In construction, as in most businesses, efficiency is the key to profitability; the bigger the bang for a given buck, the greater the profit margin. Bucks spent on labor will produce a big bang or a small one depending on working conditions. At the bid stage contractors estimate the manhours needed to complete their contracts by anticipating what those conditions will be. Many variables play into a labor productivity prediction: in what weather conditions will the work be performed? how much access is there to staging areas? what equipment must be used? is the sequence of construction logically dictated? how crowded will the job site be? and so on. Adjusting for these factors is not simple. [I’m reminded of Ambrose Bierce’s tongue-in-cheek syllogism: “Sixty men can do a piece of work sixty times as quickly as one man; one man can dig a post-hole in sixty seconds; therefore, sixty men can dig a post-hole in one second.”]
Few jobs ever go perfectly, and a contractor’s productivity can be adversely impacted when predicted conditions turn south. If the adverse impact is due to another party’s breach of contract in imposing unanticipated conditions on a contractor, damages resulting from lost productivity may be recoverable. How are such damages proved in court or in arbitration?
The preferred approach for isolating the impact of adverse conditions is called the “measured mile” method – a before-and-after analysis that establishes an unimpacted baseline against which to compare diminished actual performance. A productivity rate (say, feet of pipe laid per day or volume of concrete poured per day) is measured on a project during an unimpacted period, and then compared to the productivity rate over a like period after the breach in an effort to isolate the effect of the breach. If project conditions during the two periods are comparable except for the disruptive condition to be isolated, this type of analysis can be very convincing.
Because it requires a comparison of impacted and unimpacted periods of work, “measured mile” methodology on a single project won’t be available if the entire work was impacted from Day One. In such cases baseline productivity rates may be gauged by reference to the contractor’s historical performance on numerous jobs, or even by published studies showing industry-wide productivity averages. Since conditions can vary job by job, such baselines are not as persuasive as the contractor’s actual performance on the project in question, but resorting to them may be the only option for creating a baseline if the entire project was impacted – or if the contractor failed to document productivity on the job prior to the onset of the adverse conditions for which damages are sought. (Is it time for the paperwork lecture again?)
Other methodologies include the “total cost” and “modified total cost” methods. The “total cost” method simply compares a contractor’s estimated costs and actual costs; strives to defend the reasonableness of the estimate (sometimes by comparison to other bids); and attributes all of the delta to the breach. The “modified total cost” method takes this approach another step, and seeks to subtract out any identifiable cost overruns that are likely independent of the breach. While the latter is preferable to the former, neither method matches the “measured mile” in persuasiveness. One New Hampshire court has said that “[t]he total cost method is a ‘theory of last resort for use in those extraordinary circumstances where no other way to compute damages was feasible.” Axenics, Inc. v. Turner Construction Co., 2011 N.H. Super. LEXIS 6, at *39 (March 1, 2011). (Yup, time for the paperwork lecture!)
Kudos go out to the American Society of Civil Engineers’ recently published Standard 71-21 – Identifying, Quantifying, and Proving Loss of Productivity, which gives a nice roadmap for how to collect productivity data and apply standard practices. If you are seeking a primer on identifying, presenting or defending against lost productivity claims, you could do worse than this 48-page guide. It also contains an extensive bibliography of relevant literature, but my guess is that the book itself is destined to be cited by courts and boards as authoritative on the subject.
Few jobs ever go perfectly, and a contractor’s productivity can be adversely impacted when predicted conditions turn south. If the adverse impact is due to another party’s breach of contract in imposing unanticipated conditions on a contractor, damages resulting from lost productivity may be recoverable. How are such damages proved in court or in arbitration?
The preferred approach for isolating the impact of adverse conditions is called the “measured mile” method – a before-and-after analysis that establishes an unimpacted baseline against which to compare diminished actual performance. A productivity rate (say, feet of pipe laid per day or volume of concrete poured per day) is measured on a project during an unimpacted period, and then compared to the productivity rate over a like period after the breach in an effort to isolate the effect of the breach. If project conditions during the two periods are comparable except for the disruptive condition to be isolated, this type of analysis can be very convincing.
Because it requires a comparison of impacted and unimpacted periods of work, “measured mile” methodology on a single project won’t be available if the entire work was impacted from Day One. In such cases baseline productivity rates may be gauged by reference to the contractor’s historical performance on numerous jobs, or even by published studies showing industry-wide productivity averages. Since conditions can vary job by job, such baselines are not as persuasive as the contractor’s actual performance on the project in question, but resorting to them may be the only option for creating a baseline if the entire project was impacted – or if the contractor failed to document productivity on the job prior to the onset of the adverse conditions for which damages are sought. (Is it time for the paperwork lecture again?)
Other methodologies include the “total cost” and “modified total cost” methods. The “total cost” method simply compares a contractor’s estimated costs and actual costs; strives to defend the reasonableness of the estimate (sometimes by comparison to other bids); and attributes all of the delta to the breach. The “modified total cost” method takes this approach another step, and seeks to subtract out any identifiable cost overruns that are likely independent of the breach. While the latter is preferable to the former, neither method matches the “measured mile” in persuasiveness. One New Hampshire court has said that “[t]he total cost method is a ‘theory of last resort for use in those extraordinary circumstances where no other way to compute damages was feasible.” Axenics, Inc. v. Turner Construction Co., 2011 N.H. Super. LEXIS 6, at *39 (March 1, 2011). (Yup, time for the paperwork lecture!)
Kudos go out to the American Society of Civil Engineers’ recently published Standard 71-21 – Identifying, Quantifying, and Proving Loss of Productivity, which gives a nice roadmap for how to collect productivity data and apply standard practices. If you are seeking a primer on identifying, presenting or defending against lost productivity claims, you could do worse than this 48-page guide. It also contains an extensive bibliography of relevant literature, but my guess is that the book itself is destined to be cited by courts and boards as authoritative on the subject.
RSS Feed
