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Proving Lost Labor Productivity in Construction Claims

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Sep 032013

Construction claims can be costly for all parties involved. There are the costs of attorney’s and expert witness fees and potentially years of waiting without resolution. There are also more hidden costs to deal with, such as lost management time, impacts on the company’s reputation, and the decreases in team morale as the claim remains unresolved.

It is critical to make sure the damages in a construction claim are calculated and presented correctly to ensure your best chances at negotiating a quick and reasonable settlement. This article deals with the application of some of the most common methods used to prove damages in one of the most common types of claims faced by contractors on construction projects – lost labor productivity claims.

Total Cost Method

With the total cost method, lost labor productivity damages are calculated by comparing the actual costs with the expected or bid costs. The difference between the actual and expected costs is presented as the claimed amount.

It’s also possible to modify the total cost claim by subtracting for bid errors and cost overruns that were not the fault of the other party. This “modified total cost” method is often cited as being more credible than the unmodified version.

Be aware that the total cost method is controversial and sometimes disfavored by courts and boards. To use the total cost method effectively, it should only be used when

It is impractical to measure losses directly
The bid price was reasonable
The actual costs were reasonable (and accurately recorded)
None of the overruns were the responsibility of the party making the claim

Discrete Cost Approach

With the discrete cost approach, labor costs are tracked and attributed to specific events (using cost codes, labor codes, etc.) and then combined into a lost productivity claim. Compared to other approaches for pricing lost labor productivity damages, discrete methods are generally preferable, provided that the requisite project cost data was collected on the project.

When using the discrete approach, care should be taken to segregate damages (unanticipated or increased costs) from the normal project costs. Discrete approaches are highly effective in pricing direct impact costs but less effective in measuring and estimating the indirect costs associated with certain types of claims.

Measured Mile Method

The measured mile method is the preferred approach to pricing lost labor productivity claims. This method contrasts the contractor’s performance during an impacted period with the contractor’s performance during an unimpacted period on the same project. Labor productivity is measured and calculated for both periods (i.e., square feet of drywall per labor hour, linear feet of underground piping per crew day). The main advantage of the measured mile method is that it does not rely on the bid estimate or “as planned” labor productivity. It measures the actual productivity that was achieved on the project and uses that level as the benchmark in the comparison.

With the measured mile method, care must be taken to ensure that the condition under which the measured work is performed is identical except for the impact on the work that is being blamed for the lost productivity. If a reasonable unimpacted period cannot be identified in the same project (i.e., because the project was at least partially impacted in all areas and at all times), then the analyst may look to comparable projects to draw a comparison.

As with the discrete approach, the measure mile method requires robust project productivity data, which may or may not be available. Care should also be taken to account for other factors that could be affecting productivity such as learning curve, ramp up effects, or weather.

Industry Studies

Industry studies, industry benchmarking, and other similar approaches are generally seen as being less effective than the other methods described above. These approaches are sometimes useful for claims in which the comparative labor costs are non-specialized or highly repetitive, or as objective references when estimating lost productivity on a forward-pricing basis.

Choosing the correct method for calculating damages in a construction claim is a challenging but an essential part of the claim process. It involves collecting, categorizing, and analyzing project costs using the proper methodology to prove the accuracy of the costs being claimed. It also requires a superior understanding of the behavior of costs on a construction project so that the correct and relevant costs are identified and documented.

As discussed above, it is important to take into account the effectiveness and acceptability of the method being used to calculate lost labor productivity claim damages. Since each method has its own strengths and weaknesses, and is accepted to a greater or lesser degree, going with the wrong method for a particular claim can mean a less-than-favorable result. At Carolina Consultants, we are often retained by contractors to review their records and help them choose the best method for calculating lost labor productivity damages on a construction project. If you have a delay or productivity claim contact us today and speak with one of our construction claim specialists. Our claim specialists have focused their careers on solving the most complex construction problems and disputes. Let us put our experience to work to help you find successful resolution to your construction claim.

How to Update a Construction Schedule – Part 1

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Jul 262013

Things change rapidly on construction projects: the site changes; the weather changes; personnel and equipment change; the design changes. Impacts and challenges occur that must be overcome. The original plan for the project may quickly become obsolete. As a result, on nearly all construction projects the schedule needs to be updated on a regular basis to ensure that it reflects the team’s current plan for completing the project.

