25r-03 AACE EStimating Lost Labor Productivity in Construction Claims
25r-03 AACE EStimating Lost Labor Productivity in Construction Claims
25r-03 AACE EStimating Lost Labor Productivity in Construction Claims
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Acknowledgments:
Donald F. McDonald, Jr., PE CCE (Author)
James G. Zack, Jr., (Author)
David Armstrong
Jack H. Bess
Robert A. Boyd
Bruce E. Bradley
Randy M. Brake
Joseph A. Brown, CCE
Timothy T. Calvey, PE
Donald J. Cass, CCE
R. Jay Colburn
Edward E. Douglas, III CCC
Donald J. Fredlund, Jr.
Fred W. Giffels
David W. Halligan
Peter Heroy
Lee J. Hobb
Kenji P. Hoshino
Copyright 2004 AACE, Inc.
productivity refers to quantities produced per employee hour of effort and further is
defined as the ratio of output to input Productivity can be defined by any of the
equations
Productivity
=
=
=
Output input
Units work-hours
(Total output) (Total work-hours)2
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Productivity Factor
Actual Productivity______
Baseline or Planned Productivity
Given this set of operating terms, it is therefore possible for a contractor to achieve 100% of its planned
production but not achieve its planned productivity. That is, a contractor could well be accomplishing the
planned rate of production of 300 linear feet of pipe/day in the ground but be expending twice the amount
of labor planned to accomplish this daily production rate, for example. In this case, the contractor would
be accomplishing 100% of planned production but operating at 50% productivity.
Thus, production and productivity are not reciprocal numbers. It does not necessarily follow that if a
contractor is 75% productive then they are 25% inefficient. In the context of this Recommended Practice,
production is the measure of output (i.e., how many feet or meters of pipe to be installed per work hour)
while productivity is the measure of input (i.e., how many labors hours it takes to install a foot or meter of
pipe).
Measurement and allocation of responsibility for loss of productivity can be difficult. There are a number
of reasons for this difficulty.6 Amongst them, are the following.
Lost productivity resulting from some action which is the responsibility of the owner, may not be easily
detected or observed at the outset. Unless a contractor has a good productivity monitoring plan, well
known to field project management staff, all that may be known at the outset of a problem is that the
field crews are not completing work activities as planned, and project schedule, costs and cash flow
are suffering as a result. As a result, appropriate written notice to the project owner is often not
promptly filed, kicking off more discrete and detailed project monitoring efforts.7
Lost productivity is, all too often, calculated at the end of a project during preparation of a claim or
request for equitable adjustment. As a result, often times only a gross approximation or a total cost
estimate can be made.
Complicating the issue even more, there are myriad ways to calculate lost productivity. There is no
common agreement amongst cost professionals as to how such lost hours should be calculated.
Notwithstanding this statement, there is general agreement among cost professionals that a
comparison to unimpacted work on the project is generally preferred when there is sufficient data
available.8
The quality of some of the methods results is not always repeatable, leading to low confidence in the
resulting analysis. Often two methods are used to compare results as a check with seemingly wide
variances observed that cannot be easily understood or reconciled.
Finally, once lost productivity is calculated, it is still difficult to establish causation. Contractors tend to
blame such losses on owners and ask to be compensated. Owners, on the other hand, often blame a
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April 13, 2004
bad bid or poor project management and thus deny additional compensation for lost productivity.
Given this situation, the root cause of lost productivity is frequently a matter in dispute between
owners, contractors and subcontractors.
The key to reconstructing productivity information in support of a lost productivity claim is good record
keeping throughout the entire project. From the very start of the project, the contractor ought to establish
a uniform system of capturing and recording field labor productivity information on a contemporaneous
basis.9 Actual labor productivity ought to be compared on a routine basis to as-bid or as-planned labor
productivity to determine how the project is progressing against the plan. The earlier productivity loss can
be detected on a project, the greater the likelihood that corrective action can be implemented to mitigate
damages. If progress is not per plan, analysis for causation must be made. In the event that poor
productivity is, to a greater or lesser extent, brought about by some action or lack of action by the owner,
then appropriate written notice should be filed. Regardless of causation, corrective action ought to be
initiated as soon as the decline in labor productivity is detected.
B. PURPOSE
This Recommended Practice focuses on identification of various methods for estimating lost labor
productivity in construction claims. Often the claim is the result of one or more change order requests
that cannot be fully resolved to capture their full and final effect on the entire project cost and schedule.
Specifically, this Recommended Practice examines the issue in terms of claims for cost recovery of lost
productivity. Therefore, the purpose of the Recommended Practice is to
Identify Lost Productivity Estimating Methodologies: That is, survey as many of the various
methodologies employed in litigation throughout North America as can be identified;
Rank Order the Methodologies: That is, based on reliability, professional acceptance, case law and
construction claims literature, rank the identified methodologies from most to least reliable with
respect to documenting estimating damages in claim situations. While it may not be possible to state
with certainty which methods are absolutely most or least reliable, it can be stated that under certain
sets of circumstances some methods are generally considered more reliable than others. (CAUTION:
This Recommended Practice was prepared on the basis of the authors understanding of Canadian
and U.S. case law. It is recommended that anyone preparing a lost productivity claim seek
appropriate legal advice on the methodology to be used. This is especially true if the claim is being
pursued under national law other than Canada or the United States.)
Define and Discuss Each Methodology: That is, discuss the method and how it is employed. Also,
when possible, discuss the strong and weak points of each method;
Identify Selected Studies Applicable to Each Methodology: Herein, identify as many studies and
professional or technical papers as possible which will help the practitioner in learning more about
and/or employing a particular method.
It needs to be noted that this Recommended Practice does not define in detail how one should properly
perform the various analytical methods identified herein. The Recommended Practice gives a brief
description of each method only in an effort to help claimants properly identify the method. That is,
different claimants may have differing nomenclature for the same methodology. In this case, the brief
description of each method is intended to help overcome this situation.
