Toolbox Talk Series Recap – CPAs in Construction Disputes

In the February 29, 2024 edition of Division 1’s Toolbox Talk Series, Chad Garcia provided information on the role of a CPA in construction litigation. Garcia discussed the various type of claims and situations in which Certified Public Accountants (“CPAs”) can provide value to parties involved in construction disputes, as well as other contexts in which CPAs are often used on construction projects.

In Garcia’s experience, CPAs frequently work to quantify damages on errors and omissions claims, construction defect claims, and delay claims.  CPAs also perform analysis relating to cost overrun disputes, change order disputes, claims for lost profits, and claims involving liens.  While the precise analysis differs in each of the above contexts, CPAs generally analyze financial records and other relevant project documents (such as change orders, contracts, etc.) to make sure all amounts claimed are reasonable and accurate. 

As one example, in JH Kelly, LLC v. AECOM Technical Services, Inc., 605 F. Supp. 3d 1295 (N.D. Cal., June 2, 2022), a CPA (who is also a Certified Management Accountant and Certified in Financial Forensics) offered expert testimony to calculate the Subcontract balance, to determine where cost overruns occurred, and to compare design cost overruns to construction cost overruns.  In response to a Daubert challenge regarding the analysis of cost overruns, the court ruled that the expert’s opinion “is sufficiently based on his analysis of the billings at issue and his experience in accounting, auditing, and analyzing costs related to construction projects to be admissible under Rule 702.”

Depending on the dispute and the available records, a CPA’s methodology will vary.  Garcia detailed how they may look at invoices, payments, and purchase orders to build a damage valuation based on actual costs.  Other options include total cost, modified total costs, and measured mile approaches.  Those methodologies were discussed in greater depth in the October 26, 2023 Toolbox Talk.

Other areas that Garcia covered include the potential, at least in smaller claims, to engage a CPA to prove costs and rely on project personnel for testimony to support the root causes, and various non-dispute contexts in which a CPA can support a construction project.  Those include (1) accounting and finance process improvements based on an evaluation of a company’s internal controls; (2) tax planning and compliance; and (3) advice for tracking ongoing claims by using a separate cost code or separate account in the job costing system to isolate costs related to the damage event or delay.

Thank you to Garcia for detailing the various ways a CPA can add value to a construction claim or dispute.

---

Author Douglas J. Mackin is a construction attorney with Cozen O’Connor in Boston, Massachusetts. Douglas counsels owners, developers, contractors, and subcontractors in all phases of a construction project, from contract negotiation through to completion, including disputes, litigation and arbitration. Douglas can be contacted at dmackin@cozen.com.