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7/28/2019 P2011 - The Analysis and Valuation of Disruption - Derek Nelson
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TheAnalysisandValuationofDisruption
byDerekNelson,SeniorVicePresident&RegionalManagingDirectorAsia
HillInternational,Inc
25January2011
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TableofContents
Introduction 3
WhatisDisruption? 3WhatisProductivity? 4
WhyisProductivityImportant? 4
Background 5
FactorsAffectingLabourProductivity 5
ProjectChange 7
ExtentofProjectChange 8
DisruptionsandCumulativeImpacts 9
MethodsofQuantifyingLostProductivity 10
ProjectPracticeBasedMethods 13
MeasuredMileAnalysis 13
BaselineProductivityAnalysis 16SystemDynamicsModelling 17
EarnedValueAnalysis 22
SamplingMethods 23
ComparisonStudies 24
IndustryBasedMethods 24
CostBasedMethods 24
OtherQuantifyingMethods 25
MatchingtheQuantifyingMethodswithProjectPractice 26
Conclusions 27
Attachment 31
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Introduction
Complaintsof disruptionandadditionalcostsareroutinelymadeduringthecourseofaconstruction
projectyettheyremainnotoriouslydifficulttoprove.
Oneofthemainreasonsforthisisthatproductivitylossesareoftendifficulttoidentifyanddistinguish
atthetimetheyarise,asopposedtoothermoneyclaimswhicharemoredirectlyconcernedwiththe
occurrenceofadistinctandcompensableeventtogetherwithadistinctanddirectconsequence,such
as an instruction for a discreet variation during the progress of the works or a properly notified
compensationevent.
Assuch,mostclaimsfordisruptionaredealtwithretrospectivelyandtheclaimant isforcedtorelyon
contemporaryrecordstotryandestablishacausalnexusforidentified losses(causeandeffect)which
are all too often inadequate for the purposes of sufficiently evidencing a loss of productivity claim.
Whenthishappenstheclaimant isoften forced intothesituationwhere itadvancesaweakglobalor
totalcostclaimofsortstotryandrecoversomeofitslosses.
Thecauseandeffectburdenofproof isthesame foraclaim for lossofproductivityas foranyother
claiminsofarastheclaimingpartymustfirstestablishthattheeventorfactorcausingthedisruptionisa
compensable risk event under the contract. To do this, the contract needs to be reviewed to
understand thebasisof theagreementascertainproductivity issuesmayhavebeen foreseeableand
thereforeaccountedforwithintheclaimantsproductivityallowances. Thecontractmayalsoidentifyif
apartyexpresslyacceptedcertainproductivityrisks.
Where courts and tribunalshave a clear focuson linking cause and effect, claims fordisruptionwill
comeundergreaterscrutiny. Itisunlikelythatcontractorsandsubcontractorswillsucceedwheretheir
claims fordisruptionarebased simplyonaglobaloverspendon labourorplant for thewholeof thecontractworkingperiod. Sufficientdetailisrequiredtoisolatethecauseofthedisruptioncomplained
ofandevaluatetheeffectsofthatdisruption.
WhatisDisruption?
Disruption is loss of productivity, disturbance, hindrance or interruption to a Contractors normal
workingmethods,resultinginlowerefficiency. Intheconstructioncontext,disruptedworkisworkthat
iscarriedoutlessefficientlythanitwouldhavebeen,haditnotbeenforthecauseofthedisruption. IfcausedbytheEmployer, itmaygiverisetoarighttocompensationeitherunderthecontractorasa
breachofcontract.1
Constructioncontractshavetwomajortypesofcostsassociatedwiththem:fixedandvariable.
Fixedcostsarethosecoststhatthecontractorprocuresonafixedpricesubcontractorpurchaseorder.
Fixedcostsareinherentlylowerinrisk,becausethecontractorhasfixedthemthroughacontract. Risks
doexist,suchasthefinancialfailureordefaultofeitheravendororsubcontractorortheinstallationof
defective or faultywork by a subcontractor or vendor,but the risks aremuch less than the risks in
variablecostitems.
1SCLDelayandDisruptionProtocol:October2002.
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Variable costs are items such as the contractor's labour, equipment, and site overhead. Extensive
literaturehasbeenpublishedaboutdelayclaims,whichprincipallyareclaimsrelatedtotheextended
durationof thejobandthe resultingextendedsiteoverheadcosts. However,themajorvariable risk
component on a construction project is labour, not extended site overhead. Equipment, on certain
types of construction such as utility, heavy, and highway construction, can be a significant cost;
however,equipmentcoststendtobeproportionaltolabourcosts. It isuncommontohavesignificantincreasesinequipmentcostswithoutsignificantincreasesinlabourcosts.
Onmany constructionprojects, the largest single areaof costoverrun is in labour costs. This isnot
surprisinggiventhatlabourisfrequentlythelargestvariablecostforacontractor. Claimsinvolvinglost
productivityarefrequentlyreferredtoasdisruptionclaims.
WhatisProductivity?
Productivity = ProductionOutput/ResourceInput
= 4mof4pipe/labourhour
ProductivityRatio = ActualProductivity/PlannedProductivity
= 3mperhr/4mperhr
= 0.75
WhyisProductivityImportant?
HypotheticalProject
Cost
Components
Labour 40% Oftenthelargestcostcomponent;
Mostvolatilecostcomponent
MostcriticalcosttocontrolMaterials 40%
GeneralConditionsandIndirectCosts 10%
Overhead 5%
Profit 5%
Total 100%
Shouldtheaboveprojectsuffera12.5%overrunonthelabourcostcomponent:
HypotheticalProjectCostComponents
Labour 40% 45% Arisingfroma12.5%overrunon
labourcontent
Materials 40%
GeneralConditionsandIndirectCosts 10%
Overhead 5%
Profit 5% 0%
A12.5%
overrun
on
labour
content
Wipesoutallprofitontheproject
Total 100%
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Theexistenceofalabourcostoverrunisnotproofthatanevententitlingacontractortodamageshas
occurred. Clearly labour cost overruns can occur for a variety of reasons,not allofwhichentitle a
contractortocompensation.
One of the most contentious areas in construction claims is the calculation or estimation of lost
productivity. Unlikedirectcosts,lostproductivityisoftennottrackedorcannotbediscernedseparatelyandcontemporaneously. Asa result,bothcausationandentitlementconcerning the recoveryof lost
productivitycanbedifficulttosatisfactorilyestablish.
Compounding this situation, there are numerous ways to calculate lost productivity and no uniform
agreement within the construction industry as to a preferred methodology of calculating lost
productivity. Many methods of calculation are open to challenge with respect to their validity and
applicabilitytoparticularcases,thusmakingsettlementofthe issueonaparticularprojectpotentially
problematic.2
Withinthepast20years,therehasbeensignificantresearchinconstruction labourproductivitywhich
providesan
increasing
body
ofempirical
data
astothe
effects
ofvarious
factors
on
construction
labour
productivity. Someofthedifficultiesinapplyingthatdatatoaspecificprojectisoutlinedherein.
Background
Projectchanges,disruptions,cumulative impacts,andfactorsaffecting labourproductivityhavestrong
interrelationships. Theyalsoplayavitalroleinestablishingliability,causation,andresultantlossinlost
productivityclaims. Change isonecrucial factor ina rangeof factors influencing labourproductivity.
Thefollowingisabriefdiscussionoftheseconcepts.
