Case of the Month: The Cost of a Power Pole

Sep 1, 2015 by

The driver hit the 50-foot wooden power pole, making a large dent in the nose of his car and breaking the pole. There was no dispute over that.

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The utility company (which for the purposes of this article, we will abbreviate as “UtilCo”) sent out a repair crew, and they repaired the damage by replacing the pole over the next couple days. UtilCo then sent the repair bill to the driver. The five-figure repair bill was the point of contention. UtilCo maintained that this was what it cost, so “pay the bill”. The driver sent the bill to his insurance company. The insurance company adjuster balked at the cost and kicked it upstairs. Eventually, the insurance company litigation department became involved. They hired GEI to audit the invoice and tell them if the charges were reasonable.

The charges fell in to three categories: materials, equipment, and labor. The materials component was fairly straightforward and is summarized in the following table.

 

               Materials
Description Charge
Brace $24
Cross arm 49
Guard (2) 11
Insulators (4) 39
Pins (5) 33
Pole (50ft) 1,548
Tie Insulation (4) 18
Total Materials $1,722

The equipment portion was a little more complicated. The standard method of valuing the use of equipment such as this is to ask what it costs and roughly estimate how many years it takes to wear it out. Then that annual number is divided by workdays in a year to come up with a daily rate.

While you may quibble over actual hours used versus days charged, the approach is defensible, especially if you compare what comparable heavy equipment rentals would cost on the open market.

After the details were plugged into the spreadsheet, the summary looked like the following equipment table.

 

                 Equipment
Description Charge
Light Truck/Van $102
Light Truck/Van 4×4 48
Medium Truck 4×4 115
Heavy Truck 4×4 149
Heavy Truck 6×4 Aerial 301
Heavy Truck 6×6 Trenching/Boring 785
Heavy Truck 6×6 Trenching 497
Trailer 62
Total Equipment $2,059

 

The point of contention on the bill was the labor charge section. All told, the timesheets of the UtilCo employees totaled 132.6 hours. We all have driven by construction or utility projects where it appeared that good judgment would say that too many people were getting too little done. In this case, however, they replaced the pole and had the lines back in service in about two days, so unless you had a two-day long video of idle workmen, there was no solid basis for challenging the time spent.

The crew included an apprentice lineman (15.7 hours), three journeymen linemen (totaling 43.7 hours), a technician (14.5 hours), a troubleshooter (7 hours), and a working foreman (14.3 hours). The hours billed tied to employee timesheets. Each of these workers was listed on the invoice as “Occupation, Hours, Amount”. The fundamental principle in a case like this is to recover actual costs. The difficulty is in getting all parties to agree on the definition of actual costs. There are two ways to get to that destination.

The first method is to obtain certified payroll records. To this starting point, add all direct identifiable actual overhead expenses. This includes workers compensation insurance, health/dental/vision/chiropractic insurance, all of the various federal/state/local payroll taxes, fees, and assessments, retirement benefits (which may/will vary by year), life insurance and disability insurance benefits, paid holidays, paid sick time, paid vacations, and possibly day care benefits, and don’t forget to adjust for the effects of actual overtime (which varies by payroll period). Of course, UtilCo was not going to voluntarily provide a copy of the certified payroll. Even worse was the prospect of both sides spending dozens of hours digging into the specific details of the schedules of actual overhead items, which would be different for each member of the repair crew.

The second method is to ascertain what a typical employee makes (adjusted for geographical location) and use a general overhead percentage. This was our approach.

Per the Bureau of Labor Statistics, the mean hourly rate for a lineman in California is $44.96 per hour. Other reliable, standardized industry sources were comparable at a $47.87 average. An apprentice may earn between 60% and 90% of a journeyman. Foremen earn more; technicians earn less. Overall, 40% is the gold standard payroll overhead percentage across all industries and regions. Typically, construction has very high workers compensation rates, so we were generous and used 50% as the payroll overhead number. So rounding up, $50 per hour plus 50% overhead would be $75 per hour for a lineman. UtilCo charged $172 /hr. for their linemen, $185/hr. for the foreman and $188/hr. for their trouble shooter. Even the apprentice was $136/hr.

This represented many thousands of dollars of overcharging for the labor performed. Our client went back to UtilCo with this data. Happily for our client, UtilCo then reduced their charges, and they reached a favorable settlement.

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