Common issues encountered in relation to records and the causes of disruption and loss of efficiency in construction projects:
Rajeshkumar Rajendran LLM LLB BE MRICS MCIArb
A senior leader with an impressive background in Commercial, Contracts, & Claims Management, overseeing multimillion-dollar projects. With two decades of experience, the majority gained in Dubai, Qatar & Saudi Arabia.
Loss of productivity claims in construction projects can arise from various factors that affect labor productivity. These claims typically involve situations where a contractor experiences delays or disruptions that result in increased labor hours or decreased efficiency. Two common types of loss of productivity claims are acceleration claims and cumulative impact claims.
Acceleration Claims: An acceleration claim occurs when a contractor is forced to expedite or accelerate its work to overcome excusable delays caused by the owner or other factors beyond the contractor's control. The contractor may incur additional costs due to increased labor hours, overtime, or other measures taken to meet the original project schedule. To establish a compensable loss in labor productivity, the contractor must demonstrate that it took more hours to complete a unit of work than it would have without the intervening cause.
Factors that can contribute to acceleration claims include:
Cumulative Impact Claims: A cumulative impact claim arises when multiple changes or disruptions on a project collectively impact labor productivity. The combined effect of these changes, often referred to as the "ripple effect," can result in inefficiencies and increased labor hours. Contractors may seek compensation for the overall impact of these cumulative changes.
It is indeed crucial to maintain comprehensive and accurate record-keeping for various purposes, including substantiating claims and conducting post-project evaluations. Adequate records can help in resolving disputes, conducting audits, and providing evidence in legal proceedings.
The main issues with records include the lack of supporting evidence for claimed activities and progress, changes made during program updates, inaccurate progress reporting, and missing or incomplete information in progress reports. Additionally, challenges such as illegible documents, inadequate document management systems, and disputed record attributes can further complicate record-keeping and the overall project evaluation process.
On the other hand, the causes of disruption and loss of efficiency in construction projects can vary and include factors such as inaccurate detailed drawings, rework or corrective work, multiple changes leading to a ripple effect, delayed or hindered access, adverse weather conditions, crew overloading, out-of-sequence working, fatigue, and dilution of supervision, among others. These factors can impact productivity, project timelines, and overall project costs.
By maintaining accurate and comprehensive records, contractors can substantiate their claims for additional costs incurred due to disruptions and unforeseen circumstances. These claims may include expenses related to extended project durations, increased labor, additional materials and equipment usage, and other associated costs. Proper record-keeping can help demonstrate the impact of disruptions on the project and support the contractor's position during claim evaluations or legal proceedings.
In the case of JH Kelly, LLC v. AECOM Technical Services, Inc., the court considered different methods for calculating loss of productivity on a construction project. The subcontractor sued the design-builder for additional costs resulting from excessive changes that imposed additional work and difficult working conditions. One component of the damages claimed was over $8 million in loss-of-productivity damages.
The design-builder argued that the subcontractor's expert should not be allowed to testify about the loss-of-productivity damages because the expert did not properly apply various calculation methods. However, the court ruled that the expert could present his calculations using different methodologies. Let's examine the three methodologies discussed in the case:
In summary, the court allowed the subcontractor's expert to present opinions on the subcontractor's alleged loss-of-productivity damages using all three methodologies. The court acknowledged that there might be legitimate issues with how the methods were applied but left it to the jury to determine the weight to give the expert's testimony.
Lost production claims in construction arbitration and litigation are challenging to evidence and value due to the variety of factors that can cause productivity loss. To establish the value of lost production, the following factors need to be considered:
Baseline Production: Determine the production that was originally achievable or expected under normal circumstances.
Comparative Production: Assess the production achieved under different circumstances using the same resources. This helps isolate the impact of changes or breaches on productivity.
Direct Impact: Determine the proportion of lost production directly resulting from the change or breach in question.
It's important to differentiate lost production claims from global claims. A lost production claim should demonstrate that the reduction in production was caused by changes imposed by others or risks borne by others, rather than factors within the contractor's control. Additionally, the tendered production rates need to be realistic and reflective of the actual working conditions.
