By Aaron R. Gruber
Thelen LLP

The Washington Court of Appeals has held that a contractor could not charge for administrative time it expended while performing a cost-plus-fee contract to construct a barn and a residence in Kittitas County, Washington. The court also held that the contractor could not collect fee for costs related to the project but paid for by the owner.

The dispute involved the contractor's claim that the owner should pay:

		The cost of management services provided to the project by the president of the contracting company; and
		The contractor's fee on materials purchased for the project by the owner from one of the contractor's suppliers.

On both issues, the court denied the contractor's claim. Keever & Associates, Inc. v. Randall, 129 Wash.App. 733, 119 P.3d 926 (2005).

The court noted that the general rule on a cost-plus-fee construction contract is that the owner reimburses the contractor for labor and materials. Administrative time expended by a contractor generally is not a cost contemplated by the parties in such construction contracts. Absent an agreement to the contrary, the contractor is not entitled to charge for general or overhead expenses, such as management salaries and office expenses. Those costs are to covered by the contractor's fee.

In the dispute before it, the court held that services by the contractor's president were included in the 10 percent fee agreed to by the parties as part of their oral contract. The court came to this conclusion because the contractor never had discussed charging for the president's time; the president's time was not billed at the beginning of the project but only when the contractor felt the president had spent more time on the project than originally intended; the contractor did not keep time records for its president; and the president's time was not an actual cost to the contractor in that it did not pay the president any specific amount based upon his work on the project. The court concluded that administrative time (its classification for the president's time) is not recoverable under a cost-plus-fee contract because it is subsumed in the fee portion of the owner's payment.

On the issue of the payment through the contractor to its supplier for material for the project, the court held that because the contractor did not actually incur any costs itself (the contractor at no time having fronted payment to the supplier), it could not collect fee for the payment to the supplier. The Court of Appeals refused to disturb the trial court's factual finding that payment for the materials was forwarded to a supplier and never was an actual cost to the contractor for which fee could be charged. Similarly, the contractor was not entitled to charge fee for materials costs paid for directly by the owner.

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For more information about the issues covered in this report, please contact Aaron R. Gruber in our San Francisco office at 415-369-7621 or at agruber@thelen.com or contact your Thelen attorney. For more information about Thelen's Construction and Government Contracts Department, click here.





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