p2011 - the analysis and valuation of disruption - derek nelson

7/28/2019 P2011 - The Analysis and Valuation of Disruption - Derek Nelson

1/31

TheAnalysisandValuationofDisruption

byDerekNelson,SeniorVicePresident&RegionalManagingDirectorAsia

HillInternational,Inc

25January2011


2/31


Page|2

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


3/31


Page|3

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.


4/31


Page|4

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%


5/31


Page|5

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.


6/31


Page|6

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.


7/31


Page|7

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.


8/31


Page|8

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.


9/31


Page|9

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.


10/31


Page|10

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.


11/31


Page|11

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



12/31


Page|12

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].


13/31


Page|13

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.


14/31


Page|14

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.




15/31


Page|15

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.


16/31


Page|16

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),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.


17/31


Page|17

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.,


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.


18/31


Page|18

The SD approach seeks to create a computer model of the project that maps all relationships and

feedbackloopsinacomprehensivedynamicmodel. Asimplisticrepresentationofthatmodelmaylook

somethinglike:

Thesequenceofmodelledeventsmayrunalongthefollowinglines:


19/31


Page|19


20/31


Page|20


21/31


Page|21

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.


22/31


Page|22

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.


23/31


Page|23

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


constructionclaims.AACEInternationalRecommendedPracticeNo.25R03.70Schwartzkopf,W.(1995).Calculatinglostlaborproductivityinconstructionclaims,Wiley,NewYork.


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)


24/31


Page|24

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.



79Sourcesofthesequalitativeand/orquantitativestudiesforvarioussubjectscanbefoundinBorcherding,J.D.,andAlarcon,L.F.(1991).Quantitativeeffectsonproductivity.Constr.Lawyer,11(1)andAssociationfortheAdvancementofCost

Engineering(AACE)International,Inc.(2004).Estimatinglostlaborproductivityinconstructionclaims.AACEInternational

RecommendedPracticeNo.25R03.


25/31


Page|25

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.


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.


26/31


Page|26

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.


27/31


Page|27

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.


28/31


Page|28

REFERENCES

AnalysisofChangeOrderMarkupAllowancesonStipulatedPriceBuildingContracts,AminahRobinsonFayek;MosesY.Nkuah,

CostEngineeringJournal,Vol.44/No.1January2002

AnalyzingtheCumulativeImpactofChanges,DavidD.Reichard;CherylL.Norwood,AACEInternationalTransactions,2001

Analyzing the Impact of Change Orders on a Schedule, Jeffrey A. Veenendaal, Cost Engineering Journal, Vol. 40/No. 9

September1998

AppropriateRiskAllocationinLumpSumContracts WhoShouldTaketheRisk?,Dr.FrancisT.Hartman,PE;PatrickSnelgrove,

P.Eng.;Dr.RafiAshrafi,CostEngineeringJournal,Vol.40/No.7July1998

Assessing Methodologies for Quantifying Lost Productivity, Mark C. Sanders, PE; Mark F. Nagata, AACE International

Transactions,2003

Baseline Determination in Construction Labor ProductivityLoss Claims, Ronald Gulezian, Frederic Samelian, Journal of

ManagementinEngineering,Vol.19,No.4,October2003

Calculating Construction Damages, Second Edition, William Schwartzkopf, John J. McNamara, 2001, 2005 Cumulative

Supplement,AspenPublishersISBN139780735514805,ISBN0735555060(supplement)

CalculatingLossofProductivityDuetoOvertimeUsingPublishedChartsFactorFiction,RegulaBrunies,ZeyEmir,TheRevay

ReportVolume20,Number3,November2001

CalculatingLostLaborProductivityInConstructionClaims,SecondEdition,WilliamSchwartzkopf,2004AspenPublishers,ISBN

0735548935

CausationandDelay inConstructionDisputes,2ndEdition,NicholasJ.Carnell,BlackwellScience,2005, ISBN13:97814051