B.1 Common Causes of Lost Productivity
On construction projects there are numerous circumstances and events which may cause productivity to
decline. A review of two relatively recent publications results in the following list of causes which, while
not all inclusive, fairly well covers the majority of situations encountered on a construction project.10 The
circumstances set forth below may all impact labor productivity. However, for a contractor to successfully
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recover damages due to lost productivity from a project owner, the contractor will need to clearly
demonstrate that the root cause of the event or circumstance was something for which the owner or one
of the owners agents was responsible. Additionally, the contractor must be able to show a cause and
effect relationship between the event and the impact to labor productivity in order to recover damages
(i.e., costs and/or time). However, the recoverable damages are not limited to direct costs. They may
also include ripple damages or indirect costs, to the extent that a cause and effect relationship can be
established between the downstream effects and the originating event.
Absenteeism and the missing man syndrome When a crew hits its productive peak the absence
of any member of the crew may impact the crews production rate because the crew will typically be
unable to accomplish the same production rate with fewer resources or, perhaps, a different mix of
skill and experience levels.
Adverse or unusually severe weather Some bad weather is to be expected on almost every
project. But, pushing weather sensitive work from good weather periods into periods of bad weather,
or encountering unusually severe weather, may impact productivity (e.g., earth backfill and
compaction operations pushed into wet weather periods).
Availability of skilled labor To be productive, a contractor must have sufficient skilled labor in the
field. To the extent that skilled labor is unavailable and a contractor is required to construct a project
with less skilled labor it is probable that productivity will be impacted.
Changes, ripple impact, cumulative impact of multiple changes and rework All projects
encounter some change during construction. This is to be expected. Some authors believe that 5
10% cost growth due to changes is the expected norm.11 However, major change (change well
beyond the norm), change outside the anticipated scope of work (cardinal change), multiple changes,
changes impact on unchanged work, or the cumulative impact of changes may all impact
productivity. The need to tear out work already in place, the delays attendant to changes, the need to
replan and resequence work, for example, may also cause productivity to decline.
Competition for Craft Labor If a nearby project(s) commences concurrently with the execution of
a project that was estimated and planned to utilize a stated level of labor skill and availability, and a
competition for that skilled labor base ensues, productivity may be adversely impacted. Financial
incentives, work rule changes and other issues may result in labor leaving one site for another,
resulting in lower productivity and increased costs for the first contactor. Further, the replacement
labor may be more costly and less skilled.
Craft turnover If a crew suffers from continual craft turnover, it is unlikely that they will achieve
good productivity simply because one or more members of the crew may be on the learning curve,
and thus decrease the overall productivity of the entire crew.
Crowding of labor or stacking of trades To achieve good productivity each member of a crew
must have sufficient working space to perform their work without being interfered with by other
craftsmen. When more labor is assigned to work in a fixed amount of space it is probable that
interference may occur, thus decreasing productivity. Additionally, when multiple trades are assigned
to work in the same area, the probability of interference rises and productivity may decline.
Defective engineering, engineering recycle and/or rework When drawings or specifications are
erroneous, ambiguous, unclear, etc., productivity is likely to decline because crews in the field are
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uncertain as to what needs to be done. As a consequence, crews may slow down or pace their work,
or have to stop all together while they wait for clear instruction.
Dilution of supervision When crews are split up to perform base scope work and changed work in
multiple locations or when work is continually changed or resequenced, field supervision is often
unable to effectively perform their primary task to see that crews work productively. Field
supervision ends up spending more time planning and replanning than supervising. It is probable that
productivity will decline because the right tools, materials and equipment may not be in the right place
at the right time.
Excessive overtime Numerous studies over many years have consistently documented the fact
that productivity typically declines as overtime work continues. The most commonly stated reasons
for this result include fatigue, increased absenteeism, decreased morale, reduced supervision
effectiveness, poor workmanship resulting in higher than normal rework, increased accidents, etc.
One author has gone so far as to suggest that on the average, no matter how many hours a week
you work, you will only achieve fifty hours of results.12 The thought underlying this statement is that
while overtime work will initially result in increased output, if it is continued for a prolonged period, the
output may actually decline for the reasons stated earlier. Thus, long term overtime may lead to
increased costs but decreased productivity. The effect of continued overtime work on labor
productivity is, perhaps, one of the most studied productivity loss factors in the construction industry.
The large number of studies contained in Appendix D is testimony to this fact.13
Fatigue Craftsmen who are tired tend to slow down work, make more mistakes than normal, and
suffer more accidents and injuries, thus productivity may decrease for the entire crew.
Labor relations and labor management factors When there are union jurisdictional issues,
industrial relations issues, unsafe working conditions or other safety issues, multiple evacuation
alarms in existing facilities, untimely issuance of permits, access issues, etc. labor productivity may
be adversely impacted in multiples ways.
Learning Curve At the outset of any project, there is a typical learning curve while the labor crews
become familiar with the project, its location, the quality standards imposed, laydown area locations,
etc. This is to be expected and is typically included in as-bid costs. However, if the work of the
project is shut down for some period of time and labor crews laid off, then when work recommences
the labor crews brought back to the project may have to go through another learning curve. This is
probably an unanticipated impact to labor productivity. If this happens more than once, then each
time a work stoppage occurs another learning curve productivity loss impact may occur.
Material, tools and equipment shortages If material, tools or construction equipment are not
available to a crew at the right location and time, then the crews productivity will probably suffer as
they may be unable to proceed in an orderly, consistent manner. Similarly, if the wrong tools or
improperly sized equipment is provided, productivity may also suffer.
Overmanning Productivity losses may occur when a contractor is required to or otherwise utilizes
more personnel than originally planned or can be effectively managed. In these situations,
productivity losses may occur because the contractor may be forced to use unproductive labor due to
a shortage of skilled labor; there may be a shortage of materials, tools, or equipment to support the
additional labor; or the contractor may not be able to effectively manage the labor due to a dilution of
supervision.
