The subcontractor that you hired on a project is suing you for non-payment. Even though the case has been going on for over a year, you still can’t believe the nerve of this company.
Unsatisfactory performance and extensive costs incurred in delays, replacement materials and additional fees led to their ultimate termination from the project. On top of that, you’ve incurred legal fees to issue a statement of defense and counter claim. At this point in the litigation, your lawyer advises you to have an expert report prepared to quantify your damages related to your counter claim.
Serving to provide objective and independent expert evidence, a forensic accountant performs their duty and runs an unbiased report. For a breach of contract claim, a forensic accountant typically calculates a “loss of profits”, then prepares a report setting out an analysis and a quantification of the loss.
The objective of a loss of profits calculation is to calculate the profit (if any) that should have been realized had the alleged wrong not occurred, and to calculate the amount by which those expected profits exceed the actual profits realized. Note that the calculation is of lost profit, NOT lost revenue. This means that all your costs (or the costs that you would have incurred had things gone as expected) must be taken into account. Other additional costs incurred as a result of a breach of contract (out-of-pocket costs) may also be included in the loss claim.
Generally, a forensic accountant will determine your loss by examining actual profitability on similar projects, while considering projected and actual results both before and after the loss period. In addition, calculations will consider any ways in which damages were mitigated.
For example, if a contractor is terminated from a project, there may be profits earned by him that could not have otherwise been earned, absent the termination. In this regard, forensic accountants may need to assess capacity issues to address how the contractor mitigated its loss.
The work of forensic accountants has evolved as strides in technological advances have made it easier for people to communicate and do business.
While technology has inherently increased our levels of efficiency, it has produced a set of unique challenges for those in forensic accounting. For instance, technology has created complex construction costing, pricing and accounting systems, which may require specialized knowledge to navigate. As such, while making an overall positive impact on our ability to conduct business, it has created supplementary complexities to the job of forensic accountants in construction damage quantification cases.
Through the ongoing guidance of your legal council, you may be faced with a situation where you need such expertise. Hiring an expert in forensic accounting from MCDA CCG, Inc. to prepare an expert report-setting out a loss of profits damage quantification-will help to succinctly communicate what can often be a complicated calculation related to litigation. Trust the leaders in this field with years of quality service backing companies and propelling them towards success. Contact us today!