FactorsAffectingLabourProductivity
Labour productivity is a function of various controllable and uncontrollable factors. Schwartzkopf3
listedthesefactorsundersixgroupscomprising:
(1) Scheduleacceleration;
(2) Changeinwork;
(3) Managementcharacteristics;
(4) Projectcharacteristics;(5) Labourandmorale;and
(6) Projectlocation/externalconditions.
2ConstructionIndustryInstitute,AnAnalysisoftheMethodsforMeasuringConstructionProductivity,SD13,Austin,Texas,
1984.3Schwartzkopf,W.(1995).Calculatinglostlaborproductivityinconstructionclaims,Wiley,NewYork.
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Borcherding and Alarcon4 present a comprehensive review of quantitative information on factors
influencing productivity. In addition, they categorised themajor components ofproductivity loss as
waitingoridle,travelling,workingslowly,doingineffectivework,anddoingrework.5
As noted previously, a number of factors may influence the actual productivity achieved on a given
project:
Figure:Examplefactorsaffectingproductivity6
Clearly not all disruption attracts the paymentof compensation. The contractormay beentitled to
compensationfortheeffectsoflostproductivitytotheextentthatabreachofobligationexists,acausal
linktotheoffendingpartycanbeestablishedandtheeffectsofthatdisruptioncalculatedappropriately.
Moststandardformsofcontractdonotdealexpresslywithdisruption. Iftheydonot,thendisruption
maybeclaimedasbeingabreachofthetermgenerallyimpliedintoconstructioncontracts,namelythat
theEmployerwillnotpreventorhindertheContractorintheexecutionofitswork.7
4Borcherding,J.D.,andAlarcon,L.F.(1991).Quantitativeeffectsonproductivity.Constr.Lawyer,11(1).
5SpecificfactorsandtheirdescriptionsareavailableinBorcherding,J.D.,andAlarcon,L.F.(1991).Quantitativeeffectson
productivity.Constr.Lawyer,11(1),MechanicalContractorsAssociationofAmerica(MCAA)(1994).Factorsaffectinglabor
productivity.Laborestimatingmanual,bulletinNo.PD2,Rockville,Md.,13,Schwartzkopf,W.(1995).Calculatinglostlabor
productivityinconstructionclaims,Wiley,NewYork,andAssociationfortheAdvancementofCostEngineering(AACE)
International,Inc.(2004).Estimatinglostlaborproductivityinconstructionclaims.AACEInternationalRecommended
PracticeNo.25R03.6Thefigurepresentedisintendedasillustrativeonlyofthetypeofmattersthatmayinfluenceproductivityonagivensite.
AdaptedfromapresentationbyDr.IbbsMeasuringProductivityforImprovedProjectPerformance,2009.7SCLDelayandDisruptionProtocol:October2002.
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ProjectChange
Whilstanumberofthefactorsimpactingonlabourproductivityonaprojectarereadilyidentifiable,the
consequencesofchangeareoftenunderestimatedandthereforespecificallyreferencedhere.
Change isnormallydefinedasanyeventthatresults inamodificationoftheoriginalscope,execution
time,cost,and/orqualityofwork8. Therearegenerallyfivetypesofchanges,namely:
Changeinscope; Differingsiteconditions; Delays; Suspensions;and Acceleration.
Thecostsofperformingchangedworkconsistofboth:
(1) Thosecostsdirectlyrelatedtotheaccomplishmentofthechangedwork;and
(2) Thosecostsarisingfromtheinteractionbetweenthechangedworkandunchangedwork9.
Notwithstandingthatmostformsofcontractrecogniseandprovideforthevaluationofworkrelativeto
the circumstances under which it is being executed, this second aspect is often significantly
underestimatedorundervaluedbybothContractorsorEmployersandtheirRepresentatives.
Thecostsandscheduleimpactsofachangeoccurinfourphases:
PhaseOne is the time prior to the recognition of the change. An example would be a tradesman
determining that the plans do not fit the situation encountered. The tradesman first attempts to
determine if he is misreading the plans, then will seek direction from the supervisor who, if the
supervisorcannotresolvetheproblem,willthenseekdirectionfromtheengineerortheowner. Aftersomeperiodoftime,aclarificationmaybeissued. Itmaybedeterminedthatachangeisnecessaryto
deal with the situation. During the period before a change is recognised, costs and delays can be
incurred. The process of finding a problem and implementing the solution is outlined in summary
below10.
8Ibbs,C.W.,andAllen,W.E.(1995).Quantitativeimpactsofprojectchange.;Revay,S.O.(2003).Copingwithchanges.AACEInt.Transactions,CDR.25,17.9TripleASouth,ASBCANo.46866,943BCA27,194,at135,523.
10DevelopedfromWilliamSchwartzkopf,CalculatingLostLabourProductivityinConstructionClaims,2
ndEdition,Aspen.
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Attachment1presentsalargerscaleoftheaboveprocessdiagramme.
PhaseTwooccurs after theneed tomakea change is recognised. During thisperiod,materials are
procured and the work is scheduled. Tradesmen may either be doing other work while waiting to
performthechangeorworkingaroundthechange. Eitheroftheseactionscancauseinefficiencies.
PhaseThree is the actualexecutionof the changedwork. The costs incurredduring thisphase are
generallyreferredtoasthedirectcostofthechange. Thesecostsrepresentthetimerequiredandcost
toperformthechangedwork.
PhaseFourrepresentstheworkperformedafterthechangedworkhasbeenperformed. Thecostand
scheduleeffectsduringthisphaseandthefirstphaseare indirectandareoftenreferredtoas impact
costs. The amount of these impact costs is often the subject of considerable disagreement. By
comparison,thedirectcostsduringthethirdphasecanfrequentlybemeasuredand,therefore,thecost
of the labour,materials,equipment,andother itemscanbedetermined. Ifaproject is impactedby
multiplechanges,itmaybenecessarytoanalysetheeffectofallofthechangessimultaneouslybecause
oftheinteractionofthevariouschanges.
ExtentofProjectChange
The degree of project change varies according to each project but can be significant. Among 24
constructionprojectsinwesternCanada,projectcostsincreasedbyatleast30%formorethanhalfand
60%onathirdofprojects11. Severalprojectssuffereddelaysover100%. AstudyoftheJointLegislative
AuditandReviewCommission12onapproximately300 roadconstructionprojects inVirginia revealed
thattheaveragefinancialprojectchangewasmorethan11%.
The amount and timing of change are also significant factors affecting productivity. Analysis of 90
constructiondisputesin57independentprojects13showedthattherewasasignificantdirectcorrelation
11Semple,C.,Hartman,F.T.,andJergeas,G.(1994).Constructionclaimsanddisputes:Causesandcost/timeoverruns.J.
Constr.Eng.Manage.,120(4),785795.12JointLegislativeAuditandReviewCommission(JLARC).(2001).ReviewofconstructioncostsandtimeschedulesforVirginia
highwayprojects.HouseDocumentNo.31,CommonwealthofVirginia.13Leonard,C.A.(1987).Theeffectofchangeordersonproductivity.RevayRep.,6(2),14.
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between the percentage of change order hours to contract hours and the percentage of lost
productivity. Ibbs14foundthat:
(1) Thegreatertheamountofchange,thelesstheefficiencyis;and
(2) Lateprojectchangemoreadverselyaffectslabourproductivitythanearlychange.
Thisfindingwasalsoconfirmedbylaterstudies
15
.
DisruptionsandCumulativeImpacts
InCoastalDryDock&RepairCorp.,disruptionisnotedasthecosteffectupon,ortheincreasedcostof
performing, the unchanged work due to a change in contract16. In some studies17, disruptions are
definedastheoccurrenceofeventsthatareacknowledgedtonegativelyimpactonlabourproductivity.
