COST ALLOCATION OVERVIEW
Construction Law Section
Chairs: Gregg Hutt - Trenam Law and Katherine Heckert - Carlton Fields
An empirical method to
allocate responsibility and
damage costs in multi-party
construction disputes.
C
onstruction defect
disputes are often
complex matters. The
evaluation of repair
costs and the proper allocation to
responsible parties is an important
process that often needs to be
addressed as part of the dispute
resolution. To date, there is little
to no consensus for the method
of allocating responsibility and
costs to implicated parties.
Over the past several years,
our firm has consulted in the
evaluation of construction defects
and cost of damages for multi-party
construction disputes. Through this
work, we have developed a standard
method to allocate repair costs to
implicated parties.
Identify the defect issues
The first step in the allocation
process is to identify the defective
conditions that are the basis of
the claim. This process should
follow well-established standards
to investigate and develop forensic
evidence supporting the allegations
being raised. The result must
include a well-organized listing
of deficiencies that will provide
a basis to subdivide the claim.
Identify the responsible parties
Responsible parties are identified
by review of the project records,
including subcontractor agreements
or other supporting documentation,
JAN - FEB 2020
|
HCBA LAWYER
that link a party to defective work.
Responsible parties are assigned
a percentage of responsibility for
each deficiency based upon their
contractual responsibility, as well
as the effect their work had on the
defective condition.
Calculate the cost of repair
The cost of repair may be
derived from actual costs incurred
or from a cost estimate of work yet
to be performed. 1 The total project
cost must be assigned to all defects.
A complex claim may have
multiple cost categories. While
some items of costs can be assigned
entirely to one defect, other costs
may require further breakdown by
the assessor.
An example of a complex
breakdown of costs is the
replacement of a wall system due
to multiple defective conditions. In
this case, costs are divided among
defect categories by considering
the portion or area of the overall
system impacted by the defect.
Other costs such as project
overhead or special equipment can
be allocated based upon the defect’s
percentage of the overall cost or
percentage of a subset of costs
that share an item.
multiplying the cost per defect
by each party’s percentage of
responsibility for a given defect
category.
While there could be other valid
methods to allocate responsibility
and damages, the scientific methods
summarized in this article are a
reasonable and equitable approach.
Any application of this, or any
other, allocation method should
be used in conjunction with sound
professional judgement. n
The method of review,
documentation and validation of
the repair cost is not the focus of
this article. Methods such as AACE
International Recommended Practice
No. 31R-03 or other recognized
methods may be used for this procedure.
1
Authors: Gary L. Keene, Michael S.
Klimas & John C. Jahreis - Keene
Klimas Consultant Group, LLC
Allocate the repair costs to the
responsible parties
A party’s allocation of the total
project cost can be calculated by
47