[Costs Claimed by Sletten Construction of Wyoming, Inc., Under Contract No.  NDC000037 to Build the National Historic Trails Interpretative Center, Bureau  of Land Management]
[From the U.S. Government Printing Office, www.gpo.gov]

Report No. C-CX-BLM-0044-2003

Title: Costs Claimed by Sletten Construction of Wyoming, Inc.,
       Under Contract No.  NDC000037 to Build the National Historic
       Trails Interpretative Center, Bureau  of Land Management

  

Date:  March 19, 2004 

****************************************DISCLAIMER***************************** 
This file contains an ASCII representation of an OIG report. No attempt has been made to display graphic images or illustrations. Some tables may be included, but may not resemble those in the printed version. A printed copy of this report may be obtained by referring to the PDF file or by calling the Office of Inspector General, Division of Acquisition and Management Operations at (202) 219-3841. 
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Memorandum 

To: Gwendolyn L. Moore, Contracting Officer Bureau of Land Management 

From: Anne L. Richards Regional Audit Manager
 
Subject: Costs Claimed by Sletten Construction of Wyoming, Inc., Under Contract No. 
NDC000037 to Build the National Historic Trails Interpretative Center, Bureau 
of Land Management (No. C-CX-BLM-0044-2003) 

INTRODUCTION 
At your request, we have audited additional costs of $488,921 claimed by Sletten 
Construction of Wyoming, Inc., (Sletten) for overhead on the subject contract. The 
Bureau of Land Management (BLM) contracted with Sletten to build the National 
Historic Trails Interpretive Center (NHTIC) in Casper, Wyoming. The objective of our 
audit was to determine whether the costs claimed by Sletten were allowable, reasonable, 
and adequately supported in accordance with the contract terms and the Federal 
Acquisition Regulation. In addition, we attempted to provide information requested by 
BLM concerning the total project costs, actual overhead costs, and the actual costs 
incurred for each contract modification. 
BACKGROUND 
On March 22, 2000, BLM awarded a firm-fixed-price contract to Sletten1 to build the 
NHTIC. The purpose of the NHTIC was to explain and interpret the history of the major 
overland trails that early emigrants followed as they settled in the American west. 
The NHTIC was developed in cooperation with three primary partners: the BLM, the 
National Historic Trails Center Foundation (a private nonprofit entity), and the City of 
Casper, Wyoming. BLM funded the construction of the building, the Foundation funded 
the exhibits, and the City donated the land that the NHTIC occupies. The three parties 
1The contract was originally awarded to Westates Construction Company, a wholly owned subsidiary of 
Sletten, Inc. During the performance period, Westates was renamed Sletten Construction of Wyoming, Inc. 

signed a cooperative agreement that details the operations and maintenance costs of the 
facility and clarifies the responsibilities of each party. 
BLM provided the Notice to Proceed on April 10, 2000, and construction began the same 
day. The original contract was for $5,710,000, and the NHTIC was to be completed in 
480 days. However, during the course of construction the contract was modified 17 
times, mostly for changes in the building design and for additional work. As modified, 
the final contract amount totaled $6,355,542.89 and the period of performance was 
increased to 784 calendar days. The project was accepted by BLM on February 20, 2003. 
Sletten asserted that while the project was under construction it encountered significant 
problems beyond its control which BLM failed to adequately address. Sletten alleged 
that inadequacies, conflicts, and errors in the government-furnished plans and 
specifications caused delays on the project. Sletten is requesting additional compensation 
because it believes these problems added extra performance time and costs. 
Sletten submitted a total of 70 change order requests (CORs) that were incorporated into 
the first 16 modifications1 to the contract. Sletten asserts that all CORs for the project 
were successfully negotiated except for COR No. 17443, which requested compensation 
for extended field office overhead and extended home office overhead as a result of 
construction delays. This COR was originally submitted to BLM seeking compensation 
for 192 calendar days of extended field office overhead for about $192,559. Sletten later 
amended its request to include $120,192 in home office overhead for the same contract 
extension. BLM declined to pay the amount, stating that Sletten was fully reimbursed 
through the 16 modifications. 
On July 25, 2003, Sletten formally submitted its certified claim to BLM which updated 
the amounts of overhead costs allegedly incurred since the submission of COR No.17443. 
The claim requested compensation for a delay period of 274 calendar days, which 
consisted of 304 days of actual performance delay less 30 days for weather interruptions. 
Slettenï¿½s claim of $488,921.41 was comprised of $275,956.36 for extended field office 
overhead, $171,524 for extended home office overhead, $41,393.45 for profit, and $47.60 
for bond and insurance. Although BLM modified the contract to extend the performance 
period by 304 days, BLM still maintains that the modifications fully compensated Sletten 
for its costs. 

