Reasonable backcharges

[dozer]

I'm curious what other people consider reasonable or what's the "industry norm" when it comes to backcharging design firms for design errors. Let me give an example. We hired a firm to design and build some components on a project we are working on. He's made several relatively small mistakes that we've fixed in the field like bolt holes not lining up. Needing to add an extra gusset here and there. Shorting us on shim packs so having to make shims on the fly. Just to name a few.

The other day was the straw that broke the camels back. He made a bust on some brackets that anchored components to the concrete floor. It's one of those things that's really hard to estimate the true cost because it disrupted our work flow on a very, very tight schedule. As a matter of fact, it blew our schedule. Anyway, I digress. The point is, in my opinion, his mistakes are starting to cost us significant money since the field construction is on a T&M basis. Too early to guess but I'm sure his mistakes will cost us well over $10,000 before it all over.

I can hear him now though, "Nobody is perfect. You've got to expect some mistakes on a construction job." Which is true, I would hate for my employer to dock me everytime I make a mistake but I like to think I keep the number and severity of my mistakes below the level that is considered normal for a decent engineer.

On the other hand, I'm an employee. If my employer thinks I'm making too many mistakes he can just fire me and move on. We can't just fire a sub when we're in the middle of a job (actually I guess you could but that's another thread).

So what's reasonable? How do you decide when you've come to the point that you need to seek restitution?

 

[arunmrao]

In an engineering project the goals are well defined and described. It is the duty of the subcontractor to evaluate these while seeking a contract. If during the course there is a deviation for which the company or design is not at fault,the contractor must compensate the loss. That is accepted norm. Ofcourse it becomes difficult to charge for stoppages or human loss of lives.

I have been charged in the past for delay in supplies or for life cycle performance. Accept it gracefully and move ahead has been my mission.

 

[zcp]

what does your contract say?

also, you should only be worried about the EXTRA cost. the materials and the work you would of had to do anyway. so your $10k might end up being $7k you would of paid anyway and $3k that is due to the errors. depending on the project size, that might not be so bad.

it goes back to, what does your contract say?

ZCP

http://www.phoenix-engineer.com

 

[dik]

I guess it depends on the contract and any wording for consequential damages... I generally exclude these... I did some work for one of the big autoworkers and the contractor shut down the assembly line for twenty minutes... they wanted to backcharge the contractor for about $200,000 until they noted in the tender documents that consequential damages were specifically excluded... and a copy of the tender dox had been sent to them for their legal dept to review...

If there are little 'screw ups' then it might be prudent for your firm to coordinate the stuff produced by his firm. Might save you some money in the long term and will certainly speed up production.

Dik

 

[SylvestreW]

it depends on the error really. Once on a project, we had a subcontrator design the base fixture for a 30m high exhaust stack. The drawing spec stated "base must be round and true" etc etc. During transport, the shipper didn't secure the base and the structure was out of round. Took significant amount of time (overall, about 40K extra costs) to fix.
It was a bit of an arguing match with the manufacturer saying "nothing's perfectly round" etc etc but our drawing explicitly stated it had to be delivered that way. Came to an agreement for them to pay ~30K, we absorb 10K.

If these "errors" are happening, I'd ask the following:
What's the tolerances on things? Can you explicitly give some?
Who's checking things before the product is shipped? Why are these things being allowed to ship to site before approval? Why are critical issues being discovered at the job site?


At the end of the day, if errors are costing you money, and those errors are "avoidable" then absolutely, I'd politely let the supplier know that additional avoidable errors that cost additional time and money will be charged back.

 

[DRC1]

The question is how much more work is this guy going to do for you. You contracted what was shown on the drawings and specifications. Therefore any extra costs including the cost of materials is compensible plus markup. You are also entitled to cost of additional engineering or superintendence if nessescary. You are also entitled to any overtime (premium portion only)neede to maitain your schedule because of these problems. Remember the golden rule: He wo has the gold; rules. You do need to carefully inform him in writing of these problems and potential costs. If he can cure these problems he needs to be given a reasonable oppertunity to cure the problem.
In the end it really depends how much he hurt you and how far you want to push it, not to mention the size of the invoice. If you owe him $20k, your in luck. If you owe him $5k, You are probably out of luck for the last 5k.

Good Luck

 

[dik]

Gotta be careful with that Golden Rule... can bit ya, if you're not careful...