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April 13, 2004
Poor morale of craft labor When work is constantly changed or has to be torn out and redone, etc.
the morale (i.e., enthusiasm for their work) is likely to suffer. When this occurs, productivity may
decline.
Project management factors A result of poor project management may be the failure to properly
schedule and coordinate the work. Work that is not properly scheduled, shortage of critical
construction equipment or labor, and incorrect mix of labor crews may result in decreased productivity
because crews may not be able to work as efficiently as they would otherwise do. Improperly planned
and implemented project initiation procedures may also lead to lost labor productivity. For example,
mobilizing labor prior to having access to site electrical power or prior to having adequate site parking
can both impact early on labor productivity. Additionally, poor site layout can contribute to loss of
productivity. If, for example, crews have to walk a long way to lunch rooms, tool cribs, laydown areas,
washrooms, entrances and exists, etc., then productivity may suffer as a result. In design / build or
EPC projects, mobilizing to the filed prematurely before engineering is sufficiently complete to support
efficient work schedules may lead to rework and inefficiencies.
Out of sequence work When work does not proceed in a logical, orderly fashion productivity is
likely to be negatively impacted as crews are moved around the site haphazardly, for example.
Rework and errors When work in the field must be done more than once in order to get it right,
productivity may suffer as a result.
Schedule Compression Impacts on Productivity Contractors are not legally bound to prove that
contract performance was extended to recover for lost productivity. When there are delays early on
in the project, the compression of the overall timeframe for later activities is often looked to as the
way to make up for delays and finish the project on time. From a strict scheduling perspective this
may be possible to do without accelerating individual work activities by utilizing float in the projects
overall schedule. However, on many projects, schedules are not fully resource loaded. As a
consequence, a properly updated schedule reflecting the delays may show the project finishing on
time, without shortening individual activities. It may result in overmanning of the work by the
contractor due to the shortening of the overall duration allowing the contractor to complete the total
remaining work. This is known as schedule compression. Schedule compression, when associated
with overmanning often results in significant productivity losses due to dilution of supervision,
shortages of materials, tools or equipment to support the additional labor, increased difficulty in
planning and coordinating the work and shortages of skilled labor.14
Site or work area access restrictions If a work site is remote, difficult to get to, or has inefficient
or limited access then productivity may suffer because labor, equipment and materials may not be on
site when and as needed to support efficient prosecution of the work. In addition, productivity losses
may occur when access to work areas are delayed or late and the contractor is required to do more
work in a shorter period of time, which may result in overmanning, dilution of supervision and lack of
coordination of the trades.
Site conditions Physical conditions (such as saturated soils); logistical conditions (such as low
hanging power lines); environmental conditions (such as permit requirements prohibiting construction
in certain areas during certain times of the year); legal conditions (such as noise ordinances
precluding work prior to 7:00 AM [0700 hours] or after 6:00 PM [1800 hours]) may all negatively
impact productivity on a project.
Untimely approvals or responses When project owners, designers and/or construction managers
fail to respond to contractually required submittals or requests for information in a timely manner,
productivity on a project may decline as crews may not have authority or sufficient knowledge to
proceed with their work.
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Baseline productivity can be determined by measurements of input and output in unimpacted or the least
impacted periods of time on the project. When this data is not available, estimated or analytically
determined baseline productivity may be substituted.
While it is beyond the scope of this Recommended Practice to discuss the legal elements of entitlement
and causation in detail, it is noted that to recover lost productivity costs (damages) the contractor typically
must sufficiently demonstrate the following.
Events occurred during the performance of the work, which were unforeseeable at the time of
contract execution or a preceding change order(s).
The events were beyond the control of the contractor seeking compensation, whether it is the
contractor, its subcontractors, vendors or suppliers, at any tier.
The events were caused by the owner or some entity for whom the owner is responsible (i.e., the
design professional, construction manager or an independent prime contractor, etc.). Or, in the
alternative, the events were caused by situations for which the owner assumed contractual liability
(i.e., a force majeure situation or differing site condition, etc.).
Recoverability for the resulting damages is not barred by the terms of the contract (e.g., exculpatory
clauses such as a no damages for delay clause which may be upheld in the jurisdiction or overcome
by events beyond the contemplation of the parties or intentional, willful, or grossly negligent conduct
of the party seeking enforcement of such a clause).
The events caused a change in the performance of the work and resulted in increased costs and/or
time required to perform the work (i.e., work was resequenced, means and methods were changed,
it took longer to perform the work, the work cost more due to performing work in bad weather, etc.).
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Acceleration
Changes, Cumulative Impact and Rework
Learning Curve
Overtime and Shift Work
Project Characteristics
Project Management
Weather
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April 13, 2004
Cost Basis
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Calculating the percentage change on a project on a cost rather than a labor hour basis;
Applying calculated lost productivity factors to as-bid labor hours rather than actual labor hours;
Applying calculated factors to all hours on the project rather than the hours during a certain impacted
period;
Failing to account for typical learning curve productivity factors when calculating lost productivity;
Failing to deduct the additional labor hours already paid for in change orders or extra work orders,
before applying the productivity loss factor(s) estimated: or,
Failing to take into account and deduct other factors, which impacted productivity but which are not
recoverable under the terms of the contract.
Errors, such as those listed above, in applying a method to the situation being analyzed must be carefully
guarded against. If mistakes such as these are allowed to creep into the productivity loss analysis, then
the credibility of the analysis will be undercut and the likelihood of cost recovery reduced.
Finally, it is noted that civil litigation in Canada and the U.S. rests on the preponderance of evidence
test. That is, it is more likely than not that x event or occurrence resulted in y damages. Therefore,
someone preparing a productivity loss analysis may want to employ more than one of the methods listed
herein. From a practical point of view, and this is especially applicable if the productivity analysis is not
based on contemporaneous project records, if two or more methods independently applied result in
comparable results, the trier of fact (be it judge, jury or arbitration panel) is more likely to accept the
results. Again, it needs to be noted that this Recommended Practice has been derived from a review of
U.S. and Canadian legal decisions. To the extent that someone is pursuing a loss of productivity claim in
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a legal forum other than in the U.S. or Canada, legal advice should be obtained concerning how legal
forums in those jurisdictions deal with the issue of lost productivity.
