- 62 -
increased their bid on an incremental basis when more conduits
were added. Qwest used this idea as the foundation for its
incremental cost allocation method and the development of its
incremental base rate.
Mr. O’Callaghan and Mr. Pearce developed an incremental base
rate of $6,019 per conduit mile. The incremental base rate
included: (1) $2,376 for conduit material, assuming a cost to
Qwest of 45 cents per foot; (2) $370 for other material related
to installation; (3) $2,640 for labor attributable to the
installation of the additional conduit; (4) $581 for equipment
costs; and (5) $53 for overhead. The incremental base rate did
not include costs such as those for of digging the trench or for
perfecting the rights-of-way, nor was it adjusted to reflect cost
increases based on terrain or budget overruns.
First, respondent questions the development of the
incremental base rate, implying that Qwest arbitrarily arrived at
$6,019. Mr. O’Callaghan and Mr. Pearce testified that they
looked at all costs associated with the installation of conduit
to determine what costs were fixed and what costs increased when
more conduits were added. They then looked at the costs that
increased, such as labor, equipment costs, and overhead, and came
up with the average cost increase per conduit mile when
additional conduits were installed. To this figure, they added
the average cost of conduit material to arrive at $6,019. Mr.
Page: Previous 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 NextLast modified: May 25, 2011