Usage and Acceptance Rates for Loss of Productivity Damage Quantification Methods

AuthorBy William Ibbs and Oskar Gentele
Pages26-29
THE CONSTRUCTION LAWYER26 Spring 2021
Published in
The Construction Lawyer
, Volume 41, Number 2, Season 2021. © 2021 American Bar Association. Reproduced with permission. All rights reserved. This information or any portion
thereof may not be copied or disseminated in any form or by any means or stored in an electronic database or retrieval system without the express written consent of the American Bar Association.
LABOR DISRUPTIONS
Usage and Acceptance Rates
for Loss of Productivity Damage
Quantif‌ication Methods
By William Ibbs and Oskar Gentele
As readers of this publication
know, construction frequently
generates disputes, and a signif-
icant portion of these disputes
involves labor disruption. Dis-
ruption, which includes such
things as the unplanned reassign-
ment of crews, out-of-sequence
work, trade stacking, and inabil-
ity to maintain efficient crew
sizes, involves performing work
differently than the planned or
reasonable planned manner. The
result is reduced labor productiv-
ity. This reduced productivity is
particularly problematic for con-
tractors because labor costs are
typically the most significant
and least predictable share of a
contractor’s total costs. Moreover, lost productivity is par-
ticularly difcult to measure and track discretely. This article
examines the various alternative ways that contractors and
their counsel attempt to measure and prove lost productiv-
ity and presents empirical data regarding the success rate of
each of these methods. These data show that some common
beliefs about common damage quantication methods may
be unfounded. Among other things, the data presented in
this paper cast doubt on the traditional view that the mea
-
sured-mile technique is the best method and the total cost
method is the worst method.
Challenges of Lost Productivity Claims
Labor costs are often the largest single cost associated with
a construction project. Those labor costs are made up of the
quantify of work to be performed, the productivity associ-
ated with performing that work, and the hourly cost of the
labor that will perform the work. Thus, for example, if 100
linear feet of pipe are installed at a rate of four linear feet per
crew-hour, 25 crew-hours will be required to complete that
work. If a crew-hour costs $300, the total cost for installing
that pipe will be $7,500. Usually, the quantity of work can
be estimated with relative accuracy because of today’s com-
puterized design systems. The hourly cost of a crew likewise
is known with a high degree of accuracy because of good
human resource systems and, for union contractors, labor
agreements that specify those costs.
The great unknown is the productivity rate. Will the pipe
be installed underground in rocky terrain? What are the
metallurgy, diameter, and conguration of the pipe spool?
Are the weather and locational conditions favorable? Is ade-
quately trained labor available? These conditions and many
others can quickly and dramatically affect a contractor’s
labor productivity. The relationship between changed con-
ditions and productivity is not just hypothetical; research
has shown that productivity loss increases as change in a
project increases. See Figure 1, below, as an example of such
research.1
For these reasons, one of the more signicant nan-
cial risks in a project lies in the difference between its
planned and actual labor productivity. When a project is
priced on a cost-reimbursable basis, the risk of reduced
labor productivity is generally passed to the owner. On
a xed-price project, the contractor primarily bears this
risk. Nevertheless, even xed-price construction contracts
typically allow the contractor to be reimbursed for lost
productivity costs caused by project changes that are the
owner’s risk (i.e., change orders). Such claims are increas-
ingly common, not only in the United States, but also in
Australia,
2
Norway,
3
Scotland,
4
and the United Kingdom.
5
The reason is unclear, but the increase may be linked to a
rise in owner-directed changes, improved recordkeeping
and the amount of money involved.
Entitlement to lost productivity costs follows the same
requirements as any other claim: A plaintiff must demon-
strate liability, causation, and amount of loss or expense
William Ibbs
Oskar Gentele
Figure 1: Ch ange and Its Impac t on Productivity

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