Morebroadly,theAACE;RecommendedPracticestandard18definesdisruptionsasanactionorevent
whichhindersaparty fromproceedingwith theworkor someportionof theworkasplannedoras
scheduled.
As noted previously, disruptions can be caused by change. These changes can reduce labour
productivityandextendtheprojectduration19. Disruptionscausedbychangecanbebothforeseeable
andunforeseeable. Theforeseeableorlocaldisruptionscanoccuratthesametimeandeitherthesame
place or within the same resource as the changed work, whereas unforeseeable or cumulative
disruptionscanalsooccurata timeorplace,orwithinresources,different from thechangedwork20.
Thewordscumulativedisruptionandcumulativeimpactcanbeusedinterchangeably.
Cumulativeimpacthasbeendescribedasbeingtheunforeseeabledisruptionofproductivityresulting
fromthesynergisticeffectofanundifferentiatedgroupofchanges. Cumulativeimpact isreferredto
asthe rippleeffectofchangesonunchangedwork thatcausesadecrease inproductivityand isnot
analysed in termsof spatialor temporal relationships21. Jones22argued thatwhen theBoard states
thatcumulative impactcannotbeanalysed intermsofspatialortemporalrelationships, itmeansthat
cumulativeimpactcostscannotbesecuredwithinindividualcontractchanges.
Pricing of the direct impact due to local disruptions and cumulative impacts due to cumulative
disruptionsisdifferent. Thedirectimpactcostsarepreparedonaforwardpricingbasis. Thecumulative
impact costs,on theother hand, aremore oftenpricedon abackwardpricingbasis as a contractor
cannotforeseeorreadilyquantifytheimpact. Inotherwords,acumulativeimpactclaimaddressesthe
14Ibbs,C.W.(1997).Quantitativeimpactsofprojectchange:Sizeissues.J.Constr.Eng.Manage.,123(3),308311,Ibbs,W.
(2005).Impactofchangestimingonlaborproductivity.J.Constr.Eng.Manage.,131(11),12191223.15E.g.,Hanna,A.S.,Russell,J.S.,Gotzion,T.W.,andNordheim,E.V.(1999).Impactofchangeordersonlaborefficiencyfor
mechanicalconstruction.J.Constr.Eng.Manage.,125(3),176184.16CoastalDryDock&RepairCorp.,ASBCANo.36754,911BCA23,324,at116,989,1990.
17Thomas,H.R.,andNapolitan,C.L.(1995).Quantitativeeffectsofconstructionchangesonlaborproductivity.J.Constr.Eng.
Manage.,121(3),290296.;Thomas,H.R.,andRaynar,K.A.(1997).Scheduleovertimeandlaborproductivity:Quantitative
analysis.J.Constr.Eng.Manage.,123(2),181188.18AssociationfortheAdvancementofCostEngineering(AACE)International,Inc.(2004).Estimatinglostlaborproductivityin
constructionclaims.AACEInternationalRecommendedPracticeNo.25R03.19Hanna,A.S.,Lotfallah,W.B.,andLee,M.J.(2002).Statisticalfuzzyapproachtoquantifycumulativeimpactofchange
orders.J.Comput.Civ.Eng.,16(4),252258.
20Finke,M.R.(1998).Abetterwaytoestimateandmitigatedisruption.J.Constr.Eng.Manage.,124(6),490497.21CentexBatesonConstructionCo.,VABCANo.4613,991BCA30,153,at149,259,1998.
22Jones,R.M.(2001).Lostproductivity:Claimsforcumulativeimpactofmultiplechangeorders.PublicContractLawJ.,31(1),
146.
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changedworkseffectonworkingconditionsthatwillindirectlyinfluencetheunchangedwork,whereas
adirectimpactclaimcoverstheimpactofchangedworkonunchangedwork23.
TheAACERecommendedPractice24notes:contractorstendtoblamesuchlossesonownersandaskto
becompensated. Owners,ontheotherhand,oftenblameabadbidorpoorprojectmanagementand
thus deny additional compensation for lost productivity. Given this situation the root cause of lostproductivityisfrequentlyamatterindisputebetweenowners,contractorsandsubcontractors.
This paper seeks to set out appropriate approaches and recognised practices designed to overcome
thoseinherentobstaclesinanalysingandquantifyingtheeffectsofsuchdisruption.
MethodsofQuantifyingLostProductivity
Theconstructionindustryhasdevelopedandemployedanumberofmethodologiesforestimating lost
labourproductivity. Basedon theappropriatedata input, thesemethodscanbeclassified intothree
majorgroups;namely:
(1) Projectpracticebased;
(2) Industrybased;and
(3) Costbasedmethods.
The detailed data requirements and corresponding judicial acceptance generally increase as the
approachadoptedmovesfromcostbasedtoprojectpracticebasedmethods.
23Jones,R.M.(2001).Lostproductivity:Claimsforcumulativeimpactofmultiplechangeorders.PublicContractLawJ.,31(1),146.24AssociationfortheAdvancementofCostEngineering(AACE)International,Inc.(2004).Estimatinglostlaborproductivityin
constructionclaims.AACEInternationalRecommendedPracticeNo.25R03.
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The above figure25 outlines the relationships between the availability, quality and providence of the
contemporaneousprojectdocumentation,thereliabilityofthemethodsofquantifyinglostproductivity
and the cost and expertise generally required to record, prepare, and document the quantum of
damagesderivedthereby.
Thehorizontalaxisreferstotheattributesoftheprojectdata. Thetwoverticalaxesrefertoattributes
ofthemethodsavailableforcalculatinglostproductivity.
Themethodslistedtypicallyincreaseinprecisionastheymovefromthetoptothebottominthegraph
andfromlefttoright,i.e.fromatotalcostapproachtoameasuredmileapproach. Thisalsoreflectsthe
orderofpreferenceintheresearchliterature26.
The cost,effort,andexpertise required forquantifying the lossnormally increases from left to right.
Horizontallytheavailabilityandqualityofcontemporaneousdocumentationrequired increasesasthe
moredetailedmethodsareused.
Beforeembarkingonaproductivitylossanalysis,theclaimantshouldcarefullyconsiderwhethertheloss
canberecastasanimpactofspecificallydefinableextrawork. Ifthatisthecase,thenthatproductivity
lossshouldbeincorporatedintotheestimatefortheextraworkandresolvedinthatmanner.
25AdaptedfromQuantifiedImpactsofProjectChange,Ibbs,Long,NguyenandLee,JournalofProfessionalIssuesinEngineeringEducationandPractice2007.26AssociationfortheAdvancementofCostEngineering(AACE)International,Inc.(2004).Estimatinglostlaborproductivityin
constructionclaims.AACEInternationalRecommendedPracticeNo.25R03.
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Tribunalsappeartobemorefavourablyimpressedbydamagecalculationsrelateddirectlytotheproject
in dispute and supported by contemporaneous project documentation.27 Therefore, recommended
practiceforpreparingalostproductivitycalculationistoutilise,ifpossible,oneofthetechniqueslisted
inthecategoryofProjectPracticeBasedMethodssetoutbelow.
Thesemethodologiesareprojectspecificandsupportedbypeopleandrecordsdirectlyinvolvedatthetime of the dispute or the disputed work. That direct relationship to the work and the events in
question are what gives the approach its appeal to a tribunal in favour of a more theoretical or
generalistapproach.
