Unit-Price Trimming Contract Overruns Forecast
Your utility signed a unit-price contract for distribution trimming: $46 per tree for standard pruning, $12 per tree for traffic control, and $78 for danger trees. The bid assumed 24 trees per two-person crew-day. Actual production is 17 trees per crew-day. Six contract crews have worked 90 days and completed 9,180 trees; the invoice is $612,000 against a $501,000 forecast. The contractor claims the variance is due to 31% of trees needing more than 10 ft of clearance, 18% landowner refusals, and a new city permit that adds 35 minutes per location. Your in-house crew costs $1,650 per day and averages 21 trees per day on similar work. The budget year has 70 workdays left and 6,400 trees remain on the plan. The CFO wants a recommendation before the next invoice.
1. Calculate the actual all-in cost per tree and compare it with the bid assumption. What are the main drivers?
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Invoice cost per completed tree: $612,000 / 9,180 = $66.67 per tree. The bid all-in rate was $46 + $12 = $58 per tree, so actual is about 15% above the bid rate. But the production assumption is the larger issue: 24 trees per crew-day versus 17 is a 29% shortfall. At 24 trees/day, six crews over 90 days could have completed 12,960 trees; at 17/day they completed 9,180. Crew-day cost is spread over fewer trees, so the unit cost rises even if the invoice rate looks close.
Main drivers: extra clearance on 31% of trees, landowner refusals, the city permit time, and danger-tree work. The permit alone adds 35 minutes per location, which is material when a crew-day is short. The contractor's claim is plausible but must be verified against daily production records and tree classifications. Do not accept a lump-sum explanation.
2. With 70 days and 6,400 trees remaining, recommend how to use contract and in-house crews. Show the math.
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Contract capacity: 6 crews × 70 days × 17 trees = 7,140 trees, enough for 6,400. In-house capacity: 4 crews × 70 days × 21 trees = 5,880 trees, not enough alone. A mixed approach can finish, but the contract is cheaper per tree at current productivity: in-house is $1,650 / 21 = $78.57 per tree, while the contract is about $66.67.
Recommendation: assign the contract crews the remaining 6,400 trees, with a production and quality schedule, and hold in-house crews for emergency, critical-customer, and disputed landowner work. If the contractor cannot commit to 17 trees/day, allocate about 3,000 trees to in-house and 3,400 to contract, which is feasible because combined capacity exceeds 6,400. The math shows capacity is not the constraint; cost and reliability are. Do not assume in-house is cheaper just because the day rate looks low.
3. What contract changes would you negotiate for next year to control cost and improve performance?
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Negotiate a rate structure that separates controllable from uncontrollable work: tree-size and clearance bands, danger trees priced by diameter and location, traffic control and permit time as separate unit items with documentation. Add a pre-inspection and landowner-notification step before crews arrive so refusals are identified early. Set a production target with a gain-share or unit-price adjustment rather than accepting a single bid assumption. Require daily production and refusal logs, and cap extras without prior approval. Include quality inspections and a cure period for poor pruning. The reasoning is that the current contract mixes normal pruning, permits, refusals, and danger trees into one rate, so the utility cannot tell which cost driver is real.