This article provides a step-by-step method for updating and modifying a construction project schedule to reflect the current project status.

Why schedules are updated

Schedules are updated at regular intervals in order to:

Evaluate a project’s status
Predict the completion date
Create a historical record of the project

The most important reason for a schedule is to track and monitor project status. The status of each activity should be evaluated independently in order to serve as the basis of evaluating the project’s overall status.

Almost all construction projects require that the project be substantially completed by a specified date or within a specified duration of calendar days. If a contractor fails to complete the project on time, the contractor may be charged liquidated damages or be liable for actual damages for each day the project is late. Thus, it is very important that the team know the currently-forecasted completion date so that the plan can be adjusted as necessary to mitigate delayed completion.

Historical update information can be used as a basis to plan and schedule future projects. It can also be a useful in a claims situation or if a forensic schedule analysis is needed to analyze and identify liability for project delays.

Establishing a baseline schedule

In order to be meaningful, there has to be an official baseline schedule to compare against in order to determine a project’s status. The baseline schedule is the starting point in preparing a schedule’s update. The current baseline is the contemporaneous schedule in effect since the last time the schedule was updated. The baseline schedule is the schedule that progress and the affect of changes since the last update are measured against and analyzed.

Frequency of updates

The frequency of updates should be determined by:

The project’s complexity
The frequency of unexpected events
As specified by the contract

The more complex a project, the greater need for more frequent updates. Complex projects have more entities working at the same time, thus they require more coordination.

When an unexpected event occurs that will impact the ability to complete the project on time, the schedule should be updated. The updated schedule will become a valuable tool in order to develop strategies to overcome and mitigate the impact of the unexpected event.

At a minimum, the schedule should be updated as specified in the contract documents. For most projects, the schedule is updated monthly to correspond with the contractor’s pay applications. Monthly updates are normally sufficient, however some sophisticated owners require weekly or bi-monthly schedule updates.

Carolina Consultants seeks to educate and inform by way of our blog. We choose such topics because we know them, inside and out. If you have further questions about how to update a project’s schedule, this post will be continued in Part 2, where we outline the step-by-step procedures.. We’re also available via phone and form for your questions or comments!

Understanding the Statute of Limitations for Construction Defects in Florida

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Jul 162013

At a recent industry event, someone asked me about the statute of limitation in Florida for a construction defect claim. My answer was “I’m not a lawyer but I’m pretty sure it’s four years.” The question prompted me to look it up and make sure I was right.

According to the International Risk Management Institute, Inc. (IRMI) a construction defect is defined as:

“A deficiency in the design or construction of a building or structure resulting from a failure to design or construct in a reasonably workmanlike manner, and/or in accordance with a buyer’s reasonable expectation.” The most dangerous defects have the capacity to fail, resulting in physical injury or damage to people or property.

Some examples of a potentially dangerous construction defect include things that can cause physical injury or damage to the property, things like:

Structural issues related to hold downs (the brackets that tie the concrete to the framing)
Improper design details of roof, curtain wall, or window assemblies
Foundational cracks in concrete
Moisture or water intrusion resulting in mold and mildew

According to IRMI, many defects aren’t dangerous but can cause harm in the form of deprecation in the value of the property and extra expenses. For example:

Sloping floor substrates
Cracks in walls or even mechanical or plumbing systems caused by overloading the structure

Turns out, it is four years. The statute of limitations for construction defect disputes in Florida is defined in Florida Statute §95.11(3)(c). Under the law an owner has four years to initiate a lawsuit, with the clock starting on the latest of the following four dates:

The date the owner took possession of the property
The date the certificate of occupancy was issued by the building department
If the project was not completed, the date the project was abandoned by the contractor, or
The date the contractor’s contract was terminated by the owner.

However, if the construction defect is latent (not readily visible or obvious), the statute of limitations commences on the date the latent defect was discovered. But, according to the statute, under no circumstances can an owner initiate a lawsuit more than ten years after the dates/factors identified above. This 10-year cap is referred to as the Statute of Repose.

