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Section 2: Issues Affecting Payments

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Measuring Items

Describe which items require drawings, if they cannot be described in SiteManager. Provide calculations in payments.

EXAMPLE: A section of riprap measures 100 ft. by 3 ft. and is 5 in. thick. Calculate the area and volume of the riprap.

Area = Length × Width = 100 ft. × 3 ft. = 300 sq. ft.

Area in Sq. Yd. = 300 sq. ft. ÷ 9 = 33.33 sq. yd.

Volume = Length × Width × Depth = 100 ft. × 3 ft. × 0.42 ft. = 126 cu. ft. (5 in. ÷ 12 in. = 0.42 ft.)

Volume in Cu. Yd. = 126 cu. ft. ÷ 27 = 4.67 cu. yd.

EXAMPLE: A one-mile highway was striped with 4-in. white broken stripe. Calculate the quantity placed.

1 mile = 5,280 ft.

1 broken stripe = 10 ft.

Space between broken stripes = 30 ft.

5,280 ft. ÷ (10 ft. + 30 ft.) = 132 ft. of striping

132 ft. ÷ 10 ft. = 13.2 or 13 stripes

Partial payments to an item of work can be made when agreed upon. Items such as embankment cannot truly be measured; therefore, payment can be made by percentage. Cast-in-place inlets are completed in multiple stages, so partial payments in the form of percentages can be made.

When measurements cannot be described as shown above, computer measurements for irregular areas will be acceptable provided that a drawing is provided as an attachment.

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Plans Quantity Measurement

Measurement of actual quantities is not required if a pay item under “Measurement” states in part, “This is a plans quantity measurement Item.” The intent of plans quantity measurement items is to relieve Department personnel from performing quantity field measurements. Monthly estimates for plans quantity measurement items can be established by the quantities shown in the plans or with an established and agreed on payment formula such as a percentage of the total plan quantity installed.

Periodic field measurements and calculations to ensure required design plan dimensions can be made but should not be used to establish quantities on plans quantity measurement items.

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Payments not to Exceed 10% of the Original Contract Amount

According to the standard specifications, total payment of the items listed below is not to exceed 10% of the original contract amount:

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Material on Hand (MOH)

Overview

The Department offers payment for material on hand (MOH) to help offset large capital outlays in assembling and stockpiling material to be used in the contract. Contractors should request MOH payments for those materials that have an invoice cost of at least $1,000.00. Do not make MOH payments for incidentals such as nuts, bolts, washers, etc.

To request payment for MOH, the contractor must submit Form 1914, “Request for Material on Hand Summary Sheet,” and Form 1915, “Request for Payment of Material on Hand,” by the last working day of the month or earlier, as agreed by the Engineer and the contractor at the preconstruction conference. These forms may be reproduced by the contractor provided that they are in the same format and contain all the required information and certifications.

Once a contractor elects to request MOH payments, they must continue to submit Forms 1914 and 1915 on a monthly basis until a zero balance is reached—even if there are no changes from the previous month’s submitted forms.

Eligible Items

Only nonperishable items are eligible for MOH payments. Nonperishable items are those that do not have a shelf life or whose characteristics do not materially change when exposed to the elements. The following are examples of nonperishable items eligible for MOH payment.

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  • Concrete traffic barrier
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  • Precast concrete box culverts
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  • Concrete piling
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  • Reinforced concrete pipe
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  • Illumination poles
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  • Base materials or aggregates stockpiled onsite, or produced and stockpiled specifically for the contract at a non-commercial source in the vicinity of the work locations. (If more than one contract is being supplied, ensure that separate stockpiles are maintained for each contract. For the purpose of MOH payment for the base materials and stockpiled aggregates, a commercial source is defined as any source that supplies base, aggregates, hot-mix asphalt (HMA), or concrete to the general public, while a non-commercial source is defined as a source that does not supply to the general public.)

Transportation costs are eligible for MOH reimbursement when the materials are delivered to the project. Transportation costs may be eligible when contractors receive the materials at a remote contractor-owned yard where the Department can monitor the materials. If materials are delivered to a remote contractor-owned yard, the transportation cost cannot exceed the cost for a direct delivery to the project.

Other materials determined to be nonperishable and approved as such may be considered for MOH payment.

As determined beneficial, separate identifiable stockpiles located at a commercial source may be eligible for MOH payment. In addition any item considered unique in nature and fabricated specifically for a contract may be considered for MOH payment. Verify that all materials meet contract requirements.