Check and see if you can withhold funds, before doing it! A lien registered at a critical period of financing can cause a whole pile of heartburn...

 

[dozer]

Dik, yes, I was told in most states you can't withhold money for labor but you can for parts. Don't know if that's true or not.

To clarify, I'm a design engineer. I'm just curious how the business end of things work. No two project managers ever seem to have the same take on things like this. I wonder how many of these guys have any formal training in business and construction law.

I have no idea what the contract says. Which, when you think about, is really silly for the PM not to educate at least the key engineers so that if the sub runs afoul of the contract we can alert him. But contract or no, the design should be clear and accurate. Accurate it ain't.

 

[HgTX]

Around here, if the contractor can find someone else to blame for the project getting behind schedule and money being lost, they WILL come after the someone else for that money.

Hg

Eng-Tips policies: faq731-376

 

[Ashereng]

dozer,

Usually, if you are to go after someone for money, you will need to refer to the contract - as others have pointed out. In money issues, you will need your company lawyer and accoutant.



"Do not worry about your problems with mathematics, I assure you mine are far greater."
Albert Einstein
Have you read FAQ731-376 to make the best use of Eng-Tips Forums?

 

[plasgears]

This is a situation where lawyers earn their keep. Get your contracts reviewed and amended by competent legals before signature. Perhaps you miss something here and there, but the important stuff will be covered by amendments.

 

[JStephen]

A couple of other issues come up depending on the circumstances. One is that while you may be able to backcharge for whatever you think is right, you may also find that the contractor in question has no desire to work with you ever again. Depending on the circumstances, that may or may not be a good thing- but it's easy to get penny wise and pound foolish, too. It helps to work with the same people enough to have a good relationship with them. By the way, if your problems cost the supplier $10,000 will you willingly pay it?

You do get into situations where it's unreasonable to make a subcontractor liable for all potential circumstances as well. If you're hiring someone to do $50,000 worth of work, but expect them to pay you a million dollars a day for running over the schedule, you're likely to have trouble finding anyone to sign the contract at a reasonable price.

 

[dik]

dozer... often when parts, equipment or material is delivered to the site, it becomes part of the work and can be rightfully claimed on progress draws. I've been involved on some projects where material has been stored off site, but an arrangement has been made that the 'off site' area is part of the project so that payment for material can be processed.

Dik

 

[GregLamberson]

I'll echo the rest of the crowd, I don't know what is in the contract.

That being said, I just wanted to throw in an opinion about the general problem and that is one of QA/QC. Your company should have some kind of quality system in place to do the basic inspections, and that would include something like Non-conformance Report (NCR), Corrsdctive Action Request (CAR), Defeciency Report, etc.

If these are in place and used properly, the defects and oversights are documented as found and actions must be taken to close them out prior to acceptance of the work, i.e. payment for the work/services.

As far as backcharges, again, that goes back to the contract and if there is not anything in it that allows for consequential damages or if it does require a performance bond, then there is not allot one can do except capture it as a lessons learned, and make sure it is in future contracts.

Greg Lamberson, BS, MBA
Consultant - Upstream Energy

Website:

http://www.oil-gas-consulting.com

 

[RLM2000]

I have read your post and it is a very interesting question that you pose. It sounds like there might be some coordination/QA issues.

If I read your post correctly, this designer has charge of a critical path item. If there is to be an installation along the critical path it needs to be inspected by the installing contractor upon receipt (or just hope that he is right?)!!! If this did not happen, then the blame must be spread to you as well. I am well aware that everyone expects perfection out of engineers, but it just does not always happen. Unless you have a note in your contract that the subcontractor is completely liable for the geometry of the fabrication and any down-time caused by him, I am not sure that back billing will work for you.

We do some of this type of thing, and every single set of plans that we produce for someone else's anchorage states that the plans "Shall be reviewed and signed by the installing contractor prior to fabrication of the part". While this contractor's errors are his most likely, he is working without a net in this case it sounds like. I mean his only double check is inter-office if it is not being inspected at the site or during planning.

Just some food for thought. When you hire a consultant under normal pretenses, it is usually assumed it is "warts and all". That is why good consultants/fabricators are always busy. We have signed contracts where we would be forced to pay impact fees if we failed to meet a deadline so it may be part of your contract.