If you are considering filing a construct defect claim or if you are a contractor, subcontractor or supplier facing a defect claim, give us a call. Carolina Consultants’ thorough and expert knowledge of handling a construction defect claim in Florida can help you along the way.

The Dangers of Certain Delay Analysis Methods

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Jun 162013

It is common for construction projects to experience delays throughout the life of the project, which can cause serious financial losses. In some cases, delay claims are asserted to make up for some or all of the expenses incurred. Experts are often retained to look into documents, methods, schedules, and events that affected the construction project in order to determine if the claim is valid and to identify the issues that caused the delay.

There are many different delay analysis methods, to say the least. It’s imperative to know which analysis method the expert is using because some have serious flaws and inherent weaknesses. They have many different names and it can be confusing:

Total Time
Impacted As-Planned
Windows Analysis
As Built Critical Path
Collapsed As-Built
Time Impact Analysis
Fragnet Analysis
Contemporaneous Period Analysis

For example, in an important ruling by the Armed Services Board of Contract Appeals (ASBCA) in Haney v. United States (ASBCA No. 23392) the expert’s impacted as-planned delay analysis method was rejected for being “inherently biased, and could lead to but one predictable outcome.”

Thus one must be wary of which method the supposed expert is using. Why pay an expert thousands of dollars to perform an analysis only to have it rejected by the court or board?

There are two delay analysis methods that are both widely accepted and recommended, Time Impact Analysis and Contemporaneous Period Analysis.

Time Impact Analysis

Sometimes called “fragnet analysis,” Time Impact Analysis (TIA) is appropriate as a forward-looking method for analyzing delays before the event occurs. That means that it is used during the project to estimate and evaluate the time impact of changed or added work so it can be compared with the current schedule.

In this method, the analyst updates the project schedule as of the day the change or added work was scheduled to occur. The analyst then develops a “fragnet” or fragmented network of activities that represent the changed or added work. An example of a fragnet might be the following activities, all linked with finish-to-start relationships:

Submit RFI #5 – 1 workday

Government Response to RFI#5 – 15 workdays

Contractor Review Government’s Response to RFI#5 – 1 workday

Complete Change Work – 7 workdays

The fragnet is then inserted into the updated schedule and a comparison can be made to the forecast completion or milestone date to determine the time impact, if any. TIA is required by contract on most federal government construction projects.

Contemporaneous Period Analysis

Contemporaneous period analysis is typically used in a forensic schedule analysis conducted after the project is completed. This method uses the contemporaneous project schedules that were developed and maintained during the project.

The critical path is the main focus of this analysis. The critical path is followed day-by-day to the project’s completion date, while taking into account the progress (and lack thereof) of all of the activities in the schedule. Its strength is in how the dynamic nature of network scheduling is recognized and handled. This method not only identifies the magnitude of every delay or gain along the critical path, but it identifies when the critical path shifts and why the shift occurred.

Another important aspect of contemporaneous period analysis is that it identifies and isolates delays or gains caused by changes or revisions to the schedule during the update process. For example, sometimes changes are made to schedule logic and durations in order to mask a critical path delay that has occurred. So even if there is no readily-apparent delay shown in a published schedule update, contemporaneous period analysis can uncover these changes and identify separately the delays due to lack of progress and changes made to the schedule logic to mask those delays.

Contemporaneous period analysis is often referred to as an “observational” method, as the analyst is using the schedules as they are. This is the biggest difference from TIA and other delay analysis methods, as he or she is not creating, inserting, or deleting activities in the schedule.

The main idea behind contemporaneous period analysis is to retroactively adopt the perspective of the personnel onsite as the delay occurred. Thus, delays are measured using the actual schedules that the project team and the owner used to make decisions.

Steps for performing a contemporaneous period analysis:

Identify delays and gains between updates
Chronologically track progress along the critical path
Assess each activity separately
With each delay, adjust the succeeding planned activities, taking these delays into account

Delay claims are some of the most complicated types of claims to analyze, as construction projects have many moving parts and opportunities for the critical path to change or slip. If you’re considering having an analyst perform a delay analysis on a project, ensure that he or she is using a well-respected method to avoid having the product of your time and money rejected in court.

At Carolina Consultants, we are confident in the validity and reliability of our results and use only the most established and accepted methods of delay analysis. Contact us today for more information or with any questions you may have.