Value of the Work - Actual Cost v. Estimated Value
Evan Stregger, PQS, C.Arb.
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One of the areas a Professional Quantity Surveyor is skilled in is in the preparation of construction cost estimates. However, in a claim or dispute situation, the estimate may not be an acceptable method of determining the value of the work. The following are three examples of this situation.

In a claim involving repair costs incurred due to a collapse of a roof truss and resultant damages to the roof and interior finishes I, acting as an expert for the claimant, examined in detail all of the invoices, time sheets and contracts for the work. In doing so I identified certain charges in the claim which, in my opinion, were either unrelated or not a properly recoverable expense and my client's claim was adjusted accordingly. The expert for the defendants measured the work and prepared a hypothetical estimate of the value of the repair costs. In a settlement conference the judge said to this expert, "An estimate based on hypothetical value is not applicable as the work has been completed and the invoices, time sheets and contracts have been produced. Your opinion, based on hypothetical costs, is not relevant. Tell the court specifically which invoices, time sheets or contracts are either not applicable to this matter or have incorrect values." Subsequently the experts met and agreed the quantum of the claim, based upon the costs supported by invoices, time sheets and contracts.

On a large custom millwork project, I was asked to quantify the value of the work I examined, the quotations provided by the contractor, and all of the cost data supporting the costs incurred by the contractor. My findings were that the contractor treated his "estimates" as fixed price contracts and on these he made varying levels of profit. On other areas where the work had been authorized without an estimate from the contractor, the contractor was claiming cost plus a percentage fee. I found that this claim was only slightly higher than the average return on the "estimated" work. In addition to reviewing the costs, I also measured in detail all of the millwork. The other expert involved measured sample areas, based on stock, not custom, moldings and priced the work by reducing the cost of the measured work to a cost per square foot and then applying that cost to the total area. This matter went to arbitration and the arbitrator ordered that the two experts meet to resolve the differences between their reports. As I had based my opinion on actual costs, quantities and methods, whereas the other expert had relied on sample areas and hypothetical costs, when we met to resolve the differences, the other expert recognized that he could not precisely show what the contractor had done wrong or possibly over charged. On almost all issues, joint agreement was reached at the values set out in my original report.

A formwork contractor whose contract had been terminated retained an expert to place a value on the work he had completed. The expert based his opinion on the work in place as described to him by his client and, based on the description of the work complete, prepared an estimate of the value of the work by applying typical unit costs according to his experience. The judge, in his decision on the matter, found the report to be of no assistance to the court as: 1) It was not a proper expert report as its entire basis was the description of the work by his client, evidence which was not before the court; and
2) In using hypothetical values the expert failed to consider the actual costs involved, which would have been a proper measure of the value of work complete.

It is my experience that where actual costs are available the expert is best to analyze those costs rather than produce a hypothetical estimate. While reviewing invoices, etc. is a tedious and most often more costly approach I have found that cases can be proven and disproved by the documents. Disproving a claim based on the claimant's own documents is by far superior to presenting a hypothetical analysis.

Evan Stregger, PQS, C.Arb. practices in dispute resolution, arbitration, and as an expert witness throughout Canada. The above is provided for information only and it is not intended to replace the need for qualified legal advice. Opinions expressed above are not necessarily those of the Canadian Institute of Quantity Surveyors. Download this article in Acrobat PDF

 

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