MARK-UPS ON EXTRA WORK COVERED EXTENDED OVERHEAD
Wayne Knorr, Inc. v. Pennsylvania Department of Transportation
No. 1593 C.D. 2008
May 14, 2009
Overview
A Pennsylvania court has ruled that a contractor could not recover extended home office overhead for a period of owner-caused delay. Mark-ups on extra, force account work had already compensated the contractor for that cost.
Background
The Pennsylvania Department of Transportation awarded a fixed-price contract to Wayne Knorr Inc. to improve a section of two-lane state highway in Armstrong County by adding a third, truck-climbing lane. The contract required substantial completion within 368 days of notice to proceed.
Knorr encountered problems with slope instability in the area where the third lane was being added. PennDOT was slow to respond to the problem, forcing Knorr to alter the sequence of its work. PennDOT subsequently authorized the repair and stabilization of the slope, directing Knorr to perform the extra work on a time-and-materials, or "force account," basis. The contract specifications stipulated mark-ups on all force account costs: 40 percent on labor, 25 percent on materials and five percent on equipment.
Knorr completed the project 116 days after the original completion deadline and filed a claim for its extra costs, including delay and disruption damages. The Pennsylvania Board of Claims determined that PennDOT was responsible for 72 days of delay on the schedule's critical path.
The board ruled that Knorr was entitled to force account compensation for the extra work it performed, as well as the delay and disruption it experienced. The contractor was awarded, on a force account basis, the increased costs it incurred in working out of sequence; moving crews and equipment from place to place. But, the Board refused to award Knorr the $101,228 it claimed in extended home office overhead-those expenses were covered by the mark-ups on the force account direct costs. Knorr appealed.
The Ruling
The Commonwealth Court of Pennsylvania said the contract specifications clearly intended the mark-ups on force account work to compensate the contractor for any extended home office overhead it might incur. The mark-ups covered "all administration, general superintendence, other overhead, bonds, insurance, anticipated profit, and use of small tools and equipment for which no rental is allowed." Separate recovery of home office overhead would be duplicative.
"Because Knorr's expert utilized the mark-ups contemplated in [the specifications] in calculating Knorr's delay damages, which include an allowance for extended home office overhead, Knorr could not also recover extended home office overhead costs as a separately delineated delay damage claim. No error is apparent in the Board's decision to reject Knorr's extended overhead claim, which would amount to a double recovery for Knorr."
Conclusion
The contractor characterized this claim as one for "extended," rather than "unabsorbed," home office overhead. Unabsorbed overhead is defined as home office expenses not absorbed by a fixed-price contract at the anticipated rate because contract performance (and therefore contract billing) was extended over a longer period of time due to project owner suspension of the work. As with the extended overhead in this case, unabsorbed overhead cannot be recovered when the performance period was extended because of changed or extra work and the contractor was compensated for direct costs plus overhead. C. B. C. Enterprises, Inc. v. United States, 978 F.2d 669 (Fed. Cir. 1992).
Case participants: For Wayne Knorr, Inc.: E. James Reynolds, Jr.
For PennDOT: Christopher F. Wilson.
Before: Judges McGinley, Simpson and Kelley.
Opinion by: Judge Simpson.
Outcome: Board of Claims judgment affirmed.
No. 1593 C.D. 2008
May 14, 2009
Overview
A Pennsylvania court has ruled that a contractor could not recover extended home office overhead for a period of owner-caused delay. Mark-ups on extra, force account work had already compensated the contractor for that cost.
Background
The Pennsylvania Department of Transportation awarded a fixed-price contract to Wayne Knorr Inc. to improve a section of two-lane state highway in Armstrong County by adding a third, truck-climbing lane. The contract required substantial completion within 368 days of notice to proceed.
Knorr encountered problems with slope instability in the area where the third lane was being added. PennDOT was slow to respond to the problem, forcing Knorr to alter the sequence of its work. PennDOT subsequently authorized the repair and stabilization of the slope, directing Knorr to perform the extra work on a time-and-materials, or "force account," basis. The contract specifications stipulated mark-ups on all force account costs: 40 percent on labor, 25 percent on materials and five percent on equipment.
Knorr completed the project 116 days after the original completion deadline and filed a claim for its extra costs, including delay and disruption damages. The Pennsylvania Board of Claims determined that PennDOT was responsible for 72 days of delay on the schedule's critical path.
The board ruled that Knorr was entitled to force account compensation for the extra work it performed, as well as the delay and disruption it experienced. The contractor was awarded, on a force account basis, the increased costs it incurred in working out of sequence; moving crews and equipment from place to place. But, the Board refused to award Knorr the $101,228 it claimed in extended home office overhead-those expenses were covered by the mark-ups on the force account direct costs. Knorr appealed.
The Ruling
The Commonwealth Court of Pennsylvania said the contract specifications clearly intended the mark-ups on force account work to compensate the contractor for any extended home office overhead it might incur. The mark-ups covered "all administration, general superintendence, other overhead, bonds, insurance, anticipated profit, and use of small tools and equipment for which no rental is allowed." Separate recovery of home office overhead would be duplicative.
"Because Knorr's expert utilized the mark-ups contemplated in [the specifications] in calculating Knorr's delay damages, which include an allowance for extended home office overhead, Knorr could not also recover extended home office overhead costs as a separately delineated delay damage claim. No error is apparent in the Board's decision to reject Knorr's extended overhead claim, which would amount to a double recovery for Knorr."
Conclusion
The contractor characterized this claim as one for "extended," rather than "unabsorbed," home office overhead. Unabsorbed overhead is defined as home office expenses not absorbed by a fixed-price contract at the anticipated rate because contract performance (and therefore contract billing) was extended over a longer period of time due to project owner suspension of the work. As with the extended overhead in this case, unabsorbed overhead cannot be recovered when the performance period was extended because of changed or extra work and the contractor was compensated for direct costs plus overhead. C. B. C. Enterprises, Inc. v. United States, 978 F.2d 669 (Fed. Cir. 1992).
Case participants: For Wayne Knorr, Inc.: E. James Reynolds, Jr.
For PennDOT: Christopher F. Wilson.
Before: Judges McGinley, Simpson and Kelley.
Opinion by: Judge Simpson.
Outcome: Board of Claims judgment affirmed.
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