Payne Hackenbracht & Sullivan

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); Litton Systems, Inc., ASBCA No. 17579, 78-1 BCA 113,038. 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. F.H. McGraw and Company v. United States, 131 Ct.Cl. 501, 130 F.Supp. 394 (1955); Boyajian v. United States, 191 Ct.Cl. 233, 423 F.2d 1231 (1970).

The total cost approach may be considered when all of the four following factors are present: (1) the nature of the particular losses makes it impossible or highly impracticable to determine them with a reasonable degree of accuracy; (2) the bid or estimate was realistic; (3) actual costs were reasonable; and (4) the contractor was not responsible for the added expenses. WRB Corporation v. United States, 183 Ct.Cl. 409, 426 (1968); Urban Plumbing & Heating Co. v. United States, 187 Ct.Cl. 15, 408 F.2d 382, 394 (1969); S.W. Electronics & Manufacturing Corp. v. United States, 228 Ct.Cl. 333, 347, 655 F.2d 1078, 1086 (1981); Togaroli Corporation, ASBCA Nos. 32995, 32996, decided 6 April 1989. The contractor must establish all four elements by a preponderance of proof.