State of Alaska Tightens Its Claim Provisions

In 2015, the Alaska Department of Transportation and Public Facilities significantly amended the claims provision of its Standard Specifications—105-1.17.  The amendments incorporate language from the standard conditions which had previously been utilized for public facilities construction and which had previously been upheld by the Alaska Supreme Court in North Pacific Erectors, Inc. v State Department of Administration, 337 P.3d 495 (Alaska 2013).  The amendments will likely affect other state agencies or corporations that pattern their specifications after the Department of Transportation Standard Specifications.

Under the 2015 amendments, the requirements for proving entitlement to an extension of the contract time are much more specific than under the prior claims provision. The amended claims section on time provides:

"If the Contractor believes that he is entitled to an extension of Contract time, the Contractor must state the contract section on which the extension request is based, provide the Engineer with sufficient information to demonstrate that the Contractor has suffered excusable delay, and the specific amount of time to which the Contractor is claiming entitlement.  The Department will not grant and [sic] extension Contract time if the Contractor does not timely submit revised schedules in accordance with Subsection 108-1.03."

Subsection 108-1.03 states that the method of establishing delay must be consistent with the scheduling obligations contained in 108-1.03.

The amended claims provision now requires that the contractor complete a specific form (Form 25D-18) to fulfill the intent to claim condition for filing a claim. This provision also provides that failure to submit a “Contractor Intent to Claim” as required constitutes a waiver of any future claim arising from or relating to the alleged act or occurrence.

It also requires the contractor to answer very detailed questions about the substance of its claim, which may not be fully answered until the actual claim is presented.  See, e.g., 8.D (”What is your estimate of adjustments in contract prices, contract time, delivery schedule or other provisions affected by the alleged change?  List current cost, daily costs and estimated final amounts as applicable.”). Consequently, when filling out the section of Form 25D-18 which requests “Amount of the intent to claim,” the contractor should consider checking Item 9.B (estimated costs) instead of 9.A (specific costs and time).

The amended claims provision also imposes several new restrictions to the methods of proof:

"In computing damages, or cost claimed for a change order, or for any other claim against the Department for additional time, compensation or both, the contractor must establish actual damages based on internal costs for equipment, labor or efficiencies.  Total cost, modified total cost or jury verdict forms of presentation of damage claims are not permitted.  Labor inefficiencies must be shown to actually have occurred and can be proven solely based on job records.  Theoretical studies are not a permissible means of showing labor inefficiencies.  Home office overhead will not be allowed as a component of any claim against the Department."

The prohibited methods of proving damages have previously been approved by the Alaska Supreme Court.  However the Alaska Supreme Court in the North Pacific Erectors case upheld contractual restrictions on those permissible methods of proof.  The limitations are designed to force the contractor into proving its damages via actual costs as opposed to estimates.

For pricing discrete changes to the contract, a contractor should make sure it maintains a separate job cost code for the extra work to isolate the extra work.  The contractor may alternatively want to consider preparing time and materials worksheets (even if work is not charged on a T&M basis) to isolate the actual costs associated with the extra work.

What this means is that a contractor doing business with the Department  should prepare detailed daily job reports that reflect the equipment and labor to accomplish each feature of work, along with a quantified amount of that feature of work to minimize any disagreement over damages to which the contractor is entitled.  The daily job report should also reflect any potential extra work, delays, disruptions or other impacts to the job and not just on a “first day” basis but on each day where the impact occurs.  The reason why a contractor should consider doing this is to create a daily production rate in the event the contractor needs to compare unimpacted actual costs with impacted actual costs of performance of a definable feature of work.  Although not explicitly approved as a basis for proving impact by the specifications, the “measured mile” analysis for impacts has not been explicitly prohibited and is based on actual costs.

The amended claims provision reiterates that internal equipment costs are the basis for establishing compensable equipment charges.  Consequently, a contractor subject to the claims provision should utilize its internal rates as opposed to Blue Book or Corps rates when pricing its claim.  In order to utilize internal rates, the contractor should be able to defend how its internal rates are calculated, and its records should support those internal rates.  In calculating internal rates, the contractor should consider not only the cost of ownership but also the cost of operating the equipment, e.g., cost of maintenance as well as fuel and oil.

The amended claims provision also disallows home office overhead as a component of any claim against the Department.  The breadth of this disallowance is unclear, but the Department may well be trying to eliminate it, or at least eliminate Eichleay pricing in delay claims.

Finally, the claim certification requirement has been modified from its earlier form.  The amended claim certification now reads:

"A certification signed by the Contractor that to the best of the contractor’s knowledge and belief, the data submitted is accurate, complete, and current and is the actual cost to the contractor or additional time for performing the additional work or supplying the additional materials."

The revised certification focuses on what the contractor’s “actual cost” and “additional time” for performing the additional work is, rather than the amount that the contractor believes is actually owed.  Once again, the purpose of this change is to focus on actual costs and time rather than relying on estimated damages.

In conclusion, the Department appears to be increasing the level of documentation   required for a claim, and channeling the contractor into certain specified methods of establishing its entitlement to additional time or money rather than letting the contractor select which of several methods is most suitable for the contractor.  The Department’s specified methods may require a contractor to increase its level of record keeping throughout the project to be able to meet the more stringent claim requirements should a claim arise.  This in turn should result in high bids to the state as contractors seek additional monies to cover their increased record-keeping obligations.

If you would like to discuss this topic in further detail, please contact Traeger Machetanz at 206/757-8337.