Since our Trade Labor White Paper on changing DMO to RFG codes in Xactimate was published back in June 2017, there has been a firestorm of discussions in the roofing industry as it pertains to the default setting in Xactimate to DMO labor. And rightfully so, as this one small adjustment means a $60-$200 per square difference on roofing jobs.
Click here for links to the white papers published by our VP of Operations, Andrew Behrens.
Now that more roofing contractors are updating the labor rate to RFG instead of DMO, the feedback we are getting is that some insurance companies are accepting it but many are not. But why? To start, many adjusters (whether IA or in- house) don’t even know this option exists – or why it should be updated to reflect the accurate labor rate to begin with. Furthermore, you can’t just update the default labor setting without a solid case and documentation. We have learned that the success rates for getting claims approved with RFG vs DMO labor depend largely on communication and how you substantiate the change with adjusters.
Why Is There A Disconnect?
Xactimate defaults to DMO for all trades to provide a basic scenario to start estimating a claim. The Estimator must be aware of the issue to know when to update the default setting. However, most adjusters don’t know this is an option. That’s why when bringing this argument forward most adjusters are more confused than argumentative.
Xactimate was built around fire and water claims where it’s feasible to use separate crews for demolition and remediation. However, in roofing that is not always the logical approach which is why updating the default DMO labor rate makes sense in most instances.
Example: EPDM Flat Roof, parapet wall termination. You have to install a termination bar, apron flashing and caulking. The default setting for labor on the termination bar RFG-M. For apron flashing the default is RFG and for caulking it is PNT for painter.
In this scenario, it makes no sense to have a flat roofer install term bar, a sloped roofer install apron and a painter apply caulking – which is why you would need to update the default settings to accurately reflect the work that is being done.
We have found that the success rate for claims depends on how you present information to the adjuster. It must be factual and straightforward. Using workers comp rates is the best way to do this, as this is the biggest factor for labor rate differences amongst varying trades.
If using a roofing crew for removal, the labor rates and workers comp rate is not accurate if left at the default DMO setting. The monetary difference when updating the trade labor rate from DMO to RFG is mainly due to the labor burden and labor overhead because worker’s Comp, GL, tools, etc. are significantly higher than that of a demolition crew. The monetary difference actually has very little to do with the change in wages due to the skill of the trade, this is the biggest misconception and likely the most common argument you will run into with adjusters and carriers.
Job-Personnel Overhead costs are directly associated with the labor selection that a user inputs. Per Xactware’s published White Paper “Overhead and Profit” which states: “Job Personnel Overhead expenses are included in the Labor Overhead portion of each unit price in the Xactware price list. The labor overhead, along with expenses for Labor Burden and Worker Wage (wage paid to the individual) make up the Retail Labor Rate.”
In addition, if you are updating the default labor rate in one area of a claim you should do so globally across that specific trade. For example, a flat roofing estimator would consider correcting removal charges for the membrane, insulation, parapet flashing, cant strips, cap flashing, high charges, etc. from ‘DMO’ (Demolition) to ‘RFG-M’ (Membrane Roofing).
Keep in mind, that updating the labor rate has to be accurate for not just the work being performed, but also the labor burdens, specifically worker’s comp and GL rates that would most likely be applied for each specific line item. This is not a roofing only discussion if you just change DMO to RFG, but don’t pay attention to the other trades, you are doing it wrong.
Focus on other trades first. Ask yourself – who is doing the labor? Gutters are a great example. Let’s say gutters are attached to the roof through a gutter apron. To reroof, you have to detach and reset the gutter. The default is DMO for removal and SFG (soffit, facia, gutter) for replacement. Is the roofing crew removing the gutter? Probably as it’s not too common to have a gutter guy remove it and them come back a day later and put them on. In this case does it make sense to change the default labor rate of gutter detach and reset to RFG? Yes.
You are also going to want to stay consistent with your argument and proactive with your explanation with adjusters in order to get claims paid using the updated labor rates. Use the Xactimate Overhead and Profit and Xactware Labor white papers to support your arguments.
Have questions or want more information? Matt and Andrew Behrens from C3 Group had the chance to sit down with Jim Johnson at Contractor Coach Pro for an interview on this topic, information on success rates and more. Watch the full interview here.