SCOPE AND METHODOLOGY 
The audit scope covered the total costs incurred by Sletten to construct the NHTIC. 
Costs for the entire construction period, which encompassed Slettenï¿½s fiscal years ending 
March 31, 2001, through March 31, 2003, were subject to our review. 
The audit scope covered only the issue of verifying the allowability of the claimed costs. 
Our audit did not address whether Slettenï¿½s claim has merit, and accordingly, we did not 
review the plans and specifications of the contract to assess the validity of the claim. 
1The final modification, No. 17, was a minor administrative adjustment in which BLM deobligated the 
remaining funds after construction was complete. 

The audit fieldwork was primarily conducted at Slettenï¿½s corporate offices in Great Falls, 
Montana. To accomplish the audit objective, we interviewed company officials, verified 
the calculations of the claim, reviewed Slettenï¿½s accounting system, and judgmentally 
selected and examined supporting documentation for the costs incurred for the contract. 
Our audit focused on evaluating field office overhead and home office overhead, which 
comprised the major cost items included in the claim. 
To help evaluate the reliability of Slettenï¿½s accounting system, we obtained and read 
Slettenï¿½s audited financial statements for the three fiscal years that covered the 
construction period. We also interviewed the public accounting firm that conducted the 
annual financial statement audits. 
We interviewed BLMï¿½s contracting officer and contracting officerï¿½s technical 
representative to become familiar with the administration of the contract and the manner 
in which the NHTIC was constructed. We examined pertinent documents maintained by 
BLM, including the contract and associated contract modifications, change order 
requests, correspondence files, and the daily contract diary. 
We visited the NHTIC in Casper, Wyoming, and toured the facility with BLM officials 
who had first-hand knowledge of the construction project. 
To confirm our audit conclusions regarding the claim, we consulted with the Defense 
Contract Audit Agency, an organization that has extensive experience in performing 
audits of construction claims. 
Our audit was performed in accordance with the Government Auditing Standards, issued 
by the Comptroller General of the United States. Accordingly, we included such tests of 
records and other auditing procedures that we considered necessary under the 
circumstances. 
TECHNICAL EVALUATION 
BLM had not performed a technical evaluation of the claim at the time of our audit. 
Therefore, our conclusions are qualified to the extent that the results of a technical 
evaluation may affect the claimed costs. For example, Sletten based its claim on a 
delayed performance period of 274 calendar days. For consistency purposes, we used the 
274 days when computing the audit adjustments contained in this report. However, our 
audit adjustments may need to be recomputed should a technical review of the timelines 
affecting the contract performance result in a redetermination of the length of delay. 
RESULTS OF AUDIT 
We concluded that the claim for reimbursement of additional costs submitted by Sletten 
Construction of Wyoming, Inc., overstated its alleged damages. Specifically, we found 
that Slettenï¿½s actual costs incurred for extended field office overhead were much less than 
claimed and that the claim for extended home office overhead was not valid. As a result, 
we questioned $256,525.52 of the $488,921.41 total amount claimed. Our findings are 

explained in the following paragraphs and are summarized in the accompanying 
Appendices. 
EXTENDED FIELD OFFICE OVERHEAD 
Sletten claimed $275,956.36 for extended field office overhead. Field office overhead 
refers to costs incurred at the job site that benefited the entire construction project (such 
as general supervision, office trailers, and utility expenses), rather than an individual task 
or activity (such as earthwork, roofing, or landscaping). The term ï¿½extendedï¿½ refers to 
field office overhead that was incurred during the delayed performance period. 
In its claim, Sletten requested compensation for 13 field office overhead cost items in the 
total amount of $1,007.14 per calendar day. Slettenï¿½s accounting records, however, 
disclosed that only $737.42 per calendar day in costs was actually incurred for these 
items (see Appendix 1). Consequently, for the alleged 274-day delay period, Sletten 
claimed $73,903.28 in excess of its actual costs. We questioned this amount, and our 
calculations are shown in Appendix 2. 
PROFIT. Sletten claimed $41,393.45 for profit on the extended field office 
overhead. Sletten computed its profit by applying a 15 percent rate to the overhead 
amount. We did not evaluate the reasonableness of the profit rate as this is a matter that 
we defer to the contracting officer. However, we noted that the profit rate was consistent 
with the rate that Sletten proposed to BLM in its correspondence dated May 26, 2000. 
Nevertheless, we questioned $11,085.49, which represents the amount of profit 
associated with the field office overhead that we classified as questioned in the previous 
paragraph (see Appendix 2). 
BOND AND INSURANCE. Sletten claimed $47.60 for bond and insurance costs, 
which it computed by applying a .015 percent rate to the combined amount of claimed 
extended field office overhead and profit. We found that the bond and insurance rate was 
consistent with the rate that Sletten offered to BLM in its correspondence dated May 26, 
2000. However, we questioned $12.75, which represents the bond and insurance amount 
associated with the field office overhead and profit that we classified as questioned (see 
Appendix 2). 
EQUIPMENT. In its claim, Sletten listed 10 equipment items as additional field 
office overhead, but did not officially request reimbursement for these items. According 
to the claim, the equipment was on the project site, but Sletten did not have a ï¿½current 
intention to seek additional field office overhead compensationï¿½ for the costs. As 
requested by BLM, we expanded the audit scope to include a cost analysis of the 
equipment. Accordingly, we developed the actual cost per calendar day for each item 
based on Slettenï¿½s accounting records and we are presenting this data for informational 
purposes only (see Appendix 3). 
EXTENDED HOME OFFICE OVERHEAD 
Sletten claimed $171,524 for extended home office overhead. Home office overhead 
refers to general and administrative costs (such as officersï¿½ salaries, bookkeeping, office 

