What is a lost productivity / inefficiency claim? These are claims where a contractor claims it incurred increased labor (and, perhaps, equipment usage) because an event (referred to as an impact) caused it to work inefficiently. There needs to be a causal link between the cause of the impact and the increased labor costs. See Appeals of—Fox Construction, Inc., ASBCA No. 55265, 08-1 BCPA 33810 (March 5, 2008). Numerous factors can contribute to a contractor working inefficiently. Oftentimes these claims are asserted by subcontractors associated with a delay to their scope of work or due to the manner in which the subcontractor’s work was sequenced. The bottom line is that some impact (not attributable to the contractor asserting the claim) caused the contractor to work inefficiently and incur unplanned, increased labor cost (and/or equipment usage).
Lost productivity / inefficiency claims are very challenging claims to prove and calculate. They require expert testimony to analyze cost reports, labor hours, and project documentation such as daily reports, etc. to determine the performance or production rate for a given scope of work. But, remember, lost productivity / inefficiency claims also require a causal link between the impact and the increased costs meaning an expert needs to analyze project documentation to determine the impact and the causal link to the contractor’s increased costs. Probably the most well received method to prove lost productivity / inefficiency is the measured mile methodology.
Measured Mile
The measured mile compares a period of productive work (the good period) with an unproductive period of the same work (bad period). “The measured mile approach provides a comparison of a production period that is impacted by a disruption with a production period that is not impacted.” Appeal of Bay West, Inc., ASBCA No. 54166, 07-1 BCA 33569 (April 25, 2007). The period of productive work forms the contractor’s benchmark period of productivity. Typically, this benchmark productivity is based on the number of man-hours during the productive period divided by the performance or production rate in that period to determine a productivity ratio. This productivity ratio is compared to the productivity ratio during the impacted period in order to determine an unproductivity ratio that is multiplied by the unproductive performance or production rate to determine the number of unproductive man-hours. Without determining a benchmark, the measured mile cannot be performed because there is nothing to compare the unproductive period of work to.
For instance, let’s take a rough hypothetical:
Good Period — A contractor during a productive period installs 2500 feet (or select another unit of production or performance) of “x” (you select the scope). It takes the contractor 4000 labor hours to install 2500 feet of “x.” The number of labor hours (4000) divided by the production (2500 feet of “x”) gives a productivity ratio of 1.6.
Bad Period — The same contractor gets impacted performing the same scope of “x.” During this impacted period, the contractor installs 1500 feet of “x” with 4600 labor hours. The number of labor hours (4600) divided by the production (1500 feet of “x”) gives a productivity ratio of 3.07.
Calculating Lost Productivity — Subtracting the productivity ratio during the bad impacted period (3.07) with the productivity ratio during the good unimpacted period (1.6) gives an unproductivity ratio of 1.47. This unproductivity ratio now allows you to determine the number of unproductive man-hours by multiplying the unproductivity ratio (1.47) by the unproductive performance (1500 feet of “x”) to give you 2205 unproductive man-hours. The number of unproductive man-hours would then be multiplied by a supported labor rate plus burden to give you your unproductivity costs.
If you are experiencing lost productivity / inefficiency, it is good practice to consult with a lawyer and expert in order to best prove and calculate your lost productivity / inefficiency. Although this article focuses on the measured mile methodology, there are other methodologies that can be utilized based on the facts and circumstances of the project. Just remember, these types of claims generally require expert testimony to prove.
Please contact David Adelstein at dadelstein@gmail.com or (954) 361-4720 if you have questions or would like more information regarding this article. You can follow David Adelstein on Twitter @DavidAdelstein1.