RECOVERY OF LOST PRODUCTIVITY CLAIMS RELIES ON PERSUASIVE DOCUMENTATION BEGINNING WITH THE ESTIMATE

ROBERT SNIEGOWSKI ROBERT SNIEGOWSKI, PE is a principal in the construction practice at CliftonLarsonAllen LLP. He specializes in providing operations, job costing, and equipment consulting; business planning; expert witness testimony; and technology systems selection and implementation advice to contractors. He is a graduate civil engineer and licensed Professional Engineer. Bob worked in the construction industry for more than 20 years as an estimator, project engineer, project manager, and executive before joining the firm in 1998. He can be reached at bob.sniegowski@cliftonlarsonallen.com. Otherwise justifiable claims may be difficult to pursue if record-keeping is incomplete and methods for calculating lost productivity lack foundation. Lost productivity claims resulting from differing site conditions, design changes, or disruption can be challenging to recover. The cause of lost productivity is highly dependent on the quality of preconstruction and contemporaneous project records. Also, the additional cost of the lost productivity is usually obscured within cost records that include the expected cost of the work and additional costs that are not productivity related. Otherwise justifiable claims may also be difficult to pursue if record-keeping is incomplete and methods for calculating lost productivity lack foundation. The contractor bears the burden of proof that it is entitled to recovery for lost productivity in the claimed amount due to events and circumstances beyond its control or contractual agreement. It is best for contractors to be prepared for the potential of lost productivity associated with any contract or project. Often, lost productivity goes unrecognized for some period after the occurrence of events that caused production to be adversely affected. At this point, inconsistent or incomplete record-keeping makes it difficult to go back in time and accurately capture the documentation and data on which a claim may depend.

Entitlement to make a claim

Construction claims generally begin with an objective analysis of the project record in light of the contract documents to establish entitlement. When preparing for a claim, the contractor needs to create a framework for analyzing damages by establishing: the scope of work defined by the contract documents; the contractor's preconstruction documentation that supports its assumptions of the sequence, means and methods, and productivity to complete the contracted scope of work; the project manager and project owner's contemporaneous documentation of changes, delay, and disruption to the planned sequence of work; and the contractor's notification of these events and their potential impact on productivity.

Precedent to presenting its monetary damages, the contractor must develop an accurate explanation or narrative of damages that establishes its entitlement to pursue a loss of productivity claim, establishes a causal linkage between events and the monetary loss, and is consistently supported by contemporaneous project documentation. This narrative is the overarching case for making a claim for additional compensation. The narrative needs to be persuasive and consistent with the magnitude of monetary damages that have resulted from the changes. It is often helpful to prepare a chronology of the events, correspondence, and meetings that can be used as reference in constructing the narrative, as well as subsequent schedule and monetary damage analyses. Once a case for entitlement is established, then and only then will the claim for an equitable adjustment in the contract amount receive a fair hearing by the project owner's representative.

Overview of lost productivity damages

Differing site conditions, project-owner-directed design changes, or project-owner interference can result in the contractor incurring additional costs to complete the project within the contracted project duration. These additional costs can include delay-related costs such as equipment standby, deferral of weathersensitive tasks into inclement work seasons, and acceleration costs including overtime and additional

equipment or supervision to maintain a completion milestone. A third cost type and the focus of this article is the additional cost of lost productivity. The cost of lost productivity can manifest itself in several damage scenarios: Extended duration or man-hours to complete the contracted units of work. This scenario is fairly straightforward. For example: A full-depth asphalt reclamation contractor discovers that the base course material contains rocks and cobbles not disclosed in the contract documents. The work is completed using the same machine and crew. However, the duration increases from 100 days to 150 days. An increase in the size of the crew or equipment necessary to complete the contracted units of work within the original contract time because no time extensions were granted. In this case, the production in terms of units per day may be less, but the cost to achieve this production may be greater than anticipated and compensable. For example: A foundation contractor is required to install 1,000 concrete pilings. The length of the pilings and the blow count is increased by the engineer. The contractor must increase the capacity of the crane and pile hammer, increase the size of the crew, and work multiple shifts to complete the work within the contract time. Extended duration or man-hours to complete the contracted units of work because of a quantity overrun on a related work item. For example: A utility contractor is required to install 35,000 linear feet of sewer pipe through ground that contains a mixture of rock and soil. The quantity of rock overruns the contracted quantity by 300 percent while the length of sewer pipe remains the same. Since the laying of the pipe is dependent on the productivity of excavating the trench, increased payment for rock does not fully compensate the contractor for inefficiency experienced by the pipelaying crew. Extended man-hours to complete tasks due to disruption or interference caused by the project owner or construction manager that hindered the orderly flow of work. An example of this is late notification of design changes and insistence that the project be completed within the original contract time, resulting in crew stacking. So how does a contractor present and support a claim for equitable contract adjustment where lost productivity is concerned? In most cases, a precise accounting for the loss is not available because the