rent, and advertising) generally incurred at the home office rather than at the job site. 
The term ï¿½extendedï¿½ refers to home office overhead that was incurred during the delayed 
performance period. 
Sletten computed the claimed extended home office overhead by using a mathematical 
calculation known as the ï¿½Eichleay Formulaï¿½2. In brief, the formula computes a daily 
overhead cost for the project which is multiplied by the number of days that the project 
was delayed. The resulting figure, commonly known as ï¿½unabsorbed overheadï¿½, 
represents the amount of damages for which the contractor is entitled to recover. 
Our analysis disclosed that the Eichleay Formula has been used in situations where the 
Federal Government causes a work stoppage at the job site that idles the contractorï¿½s 
construction workforce. Since work has stopped, progress payments to the contractor are 
suspended or at least greatly reduced. Meanwhile, expenses at the home office continue 
to accrue, but because the dormant job no longer generates sufficient revenue, the home 
office expenses are not compensated (or absorbed) by that job. 
However, we found that the circumstances involving the BLM contract preclude the use 
of the Eichleay Formula. Sletten and BLM officials stated, and the daily contract diary 
prepared by the BLM project inspector shows, that work never stopped during the BLM 
contract. The job did take longer to complete than originally expected, but Sletten was 
reimbursed for its additional performance costs through contract modifications. The 
modifications, in fact, provided $43,313.15 specifically for overhead costs that were 
computed in accordance with an overhead rate proposed by Sletten in its correspondence 
to BLM dated May 26, 2000. Further, since Slettenï¿½s billing submissions to BLM 
continued without interruption during the project, Sletten likewise continued to recover 
its home office costs. Accordingly, we questioned $171,524, the full amount of claimed 
extended home office overhead. 
AUDITED HOME OFFICE OVERHEAD RATES. As requested by BLM, we 
computed the actual home office overhead rates based on Slettenï¿½s recorded costs. For 
informational purposes, we computed two sets of rates. In the table that follows, the 
second column shows the home office overhead rates without adjustments for certain 
unallowable costs based on the Federal Acquisition Regulation (FAR). The third column 
reflects full adjustments for the FAR. 
Fiscal Year Ending 
March 31 
Unadjusted Overhead Rate 
(Percent of Total Direct Costs)
Adjusted Overhead Rate 
(Percent of Total Direct Costs)
2001 
10.0 
7.9 
2002 
6.8 
6.0 
2003 
7.4 
6.0 
Although we do not believe that Sletten incurred unabsorbed home office overhead 
during the BLM contract, we do recognize that home office expenses are a legitimate cost 
of doing business. Accordingly, if negotiations result in Sletten receiving an equitable 
2The Eichleay Formula was established in a judicial decision in 1960 and has subsequently been used to 
develop claimed overhead costs in some construction claims. 

adjustment for additional direct costs (which would include field office overhead), Sletten 
should also receive an appropriate allocation of home office overhead as part of the 
equitable adjustment. In our opinion, the adjusted overhead rates or the rates proposed by 
Sletten in its correspondence to BLM dated May 26, 2000, would provide a fair basis for 
computing the overhead amount. 
TOTAL PROJECT COST INFORMATION 
We estimated that Sletten incurred $7,133,000 in costs for the BLM contract. However, 
this figure is only an approximation because Slettenï¿½s accounting system commingled the 
BLM contract costs with costs incurred for the exhibits funded by the National Historic 
Trails Center Foundation. The exact costs for the Foundation could not be accurately 
determined, but Sletten estimated the amount at $246,093. Accordingly, to estimate 
Slettenï¿½s incurred costs, we deducted the estimated costs for the Foundation from the 
total project cost of $7,379,099. 
As requested by BLM, we attempted to determine the actual costs that Sletten incurred 
for each of the 16 contract modifications. However, we were unable to accomplish this 
because Slettenï¿½s accounting system did not provide a cost breakdown by individual 
modification. 
Finally, Sletten bid the contract expecting a profit of $437,451. However, Slettenï¿½s 
financial records show that it actually experienced a loss of $222,794. 
In the March 23, 2004, response (Appendix 4) to the draft report, you provided comments 
suggesting changes to the report. We have considered the comments and made changes 
to the final report where appropriate. 
Section 5(a) of the Inspector General Act (5 U.S.C. ï¿½ App. 3) requires the Office of 
Inspector General to list this report in its semiannual report to Congress. 
Although this report does not require a response, we appreciate being kept apprised of the 
status of negotiations with Sletten and the final disposition of the claimed costs. If 
further information is needed regarding this report, please contact me or Mr. Tim Musil at 
(303) 236-9243. 