18613

ChangeManagementBestPracticesfortheEngineeringandConstructionIndustry,OracleWhitePaper,April2009

ChangeOrdersImpactonConstructionCostandSchedule,GeorgeSuhanic,AACETransactions,1980

ChangeOrderManagement,BobM.McCally,AACEInternationalTransactions,1997

Claim Evaluation for Combined Effect of Multiple Claim Factors, Amarjit Singh, Cost Engineering Journal, Vol. 43/No. 12

December2001

ConsequentialCostEffects,PaulR.Heather,CCE;MichaelD.Summers,CCE,AACEInternationalTransactions,1996

Construction Contracts: Shifting Risk or Generating a Claim?, Donald F. McDonald, Jr., PE CCE; John O. Evans III, AACEInternationalTransactions,1998

ConstructionProductivity:ASurveyof IndustryPractices,GeorgeF. Jergeas;MohammadS.Chishty;Marko J. Leitner,AACE

InternationalTransactions,2000

ConstructionProductivity:MajorCausesofImpact,CharlesA.Leonard;Dr.PaulFazio;Dr.OsamaMoselhi,AACETransactions,

1988

ConstructionProjects:ChangeOrderManagement,Dr.CalinM.Popescu,AACETransactions,1986

Construction Scheduling:Preparation, Liability andClaims, Second Edition, JonM.Wickwire, Thomas J.Driscoll, StephenB.

Hurlbut,ScottB.Hillman,AspenPublishers,2003,ISBN0735529949

ConstructiveChanges,AnthonyJ.Werderitsch;JamesE.Krebs,AACEInternationalTransactions,2002

ContractorsProtectionAgainstConstructionClaims,Dr.GeorgeF.Jergeas,PE;FrancisT.Hartman,PE,AACETransactions,1994

CopingwithChanges,StephenO.Revay,CCC,AACEInternationalTransactions,2003

CopingwithExtras,StephenO.Revay,TheRevayReportVolume21Number2September2002

CostGuidelinesforChangeOrders,RonaldF.Cilensek,CCE,AACETransactions,1986

DelayandDisruptioninConstructionContracts,KeithPickavance,3rdEdition,LLP,2005,ISBN1843114267

DelayandDisruption:LegalConsiderations,StuartCNash,SocietyofConstructionLaw,August2002

Delay In The Performance Of Contractual Obligations, Dr John E Stannard, Oxford University Press, 2007, ISBN 978019

9282654

Demonstrated Labor Efficiency: An Effective Labor Cost Control and Analytical Tool, Bob M. McCally, AACE International

Transactions,1998

DisruptionClaims,HamishLal,HillInternation/CIOBMasterclassMay2008

Dynamic Change Management for Fasttracking Construction Projects, Moonseo Park, Assistant Professor, Department of

Building,SchoolofDesign&Environment,NationalUniversityofSingapore.NISTSP989;September2002.


29/31


Page|29

REFERENCES

EffectiveManagementofProjectChangeOrders,EdwardE.DouglasIII,CCC,AACEInternationalTransactions,2003

EP41513Modification ImpactEvaluationGuide,2July1979,DEPARTMENTOFTHEARMY,OfficeoftheChiefofEngineers,

Washington,DC20314

EstimatingandNegotiatingChangeOrders,LeonardA.McMahon,CCE,AACETransactions,1984

EstimatingtheCostofChangeOrders,Dr.OsamaMoselhi,PE,AACEInternationalTransactions,1998

EstimatingtheCostofChangeOrders,OsamaMoselhi,PE,CostEngineeringJournal,Vol.45/No.8August2003

Evidence,TheCityLawSchool,CityUniversity, London,Editor JamesGriffiths,OxfordUniversityPress,2008, ISBN978019

9553532

ForwardPricingImpactonConstructionProjects,BrianE.Kasen;VictorC.Oblas,PE,AACEInternationalTransactions,1996