Ifthere is insufficient informationavailable fromcontemporaneousprojectdocumentationtosupport
oneof these techniques, recommendedpractice then is touseoneof themethods listedunder the
category ProjectComparison Studies. These methodologies, too, are project specific but rely upon
differentformsofcontemporaneousdocumentation.
Unfortunatelyappropriatecontemporaneousprojectdocumentationisnotalwaysavailable. Estimated
costs
are,
of
course,
recognised
as
a
legitimate
way
to
calculate
damages
once
entitlement
and
causation are sufficiently proven. Legal systems generally recognise that damages cannot always be
calculatedwithmathematical certainty. Further, it is recognised that contractors frequentlyhave to
prepareand livewithcostestimates. Therefore, intheabsenceofotherproofofdamages,the legal
systemmayallowestimatestoestablishdamages.28
Estimated damages may be acceptable, under appropriate circumstances, but are more subject to
challenge than direct project costs. Of the damage calculation and estimating methods available,
recommended practice is to use first, one of the studies listed in the Specialty Industry Studies
category. These are specialty studies of specific types of problems and are, generally, based on a
numberofactualconstructionprojects. Ofcourse,toutiliseoneofthesestudies,thecausationofthe
lostproductivityshouldbeappropriatefortheparticularproblemstudied.
Ifnoneofthespecialisedstudiesareapplicabletothesituationinquestionrecommendedpracticeisto
utiliseoneofthestudieslistedintheGeneralIndustryStudiescategories.
Thesestudiesaresubjecttogreaterchallengebecausetheyareindustrywideandnotsubjectorproject
specific. Inaddition,thebasicdataissometimesderivedfromanonconstructionenvironment. Finally,
thesestudieswere largely intendedasforwardpricingguides,assuch, their intendedpurposewas
distinctlydifferent.
Notwithstanding these criticisms, in the absence of more reliable techniques, claimants have been
allowedtousethesestudiesonceentitlementandcausationhavebeensufficientlyproven.
If the contractorpreparing a lostproductivitydamages calculation candemonstrateentitlementand
causationbutisunabletoutiliseoneofthetechniquespreviouslynoted,recommendedpracticeisthen
touseoneofthemethodslistedintheCostBasiscategory.
Tosuccessfullyutiliseoneof these techniques, theclaimantgenerallyhas toovercomesomedifficult
legalhurdles,discussedinmoredetailbelow.But,ifthesechallengescanbemet,thenthesetechniques
maybeallowedasameasureoflostproductivity.
27ForamorethoroughdiscussionofthispointseeSchwartzkopf,WilliamandJohnJ.McNamara,CalculatingConstruction
Damages,2ndEdition,AspenLaw&Business,NewYork,2001,1.03.Seealso,Wickwire,JonM.,ThomasJ.Driscoll,StephenB.
HurlbuttandScottB.Hillman,ConstructionScheduling:
Preparation,
Liability
and
Claims,
2ndEdition,AspenLaw&Business,
NewYork,2003,12.04et.seq.Seealso,RoyS.Cohen,SurveyofCourtsReactionstoClaimsforLossofProductivityand
Inefficiency,Session612,ABAPublicConstructionSuperconference,December10,1998.28Schwartzkopf,ibid,1.03[B].
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ProjectPracticeBasedMethods
Measured mile analysis, baseline productivity analysis, system dynamics modelling, earned value
analysis, sampling studies, and comparison studies are all project practice based approaches whose
calculationsaredrawnfromtheprojectrecords.
Assuch,theyareexpectedtobemorecrediblethanalternativegeneralapproaches. Courtsandother
tribunalsthereforepreferestimationsofdamages thataredirectly linked to thedisputedprojectand
supported by its contemporaneous documentation29. The types of contemporaneous documentation
requiredaregenerallydifferentfromonemethodtoanother.That is,themostsuitablemethod fora
givenprojectcanonlybedeterminedbasedupontheavailableprojectdata.
MeasuredMileAnalysis
Themeasuredmileapproach30
iswidelyacknowledgedasthemostacceptablemethod forcalculatinglostproductivitycosts.
Theanalysiscomparesidenticaltasksinimpactedandnonimpactedperiodsoftheprojecttoestimate
theproductivitylosscausedbytheimpactofaknownseriesofevents31. Itisbasedonanextrapolation
ofactualworkhoursspent32. Themeasuredmilecalculationmightincludecomparisonofsimilarwork
activities and achieve court acceptance33. The attraction of the measured mile is that the actual
contractperformanceratherthanthe initialestimate isusedforthecalculations. Assuchitcompares
actualperformanceonsitewithactualperformance,notsometheoreticalplannedperformance.
29AssociationfortheAdvancementofCostEngineering(AACE)International,Inc.(2004).Estimatinglostlaborproductivityin
constructionclaims.AACEInternationalRecommendedPracticeNo.25R03.30Sometimesreferredtoasdifferentialstudiesormeasuredproductivitycomparisons.
31Schwartzkopf,W.(1995).Calculatinglostlaborproductivityinconstructionclaims,Wiley,NewYork.32Zink,D.A.(1986).Themeasuredmile:Provingconstructioninefficiencycosts.CostEng.,28(4),1921.
33Jones2003;CalveyandZollinger2003;AssociationfortheAdvancementofCostEngineering(AACE)International,Inc.
(2004).Estimatinglostlaborproductivityinconstructionclaims.AACEInternationalRecommendedPracticeNo.25R03.
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The above illustrates a nondisrupted period of excavation and a later disrupted period where the
volumeofexcavationperunitoftimehasbeenadverselyaffectedbyoperationalandaccessrestrictions
imposedupontheContractor.
Thereareseveralassumptionsandprerequisitesunderlyingthemeasuredmiletechnique:
First,theremustbeanonimpactedorleastimpactedperiod,socalledmeasuredmileperiod,forthespecifictypeofworkbeingassessed. Theadversefactorsaffectingproductivityduring
themeasuredmileperiod,ifany,mustbesolelyattributabletothecontractor;
Second,thelengthofthisperiodshouldbesignificantcomparedtotheimpactedperiodandthecourseofwork. Itwouldbeunreasonabletoextrapolate2%ofprogress into80%ofexpected
costs34;
Third,sufficientamountsofcontemporaneousprojectdatashouldbeavailablefortheanalysis.At most the physical units of work completed have to be periodically recorded so that the
cumulativelabourhourscanbeplottedthroughthecourseofwork.
Fourth, the project data are assumed to be error free. That is, the contemporaneousdocumentationmustbeaccuratelyrecordedbythecontractor;and
Finally, all disruptions during the impacted period are due to one partys (say, the owners)actionsorinactions. Itisextendedthatotherfactorsunrelatedtotheclaimedimpactshaveto
beaccountedforandremoved fromthe impactedperiodanalysistothedegreethese factors
occurredduringthemeasuredmileperiod35.
34Zink,D.A.(1986).Themeasuredmile:Provingconstructioninefficiencycosts.CostEng.,28(4),1921.
35AssociationfortheAdvancementofCostEngineering(AACE)International,Inc.(2004).Estimatinglostlaborproductivityin
constructionclaims.AACEInternationalRecommendedPracticeNo.25R03.
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Considerable limitations are embedded in these assumptions. The measured mile analysis becomes
unreliableorevenimpossiblewheneitheranonimpactedperiodsimplydoesnotexistorthatperiodis
not sizeable. The fact that the analysis requires identical or substantially similar activities for
comparisonscanhamperitsapplicabilityasthemethodisinappropriateforuniqueandcomplextasks36.
