How contractors can track and log COVID-19 expenses

By Reed D. Sellers, CPA, CCIFP, Wipfli, LLP

If you have yet to incur costs associated with COVID-19, it is most likely just a matter of time.

Contractors often find themselves in a unique position when it comes to contract costs, constantly evaluating whether the work we are being asked to perform on an ongoing basis is within the scope of the original contract or is unique and therefore should be negotiated into a change order. This isn’t just for costs, but also time. Between liquidated damages, back charges and additional labor hours, time can often be just as costly.

The current pandemic is certainly causing additional unforeseen costs and delays – costs that could not have been predicted a month ago, let alone at the time of original contract. In order to provide change order documentation to general contractors or owners, unforeseen costs must be both identified and quantified.

THE CURRENT PANDEMIC IS CERTAINLY CAUSING ADDITIONAL UNFORESEEN COSTS AND DELAYS – COSTS THAT COULD NOT HAVE BEEN PREDICTED A MONTH AGO, LET ALONE AT THE TIME OF ORIGINAL CONTRACT.

Tracking applicable costs can be accomplished in multiple ways: a new general ledger account or job being the simplest. However, the best way may be to set up one or several new costs codes that can be used to track the various COVID-19 costs on a job by job basis. A few examples of unforeseen costs and time delays could include:

• Material cost increases for production delays and supply chain disruption.
• Inspection delays or additional costs incurred with updated inspections processes.
• Overtime if jobs are under rush to complete – think emergency medical services.
• Costs of additional personal protection equipment or health inspections.
• Increased equipment needs – are two boom/scissor lifts now needed to avoid having workers in close proximity?
• Travel costs – are employees traveling separately whereas they could previously car-pool?
• Labor costs incurred which cannot be moved during jobsite shutdowns.
• Technology costs to implement digital owner, architect, contractor meetings, and/or inspections.

In much the same way that office employees being forced to work from home has caused technology and other issues that are difficult to quantify, jobsites are encountering their own unique issues.

For instance, many jobsites are instituting best practices around social distancing, which places constraints on man lifts and other confined spaces. Having superintendents or other parties familiar with jobsites keep notes on additional restrictions that were not previously in place may also provide valuable information.

It is advisable to set these cost codes up now while costs are being incurred – identifying them later may be impractical, if not impossible. Even if you believe it is unlikely that these costs will be reimbursable, it would still be advisable to track for informational purposes. The current pandemic is most certainly going to have a lasting effect and may change the way jobsites operate going forward. It may therefore provide valuable information when bidding jobs in the future.

Reed D. Sellers, CPA, CCIFP, is Senior Manager at Wipfli, LLP. Find more COVID-19 resources at their COVID-19 resource center.