C.3 Discussion of Recommended Practice
Project Specific Studies As noted earlier, when a dispute arises over lost productivity, calculations
based upon contemporaneously created project documentation from the project in dispute, supported
by personnel who were actually involved in the project and disputed work activities are the most
credible. Accordingly, when calculating lost productivity, recommended practice is to utilize one of
the following techniques, when possible.
There are two primary methods for measuring completed work items. The percentage complete
method rests upon periodic estimates of the percentage of work completed on a work item basis.
For example, a monthly payment application may estimate backfill work 50% complete, underground
conduit 32%, etc. The physical units of work completed method, however, is more detailed and
more accurate.20 Under this method, the actual units of work are surveyed for completion on a
regular or periodic basis and compared to the total known number of units to be installed or
constructed. Any of the project specific studies below can use either of these calculations, depending
upon contemporaneous project documentation maintained by field personnel.
Measured Mile Study According to Schwartzkopf -The most widely accepted method of calculating lost labor productivity is known throughout the
industry as the Measured Mile calculation. This calculation compares identical activities in
impacted and non-impacted sections of the project in order to ascertain the loss of productivity
resulting from the impact of a known set of events. The Measured Mile calculation is favored
because it considers only the actual effect of the alleged impact and thereby eliminates disputes
over the validity of cost estimates, or factors that may have impacted productivity due to no fault
of the owner.21
A recent court decision has broadened the Measured Mile calculation to include comparison of
similar work activities and least impacted periods versus impacted periods.22 If sufficient work on
the project is complete in an unimpacted or least impacted period and the quantity of work is
known then calculations can usually be performed to ascertain a baseline level of productivity for
that part of the work. Physical units of work complete divided by hours expended to complete
these work items determines productivity during the least impacted or unimpacted period. A
similar calculation is then performed for the period of the impact. The productivity loss can then
be calculated by subtracting the unit productivity rate during the impacted period from the unit
productivity during the unimpacted period. It is noted that when performing a Measured Mile
calculation, other variables, which could affect productivity but are unrelated to the claimed
impacts, must be accounted for and removed from the impacted period calculation to the extent
these variables occurred during the least or unimpacted period. These may include weather,
project mismanagement, subcontractor-related problems, voluntary acceleration, etc.23
Numerous federal court cases have upheld use of the measured mile technique including E.C.
Ernst, Inc. v. Koopers Company,24 Natkin & Company v. George A. Fuller Company,25 United
States Industries, Inc. v. Blake Construction Company, Inc.,26 Appeal of Batteast Company,27
Goodwin Contractors, Inc.,28 and Clark Concrete Contractors, Inc. v. General Services
Administration.29 Of the four methodologies listed in the project specific studies category the
Measured Mile study is the method most often cited in court cases. It is probably the best of the
recommended practices, assuming there is sufficient contemporaneous data to allow such an
approach. This method appears to be recognized as the most credible in the legal system.30
Additionally, unlike some other methods, the Measured Mile study can be used after the impact
has occurred or as a sampling technique, while the impacted work is in progress.
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Work Sampling Method Work sampling is a method in which the claims analyst makes a large
number of direct observations of craftsmen to determine what they are doing at various points in
time. Work sampling is defined as
An application of random sampling techniques to the study of work activities so
that the proportions of time devoted to different elements of work can be
estimated with a given degree of statistical validity.37
From these observations the claimant determines, on a percentage basis, how much time is
spent between direct work (pay item work); support work (moving tools and materials to the work
location); or delays (time when no work is being performed). By performing a number of work
sampling studies, the analyst can draw comparisons of productivity before and after known
events, between work activities or crews, etc. Work sampling has been offered as a means of
determining productivity loss but it can only be performed during the life of the project and is not
compatible with a hindsight analysis effort.38
Project Comparison Studies There may be times when a claimant needs to prepare an estimate
of lost productivity when circumstances affecting productivity such as project change, delay or
disruption ran throughout the entire project. That is, the circumstances of the project were such that
there were no unimpacted periods for the work activity in question from which one can determine
baseline productivity. In these circumstances, and assuming it is possible, recommended practice is
to utilize one of the following methods, assuming sufficient data exists.
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Comparable Work Study There are two forms of this analytical technique. One form is for the
contractor to estimate productivity loss on the impacted portion of the project. Once done, the
analyst locates an analogous or similar work activity on the project, which was unimpacted (or
least impacted) and calculates the productivity on this work. For example, a comparison of
electrical conduit installation with fire sprinkler installation. The ratio of the two calculations then
forms the estimated productivity loss. The difficulty in this method is determining what is
analogous or similar work? If the productivity loss occurred during the installation of electrical
conduit, is such work really analogous to installation of fire sprinkler piping? Factors such as
size, length, weight, height above ground or off the deck, etc. must all be carefully considered and
documented to successfully present such an analysis. The other form of a comparable work
study is to calculate productivity during the impacted period on the project and compare this
productivity to similar work, on the same project, performed by another contractor whose work
was not impacted.41 Typically, the comparable work study is only performed when study of the
same work before and after a known event is not possible and thus a measured mile analysis
cannot be completed. Perhaps change orders concerning the electrical conduit were so
pervasive from the outset of the work that the contractor was never able to achieve a measured
mile plateau. In such situations, project owners are unlikely to allow a comparison of actual
productivity with as-bid productivity, even if they are responsible for the changes. So, in its place,
the contractor may be able to compare actual productivity on conduit installation with productivity
on fire sprinkler installation to draw some conclusions.