Thereliabilityofthemethod ischallenged if inaccuratecontemporaneousprojectdata isused forthe
analysis. Unfortunatelyreportingerrorsarecommonplaceinprojects
37
.
Otherlimitationsaremore implicit. Projectedcumulativelabourhourscanbeextrapolateddifferently
duetodifferentoptionsofthetimeframe.GulezianandSamelian38pointedoutthat:
(1) Different time frame and segments selected within the measured mile period may produce
differentnumbers;and
(2) Variationofdailyproductivity isconcealedtovaryingextentsbythecumulatingnatureofthe
measuremileanalysis.
Theyalsoarguethatthemeasuredmiledoesnotnecessarilyreflecttheproductivitynormallyachieved
bythecontractorduetothesmoothingeffectofsuccessivecumulativedataandthenatureofvariation
inunit
productivity
values.
Inaddition,
the
two
average
productivity
rates,
which
are
readily
calculated
andcompared fornonimpactedand impactedperiods,maymaskthefactthatacontractorgenerally
doesnotattainasinglerateofproductivitythroughoutatimeperiod39.
ExampleMeasuredMileCalculationComparisonofUnitCostforImpactedandNonimpactedAreas40
TheContractorplannedtoperformallofthecrosstaxiwaypavingonanuninterruptedbasis,andtouse
pavingmachinesforalloftheconcretepavingexceptforthefilletareas,whichweretobedonebyhand
pours.
Becauseoftheengineer'schanges inthetaxiway lightingandarequirementtoputpavementsensing
devices in the concrete for a longrangepavementwear study, theworkon the south taxiwayswas
performedona sporadicand intermittentbasis. In fact,muchof itwasperformedon ahandbasis
ratherthanusingthelargeconcreteslipformpavingspread. Thiscausedasubstantiallygreatercostof
performingtheworkonthesouthtaxiwaysthancouldbereasonablyanticipated.
Theworkon thenorth taxiwayswasperformedundernormalconditions, since the changeswereall
made prior to the start ofworkon thenorth taxiways and the pavementwear studywould not be
conducted on the north taxiways. Runway's cost as a result of these changes can be calculated by
comparingtheunitcostoflabourforthenorthtaxiways(whichwereessentiallynonimpacted)withthe
unit cost of labour for the south taxiways (whichwere substantially impacted). Both the north and
south taxiwayswere performed during normal paving periods under good weather conditions. The
samelabourforceandthesameequipment(withtheexceptionthattheslipformpavingspreadcould
notalwaysbeusedduetothechange)wasusedonbothareas. However,theunit labourcostonthe
north taxiways,whichwerenonimpacted,was approximatelyhalfof the cost incurredon the south
taxiways.
36Loulakis,M.C.,andSantiago,S.J.(1999).Gettingthemostoutofyourmeasuredmileapproach.Civ.Eng.(N.Y.),69(11),
69.37Thomas,H.R.,andSanvido,V.E.(2000).Quantificationoflossescausedbylaborinefficiencies:Whereistheelusive
measuredmile?Constr.LawBus.,1.
38Gulezian,R.,andSamelian,F.(2003).Baselinedeterminationinconstructionlaborproductivitylossclaims.J.Manage.Eng.,19(4),160165.39Finke,M.R.(1998).Statisticalevaluationsofmeasuredmileproductivityclaims.CostEng.,40(12),2830.
40DrawnfromSchwartzkopf,CalculatingLostLaborProductivityinConstructionClaims,2
ndEdition.
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On the above information and the following simplistic analysis, theContractor isentitled to bepaid
$549,155inadditionalcoststhatitincurred,asillustratedinthefollowingformula:
ActualNorthCross
TaxiwayProduction
ActualSouthCross
TaxiwayProduction
Hours 10,116.00 51,969.00
SquareMetresProduced 102,256.00 281,746.60
Hours/SquareMetre .099 .184
IncreaseinUnitLabourRate 0.086
QuantityAffectedbyBlockoutandLightChange 281,746.60
IncreasedRate 0.086
ManhourIncreaseDuetoChange 24,096.32
LabourCostperManhour $22.79
TotalAdditionalLabourCost $549,155.17
BaselineProductivityAnalysisThisapproachwasproposedinordertoavoidsomeofthelimitationsandimpracticalassumptionsofa
currentmeasuredmileanalysis. Similartothemeasuredmilemethod,baselineanalysisreliesonthe
contractors actual performance of the project being analysed. A central point of this analysis is to
establish the baseline productivity. It represents the best and most consistent productivity the
contractorwasable toachieveon theproject41. Analysinga42projectdatabase42 revealed that the
baseline productivity mainly depends on the complexity of the design and the work methods used.
Unlike the measured mile analysis, a baseline analysis neither needs defined nonimpacted andimpactedperiodsnorbeconsecutivereportingperiodsinthebaselinetimeframe43. Inotherwords,the
baselineanalysiscanbemoreflexibleandhencemoreapplicableincurrentpractice44.
However, the process has not obtained consensus among studies though it is generally agreed that
usingindividualproductivityvaluesisbetterthancumulativeproductivityforthecalculations. Thismay
be due to varying views on the baseline productivity. Unlike Thomas and Zavrki45, Gulezian and
Samelian46 noted that the baseline productivity reflects the normal operating performance of a
contractor.
41Thomas,H.R.,andZavrki,I.(1999).Constructionbaselineproductivity:Theoryandpractice.J.Constr.Eng.Manage.,
125(5),295303.42Thomas,H.R.,andZavrki,I.(1999).Constructionbaselineproductivity:Theoryandpractice.J.Constr.Eng.Manage.,
125(5),295303.43Thomas,H.R.,andZavrki,I.(1999).Constructionbaselineproductivity:Theoryandpractice.J.Constr.Eng.Manage.,
125(5),29530344AdeterminingprocessofthebaselineproductivitycanbefoundinThomasandZavrki(1999),ThomasandSanvido(2000),
andGulezian,R.,andSamelian,F.(2003).Baselinedeterminationinconstructionlaborproductivitylossclaims.J.Manage.
Eng.,19(4),160165.
45Thomas,H.R.,andZavrki,I.(1999).Constructionbaselineproductivity:Theoryandpractice.J.Constr.Eng.Manage.,125(5),295303.46Gulezian,R.,andSamelian,F.(2003).Baselinedeterminationinconstructionlaborproductivitylossclaims.J.Manage.Eng.,
19(4),160165.
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ThomasandZavrki47andThomasandSanvido48determinethebaselineproductivityasthemedianof
the individualproductivityvalues inthebaselinesubset. GulezianandSamelian49calculate itasthe
meanproductivityofthepointsfallingwithinthecontrollimitsafterapplyinganiterativeprocessofan
individualscontrolcharttodealwithdifferentsourcesofvariationofperiodicallyreportedproductivity
values.
Althoughthebaselineanalysissolvesseveralproblemsassociatedwiththemeasuredmileapproach,it
is still limited. The way of calculating the baseline productivity should be more scientific and
straightforward, subject to properly dealing with the reliability of reported data, variation of
productivityvalues,andcasuallinkagestodisruptionsandinefficiency. Someshortcomingsarerelated
totheestablishmentofthebaselinesampleasinThomasandZavrki50andThomasandSanvido51.They
are:
(1) Thebaseline sample is identified according to thebestdailyoutput insteadof thebestdaily
productivity;and
(2) The 10% requirement for the baseline sample size is arbitrary andnot based upon scientific
principles52.