Acceptable Storage

Ensure that material is accessible and properly stored (e.g., reinforcing steel on wood blocks off the ground.) MOH payments may be made for some products (e.g., precast concrete and steel girders) when stored at the fabrication plant, if the material has been sampled, tested, approved, or certified, and is ready for incorporation into the work.

Ensure that hot-mix and concrete aggregates stored at the contractor’s plant are not contaminated or comingled with other materials. Unless the Engineer approves an exception, do not make MOH payments for materials stockpiled at a commercial plant that sells or supplies to numerous customers.

The contractor must physically check quantities shown on the request for payment each month to ensure the materials are located in the stockpile. Inspect and measure the material stockpiled and included in the request for payment as determined necessary. Resolve any quantity discrepancies prior to including the payment for MOH on the monthly estimate.

Testing and Approval

Ensure that materials are approved and properly tagged or marked. Verify test reports for approved materials, including those stored at approved sites. The Material and Test Division (MTD) may be contacted to verify the storage of approved materials that have been inspected by MTD and stored at approved sites where they perform inspection.

Do not make MOH payments for perishable materials. Perishable materials are materials that have a shelf life or whose characteristics materially change when exposed to the elements.

The following are examples of perishable materials.

Records and Reports

The contractor is responsible for maintaining all documentation supporting MOH payments and retaining the documentation until final acceptance of the contract. Contractor documentation must include paid invoices for all MOH within 60 days of receiving MOH payment. The contractor’s paid invoices must contain:

Spot check contractor MOH payment documentation as determined necessary. Future MOH payments may be excluded if the contractor is found in violation of MOH contract requirements.

The Department may conduct audits and examine the contractor’s recordkeeping system to ensure that accurate records are maintained for the payments requested.

Contractor’s Responsibility for MOH

To request payment for MOH, the contractor must submit Forms 1914 and 1915. Do not accept these forms from subcontractors. With their submittal, the contractor must:

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  • determine what items are eligible for MOH payment and only request payment for eligible materials (the unit price requested by the contractor will not exceed the actual cost of the material as established by invoice, or the total costs for the associated item less reasonable placement costs, whichever is less);
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  • establish a procedure to ensure that plan quantity less placed quantity is not exceeded on the request;
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  • include a procedure to determine the quantity “used this period” as requested on Form 1915; and
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  • retain paid invoices for all materials included in any request for MOH payment within 60 days (two estimate cycles).

Approval for Early Estimates

The use of early cut-off dates for monthly estimates and MOH is a project management practice to manage workload at the Area Office level. Approval for using early cut-off dates is at the District’s discretion. A best practice is to cut-off estimates on the 25th of the month, with MOH submitted no later than 2 days before the estimate cut-off date. As deemed appropriate, consider eligible items for MOH payment. Deduct from the estimate previous MOH payments if the material for which payment was made becomes unusable or is no longer intended for incorporation into the work, or is sold to the general public.

Area Office Responsibility for MOH

Contract MOH payments are monitored or audited as follows:

The contractor must allow Department personnel immediate access to MOH records for all spot checks and process reviews.

Cursory Reviews. Review MOH payment requests received from the contractor to ensure that materials are eligible for MOH payment. Request an explanation from the contractor for any apparent discrepancies, such as quantity or price irregularities. The monthly MOH payment request must be reviewed and initialed by the Project Manager, Project Engineer, Assistant Area Engineer, or Area Engineer.

Monthly Spot Checks. At least once a month, conduct a random review of at least one item per project until all items are checked, material on hand is zero, or the project is complete. On the monthly MOH payment request, indicate which item was checked and initial the document to show that the monthly spot check was completed and document the reviewer. In addition to these random spot checks, conduct spot checks for cause or as directed by authorized personnel.

If a spot check indicates the need for corrective action, the affected contractor request for MOH payment may be corrected. Notify the contractor in writing of any corrections made.

If a spot check indicates that the Department overpaid the contractor for MOH, correct the overpayment with a supplemental estimate or with the next monthly estimate. Make this correction before making any additional payments to the contractor.

Use the guidelines listed in the following table to conduct spot checks.

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Anchor: #i1024878Monitoring Guidelines for MOH

Step

Action

1

The Engineer or their representative performs spot check at the contractor's office.

2

Check eligibility of requested material:

  • nonperishable
  • test report issued when required.
3

Review invoices to verify quantity and unit price requested.