Comparable Project Study In the event that the comparable work study cannot be performed,
an acceptable alternative may be to calculate productivity on the project in dispute and compare
this productivity to that achieved on another project with similar work. Of course, to do this
successfully the contractor must demonstrate that the comparable project was of similar size and
magnitude, similar location, similar weather and labor conditions, etc. The more similarity
between the projects, the more likely it is that this method will be given credence. Less similarity
between projects obviously leads to decreased chances of success.42
Changes, Cumulative Impact and Rework These studies and papers offer an assessment of
productivity impact when there are a large number of changes during performance of the work on
a project. Additionally, some of these specialized studies look specifically at the issues of the
cumulative (synergistic) impact of multiple changes. Also listed are a few studies addressing the
issue of What is the normal amount of change to be expected on a project? See Appendix B
for a list of papers and studies related to this topic.
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Learning Curve Learning curve is the typical productivity encountered at the beginning of any
project or any major project activity. Craft labor has to get used to working as a crew. They must
learn the site and its layout (i.e., where the washrooms and tool cribs are located, where the
laydown areas are, etc.) Crews must also acclimate to project requirements (level of quality
required, level of inspection imposed, production output required to meet schedule requirements,
etc.). Learning curve is typical. Learning curve may also occur later in projects if work is
suspended and labor demobilized and later remobilized. These papers and studies look at
productivity impact when a project encounters a delay or suspension of work causing craft to be
removed from the site and later remobilized. See Appendix C for a list of studies and papers
related to this topic.
Overtime and Shift Work These studies and papers consider productivity impact when there is
a good deal of work on an overtime or shift work basis on a project over a lengthy period of time.
See Appendix D for a list of papers and studies related to this topic.
Project Characteristics These papers and studies observe productivity impact related to
differing project characteristics. See Appendix E for a list of studies and papers related to this
topic.
Project Management These studies and papers review productivity impact resulting from
project mismanagement including engineering impacts, lack of construction equipment, tools and
materials, management turnover at the site, etc. See Appendix F for a list of papers and studies
related to this topic.
Weather These papers and studies assess labor productivity impact caused by weather
conditions. See Appendix G for a list of studies and papers related to this topic.
The source data for the factors listed in these studies is not always known. The data may be
from a survey and comprised of anecdotal information as opposed to empirical data.44
These studies do not address how to apply these factors in situations where multiple causes of
productivity loss have been identified during the entitlement and causation analysis.45
These studies do not address whether the factors are to be applied to the entire project, portions
of the project, the changed work, etc.46
These studies are rarely conclusive concerning quantification of productivity loss because they
bear no direct relationship to the project in dispute.47
These studies are perceived, by some, as being self-serving studies because they appear to
serve the best interests of contractors from the industry association that prepared the studies.48
These studies can be used to attack the reasonableness of the contractors planned productivity
ratios.49
15 of 29
Courts and Board of Contract Appeals seem to be more willing to accept these studies as support
or rebuttal evidence rather than direct evidence of productivity loss.50
Finally, it is noted, these industry studies were initially prepared for estimating and forward pricing
of change order or extra work order purposes and not for hindsight analysis of lost productivity
estimates.51
Having made the above statements, Courts and Boards of Contract Appeals continue to allow the use
of general industry studies under the proper circumstances. If the contractor can demonstrate
causation and entitlement and, that there is no better method to estimate the resulting damages, then
Court and Boards may allow use of these studies.52
The three most commonly referred to general industry studies are the following.
National Electrical Contractors Association (NECA), Manual of Labor Units, Bethesda, Md.,
1976 and 2003. This manual gave a job factor checklist addressing some 25 factors for
consideration under certain circumstances. Current editions of the manual no longer contain
this checklist but a summary of the checklist can be found in Schwartzkopfs book,
Calculating Lost Labor Productivity in Construction Claims, 11.3 at page 128.
Despite the identified and well-known weaknesses with these general industry studies they remain
recommended practice under proper circumstances.
First, the claimant must demonstrate
entitlement and causation. Then, there must be a showing that there is no better information upon
which to estimate resulting damages. Finally, the contractor must show that the impacts encountered
on the project rationally fit one or more of these studies.
Additionally, there is another type of general industry study, which is available for the claim analyst
to utilize. National estimating guides are classified in this Recommended Practice as general
industry studies because the information and data contained therein is based upon studies of the
construction industry in general. They are not, usually, as subject to the criticisms listed above.
However, the claimant will still be challenged to demonstrate entitlement and causation and prove
that there is no better way to estimate the resulting damages. If this can be done, estimating guides
may be utilized and may be given some credence. The national estimating guides on the market
generally are updated annually or, perhaps, even more frequently. These guides often provide
productivity information. Unlike the general industry studies listed above (which list percentage
factors to calculate productivity loss under certain situations) the estimating guides are useful to
establish the norm or the baseline productivity the contractor should have been able to achieve but
for the events encountered. Thus, an estimated Measured Mile approach can be constructed by
calculating actual productivity on the project and comparing it to an estimated productivity from one
or more of the estimating guides. See Appendix H for a list of estimating guides available for such
use.
Cost Basis If it is possible to demonstrate entitlement and causation but there is insufficient project
documentation to support damage calculations using any of the above techniques, recommended
practice is to use one of the costing methods set forth below. These methods require analysis of the
16 of 29
Total Unit Cost Method This method is a variation of the Total Labor Cost Method discussed
below. Under this method, all costs incurred (labor, material, equipment, subcontractors, small
tools and consumables, etc.) are divided by the units of work completed during that period of
time. A similar calculation is made for units of work in a different period of time. Assuming no
other variables arose during the second period of time then it can be posited that the difference in
unit cost is the impact of the event identified by the claimant. Calculations then have to be made
to determine and remove the costs of materials, equipment, small tools and subcontract costs.
Once done, the remainder is all labor cost and the differential in labor cost per unit installed is,
arguably, the labor productivity impact resulting from the event complained of.54
Modified Total Labor Cost Method This method is the same as the Total Labor Cost Method,
except that the contractor subtracts out known bid errors, excessive costs (i.e., the failure to
mitigate damages), field problems for which the contractor was responsible, etc.. As a result, the
formula is as follows.