actual cost of the work is comprised of both the expected cost and the additional cost of the work. Only the components of additional cost that were caused by the differing site condition or the actions of the project owner can be included in the amount claimed for additional compensation.

Calculating lost productivity damages

Regardless of the approach selected to calculate the claim, the estimate and underlying support for the bid prepared during the preconstruction phase is extremely important to analyzing the additional cost to be claimed. Keeping in mind that the burden of proof is with the claimant, the contractor must be prepared to demonstrate that the estimated costs and productions were achievable. Among the preconstruction documents that should be reviewed are the following: Bid tabulation This is the comparison or ranking of bidders from low to high. Identify the variances among bidders and develop an explanation for the differences. What is the spread between the claimant's (low) bid and second bid? Five percent? Ten percent or more? What was the spread from low bid to high bid? What was the mean? The median? Bid line item summary or schedule of values Are there distinctive line-item differences among bidders? In a unit-price bid, was the bid unbalanced? Does an unbalanced bid favor the contractor or the project owner? Can this unbalanced bid be explained in a way that does not adversely impact the integrity of the claim? Estimate work papers Are productivities, crew sizes, mixes of trades in the crew, rates of pay, types of equipment, and equipment rental rates documented in the estimate work papers that support the bid? Are these assumptions consistent with the actual approach to the project? What was the estimated cost and margin for the project? Project budget Does the project budget flow from the estimate work papers? Does the budget reflect the estimated project cost? Are the direct cost estimate and budget consistent? Expect that the estimate, its underlying support, the bid and the job cost budget, and actual costs will be reviewed by the project owner in completing its due diligence in approving the claim. The claimant should proactively evaluate the completeness and consistency among these documents and objectively consider

the strength of support they provide for the differences between expected productivity and the actual cost of completing the work. As discussed earlier, the direct cost of lost productivity is usually not accounted for separately in the contractor's job costing system. Consequently, an estimate of the cost of lost productivity that is supported by contemporaneous project records and links the cause and monetary impact is often the only viable option for quantifying the damages being claimed. These estimates of the cost of lost productivity usually fall into one of the following approaches: total cost; modified total cost; measured mile; and disruption claims.

Total cost
A total cost claim compares the actual costs of completing the entire project or identifiable phase to the estimated cost at bid time. Contractors would prefer this approach because it is the least time consuming to compute if the job costing and project estimate are difficult to compare because of a difference in work breakdown structure. Unfortunately, it is for this reason that the computation is often rejected as an accurate measurement of the monetary damage. The total cost claim is easily defended because the construction process seldom proceeds according to plan. The project owner must only demonstrate that it should not be held responsible for additional costs of dealing with inclement weather, malfunctioning equipment, poor management decisions, or correcting unacceptable work costs that are likely included in these total actual costs.

Modified total cost

A modified total cost approach identifies and adjusts for (deducts) costs that are not the responsibility of the project owner. Similar to the total cost approach, modified actual costs are compared to the estimate prepared at the time of the bid, and the difference is the amount of the claim.

Although this approach attempts to identify and deduct additional costs for which the project owner is not responsible, the project owner will argue that these direct cost deductions have been underestimated and the entire impact of the events has not been considered in the modification of total costs. In either case, a voluntary change in approach or equipment from that which was assumed at bid time is often a time-consuming diversion or reason to deny the claim, unless it is recognized and explained. Similarly, inconsistencies between the level of detail in the estimate and that of the job cost reports will provide a reason for denial that will delay serious consideration by the project owner.