Here are five common defenses against lost production claims, although there can be many other potential defenses:
Unrealistic Productivity Norms: The productivity norms used in the claim were not practical or achievable in a real-world working environment.
Restricted Working Conditions: The claimant was aware of limitations or restrictions prior to contracting, such as limited access or adverse weather conditions, which affected productivity. They failed to attract qualified personnel and encountered typical weather conditions for the given climate and time of year.
Poor Site Organization: The claimant's site organization was inadequate, resulting in labor waiting for work allocation and difficulties coordinating with other trades. The labor allocation and experience did not align with the planned matrix.
Substandard Work: A significant portion of the work performed was substandard and required rework, which inflates the claimed "lost production" by including the cost of redoing work.
Self-Induced Difficulties: The claimant's own failures or actions elsewhere in the project led to changes in the work process or timing, resulting in reduced productivity.
To calculate lost production, the "measured mile" technique is commonly used. Successful lost production claims using this method typically exhibit the following characteristics:
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Reasonable Original Estimates: The initial estimates of production were realistic and achievable in the specific construction site conditions.
Unaffected Working Period: A short period of uninterrupted work demonstrated that the estimated production levels were achievable.
Separation of Other Labor-Related Issues: Other labor-related issues like overtime, downtime, welfare time, and acceleration measures are accounted for separately.
Detailed and Accurate Records: The labor records and allocation sheets are comprehensive, detailed, and accurate.
Consistent Labor Force: The quantity and quality of the labor force remained constant throughout the relevant period.
To effectively manage lost production on a real project, it is advisable to establish a system of control and recording early on, rather than seeking specialists after the fact. Utilizing sophisticated software programs for logic-linked programming and resource histograms can aid in accurate planning and monitoring. It's also crucial to maintain comprehensive contemporaneous records, including time records and clear communication with the client regarding changes and their impact on productivity.
COVID-19
It is significant that the accurately assess and document lost productivity in the construction industry, particularly in the context of the COVID-19 pandemic. Contractors may face challenges in completing projects under altered working conditions, such as social distancing measures, labor availability issues, and supply chain disruptions. These challenges can lead to increased labor hours and real impacts on the bottom line, prompting contractors to pursue claims for lost productivity.
The "Measured Mile" approach is commonly used to calculate damages from lost productivity in the construction industry. This method compares labor records from impacted areas of a project with unaffected areas, relying on actual project data. However, simply performing a Measured Mile calculation does not automatically entitle a contractor to recover losses. The crucial factor in a successful claim is establishing causation, demonstrating a direct cause-and-effect link between project events and the resulting adverse impact.
To establish causation and support a claim for lost productivity, contractors need to rely on project records such as meeting minutes, daily reports, change orders, emails, and field notes. These records help establish the link between specific project events and the increased labor hours or inefficiencies experienced by the contractor. The quality, quantity, and relevance of these project records are essential in building a strong claim. Contractors should maintain detailed project records as their first line of defense against unplanned labor costs.
It's important to note that productivity impacts can have various causes, including issues caused by the owner, the contractor, or both parties. Contractors must demonstrate that the additional labor hours were a direct result of an owner-caused issue to support their claim. In cases where the contractor is responsible for the design, self-inflicted impacts may not be compensable.
Calculations and data alone are insufficient to prove entitlement to recover costs for productivity losses. Contractors must establish causation through actual project facts and records, showing a direct cause-and-effect link. As construction projects resume after the COVID-19 pandemic, contractors should document any changes in working conditions, sequencing changes mandated by the owner, or other disturbances that may impact productivity. These documented records will be valuable in proving productivity impacts and seeking compensation for project disruptions caused by the pandemic.
To summarize, it is important for construction professionals to establish effective document management and control systems, ensure the accuracy and completeness of document registers, and promote good record-keeping practices throughout the project lifecycle. This proactive approach can help mitigate potential issues, facilitate project evaluations, and support the resolution of disputes or claims that may arise during or after project completion. It's important for claimants seeking to calculate loss-of-productivity damages to choose a methodology that establishes a causal link between the disruptive actions and the resulting damages. The burden of proof lies with the claimant seeking to recover damages in a construction project dispute.
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