GoingtheExtraMile,WalterBauer,P.Eng.,AACEInternationalTransactions,2004

GuidelinesfortheManagementofMajorConstructionProjects,NEDO,1991,ISBN011701219X

ImpactofChangeOrdersonConstructionProductivity,OsamaMoselhi,CharlesLeonard,PaulFazio,CAN.J.CIV.ENG.VOL.11,

1991

ImpactofChange'sTimingonLaborProductivity,William Ibbs,JournalofConstructionEngineeringandManagementASCE/

November2005

ImpactsAndConstructionInefficiency,DwightA.Zink,CostEngineeringJournal,Vol.32/No.11November1990

Inefficiency,ZartabZ.Quraishi,PECCE,AACEInternationalTransactions,2003

LaborProductivityImpacts:ACaseStudy,RobertD.Kelly,AACEInternationalTransactions,2000

LaborProductivity,Disruptions,and theRippleEffect,Dr.H.RandolphThomas,PE;Dr.AmrA.Oloufa,PE,CostEngineering

Journal,Vol.37/No.12December1995

LearningCurveinConstruction,ZeyEmir,TheRevayReportVolume18,Number3,October1999

LiquidatedDamagesandExtensionsofTime inConstructionContracts,ThirdEdition,BrianEggleston,WileyBlackwell,2009,

ISBN9781405118156

LossofLearninginDisruptionClaims,DavidA.Norfleet,CCC,AACEInternationalTransactions,2004

Managing Changes in Construction Projects, Research funded by the Engineering and Physical Sciences Research Council(EPSRC):UniversityoftheWestofEngland:ProfessorMingSun,UniversityofSalford:DrMartinSexton,ProfessorGhassan

Aouad,AndrewFleming,SepaniSenaratne,UniversityofLoughborough:ProfessorChimayAnumba,ProfessorPaulChung,Dr

AshrafElHamalawi,DrIbrahimMotawa,MeiLinYeoh,20012004

ManagingChangesinConstruction,NRCC,RR258,Hao,Q.,Shen,W.,Neelamkavil,J.,June1,2008.

ManagingChangesinLargePrograms,AshishKumar,AACEInternationalTransactions,2000

ManagingContractChanges,GerardBoyle,TheRevayReportVolume23Number3December2004

ManagingProjectChange:ABestPracticeGuide,DLazarus,RClifton,ClRlAC556,2001,ISBN0860175561

MeasuredMileAnalysisand InternationalMegaProjects,DanCrowley; JohnC.Livengood,AACE InternationalTransactions,

2002

MeasuredMileLaborAnalysis,TimothyT.Calvey,PE;WilliamR.ZollingerIII,PE,AACEInternationalTransactions,2003

MeasuredMileProcessProjectControlstoSupportEquitableRecoveryofProductionInefficiencyClaims,ThomasW.Presnell,

CCC,CostEngineeringJournal,Vol.45/No.11November2003

MonitoringJobSiteProductivity,BrianFoster,TheRevayReportVolume19,Number2,May2000

Monitoring theAdequacyof theAmountandProductivityofEngineeringandConstructionManpower,DwightA.Zink,CCE,

AACETransactions,1980

MoreForLess:AContractorsGuideToImprovingProductivityInConstruction,Horner,RMW,Duff,AR,ConstructionIndustry

ResearchandInformationAssociation,C566,2001,CIRIA,ISBN0860175669

PracticalAnalysesinProvingDamages,JackW.Harris;AndrewAinsworth,AACEInternationalTransactions,2003

PracticalRiskAnalysisinScheduling,AbhiBasu,PE,AACEInternationalTransactions,1998

ProactiveChangeOrderManagement,FrankKettlewell,AACEInternationalTransactions,2003

ProjectChanges:Sources,Impacts,Mitigation,Pricing,Litigation&Excellence,PAConsultingGroup,2007

