NOVEMBER MEETING PREVIEW

Are You Pricing Your Job Or Product
Properly To Achieve Your Annual
Profit Goals?


By: Ted See
The Tascon Group

Many contractors do not accurately calculate their burden when bidding. Inaccuracies in calculating burden leaves them either under pricing or overpricing their products. The first can lead to massive losses; the second, massive losses. Yes, both take money right out of their pockets.

The dual overhead burden rate method of job costing/pricing is considered the most accurate method developed to determine a company’s burden rates. Most companies unwittingly use a burden rate that allocates only a portion of their actual burden costs. Unfortunately, most don’t know how to calculate their real “costs of doing business” and the burden rates they use are “rules of thumb,” those used by others or from some other source.

Hence, for those jobs and/or products that use a disproportionately higher percentage of an incorrectly calculated burden component—i.e., direct labor—they will be overpricing their work and probably won’t be awarded any of these contracts and lose the chance to make money. Conversely, for jobs and/or products that use a disproportionately higher amount of other burden components- i.e., materials, equipment, subs, etc.—they will be under pricing their work and lose money. Unfortunately, they won’t even realize it since jobs and/or product hard costs are typically checked and controlled by comparing the estimated hard costs to the actual hard costs as a job progresses or a product is manufactured. I call this phenomena “profit fade” and its negative effects are insidious Companies that don’t calculate their burden as their true cost of doing business will always experience this profit fade, have trouble maintaining their margins and achieving their profit goals. The sad part is, they won’t realize it, much less understand why and how to avoid it.

A more complete explanation and details on how to be more profitable are simple and will be provided at CSI Madison’s upcoming November 2011 Chapter meeting. In the meantime, please direct all questions or comments to Ted See at tsee@thetascongroup.com; 608-827-6349 or to the Madison Chapter CSI in c/o Alan Kim, Jr., akim@vonbriesen.com; 608-661-3964.


 

GOVERNMENT CONTRACTOR
IMMUNITY…PRICELESS


Attorney Alan G. B. Kim, Jr.
von Briesen & Roper, s.c. – Madison, Wisconsin

 

We know the old saw…”some things money just can’t buy.” So it is with protections from liability to which contractors may be entitled on public works projects.

The government’s immunity from liability for certain types of errors and omissions is as old as our country itself. “The King can do no wrong” was a common premise upon which the Western legal system was built. But over the centuries, the ability of citizens to sue the government for the government’s errors and mistakes has been penetrated to a certain degree. Still, the vestiges of the government’s immunity from its errors lives on, including within the public works construction arena. In Wisconsin, those protections have grown to extend to certain public works contractors. That doctrine— the “government contractor immunity” doctrine--continues to be alive and well in Wisconsin.

In a recent case, a general contractor was engaged by a Wisconsin municipality to perform certain road and curb and gutter repairs. As a matter of course, the work required protective barricades and signage. The municipality’s project plans and specifications identified the type and location of the barricades to be used. The general contractor hired a subcontractor to provide and perform the barricading and signage work. The subcontractor placed the needed barricades pursuant to the plans and specifications. During the project, a pedestrian tripped on the leg of a barricade, fell, and was injured. The pedestrian sued the subcontractor alleging it was negligent because it failed to properly place the barricade and warn her of its dangers.

The government contractor immunity defense was asserted. The argument went that the municipality’s plans and specifications were clear and were followed. Therefore, everyone following the plans and specifications should be immune from the plaintiff’s lawsuit. The Court agreed and confirmed that the general contractor should have no liability.
In its ruling, the Court reiterated the long-standing principle that Wisconsin’s municipalities are exempt from liability for acts involving their exercise of discretion or judgment. Prior court decisions ruled that the type and location of road signs are discretionary acts and that barriers or barricades constitute “signs.” Here, the Court said the municipality would be immune from liability if the accident happened because of the negligent type and location of the required barricades and sign. Likewise, the Court stated that the general contractor would also be immune from liability if the municipality’s plans and specifications were reasonably precise, the general contractor performed according to the plans and specifications, and the general contractor proved that it was unaware that the plans and specifications posed any reasonable danger. After considering the facts, the Court ruled that the general contractor was immune from liability.

But the story does not end there. The government immunity protections flowed deeper—down to the subcontractor. To the extent the general contractor was absolved of liability, so was the subcontractor. Hence, the Court also gave a pass to the subcontractor, even though the only connection the subcontractor had to the municipality and its project was through its subcontract with the general contractor.

The upshot is that there are potentially valuable liability protections to which general contractors and subcontractors on public works projects may be entitled and which insurance premiums simply cannot buy. General contractors and subcontractors should therefore try to position themselves, including through their contracts, to maximize the chances of being able to benefit from these protections should a claim arise.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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