Few contractors understand the need for an easy-to-understand method of valuing their work. In a payment dispute, getting the client to accept that additional work means additional cost is only half the battle.
The real battle is agreeing on what that additional work is worth: how is it valued?
The parties then look to the contract or agreement for guidance on value, and most of the time there is nothing there. For example, if you agreed to excavate a trench for a lump sum fee of $15 000, what is the value of excavating an additional 20 metres? Without an agreed rate the parties will argue forever.
So at every stage of your work, starting at quote stage you must always be considering the ‘what if’ scenarios. What if a few more of these were needed? What if more lineal metres are required? What if that plant is required for longer?
Let’s look at some of the easiest ways to nail down the value of additional work:
Schedule of Rates
This is by far the easiest way to value additional work. Get agreement in advance on what various items are worth. Think about your unit of measure; per metres, per cubic metre, per tonne, per room, per item, and so on.
I recently was involved in a dispute about bricklaying. The parties agreed on a lump sum for the work, but there was no guidance about how to value the bricks laid between each progress payment. The parties agreed on a rate per square metre to resolve this. Then the wall area simply needed to be measured up.
Think carefully about the best ‘unit of measure’ for your trade and calculate rates for each one. This way the argument won’t be about value, but about quantity. That is a far easier matter to handle. You just need to count it.
This method of valuation is based on the invoiced cost of materials or subcontracted work, plus an agreed percentage. This method only works if you can produce complete records of your cost, and your client is satisfied that the invoice cost is within market rates. But when this method works it stops any argument about value, because the value is there in black and white on the invoices.