ProofofDamagesinConstructionClaims,RichardJ.Long,AACETransactions,1988


30/31


Page|30

REFERENCES

Putting the SCL Delay and Disruption Protocol into Practice is it what the industry wants? Keith Pickavance, Society of

ConstructionLaw,September2004

QuantifyingandManagingDisruptionClaims,HamishLal,ThomasTelford,2003,ISBN:0727731653

QuantifyingDisruptionthroughSimulationandHeuristics,KennethG.Cooper;KimberlySklarReichelt;JonathanMoore,AACE


QuantifyingtheEffectofChangeOrdersonElectricalConstructionLaborEfficiency,Dr.AwadS.Hanna,PE;Dr.JeffreyS.Russell,

PE;DavidThomack,CostEngineeringJournal,Vol.40/No.2February1998

Recommended Practice No. 25R03 "Estimating Lost Labor Productivity in Construction Claims", AACE International, AACE

InternationalRecommendedPractice,2004

Statistical Evaluations ofMeasured Mile Productivity Claims, Michael Ross Finke, Cost Engineering Journal, Vol. 40/No. 12

December1998

SystemDynamicModelingofDelayandDisruptionClaims,WilliamIbbs,MinLiu,CostEngineeringVol.47/No.6June2005

System Dynamics Modeling in the Legal Arena: Special Challenges of the Expert Witness Role, Craig A. Stephens, Alan K.

Graham,JamesM.LyneisPAConsultingGroup,2002

TheCumulativeEffectofChangeOrdersonLabourProductivitytheLeonardStudyReloaded,GeraldMcEniry,TheRevay

ReportVolume26Number1May2007

TheEffectOfChangeOrdersOnProductivity,CharlesA.Leonard,TheRevayReportVolume6Number2August1987

TheFIDICFormsofContract,ThirdEdition,NaelG.Bunni,BlackwellPublishingLtd,2005,ISBN13:9781405120319

TheMeasuredMile:ProvingConstructionInefficiencyCosts,DwightA.Zink,CostEngineeringJournal,Vol.28/No.4,April1986

The NEC 3 Engineering and Construction Contract: A Commentary, 2nd Edition, Brian Eggleston, Blackwell Science, 2006,

ISBN9780632053865

TheProductivityBaseline,RonaldGulezian;FrederickZ.Samelian,AACEInternationalTransactions,2003

TheQuantumAspectsofDelay,DavidKyte,KeithStrutt,HillInternation/CIOBMasterclassMay2008

TheRoleoftheCostEngineerandtheChangeOrderProcess,AlfredL.Dellon,CCE,AACETransactions,1986

TheSocietyofConstructionLawDelayandDisruptionProtocol(RevisedEdition),October2002,ISBN095438317

Trends in Construction Lost Productivity Claims, Gerald P. Klanaca and Eric L. Nelsonb, Journal of Professional Issues in

Engineering,EducationandPracticeASCE/July2004

Understandingprojectdynamicscuttingprojectcosts,PAConsultingGroup,2008

Understanding Risk to Mitigate Changes and Avoid Disputes, L. Adam Winegard; Stephen P. Warhoe, PE CCE, AACE


UpFrontCostEstimatingofChangeOrders,OsamaMoselhi; IhabAssem;KhaledElRayes,AACE InternationalTransactions,

2002

UseofProductivityFactorsinConstructionClaims,RobertDieterle,CCE;AlfredDeStephanis,AACETransactions,1992

Using Industry Studies To Quantify Lost Productivity, Mark G. Jackson, Carl W. LaFraugh, Robert P. Majerus, West Group

ConstructionBriefings,No.200112December2001

Variations,TimeLimitsandUnanticipatedConsequences,RonanChampion,SocietyofConstructionLaw,May2007


31/31


Attachment

p2011 - the analysis and valuation of disruption - derek nelson

Documents