Total Labor Cost Owed = Total Labor Cost Expended Acknowledged
Contractor Problems Total Labor Cost Paid
The contractor using this recommended practice is still faced with overcoming the challenge of
the four-part test set forth by the courts noted below. It is imprudent to use this method when a
more credible method is possible. However, by subtracting contractor problems from the cost
equation, the contractor addresses the last three tests in an affirmative manner. Similarly, a
contractor who corrects busts either in their bid or their budget will, at least in part, address the
second, third and fourth tests outlined below.
Total Labor Cost Method The basic formula for a total labor cost analysis is the following.
Total Labor Cost Owed = Total Labor Cost Expended Total Labor Cost Paid55
This method of estimating damages may be applied to the entire project, if the loss of productivity
extended to all work. In the alternative, this estimating technique may be applied to a particular
area of the work (i.e., glazing, masonry, etc.) if only specific areas or items of work were
impacted. It may also be applied only to certain craft labor crews if it can be shown that only
certain crews were subject to the loss of productivity. It is, however, the least accepted method to
calculate decreased labor productivity.56
When using a cost basis methodology, the contractor must remember that labor costs are a
function of both the number of manhours and the unit cost of these hours. Thus, the total labor
cost expended may exceed the total labor cost paid due to an increase in the average unit cost of
labor not a loss of productivity (i.e., more hours expended than planned). While many of the
factors that impact productivity may also increase the unit cost of labor, there may be other
circumstances on the project that increase the unit cost of labor (i.e., a union requiring a different
mix of apprentices to journeymen) that are unrelated to those affecting productivity. Thus, it is
recommended practice that the claimant separately address both productivity losses (i.e.,
increase in hours) and differences in unit cost of labor, when utilizing a cost basis method.
In utilizing this recommended practice, claimants must also be cognizant that a number of legal
hurdles must be overcome if one is to be successful in using this approach in litigation. In order
to safeguard against the potential inequities embodied in the above formula, courts have set up a
standard four-part test. To use this method of pricing damages, the contractor must demonstrate
the following.
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Productivity Impact on Schedule It is not within the scope of this Recommended Practice to
discuss scheduling and scheduling techniques. However, there is a relationship between a lost labor
productivity analysis, lost labor productivitys impact to a project schedule and, possibly, the critical
path of that schedule. It is recognized that schedule delay may not only result from productivity loss,
but in many cases, may precede the productivity loss. The factor that often drives a contractor to
perform work inefficiently is the lack of time to perform the work more efficiently. As a result, there is
very little loss of productivity that does not involve some element of delay followed by attempted or
actual acceleration somewhere in its chain of causation. Therefore, schedule analysis often plays a
major role in analyzing entitlement and, perhaps, impact of productivity loss.
In general terms the relationship between labor productivity and schedule impact is often as follows:
If a contractor encounters productivity loss at some point during the progress of the work, then those
activities, which are less productive, will tend to stretch out in duration. This, in turn, may impact
other activities. For example, follow on activities may also have increased durations; may have to be
resequenced in order to meet schedule end dates; or may be pushed from good weather or lower
wage rate points in time into bad weather or periods of higher wages. It has been acknowledged by
the Courts that, the contractor does not need to prove that contract performance was extended
beyond the planned completion date in order to recover for lost productivity.58 However, if planned
work activities have been resequenced or moved from good to bad weather periods, it is likely that
they too, will have suffered a loss of productivity. This can be the synergistic or ripple effect of
productivity loss on otherwise unchanged work. The challenge then is for the claimant to determine
such ripple impact, show entitlement, demonstrate the cause and effect relationship and then,
estimate or document damages suffered.
There is no industry-wide agreement on what scheduling technique should be applied when analyzing
delay and impact. And, as noted above, it is not the intent of this Recommended Practice to facilitate
such an agreement. This Recommended Practice addresses the issue of how to estimate and price
lost labor productivity. It is noted that a separate Recommended Practice for Schedule Delay
Analysis is under preparation at the time of this writing.
Schedule Impact Analysis Recommended practice in this regard is to utilize some schedule
analysis technique to determine overall project delay or delay to some activities within the
schedule. Once a determination is made that some or all of the remaining activities on the
schedule were delayed then the above techniques can be applied to determine whether any
productivity loss grew out of such delay. Delayed activities are identified and recalculated59 to
estimate the effect of such delay in terms of productivity loss. Other activities must then be
analyzed to determine whether they too suffered from productivity impacts. If so, then these
activities may also have to be recalculated and the schedule analysis run yet again. This is an
iterative process, which continues until all activities downstream of the initial productivity loss
have been examined to determine whether they were affected by ripple impact. Once this
18 of 29
April 13, 2004
process is completed then damages may be calculated using one or more of the recommended
practices identified above.
D. CONCLUSION
Under appropriate fact circumstances, all of the methods set forth herein are technically acceptable which
is why they have been included in this Recommended Practice. Of all the methods identified above, the
most reliable are those set forth in the section on Project Specific Studies. These methods are based
upon contemporaneous documentation and knowledge from the project. Thus, they come the closest to
approximating actual damages from a project. All other methodologies discussed in this Recommended
Practice are estimating techniques with varying degrees of reliability. Therefore, they are considered
somewhat less reliable that the Project Specific Studies. This again highlights the importance of keeping
good project records from the outset of the project which captures contemporaneous project
documentation by individuals actively involved in constructing the project.
CONTRIBUTORS
Donald F. McDonald, Jr., PE CCE (Author)
James G. Zack, Jr., (Author)
David Armstrong
Jack H. Bess
Robert A. Boyd
Bruce E. Bradley
Randy M. Brake
Joseph A. Brown, CCE
Timothy T. Calvey, PE
Donald J. Cass, CCE
R. Jay Colburn
Edward E. Douglas, III CCC
Donald J. Fredlund, Jr.
Fred W. Giffels
David W. Halligan
Peter Heroy
Lee J. Hobb
Kenji P. Hoshino
Dr. Kenneth K. Humphreys, PE CCE
Anthony G. Isaac
Richard M. Kutta, CCE
Dr. Richard E. Larew, PE CCE
Paul Levin
John D. Marshall, Jr.