Inadditionitisagreedthatthebaselineanalysisisacauseandeffectanalysis,yetitisqualitativeorvery
roughlyapproximate innatureas inThomas53. Therehasbeennosoundmethod forwhichdamages
inducedbytheownerandcontractorareclassifiedandquantifiedduringadisputedperiod. Especially,
multipleand/orsimultaneousownerandcontractorcauseddisruptionsarenotuncommoninreallife.
SystemDynamicsModellingSystemdynamics(SD)modellinghasbeenemployedtounderstandthebehaviourofvariousnatural,
social, and engineered systems54. Developed at MIT55 in the late 1950s, SD is widely used in the
defenceindustry.
Anumberofdelayanddisruptionclaimshavebeensuccessfully settledwithextensive supportofSD
modelling. OnesuchsuccessfulstorywasthedevelopmentandapplicationofaSDcomputersimulation
modeltoresolvea$500millionshipbuilderclaimconsistingofthedirectimpactandtherippleeffects
between Ingalls Shipbuilding and the U.S. Navy in the 1970s56. Other successful applications of SD
modellingindelayanddisruptionclaimsandlawsuitshavealsobeenreported57.
47Thomas,H.R.,andZavrki,I.(1999).Constructionbaselineproductivity:Theoryandpractice.J.Constr.Eng.Manage.,
125(5),295303.48Thomas,H.R.,andSanvido,V.E.(2000).Quantificationoflossescausedbylaborinefficiencies:Whereistheelusive
measuredmile?Constr.LawBus.,1.49Gulezian,
R.,
and
Samelian,
F.(2003).
Baseline
determination
inconstruction
labor
productivity
loss
claims.
J.Manage.
Eng.,
19(4),160165.50Thomas,H.R.,andZavrki,I.(1999).Constructionbaselineproductivity:Theoryandpractice.J.Constr.Eng.Manage.,
125(5),295303.51Thomas,H.R.,andSanvido,V.E.(2000).Quantificationoflossescausedbylaborinefficiencies:Whereistheelusive
measuredmile?Constr.LawBus.,1.52Ibbs,W.,andLiu,M.(2005).Improvedmeasuredmileanalysistechnique.J.Constr.Eng.Manage.,131(12),12491256.
53Thomas,H.R.(2005).Causationandcauseeffectanalyses.Constructionclaimsonline,WPL,3(4).
54Itsprinciples,concepts,andtoolscanbefoundinForrester,J.(1961).Industrialdynamics,PegasusCommunications,
Waltham,Mass,Richardson,G.,andPugh,A.(1981).Introductiontosystemdynamicsmodelingwithdynamo,Pegasus
Communications,Waltham,Mass,andSterman,J.D.(2000).Businessdynamics,systemthinking,andmodellingforacomplex
world,IrwinMcGrawHill,NewYork.55MassachusettsInstituteofTechnology.
56Cooper,K.G.(1980).Navalshipproduction:Aclaimsettledandaframeworkbuilt.Interfaces,10(6),2036.
57Ackermann,F.,Eden,C.,andWilliams,T.(1997).Modelingforlitigation:Mixingqualitativeandquantitativeapproaches.Interfaces,27,4865;Eden,C.,Williams,T.,Ackermann,F.,andHowick,S.(2000).Onthenatureofdisruptionanddelay.J.
Oper.Res.Soc.Jpn.,51,291300;Williams,T.M.,Ackermann,F.,andEden,C.(2003).Structuringadisruptionanddelay
claim.Eur.J.Oper.Res.,148,192204.
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The SD approach seeks to create a computer model of the project that maps all relationships and
feedbackloopsinacomprehensivedynamicmodel. Asimplisticrepresentationofthatmodelmaylook
somethinglike:
Thesequenceofmodelledeventsmayrunalongthefollowinglines:
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Problemsearlyintheprojectpropagatetodownstreamwork. Changeimpactsoriginallyisolatedinthe
engineeringphasemayendupaffectingconstructionaswell. Thereanothersimilarsetofdynamicsis
triggered, with the addition of some physical impacts aswell, such as crowding (congestion, trade
stacking). Allthesedynamiceffectsinconstruction,astheyaffectlabourproductivity,canamplifythe
magnitudeofdisruptionimpactsfromchanges.
IllustrationsdrawnfromProjectChanges:Sources,Impacts,Mitigation,Pricing,Litigation&Excellence,PAConsultingGroup
ByusingSDmodellingquantificationofcumulative impactscanovercomeoneofthelimitationsofthe
measured mile and baseline analyses. As noted earlier the two methods are not able to easily
accommodatemultipleand/orconcurrentdisruptionscausedbydifferentprojectparties. SDmodels
canquantifyownerresponsibledelayanddisruptionimpactcostsanddemonstratethecauseandeffect
relationshipofthecumulativeimpacts58. AkeyfeatureofSDsimulationmodellingisthatitallowsand
directsansweringapoolofwhat ifquestionssuchas:What ifoneparticularcategoryofdisruptionshadnotoccurredbutallothershad? Whatiftheownerinterventionshadnotoccurred?59. Inaddition,
itvisualisescausalityandallows forvalidationofcausal logic inquantitative termsandagainstactual
dataatanyperiodoftheprojectindispute60.
SD modelling has not achieved popularity in construction disputes compared to the measured mile
analysis.
58Cooper,K.G.(1980).Navalshipproduction:Aclaimsettledandaframeworkbuilt.Interfaces,10(6),2036.
59Cooper,K.G.(1980).Navalshipproduction:Aclaimsettledandaframeworkbuilt.Interfaces,10(6),203;Eden,C.,
Williams,T.,andAckermann,F.(2005).Analysingprojectcostoverruns:Comparingthemeasuredmileanalysisandsystemdynamicsmodelling.Int.J.Proj.Manage.,23,135139.60Eden,C.,Williams,T.,andAckermann,F.(2005).Analysingprojectcostoverruns:Comparingthemeasuredmileanalysis
andsystemdynamicsmodelling.Int.J.Proj.Manage.,23,135139.
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One main reason is that SD simulation models are not readily understood due to the dynamic
complexity and quantitative nature of those models61. In addition, unless the SD model is properly
validated,itispointless,barelycredible,andthereforeuseless.
ValidationofaSDmodelisproblematicandtimeconsumingandrequiresextensiveexpertiseoftheSD
methodology. Insomecircumstances,itisassumedthatthereasonablenessoftheoriginalestimateinSDmodellingcandraw inaccurateandunpersuasivequantumofdamages. Also,although thecausal
coefficients indicating the relationshipsbetweenactivitiesarevery important to theaccuracyofaSD
model,theyarenoteasytoestimate62.
EarnedValueAnalysisProductivitymeasurement issometimesdifficultwhenthere is insufficient informationconcerningthe
physicalunitsofwork installedon theproject. In these situations, a simplistic form63 of theearned
valueanalysismethodcanbeutilisedtocalculateestimated labourhours.64 Thecontractorsestimate
or alternatively themonetaryvalueofpayment applications, contract amountsorunitprices canbe
used
to
determine
labour
hours,
when
they
were
expended
and,
possibly,
on
what
activities.
65
Physical
unitsofworkcompletedmultipliedbybudgetunitratescanbeusedtodetermineearnedhours. The
earnedhoursare thencompared to theactualhoursexpended for theperiodof the impactand the
differencebetweenthetwomaybeusedtocalculatetheproductivitylossexperienced.
