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ConstructionPro Week, Volume: Construction Advisor Today - Issue: 133 - 11/11/2011

Is 'Total Cost' Pricing of Lost Labor Productivity Fair?

No claim is more difficult to quantify than one for lost labor productivity caused by delay and disruption. Delay may force work to be performed under more difficult conditions. It may be inclement weather. It may be a jobsite congested with multiple trades. Delay may also cause work to be performed in a start-and-stop fashion or out of sequence.

 

There is no question these situations reduce efficiency and productivity, increasing the cost of accomplishing the work. But the impact is cumulative and pervasive. It is difficult to isolate, document, and quantify individual cost elements. Sometimes it is possible to use a “measured mile analysis,” comparing productivity before the delay event with productivity after the event. This is not always feasible, however. There may be no relevant points of comparison.

In a recent case out of the state of Washington, a subcontractor was allowed to use the “modified total cost method” of pricing a lost labor efficiency claim. The prime contractor had protested that the sub was simply taking the difference between its bid price and its actual costs and attributing the entire cost overrun to the prime. But the subcontractor withstood this challenge because its claim consultant had evaluated the reasonableness of the labor estimate in the bid, assessed respective responsibility for the delay, and evaluated the reasonableness of the sub’s actual labor costs on the project.

 

What is your opinion? Do you think total cost pricing of claims has its place under appropriate circumstances? Or is it so inherently imprecise that it allows finders of fact to indulge in conjecture and speculation. I welcome your comments.

 

Featured in Next Week’s Construction Claims Advisor:

  • Unlicensed Sub Recovers Payment from Prime
  • Displaced Sub Sues Union for Constraint of Trade
  • Prior Assessment Did Not Create Conflict of Interest

 

 

Comments

I would think that for many trades the manufacturer/supplier of the materials/products in question should be willing and able to confirm what a reasonable rate of productivity is. This would help greatly to validate a claim.

I come down firmly on the side that "modified total cost method" is an inherently faulty and unfair means of establishing loss of productivity. Essentially it relies on a perfect world analysis of productivity, and a perfect understanding of all factors that may have caused delay. For instance, one might have an understanding of what a task takes on average, but how do you measure the impact of mechanic or management competence?

What about things which nobody has control over? Is it a 2-way street? Should a GC be able to backcharge a sub, if the sub's super was out sick for a couple of day?...and perhaps backcharge the sub for the claims of all the other subs who lost total productivity.

Every job will lose productivity for many reason's not all which are susceptible to the blame game. Modified total cost method encourages a "butterfly effect" view of productivity which has no place in the construction world.

Two things that do have a place in the construction world are honesty and responsibility. There is no way I can think of for a contract to prescribe in advance who is at fault, or to what degree, when a party's productivity is hindered by circumstances beyond their own control. It can go no further than offering typical remedies (negotiate, arbitrate, adjudicate).
Unfortunately, defense is in the reflexes of nearly everyone in this industry. Mid-level managers on the front lines are especially prone to immediately and totally reject even the odor of any claim against their firm. Top level management is then faced with the choice of turning on their employee, or supporting their stance. 
To not listen to the facts is irresponsible. To deny any responsibility for the situation is very often dishonest. I doubt that any "method", short of an overhead-intensive continuous auditing program can replace individuals who can manage to be honest and responsible.

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