Jeffery L. Ottesen, PE
Stephen O. Revay, CCC
Rick Richison
Wisley Saintelmy, PE
Mark C. Sanders, PE CCE
L. Lee Schumacher
Dr. Amarjit Singh, PE
Richard D. Smith, PE CCE
Theodore J. Trauner
Tony Tuinstra, P.Eng.
Anthony J. Werderitsch, PE CCE
William R. Zollinger, III, PE
19 of 29
April 13, 2004
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END NOTES
1
Construction Industry Institute, An Analysis of the Methods for Measuring Construction Productivity, SD13, Austin, Texas, 1984.
2
Humphreys, Kenneth K. (Ed.), Jelens Cost and Optimization Engineering, Third Edition, McGraw-Hill,
Inc., New York, 1991, pp. 238-240 & 426.
3
Kavanaugh, Thomas C., Frank Muller & James J. OBrien, Construction Management: A Professional
Approach,
McGraw-Hill Book Company, New York, 1978, p. 387.
4
Humphreys, Kenneth K. (Ed.), Project and Cost Engineers Handbook, Second Edition, Marcel Dekker,
Inc., New York, 1984, p. 253.
5
Finke, Michael R., Claims for Construction Productivity Losses, 26 Pub. Contr. L.J. 311, page 312.
6
See Adrian, J.J. and D.J. Adrian, Total Productivity and Quality Management for Construction, Stipes
Publishing, Champaign, IL, 1995. See also, Thomas, H.R. Jr. and C.T. Matthews, An analysis of the
Methods for Measuring Construction Productivity, Construction Industry Institute, Austin, TX, 1986.
7
Foster, Brian, Monitoring Job-Site Productivity, Revay Report, Vol. 19, No. 2, May, 2000.
8
See Bramble, B.B. & Callahan, M.T., Disruption and Lost Productivity, Chapter 5, Construction Delay
Claims, 2nd edition, Aspen Law, New York, 1992 and Cumulative Supplement, 1999. Gavin, Donald G.,
Disruption Claims, Chapter 6, Proving & Pricing Construction Claims, Cushman, Robert F., ed., John
Wiley & Sons, New York, 1990. Trauner, T.J., Construction Delays, R.S. Means Company, 1990.
9
See Construction Industry Institute, Project Control for Construction, CII Research Summary RS6-5,
Austin, Texas, September 1987. See also, Project Control for Engineering, CII Research Summary RS61, Austin, Texas, July 1986; Measuring Productivity, CII Research Summary RS143-1, March 2001;
Productivity Measurement: An Introduction, CII Research Summary RS2-3, October 1990; Determinants
of Jobsite Productivity, CII RR143-11, January 2001; The Manual of Construction Productivity and
Performance Evaluation, SD-35, Austin, Texas, 1990.
10
See Jones, Reginald M. and Thomas J. Driscoll, Cumulative Impact Claims, Federal Publications, Inc.,
Falls Church, VA, 2002. See also Reginald M. Jones, Claims for the Cumulative Impact of Multiple
Change Orders, 31 Pub. Contr. L.J. 1, 2001. See also, Schwartzkopf, William, Calculating Lost Labor
Productivity in Construction Claims, John Wiley & Sons, Inc., New York, 1995, and annual updates.
11
See Schwartzkopf, Calculating Lost Labor Productivity in Construction Claims, ibid, page 47.
12
Nevison, John M., Overtime Hours: The Rule of Fifty, PMNetwork, Volume 14, Number 9, September,
2000.
13
See also, Construction Users Anti-Inflation Roundtable articles in Cost Engineering, Vol. 15, No. 5, pp.
141 143 and 151 158. See also Basic Cost Engineering, Wellman and Humphreys, Marcel Dekker,
New York, pp. 174 178, 1996.
14
Rate of Manpower consumption in Electrical Construction, National Electrical Contractors
Association, May 1983, page 5; Electrical Construction Peak Workforce Report, 2nd edition, August 1987.
15
See Halligan, David W. and L.A. Demsetz, Anti-Response Model and Loss of Productivity in
Construction, Journal of Construction Engineering and Management, American Society of Civil
Engineers, Washington, D.C., March 1994.
16
See Jones and Driscoll, ibid, page A-5.
17
Luria Brothers & Company v. United States, 369 F.2d 701 (Ct. Cl. 1966).
18
For a more thorough discussion of this point see Schwartzkopf, William and John J. McNamara,
Calculating Construction Damages, 2nd Edition, Aspen Law & Business, New York, 2001, 1.03. See
also, Wickwire, Jon M., Thomas J. Driscoll, Stephen B. Hurlbutt and Scott B. Hillman, Construction
Scheduling: Preparation, Liability and Claims, 2nd Edition, Aspen Law & Business, New York, 2003,
12.04 et. seq. See also, Roy S. Cohen, Survey of Courts Reactions to Claims for Loss of Productivity
and Inefficiency, Session 612, ABA Public Construction Superconference, December 10, 1998.
19
Schwartzkopf, ibid, 1.03[B].
20
See Schwartzkopf, Calculating Lost Labor Productivity in Construction, ibid, 1.3.
21
See Schwartzkopf, Calculating Lost Labor Productivity in Construction, ibid, 2.09[A] and 10.4.
28 of 29
April 13, 2004
22
See P.J. Dick Corp., VABCA No. 6080, September 27, 2001 and Clark Concrete Contractors, Inc.,
GSABCA, 99-1 BCA, 30280.
23
See Schwartzkopf, Calculating Lost Labor Productivity in Construction, ibid, 4.6.
24
476 F. Supp. 729 (W.D. Pa. 1979).
25
347 F. Supp. 17 (W.D. Mo. 1972), reconsidered, 626 F.2d 324 (8th Cir. 1980).
26
671 F.2d 539 (D.C. Cir. 1982).
27
ASBCA No. 35818 (Dec. 31, 1991).
