As an adjuster you walk the fine line between making sure that your insured is indemnified and authorizing too much for payment of a claim. Every line item of every scope is open for scrutiny. You have to be able to explain and justify each charge. Some of the most difficult charges to explain are base service charges that are calculated automatically. As those who work with Xactimate estimates know, adjustments for base service charges can be set to factored in, broken out, or do not apply. But many people ask: how are these charges justified at all?  What cost does a base service charge represent? Why is this cost not included in the individual line items? According to the definition found within the Xactimate estimating Program:

"Xactimate uses base service charges for most price list labor categories. This charge is designed to cover such items as setup, travel and waste. Base service charges help ensure that the unit price will cover these expenses for all jobs."

Simply stated base service charges represent the additional costs related to the unavoidable inefficiencies that are more prevalent in smaller jobs. 

To understand these inefficiencies we need to first look at a larger job; one that benefits from what is known as economics of scale. 

On a large job several subcontractors for each trade are asked to submit bids to compete against each other. Typically the lowest competent bidder gets the work. Before work starts a schedule is drawn up and the subcontractors are scheduled weeks or months in advance to work in the most efficient order.

 A contractor can also leverage bulk rate material pricing on a larger job. When an estimate is written the material quantity is often estimated based on square feet units. After the contractor has been awarded, the job is “bought-out”. Using paint as an example: the quantity of paint listed in the estimate is a square foot quantity. But paint is purchased in gallons. If you have ever painted your own house you have probably noticed that the price of a five-gallon bucket of paint is substantially less than the price of five one-gallon cans.  Imagine if you purchased 100 gallons. Since material pricing is sometimes negotiable when purchasing in bulk, the purchasing agent or estimator is able to get more favorable material pricing on a larger job. Also, materials are typically delivered to the site without charge on bulk orders.

Even when we look at labor there is a price savings on larger jobs. Specialized workers are used for each activity or task from the specialized finish carpenter down to the lower wage clean-up crews

So, on a large job, the contractor has the lowest competitive bid for subcontractors; he has negotiated his best price for materials and delivery; and he has specialized crews scheduled to be at the site in the most efficient order. For that reason the adjustments for base service charges, when displayed on a larger job, should be a relatively small percentage of the job total.

Now lets look a typical Insurance loss, perhaps a water loss job in the $3,500.00 range. Due to the nature of the work, there is an urgency that is not always there on a larger planned job. Many times the project manager has to take a “ready, shoot, aim” approach to running the project. The schedule is often written after the job has started and the estimate is usually finished after the job is nearly complete. As soon as the job is assigned, the initial responders will often stock their service vehicles based only on a phone conversation with the insured. While this gets the job started right away it can mean additional trips for the service vehicles to add or remove equipment. If a subcontractor is needed it is usually the sub that can be at the site the soonest that gets the work, not the sub that could have provided the best price. Multiple trades on the site at the same time frequently congest the project, and delay efficient progress. This is unavoidable, either because of intentional scheduling to get the job done quickly or because the limited availability of a subcontractor due to short notice and that subcontractor’s previously scheduled work.

Additionally there are inefficiencies with material purchases on smaller jobs. While materials are sometimes purchased in bulk in advance there are also more trips to the expensive local hardware store with restoration work. The hours spent running to the hardware store or paying for the delivery charge are also direct job costs that need to be accounted for. 

Finally, often times the crews utilized have to do work outside of their respective specialty to keep the job moving. That might mean that a $60.00/hr trim carpenter does framing work that can only be billed out at $40.00/hr. Or it could also mean that a $40.00/hr sheetrock installer spends 4 hours cleaning up dust and debris when a $20.00/hr cleaning tech could have done the work in 3.5 hours. The base service charges, when displayed on a smaller job, will therefore be a larger percentage of the job total.

As you can see, while the Xactimate estimate line item price is the same no matter the size of the job, the actual cost of doing the work described in that line item can vary significantly. Therefore, to truly indemnify your insured, and to fairly compensate the contractor for very real and direct job costs, you will need to account for these unavoidable inefficiencies.  The automatic inclusion of adjustments for base service charges is an effort to accurately reflect the additional cost of doing business on a smaller job.