The Cost Code Crisis: When the Numbers Don’t Add Up

Series: A Tale of Two Claims | Part 3 of 5

In Post 1 and Post 2 of A Tale of Two Claims, we explored how the outcomes of two nearly identical construction projects diverged due to differences in documentation and daily reporting. Now, in Part 3, we turn to a critical and often overlooked factor in claim success: how contractors capture and organize their project costs when disruption strikes.

Call it what you will—cost breakdowns, cost structuring, detailed cost tracking—what matters is whether your cost records are specific, timely, and tied to real project events. Without that, even the most legitimate claims can be denied under audit or agency review.

In this post, we examine how Project West’s failure to track and organize its project costs led to denial of its Request for Equitable Adjustment (REA). Project East, on the other hand, structured and recorded costs in real time and built a compelling, well-supported claim.

Project West: The Perils of Post-Hoc Estimation
Six months after encountering an unforeseen subsurface obstruction, Paul’s team at Project West submitted an REA that encompassed labor inefficiencies, equipment standby, rework, subcontractor changes, and overhead.

However, the supporting documentation was weak:

• Generic Cost Categories: Line items like “delay labor” and “equipment idle” with no reference to specific activities or dates
• No Time-Stamped Records: No logs tying hours or equipment use to the disruption event
• Blended Cost Pools: Labor and equipment hours from multiple scopes jumbled into a single estimate
• Use of Total Cost Method: A method often viewed with skepticism, especially when records are weak

The agency’s technical reviewers quickly flagged the lack of contemporaneous tracking. With no clear linkage between the event, the claimed time impact, and the cost buildup, Paul’s claim lost credibility.

Project East: Structured Tracking from Day One
When Maria’s team at Project East discovered an unexpected subsurface obstruction, personnel anticipated the long-term consequences and implemented a well-structured cost tracking process immediately:

• The team created a unique cost code: “2.14.4 – Differing Site Conditions.”
• The team logged labor and equipment hours under that code in real time.
• Personnel tagged subcontractor impacts to that event and tied them to specific activities.
• Cost entries aligned with the CPM baseline and TIA fragnet used in the schedule update.
• Documentation included daily reports, photos, emails, and internal impact memos.

When Maria submitted her REA, the agency reviewers noted this:

• Clear traceability of cost data to impacted activities
• Real-time records supporting quantum
• Separation among base scope, change work, and unforeseen conditions
• Alignment with both daily field reports and the schedule update

The result? An internal recommendation to negotiate.

Why Real-Time Cost Structuring Matters
Whether you’re working on a $25M federal energy upgrade or a $200M airport expansion, tracking and organizing your cost data is essential when a change or delay occurs. The goal isn’t just to prove you spent money; it’s to demonstrate details:

• What caused the additional cost
• When and where it occurred
• How it impacted planned performance
• That the amounts claimed are supported by real, verifiable data

Based on experience analyzing hundreds of construction claims, Long International knows that poorly documented or improperly grouped costs are some of the most common causes of denied REAs, rejected claims, and extended disputes.

Best Practices for Defensible Cost Records

• Use Unique Cost Codes for Each Impact. Set up codes that separate base work from impacts: unforeseen conditions, owner-directed changes, disruptions, etc.
• Link All Costs to Schedule Activities. Time-related cost claims need to tie to critical path impacts. Use activity IDs (from the P6 schedule) or WBS elements in your field and accounting systems.
• Document Subcontractor and Equipment Impacts Separately. Make sure your records code, describe, and support sub pass-through costs and equipment idle time.
• Maintain a Running Ledger of Impact Events. Create a table listing each delay/disruption event, the associated cost code, related schedule activities, and supporting documents.
• Train Your Teams to Code in Real Time. Daily field logs, supervisor memos, and timesheets should reflect the cost codes in use. Don’t wait to back-code weeks later.

Beyond Claims: Project Oversight and Audit Readiness
Well-structured cost tracking isn’t just for REAs or disputes. It also helps with these:

• Owner confidence and transparency
• Internal cost control and forecasting
• Third-party audit response
• Supporting future project pricing and estimating

Agencies and owners increasingly require traceability for all change order costs, especially in complex or schedule-sensitive work. The better your structure, the faster and cleaner your resolution.

Coming Next: Telling the Story: Building a Compelling Claim Narrative
In Part 4, we’ll show how to package documentation, schedule data, and cost records into a coherent, persuasive narrative. You’ll see how Project East framed its REA to win agency confidence and how Project West stumbled without a strategy.

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