balance           $   62,400   730 days  interest $    6,864
Delay quantum (lesson 6)      $  329,300   577 days  interest $   28,631
Tiling disruption             $   51,000   487 days  interest $    3,743
Concrete modified total cost  $  418,000   426 days  interest $   26,832
Principal $860,700; interest $66,070; total $926,770

On these assumptions the interest adds about $66,000 to a principal of about $861,000 if the claim settles in mid-2027. Interest is often traded away in settlement, but a claimant that does not calculate it cannot bargain with it. The rate here is illustrative; Canadian claims look to the contract, provincial interest statutes and, for prompt payment regimes, the interest provisions of the relevant act, while US federal claims under the Contract Disputes Act earn interest at a rate set by the Treasury from the date the contracting officer receives the claim.

Writing the claim document

A claim document is an argument written for a skeptical reader who has not lived through the project. The owner's project manager, the consultant, an in-house lawyer, an adjudicator or an arbitrator will read it, often months later, with the contract open beside it. The document should let that reader follow the story, check every assertion against a record and reach the claimed sum without doing their own analysis.

Each event should be presented separately where possible, so that the owner can accept some and reject others. A claim that bundles everything into a single sum forces the owner to reject the whole thing, and makes settlement harder. The tone should be factual and measured. Adjectives such as 'egregious' and accusations of bad faith rarely help, and a reviewer who finds an overstated claim in one place will discount the rest.

In the US, an A201-2017 claim goes first to the Initial Decision Maker under §15.2 after notice, then to mediation and, if the parties agreed, arbitration; on federal contracts the claim goes to the contracting officer under the Contract Disputes Act and must be certified if it exceeds $100,000 (lesson 11). The certification states that the claim is made in good faith and the supporting data are accurate and complete, so overstated claims carry real risk.