28
AGBCA No. 89-148-1, 92-2 BCA (CCH) 24,931 (1992).
29
GSBCA No. 14340, 99-1 BCA (CCH) 30,280 (1999).
30
Thomas, H. Randolph, Jr. and Victor E. Sanvido, Quantification of Losses Caused by Labor
Inefficiencies: Where is the Elusive Measured Mile., Construction Law and Business, No. 1, Summer,
2000.
31
The use of the term earned value means different things to different people. In this context,
simplified earned value is used to distinguish between form Earned Value as required by the US
Government on many of their projects and earned value as practiced by many EPC contractors. See for
example Kenneth K. Humphreys, Jelens Cost and Optimization Engineering, Third Edition, McGraw Hill,
New York, 1991; James M. Neil, Construction Cost Estimating for Project Control, Prentice-Hall, Inc.,
Englewood Cliffs, New Jersey, 1982; and Skills and Knowledge of Cost Engineering, Fifth Edition, AACE
International, Morgantown, West Virginia, 2004.
32
See Stumpf, George, R., editor, AACEI Professional Practice Guide to Earned Value, AACEI,
Morgantown, WV, 1999.
33
See Cass, Donald J., Earned Value Programs for DOE Projects, Cost Engineering, Vol. 42, No. 3,
February 2000.
34
See Fleming, Quentin W. and Joel M. Koppelman, Earned Value Project Management, Project
Management Institute, Upper Darby, PA. 1996.
35
See McCally, Bob M., Demonstrated Labor Efficiency: An Effective Cost Control and Analytical Tool,
Cost Engineering, Vol. 41, No. 11, pp. 33 37, November 1999.
36
See Jones and Driscoll, Ibid, page B-24.
37
American Institute of Industrial Engineers, American National Standard Z-94.11, Industrial Engineering
Terminology 11-20 (1989).
38
See Fwu-Shiun Liou and John D. Borcherding, Work Sampling Can Predict Unit Rate Productivity,
Journal of Construction Engineering and Management, Vol. 112, No. 1, page 90 (March, 1986). See
also, Jenkins, James L. and Daryl L. Orth, Productivity Improvement Through Work Sampling, Cost
Engineering, Vol. 46, No. 3, pp. 27 32, (March 2004).
39
Luh-Mann Chang and John D. Borcherding, Evaluation of Craftsmen Questionnaires, Journal of
Construction Engineering and Management, Volume 111, No. 4, page 426. (December, 1985)
40
See Hensel Phelps Construction Co., GSBCA Nos. 14,744 & 14,877, 01-1 BCA 31,249. January 11,
2001.
41
See Robert McMullan & Sons, Inc., ASBCA No. 19,929, 76-2 BCA (CCH) 12,072 (1976).
42
See Schwartzkopf and McNamara, Calculating Construction Damages, ibid, 2.09[B].
43
It should be noted that this is not an all-inclusive list of specialized studies. As others are identified, this
Recommended Practice will be modified, from time to time, to include them. It is also further noted that
some of the studies listed herein have incomplete references as full information is not available at the
time of publication of this Recommended Practice.
44
See Schwartzkopf, Calculating Lost Labor Productivity in Construction Claims, ibid, 11.2 & 11.3
45
Ibid.
46
Ibid.
47
See Schwartzkopf and McNamara, Calculating Construction Damages, ibid, 2.09[C].
48
Ibid.
49
Ibid.
50
Ibid.
51
See Schwartzkopf, Calculating Lost Labor Productivity in Construction Claims, ibid, 11.2& 11.3.
52
See Jones and Driscoll, Cumulative Impact Claims, ibid, Page A-36. See also Clark Concrete
Contractors, Inc. v. General Services Administration, GSBCA No. 14340, 99-1 BCA (CCH) 30,280,
29 of 29
April 13, 2004
1999; Appeal of the Clark Construction Group, Inc., VABCA No. 5674, April 5, 2000; Appeal of Fire
Security Systems, Inc., VABCA No. 5563, August 16, 2002.
53
It should be noted that although the Corps of Engineers officially recognized this Guide as a valid
means to assess claims for more than twenty years, on June 14, 1996 the Corps of Engineers officially
rescinded the Modification Impact Evaluation Guide by issuance of Circular No. 25-1-244. At that time,
the Corps claimed that the Guide has been updated and is incorporated in other publications to include
higher level regulations, training course materials and other command guidance. See Mark G. Jackson,
Carl W. LaFraugh and Robert P. Majerus, Using Industry Studies to Quantify Lost Productivity,
Construction Briefings, Federal Publications, Washington, D.C., December, 2001. See also, Jones,
Reginald M. and Thomas J. Driscoll, Cumulative Impact Claims, Federal Publications Seminars, LLC.,
Washington, D.C.,2002, page A-38.
54
See Appeal of Paccon, Inc., ASBCA No. 7890, 1965.
55
Total Labor Cost Paid = Labor cost in base bid + labor cost paid in change orders and previous claim
settlements.
56
See Schwartzkopf and McNamara, Calculating Construction Damages, ibid, 2.09[E]
57
See Schwartzkopf and McNamara, Calculating Construction Damages, ibid, 1.03[C] and [D] and
cases cited therein. See also, Jones and Driscoll, ibid, pp. A-31 through A-35 and cases cited therein.
See also, Wickwire, Driscoll, Hurlbutt and Hillman, Construction Scheduling: Preparation, Liability and
Claims, ibid, 12.05 and cases cited therein.
58
See Sauer, Inc. v, Danzig, 224F.3d 1340, 1348 (Fed. Cir. 2000).
59
In this context, the term recalculate is used to indicate changes to the previously identified and
defined schedule activity. This may include, but is not limited to, increased duration, resequencing,
changes to planned resources, etc.
60
The R.S. Means Company has been purchased by Reed Construction Data. At present, these
estimating manuals are still being marketed under the R.S. Means name but this may change.
61
Ibid.