Appendix 1 
ANALYSIS OF COSTS CLAIMED BY 
SLETTEN CONSTRUCTION OF WYOMING, INC., 
FOR EXTENDED FIELD OFFICE OVERHEAD 
Amount Claimed 
Amount Claimed 
Audit 
Adjusted 
Line Item
(Per Week)
(Per Calendar Day)
Adjustment3
Costs 
Supervision 
$1,000.00 
$ 142.85 
General 
Superintendent 
1,150.00 
164.29 
Lead Man 
800.00 
114.29 
Labor Burden 
1,280.00
182.86 
Payroll 
Subtotal 
$4,230.00 
$ 604.29 
($74.59) 
$529.70 
Storage Trailer 
25.00 
3.57 
0.72 
4.29 
Office Trailer 
87.00 
12.43 
0.29 
12.72 
Inspector Trailer4
87.00 
12.43 
(12.43) 
0 
Phone 
148.00 
21.14 
(2.36) 
18.78 
Power 
80.00 
11.43 
9.94 
21.37 
Temporary 
Toilets 
137.00 
19.57 
(10.17) 
9.40 
Pickups 
278.00 
39.71 
(25.12) 
14.59 
Heat 
1,344.00 
192.00 
(120.48) 
71.52 
Forklift 
634.00 
90.57 
(35.52) 
55.05 
Total 
$7,050.00 
$1,007.14 
($269.72) 
$737.42
3Adjustments reflect the costs supported by Slettenï¿½s accounting records. 
4Slettenï¿½s accounting system combined the costs of the office and inspector trailers. 

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Appendix 2 
COSTS CLAIMED BY SLETTEN CONSTRUCTION OF WYOMING, INC. 
FINANCIAL SUMMARY OF AUDIT RESULTS 
Description
Amount Claimed
Amount Questioned
Balance
Extended Field Office Overhead 
$275,956.36 
$ 73,903.285 
$202,053.08
Profit (15%) 
41,393.45 
11,085.496
30,307.96
Bond & Insurance (.015%) 
47.60 
12.757 
34.85 
Subtotal 
$317,397.41 
$85,001.52 
$232,395.89 
Extended Home Office 
Overhead 
171,524.00 
171,524.008 
0 
Total 
$488,921.41 
$256,525.52 
$232,395.89 
5The amount questioned was computed by first multiplying the $737.42 audited field office overhead cost per 
calendar day (see Appendix 1) by 274 days of performance delay. The resulting amount of $202,053.08 was then 
subtracted from the claimed amount of $275,956.36 for a balance of $73,903.28. 
6The amount questioned was computed by multiplying the $73,903.28 questioned for field office overhead by the 
15 percent profit rate. 
7The amount questioned was computed by combining the amounts questioned for field office overhead of 
$73,903.28 and profit of $11,085.49 and multiplying the product of $84,988.77 by the .015 percent bond and 
insurance rate. 
8As explained in the report, we questioned the full amount of the claimed extended home office overhead. 

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Appendix 3 
ANALYSIS OF OTHER EQUIPMENT COSTS IDENTIFIED 
BY SLETTEN CONSTRUCTION OF WYOMING, INC., 
FOR FIELD OFFICE OVERHEAD 
Audited Costs 
Line Item
(Per Calendar Day) 
1984 Bantam 22T Hydraulic Crane 
$ 68.23 
1985 Chevy 2T Water Truck 
36.56 
2001 Bobcat, Model 753 
34.34 
Two 1998 Miller Welders 
13.47 
Extended rental for Sandblast Truck 
327.64 
Extended rental for EFCO & Symons Concrete Forms 
52.89 
Ingersoll Rand Compressor 
13.54 
900 CFM Air Compressor9
0 
Genie S45 Manlift 
48.86 
Genie S40 Manlift 
43.94 
Total 
$639.47 
9No cost is shown because this item was not found in the project accounting records. 

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Text Box: Appendix 4


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