One of the most challenging claims to prove is a lost productivity or inefficiency claim. There is an alluring appeal to these claims because there are oftentimes intriguing facts and high damages. But the allure of the presentation of the claim does not compensate for the actual burden of proof in proving the lost productivity or inefficiency claim, which will require an expert. And they really are challenging to prove.
Don’t take it from me. A recent Federal Claims Court opinion, Nova Group/Tutor-Saliba v. U.S., 2022 WL 815826, (Fed.Cl. 2022), that I also discussed in the preceding article, exemplifies this point.
To determine lost productivity or inefficiency, the claimant’s expert tried three different methodologies.
First, the expert looked at industry standard lost productivity factors such as those promulgated by the Mechanical Contractor’s Association. However, the claimant was not a mechanical contractor and there is a bunch of subjectivity involved when using these factors. The expert decided not to use such industry standard factors correctly noting they provide value when you are looking at a potential impact prospectively, but once you incur actual damages and have real data, it is not an accurate measure.
Second, the expert tried the preferred methodology – the measured mile approach. The expert testified: “[T]he measured mile approach is an approach where you look at an unimpacted piece of the work to find out what it actually took to do that piece, and you compare it to the impacted production to see if you had a production loss, and you can measure that loss.” Nova Group, supra, at *50. The expert, however, elected not to use this approach due to the limited data he had to make this an accurate methodology.
Lastly, the expert tried and implemented the modified total cost methodology finding it to be the most appropriate methodology to capture the claimant’s lost productivity damages in the context of the claim.
A total cost method determines damages by taking “the difference between the actual cost of the contract and the contractor’s bid. This method is disfavored by courts “because of concerns about bidding inaccuracies, which can reduce the contractor’s estimated costs, and performance inefficiencies, which can inflate its actual expenditures.” “The modified total cost methodology addresses some of the objections to the total cost method” by adjusting for possible inaccuracies.
The modified total cost method requires the contractor, typically through an expert, to prove: (1) the impracticability of proving actual losses directly; (2) the reasonableness of its bid; (3) the reasonableness of its actual costs; and (4) its lack of responsibility for the added costs.
Nova Group, supra, at *51 (citations omitted).
The government (opposing the lost productivity claim) countered that the claimant failed to prove these factors. In particular, the government argued that the claimant did not prove the reasonable of its costs or its lack of responsibility for its added costs. In doing so, the government relied on testimony of its own expert that addressed factors that went into the claimant’s cost overrun. The Federal Claims Court agreed that the claimant failed to prove the required factors to utilize a modified total cost approach: “Plaintiff has not met its burden of providing modified total cost damages, in particular, Plaintiff’s lack of responsibility for lost productivity costs….” Nova Group, supra, at *52.
When presenting a lost productivity or inefficiency claim, it is imperative that an expert is utilized. While the claimant’s expert did the right thing by analyzing different lost productivity methodologies, by failing to fully and completely address all of the factors to sustain the modified total cost approach, the lost productivity claim failed because the burden of proof was not met.
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.