4

Review contractor’s procedure for determining plan quantity for material requested.

5

Review contractor’s procedure for determining how much material was used each month.

6

Verify contractor has paid invoices (for all material requested for payment) dated within 60 days of receiving MOH payment.

7

Verify materials are properly stored in approved stockpiles.


Process Reviews. Conduct process reviews to ensure that the contractor’s internal process satisfies contract MOH requirements (e.g., record-keeping system, site reviews, or measuring procedures.) The contractor must have sufficient checks and balances in place to ensure the accuracy of requests for MOH payment. These reviews may be initiated at any time by any appropriate Department personnel, the FHWA, or any other party with a vested interest in the Department’s financial dealings.

If a process review indicates the need for corrective action, notify the contractor in writing of corrective actions needed. Consider conducting a complete audit of the contractor’s records and record-keeping system if the process review indicates serious concerns or possible noncompliance with contract MOH requirements. (Refer to “Contractor Record Audits” for additional information.)

Contractor Record Audits. Normally, the Department audits contractor records for cause only; however, the Department retains the right to audit contractor records at any time to ensure contract compliance. The following table lists examples of possible causes for initiating an audit of the Contractor’s records.

Anchor: #i1021974Possible Causes for Auditing a Contractor’s Records
  • The contractor is suspected of submitting erroneous, inflated, deceptive, or fraudulent requests for MOH payment.
  • A spot check of contractor’s MOH quantities indicates the possibility of a large scale error.
  • A process review indicates a major flaw in the contractor’s record-keeping system.
  • The contractor is suspected of willfully neglecting to comply with any of the requirements of the MOH contract requirements.
  • The contractor has indicated, or it is suspected, that the contractor will file a claim for additional compensation and use MOH records to support the claim.
  • Material supplier, subcontractor, or any other creditor complains to the Department that the contractor has not paid for materials.


Consult with the District office prior to notifying the contractor of an impending audit. Once approved, send a written notice via email or certified mail advising the contractor of the impending audit. Specify in the notice that the contractor must allow the Department access to conduct the audit within 7 days of receipt of the notice.

The District office will coordinate the audit with all parties involved. Parties involved may include other Department personnel, the FHWA, or any other party with a vested interest in the Department’s financial dealings.

Ensure that all parties involved in the audit are provided with copies of the audit findings. The District office is responsible for ensuring that any corrective actions identified are implemented.

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Payment of Items with Overweight Loads

Before paying for quantities over the legal weight limit, request copies of overweight permits from the contractor. Overweight quantities may be paid if the permits are provided. Overweight quantities cannot be paid if the load was transported on the designated Interstate system.

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QC/QA Hot Mix Payments

Use the standard item and description codes to track the payment for QC/QA Hot Mix. Refer to the SiteManager Contract Administration User Manual for instructions to add these standard items to the construction estimate.

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Road User Costs Incentives and Disincentives

If not using the SiteManager milestone function, use the standard item and description codes to track the payment of incentives and disincentives on contracts with road user costs (RUC). Refer to the SiteManager Contract Administration User Manual for instructions to add these standard items to the construction estimate.

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Force Account

Ensure Form 316, “Daily Report of Force Account Work,” is completed on a daily basis and signed by the contractor. Collect the necessary documentation supporting the information on the form. Payment for force account work will be made on a created line item for that work.

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Collection on Negative Estimates

Do not let a negative estimate exceed the amount of money left on the project. When money is owed to the Department, follow the below process.

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  1. Send a letter notifying the Contractor to pay the balance owed to the Department within 30 days.
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  3. Submit Form 1234 to FIN/Revenue Management.
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  5. After 30 days have elapsed from the date of the initial notification, send a demand letter instructing the contractor to make payment within 30 days.
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  7. After 30 days have elapsed from the date of the first demand letter, send a second demand letter instructing the contractor to make payment within 10 days.
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  9. In the event the contractor is nonresponsive to the second demand letter, contact FIN/Revenue Management for collection.

Send all letters via certified mail requesting address correction, and verify that the correct address is on record with CST-CMCL. Carbon copy FIN/Revenue Management and CST/Construction Support on each letter sent. FIN/Revenue Management has template letters available upon request.

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Estimates

Start generating monthly progress estimates when time charges on the project begin, and continue to generate estimates monthly until the project records are delivered to the District Construction Office.

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