Measured mile
A measured mile calculation compares identical activities on impacted and nonimpacted sections of the project to ascertain the loss of productivity resulting from the impact. 1 As a practical matter, this method of calculation is most effective when accurate, consistent, and frequently reported quantities completed can be compared to the man-hours and equipment-hours expended in the same period (hourly, daily, or weekly). This comparison must also establish a causal relationship between the events on the project and the reported level of productivity during this period of time. Often the construction costs that have been adversely impacted by lost productivity are recorded in several job cost codes. In this case, the job cost codes must be grouped and a method of quantification for the lot must be identified. For example, if the productivity on a roadway construction job has been impacted by a differing site condition, mass excavation, fine grading, base course, paving, and shouldering may be impacted. Documenting the productivity involved in the unimpacted completion of a given length of roadway from start to finish can form the basis for comparison to the productivity or cost during the impacted period. This can serve as the basis for demonstrating the additional man-hours and equipment-hours incurred as a result of the lost productivity. It is also important for the contractor to consider whether the hourly rates for labor and equipment have been impacted by the conditions leading to lost productivity. Hourly labor and equipment costs should be compared for the unimpacted and impacted periods to discern whether the events leading to lost productivity also caused the hourly labor or equipment cost to be impacted. The most common illustration of this factor could be that during the unimpacted work, acceptable daily progress was achieved in an eight-hour shift, and the impacted work resulted in overtime being paid to maintain acceptable progress. In this illustration, the labor rate per man-hour would increase; the equipment rate per unit-hour would

remain the same. The concepts associated with measured mile lost productivity claims are often difficult to illustrate, particularly for people who are distanced from daily production rates, crew sizes, and equipment capacity. Graphs with supporting data are often helpful in explaining the magnitude of the loss, the comparative analysis, and the reality of the impact that led to the increased cost of production.

Disruption claims
Disruption in the work may result in a loss of efficiency that requires more labor and/or equipment to do the same amount of work as originally scheduled. Disruptions can reduce productivity by altering the sequence of work that slows down the project and by overcrowding in work spaces where different types of work originally had been planned to be completed during different times. A disruption is considered to be any change to the method of performing the work or the planned sequence of work that prevents the contractor from performing the work as planned, causing the loss of efficiency and increased costs to the contractor. Disruptions are typically caused by changes in the work, problems with the drawings or specifications, severe weather, failure to coordinate the work, and failure to respond to requests for information. A disruption claim may be made for additional labor due to inefficiencies, overtime, and increased material and equipment costs. Disruption claims might be more commonly found on a commercial or institutional building project where the contractor has estimated that its scope of work will be completed in a certain number of man-hours. In this case, progress is measured in percentage of completion of the floor, wing, or contract rather than by units completed during a given period of time. Again, the preconstruction estimate's support for the anticipated manpower levels and durations of time scheduled to complete the work in a particular area is very persuasive in establishing a baseline man-hour requirement for the project. Any claim for lost productivity may contain elements of delay or acceleration. A delay claim for costs associated with the extended performance period or the cost of acceleration of otherwise unimpacted activities would require an analysis of the project construction schedule, identification of nonconcurrent delays, and evaluation of impacts that were not related to the lost productivity claim.

Supporting and calculating a claim for delay or acceleration is document intensive and beyond the scope of this article; however, a claim of this nature should always be considered in the presentation of the damage calculation.

Conclusion
Recovery of additional costs resulting from lost productivity due to differing site conditions, owner-directed design changes, and project-owner interference is dependent on the quality and detail of the preconstruction assumptions documented in the estimate of project cost. It should be standard operating procedure to contemporaneously document additional data and information needed for the transparency and support for a potential lost productivity claim. Reporting quantities as a meaningful measurement of progress toward completion is good business. If an event impacting productivity is identified early and the parties to the contract discuss the cause, effect, potential magnitude, and impact on scheduled completion, the need to mitigate the cost and schedule impacts becomes more real to everyone involved. Knowledge of the contract, favorable supporting documentation, and timely reporting will improve the contractor's ability to articulate the potential cost to the project. Hopefully, this will lead to mitigating the impacts making all parties to the contract winners, regardless of who ultimately pays. Schwartzkopf, W., McNamara, J.J., and Hoffar, J.F., Calculating Construction Damages. (Aspen Law & Business, John Wiley & Sons, 1992); United States Indus., Inc v. Blake Constru. Co., 671 F.2d 539 (D.C. Cir. 1982); Flex-Y-Plan Indus., GSBCA No. 4117, 76-1 BCA (CCH) 11,713 (1976).

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