Earnedvaluemeasurementofcontemporaneousprojectdocumentation,suchaspercentagescomplete
from schedule updates or payment applications can assist with calculating labour productivity.66
Additionally, the claimant may calculate the actual revenue per hour of labour versus the planned
revenueperhour,asanalternative.67 Earnedvalueanalysismayalsobeutilisedtocalculateestimated
labourhours.68
Whenusingtheearnedvalueanalysistechnique, it iscautionedthatthebudgetusedtogeneratethe
earnedvaluemetricsbecarefullyreviewedandverifiedforreasonableness. Anyearnedvalueanalysis
baseduponanunreasonablebudget ishighlysuspect. Finally, it isnoted thata fullyresource loaded
(labourandquantities)CPMscheduleisagoodsourceforobtainingearnedvaluemetricsandallowsfor
liketimecausationanalysis.
An earned value analysis can also be used to estimate the cumulative impacts, especiallywhen the
physicalunitsofwork completed havenotbeen recorded adequately for employing amore reliable
methodlikethemeasuredmileandbaselineanalyses.
61Howick,S.(2005).Usingsystemdynamicsmodelswithlitigationaudiences.Eur.J.Oper.Res.,162,239250.
62Ibbs,W.,andLiu,M.(2005).Systemdynamicmodelingofdelayanddisruptionclaims.CostEng.,47(6),1215.
63Theuseofthetermearnedvaluemeansdifferentthingstodifferentpeople.Inthiscontext,simplifiedearnedvalueis
usedtodistinguishbetweenformEarnedValueasrequiredbytheUSGovernmentonmanyoftheirprojectsandearnedvalue
aspracticedbymanyEPCcontractors.SeeforexampleKennethK.Humphreys,JelensCostandOptimizationEngineering,Third
Edition,McGrawHill,NewYork,1991;JamesM.Neil,ConstructionCostEstimatingforProjectControl,PrenticeHall,Inc.,
EnglewoodCliffs,NewJersey,1982;andSkillsandKnowledgeofCostEngineering,FifthEdition,AACEInternational,
Morgantown,WestVirginia,2004.64SeeStumpf,George,R.,editor,AACEIProfessionalPracticeGuidetoEarnedValue,AACEI,Morgantown,WV,1999.
65SeeCass,DonaldJ.,EarnedValueProgramsforDOEProjects,CostEngineering,Vol.42,No.3,February2000.
66SeeFleming,QuentinW.andJoelM.Koppelman,EarnedValueProjectManagement,ProjectManagementInstitute,Upper
Darby,PA.1996.67SeeMcCally,BobM.,DemonstratedLaborEfficiency:AnEffectiveCostControlandAnalyticalTool,CostEngineering,Vol.41,
No.11,pp.3337,November1999.68SeeJonesandDriscoll,Ibid,pageB24.
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Foraproject,thedifferencebetweenearnedhoursdeterminedfromtheearnedvalueanalysismethod
andactualhoursexpendedforanimpactedperiodcanbeusedtocomputetheinefficiencysuffered69.
As anearned value analysis isbasedon thepercent complete and thebudget, the credibilityof the
methodcanbequestionable. Thereasonsarethat:
(1) The percent complete method is not as detailed and accurate as the physical units of work
completedmethod
70
usedinthepreviousquantifyingmethods;and(2) Theoriginalestimate is likely tobeunsubstantiated.Anyearnedvalue analysis relyingonan
unreasonablebudgetisverydoubtful71.
SamplingMethodsTwo sampling methods used for estimating lost productivity are work sampling and craftsmen
questionnairesamplingmethods. Introductiontothesemethodscanbefoundelsewhere72.
Worksampling isamethod inwhicha largenumberofdirectobservationsoftradesmenaremadeto
determinewhattheyaredoingatvariouspointsintime.WorksamplingisdefinedasAnapplicationof
randomsampling
techniques
tothe
study
ofwork
activities
sothat
the
proportions
oftime
devoted
to
differentelementsofworkcanbeestimatedwithagivendegreeofstatisticalvalidity.73
From these observations the claimant determines, on a percentage basis, how much time is spent
betweendirectwork(payitemwork);supportwork(movingtoolsandmaterialstotheworklocation);
ordelays(timewhennoworkisbeingperformed). Byperforminganumberofworksamplingstudies,
the analyst can draw comparisons of productivity before and after known events, between work
activitiesorcrews,etc. Worksamplinghasbeenofferedasameansofdeterminingproductivitylossbut
itcanonlybeperformedduringthe lifeoftheprojectand isnotcompatiblewithahindsightanalysis
effort.74
The samplingmethodsare typically simpleand inexpensive toanalyse labourproductivity. Although
theycanbeusedforlostproductivityclaims,theirtrustworthinessisnothighastheyareonlyasampled
measureoflabourproductivity.
For instance,anassumptionofworksamplingthatthere isapositiverelationshipbetweenproductive
timeandlabourproductivitywasfoundtobefalse75.
Thequestionnaireapproachallowscraftsmentoestimatetheamountoflostproductivetimeinthefield
on a daily or weekly basis, identifying the reason for the lost time. While, perhaps, not the most
scientificofstudies,thisiscontemporaneousdocumentationifadministeredproperly. Theclaimantcan
thentietheresultsofsuchasurveytotheentitlementandcausationarguments.76
69AssociationfortheAdvancementofCostEngineering(AACE)International,Inc.(2004).Estimatinglostlaborproductivityin
constructionclaims.AACEInternationalRecommendedPracticeNo.25R03.70Schwartzkopf,W.(1995).Calculatinglostlaborproductivityinconstructionclaims,Wiley,NewYork.
71AssociationfortheAdvancementofCostEngineering(AACE)International,Inc.(2004).Estimatinglostlaborproductivityin
constructionclaims.AACEInternationalRecommendedPracticeNo.25R03.72e.g.,Oglesby,C.H.,Parker,H.W.,andHowell,G.A.(1989).Productivityimprovementinconstruction,McGrawHill,New
York..73AmericanInstituteofIndustrialEngineers,AmericanNationalStandardZ94.11,IndustrialEngineeringTerminology1120
(1989).74SeeFwuShiunLiouandJohnD.Borcherding,WorkSamplingCanPredictUnitRateProductivity,JournalofConstruction
EngineeringandManagement,Vol.112,No.1,page90(March,1986).Seealso,Jenkins,JamesL.andDarylL.Orth,Productivity
ImprovementThrough
Work
Sampling,
CostEngineering,Vol.46,No.3,pp.2732,(March2004).
75Thomas,H.R.(1991).Laborproductivityandworksampling:Thebottomline.J.Constr.Eng.Manage.,117(3),423444..
76LuhMannChangandJohnD.Borcherding,EvaluationofCraftsmenQuestionnaires,JournalofConstructionEngineeringand
Management,Volume111,No.4,page426.(December,1985)
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AvariationofthismethodistheuseofaCraftsmenQuestionnaireattheendofthejob,toconfirmor
modify a productivity loss analysis performed utilising another method. For example, a Board of
ContractAppealscaseallowedaCraftsmenQuestionnairetobeusedasamodifierofanindustrywide
studyandawardedlostproductivitycoststoamechanicalsubcontractoronthisbasis.77
ComparisonStudies
Comparisonstudiescanbeclassifiedascomparableworkandcomparableprojectstudies. AACE78also
classifiesthecomparableworkstudiesintwoforms:
(1) The contractor estimates lost productivity on the impacted period, and then locates an
analogousorsimilarworkactivityonthesameproject,whichwasnonimpactedandcalculates
itsproductivity;and
(2) The contractor compares productivities during the impacted period and of similar but non
impactedworkperformedbyanothercontractoronthesameproject.
Comparable project studies are used to contrast the productivities of similar work activities on the
projectbeinganalysedandasimilarproject.
