February 6, 2023
A contractor’s productivity loss can be influenced by numerous factors and disentangling an impact and measuring its effect can be difficult. Methods exist which can estimate the resulting loss of productivity on construction projects, the premise being to calculate the additional costs incurred for production, relative to the cost of production for similar undisrupted works. This article explores the basics surrounding the quantification of additional costs incurred due to disruption on a project, and how to determine which method is most appropriate based on the project’s circumstances.
There are numerous methods that can be used to quantify disruption, including (non-exhaustively):
- measured mile analysis;
- earned value analysis;
- corroboration with industry standards; and
- total cost method.
Productivity-based methods (i.e., measured mile, earned value, corroboration with industry standards) are supported by project records and seek to measure the loss of productivity in the utilised resources and then price that loss. Cost-based methods seek to ascertain the difference between the actual cost and planned cost without first measuring productivity losses in those utilised resources.
Estimates of labour productivity are sometimes prepared by the contractor’s tender team during the tender phase. These calculations can be based on (a combination of) records, labour productivity rates from similar projects and historical databases, and may be susceptible to factors influencing the estimate, including location, trade, experience and complexity of the work involved.
Measured mile approach
The measured mile analysis is widely considered an acceptable method for measuring and quantifying lost productivity.
This analysis compares identical activities in impacted periods with non-impacted periods of the project (the non-impacted period being the ‘measured mile’) to estimate the productivity loss caused by the impact of events.
The attraction of this method is that the calculations are based off actual contractual performance on site, rather than planned hours and the initial estimate. The measured mile approach may in certain circumstances face difficulties in establishing an area that:
- has not been affected by disruption;
- has proceeded as planned without delay; and
- is representative of all aspects of the project,
for which a claim for disruption is being made.
The requirement for identical or substantially similar activities for comparison can hamper its applicability, and the method could be inappropriate for unique and complex activities.
Earned Value Analysis
The earned value analysis method compares the planned hours to carry out works to actual manhours spent for the work and progress achieved to date. As the work activities are progressed, manhours are earned against actual manhours which were spent by the contractor to achieve this work. For a project, the difference between earned hours determined from the earned value analysis method and actual hours expended for an impacted period can be used to compute the inefficiency suffered.
As this method is based on the percent complete and the original estimate (which may be unsubstantiated), the credibility of the method can be questionable.
Total Cost Method
Cost based methods can be considered to provide the least robust support for a disruption claim and are often applied when lost productivity cannot be reliably calculated using productivity-based approaches.
This method compares planned and actual labour (and/or equipment) costs for performing the work, and the difference is then claimed for the disruption experienced.
This method is simple, however, has fundamental shortcomings because it assumes:
- there is no default by the contractor;
- the contractors original estimate is accurate; and
- the contract has not deviated from any means and method that increase the cost.
There is also a modified total cost method which addresses the deficiencies of the total cost method by deducting the amount against tender errors, cost arising from contractor fault, and any other costs arising from actions of the party other than the principal.
When using both total costs and modified total cost method, it is possible, and the contractor may wish to consider using some element of damages using actual costs.
Choosing a quantification method
Based on the complexity of performing quantum assessments and the numerous factors involved when deciding upon an appropriate quantification method (particularly with respect to large projects or disputes), it is recommended that the contractor engage a quantum expert to perform the analysis. Notwithstanding, some of the factors that will be considered include, inter alia:
| Consideration | Importance |
| Availability and reliability of project records | 1. Contemporaneous records (i.e., progress reports, photos, correspondence and updated schedules).
2. Most delay analysis methods require a reliable baseline program which accurately reflects the full scope of work. |
| Contractual requirements | 1. Requires complete understanding of contract documents (i.e., scope, programming and time management).
2. Contract may prescribe the manner in which delays are to be managed or administered (e.g., contract may state that a notice should be issued ‘if a delay event will probably cause delay’, therefore, would permit a prospective delay analysis method. |
| Purpose of analysis | 1. Understand the scope of the analysis, desired outcome and the target audience.
2. Target audience will influence level of detail included (e.g., analysis performed at site (as opposed to for arbitration or litigation) may not require sophisticated level of substantiation given parties involved are generally aware of the project issues). |
| Complexity and size of the dispute | 1. The more complex and larger the dispute, the more sophisticated the delay analysis required. |
| Budget and time allowance for the analysis | 1. Time and cost spent should be proportionate to and commensurate with the dispute size and issues in question.
2. Some instances (i.e., at adjudication) strict time limits apply to complete the analysis. |
| Delay events | 1. Nature and number of disruptive events in question affect the decision-making process in terms of the selection and level of detail of the analysis. |
Legal Support
There are numerous factors for a contractor to consider when preparing and submitting a disruption claim. A successful claim can be developed through a sound identification, measurement and quantification of damages, augmented by a clear illustration depicting a causal relationship between events and disruptive impacts.
Lamont Project and Construction Lawyers have extensive experience working with contractors to prepare both delay and disruption claims. By providing clients a tailored approach to project support, we can ensure that our clients are best positioned regardless of the particular circumstances.
If you have any questions about your current or future projects, please do not hesitate to contact Lamont Project and Construction Lawyers for a discussion on how we can assist you.
Contact: Peter Lamont or Stephanie Purser
Email: [email protected] or [email protected]
Phone: (07) 3248 8500
Address: Suite 1, Level 1 349 Coronation Drive, Milton Qld 4064
Postal Address: PO Box 1133, Milton Qld 4064