Government Contracting Database
Total Cost Approach
The total cost method normally consists of subtracting bid price from the actual cost of performance and adding profit to the resulting amount. This approach is heavily disfavored by the boards and courts. Wunderlich Contracting Co. v. United States, 173 Ct.Cl. 180, 351 F.2d 956 (1965); Edge Const. Co. v. United States, 95 Fed. Cl. 407, 415 (2010); Appeal of the Clark Constr. Grp., Inc., GAOCAB No. 2003-1 (Nov. 23, 2004). The total cost method is disfavored because, among other things, it assumes the reasonableness of the contractor’s costs, the accuracy of its bid computations, and its lack of responsibility for increases in costs. Edge Const. Co. v. United States, 95 Fed. Cl. 407, 415 (2010); F.H. McGraw and Company v. United States, 131 Ct.Cl. 501 (1955); Boyajian v. United States, 191 Ct.Cl. 233 (1970).
Nonetheless, various decisions have allowed contractors to pursue damage methods in which their total costs in performing a contract are compared to the reasonable cost of providing the same services.
An example of such a method is the modified total cost method. Before a contractor can obtain the benefit of that method, it must prove: “(1) the impracticability of proving its actual losses directly; (2) the reasonableness of its bid; (3) the reasonableness of its actual costs; and (4) lack of responsibility for the added costs.” Propellex, 342 F.3d at 1338–39 (citing Servidone Constr. Corp. v. United States, 931 F.2d 860, 861 (Fed.Cir.1991)). The modified total cost method is the total cost method adjusted for any deficiencies in the contractor’s proof in satisfying the requirements of the total cost method. Id. In Boyajian v. United States, 191 Ct.Cl. 233, 423 F.2d 1231 (1970), the Court of Claims described the use of this method, thusly:
[T]he total cost computation was used as “only a starting point” with such adjustments thereafter made in such computation as allowances for various factors as to convince the court that the ultimate, reduced, figure fairly represented the increased costs the contractor directly suffered from the particular action of defendant which was the subject of the complaint.
Id. at 1240 (citation omitted); see also Propellex Corp., 342 F.3d at 1339.
N. Star Alaska Hous. Corp. v. United States, 76 Fed. Cl. 158, 213 (Fed. Cir. 2007).
Updated: August 8, 2018