Thesuccessfuluseofcomparisonstudiescanbedifficult tosecuregiventhat thedefinitionofsimilar
workorasimilarprojectarerarelyagreedbyprojectparties. Assuchbaselineproductivityanalysisor
systemdynamicsmodellingshouldbeconsideredforsizableclaimswhenthereisnoclearnonimpacted
period. Theothermethods canbe adopted as complementary andused to further substantiate the
outcomeresultsachieved. Theremaybetimeswhentheyarethebestalternativeavailable.
IndustryBasedMethods
Specialty industryandgeneral industrystudiesarecalledthe industrybasedmethods. Astheirnames
imply a specialty, industry study employs results of specific studies directly related to the cause of
damages,whereas a general industry study is based on industrywidemanuals and/or reports. The
specific studies can be about acceleration, learning curve, overtime, weather, and so forth79. The
industrybasedanalysesmaybeemployedwhenthere isinsufficientprojectdocumentation. Theycan
alsobeusedwithanothermethodtoaugmentsupportiveevidenceofdamages. Ingeneral,although
the industrybasedmethodsarequickand inexpensive,theiruse incalculating lostproductivity isnot
thefirstpreference.
Cost
Based
Methods
Ifitispossibletodemonstrateentitlementandcausationbutthereisinsufficientprojectdocumentation
tosupportdamagecalculationsusinganyoftheabovetechniques,recommendedpracticeistouseone
ofthecostingmethodssetforthbelow. Thesemethodsrequireanalysisoftheprojectjobcostrecords.
Thepurposeofsuchpreliminaryanalysis is todetermineactualdirect labourhoursandcosts (having
77SeeHenselPhelpsConstructionCo.,GSBCANos.14,744&14,877,011BCA31,249.January11,2001.
78AssociationfortheAdvancementofCostEngineering(AACE)International,Inc.(2004).Estimatinglostlaborproductivityin
constructionclaims.AACEInternationalRecommendedPracticeNo.25R03.
79Sourcesofthesequalitativeand/orquantitativestudiesforvarioussubjectscanbefoundinBorcherding,J.D.,andAlarcon,L.F.(1991).Quantitativeeffectsonproductivity.Constr.Lawyer,11(1)andAssociationfortheAdvancementofCost
Engineering(AACE)International,Inc.(2004).Estimatinglostlaborproductivityinconstructionclaims.AACEInternational
RecommendedPracticeNo.25R03.
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strippedoutmaterials, installedequipment,supplies, fieldandhomeofficeoverhead,smalltoolsand
consumables,etc.).
Total cost and modified total cost methods are grouped into cost based methods. AACE80 further
dividesatotalcostmethod intoatotalunitcostandatotallabourcostmethod. Underthetotalcost
method,thecontractorsubtractsitsestimatedlabourcostsfromthecostsactuallyincurredtoarriveattheresultingoverrunasthebasisfor its inefficiencyclaims81. Themajordifferencebetweenthetotal
costandmodifiedtotalcostmethodsisthatdamagesquantifiedbymodifiedtotalcostcalculationtakes
into account unreasonable estimates and/or inefficiencies due to contractors problems. Thus, the
secondmethod,outofthetwo,ispreferable.
Successful use of the cost based methods is limited. In order to employ a total cost analysis, a
contractorgenerallyhastoprovethefollowingrequirements:
(1) Theimpracticabilityofprovingactuallossesdirectly;
(2) Thereasonablenessofitsbid;
(3) Thereasonablenessofitsactualcosts;and
(4)
Lackofresponsibility
for
the
added
costs
82
.
Therequirementsfortheuseofthemodifiedtotalcostmethodaresimilarbutthebidandactualcosts
shouldbereasonableafteradjustment
OtherQuantifyingMethods
There are other inefficiency estimations such as expert testimony andjury verdict. A considerable
portionof lostproductivitycalculations isbasedprimarilyuponanexpertstestimony83. Althoughthis
methodmightwork, it isextremelyuncertaindue toa lackofsupportinganalysis. Similarly, thejury
verdict approach that is occasionally applied by USA boards, courts, and other bodies to determine
damageshasnogroundonwhichacontractorshouldrely.
80AssociationfortheAdvancementofCostEngineering(AACE)International,Inc.(2004).Estimatinglostlaborproductivityin
constructionclaims.AACEInternationalRecommendedPracticeNo.25R03.81Jones,R.M.(2003).Updateonprovingandpricinginefficiencyclaims.Constr.Lawyer,Summer,311;Klanac,G.P.,and
Nelson,E.L.(2004).Trendsinconstructionlostproductivityclaims.J.Profl.IssuesEng.Educ.Pract.,130(3),226236.82CentexBatesonConstructionCo.,VABCANo.4613,991BCA30,153at149,261,1998.
83Sanders,M.C.,andNagata,M.F.(2003).Assessingmethodologiesforquantifyinglostproductivity.AACEInt.Transactions,
CDR.18,18.
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MatchingtheQuantifyingMethodswithProjectPractice
Theabovefigure84presentsaframeworkfromwhichthesuitabilityofavailableapproachesforanalysis
andquantifyingtheeffectsofdisruptionmaybediscerned. Thisselectionprocessisprimarilybasedontheavailabilityandthecharacteristicsofinformationavailablesetagainstthedegreeofreliabilityofthe
quantifying method. Available information can be from particular project practice and/or industry
studies.
Aseriesofquestionsareaskedtoselecttheappropriatequantifyingmethod. Accordingly,thematching
processstructurescriticalquestionsbyvariousdecisionpoints. Thesedecisionpointsareorganised in
suchawaythatmoregeneralquestionsregardingprojectpracticearisefirstsothatavailablemethods
cangraduallybeclassifiedintermsoftheirfeasibility. Finally,themostadvantageousmethodemerges
amongthefeasiblesetforacertaintypeofprojectdataandindustrystudies. Therelativeadvantages
anddisadvantagesof the lostproductivityquantifyingmethodsarediscussed in theprevious section.
84AdaptedfromQuantifiedImpactsofProjectChange,Ibbs,Long,NguyenandLee,JournalofProfessionalIssuesinEngineering
EducationandPractice2007.
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Theaboveframeworkrecommendsthemostfavouredapproachratherthanasetofpossibleones. This
meansthat,forexample,anearnedvalueanalysiscanalsobeusedincaseameasuredmilestudyisnot
available. However, themeasuredmilemethod ismost favoured in that circumstance andhence is
recommended. In addition, comparison studies do not appear in the possible outcomes of the
framework since much more credible methods such as baseline productivity analysis and system
dynamicsmodellingarepreferredwhentime,availabledocuments,andresourcespermit.
Conclusions
Underappropriatecircumstances,allofthemethodssetforthhereinaretechnicallyacceptable. Ofall
the methods identified above, the most reliable are those reliant upon the analysis of factual,
contemporaneousinformationdrawnfromthespecificprojectinquestion,i.e.ProjectSpecificStudies.
These methods are based upon contemporaneous documentation and knowledge from the project.
Thus,theyaretheclosesttoapproximatingactualdamagesfromtheproject. Allothermethodologies
discussed are estimating techniques with varying degrees of reliability. Therefore, they must be
consideredlessrobust. Thisagainhighlightstheimportanceofkeepinggoodrecordsfromtheoutsetof
theproject.
To reliablyquantify and successfully claim for lost productivity, damages have tobe associatedwith
cause. Resultantinjurygoeshandinhandwithliabilityandcausationtoformthetriadofproof.
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