CALCULATING | CONSTRUCTION DAMAGES MTEL Rene ct ATTY CaN Lae} OE ee ek i H ; (2) Wolters Kluwer DeaCHAPTER 2 LABOR COSTS $2.01 §2.02 $2.03 $2.04 92.08 § 2.06 §2.07 $2.08 $2.09 Introduction Direct Labor Overrun IA] Determination of Additional Hours [B] Determination of Wage Rates Labor Burdens {A] Common Labor Burdens 1B] Calculating Labor Burden ‘Sample Direct Labor Overrun Calculation Calculation of Wage Escalation JA] Sample Wage Escalation Calculation {B] Secondary Considerations in Calculating Escalated Wages IC] Calculating Wage Escalation in Varying Wage Periods Loss of Productivity IA Overtime 1B] Disruption IC] Weather [D| Lack of Capable Laborers TE] Change in Sequence {F] Trade Stacking IG] Restricted Site Access 1H) Shift Work T] Shop Drawing Review Learning and Experience Curves Effect of Changes on Labor Productivity Calculating Productivity Loss IA] Measured Mile Cateulations 1B] Comparison with Similar Projects IC] Industry Standards ID] Experts and Consultants [E] Total Labor Method IF] Modified Total Cost Calculations IG] Productivity Analysis 37 iLABOR COSTS: § 2.02 § 2.01 INTRODUCTION Labor is a major cost item on any construction project, and labor costs often ‘comprise a major portion of construction claims. Increased labor costs may result from a variety of events, including owner-caused delay,' owner-directed changes, defective specifications, adverse weather, acceleration compression, poor man- ‘agement, underestimated labor cost, and other factors. Lebor costs are recognized clements of construction claims.? Increased labor costs may be divided into three main groups: direct labor overnin, escalated wages, and decreased labor productivity. Increased labor costs may be calculated through a variety of methods. Particular attention should be paid to labor calculations because increased labor costs are frequently overstated and labor calculations are often thoroughly examined by a reviewing party or tri- bunal? § 2.02 DIRECT LABOR OVERRUN Direct labor overrun is the additional labor hours expended in performing additional work, In order to calculate direct labor overrun, the contractor must correctly determine the applicable hourly wage rate, the amount of additional la bor hours performed, and the labor burdens. [A] Determination of Additional Hours ‘The determination of actual additional hours worked is virtually compulsory if precise records are available. The amount of additional labor hours actually worked may be established by payroll records, daily labor reports, or other sup porting data. Often, a precise accounting and allocation of additional hours is if- ficult, if not impossible, due to multiple change orders or numerous delays. In these cases, courts and boards of contract appeals may permit contractors to re- ‘cover the estimated excess labor costs based on the difference between adjusted " See Luria Bros. 8 Co. v. United States, 369 F.24701 (Ct. Cl. 1966) (ost productivity damages fom owner-caused delay recoverable despite the presence of ano damages for delay claus). 2 United States Stoel Corp. v. Missouri Pac. RR, Co. 668 F-24435 (8th Ci), cert. denied, 439 US. 836 (1982); E.C. Ems, Inc. v. Koppers Co, 520 F. Supp. $30, 833 (WD. Pa, 1981); 1D. Hedin Constr. Co. v. United States, 347 F.2d 235 (Ct. Cl. 1965); MeDevitt & Steet Co. v. Depar- meat of Gen. Servs, 377 So, 2d 191 (Fla. Dist Ct App. 1979); Pebble Blig Cov. G.J. Hopkins, 288 S.E-24-437 (Va. 1982). Consolidated Bec. & Mechanicals, Ine. v. Biggs Gen. Contracting, nc 167 F.3d 432 (8th Cir, 1995) (Miller Act case; subcontractor was entitled t recover increased labor expenses when general contractor filed to provide adequate access to the work sit, resulting in idle time and labor inefficiencies). 3 More detailed information on constuction labor productivity cn be found in “Calculating Lost Labor Productivity in Constuetion Claims” by William Schwarzkopf ( Aspen Law & Business, 1995).§ 2.031 CALCULATING: CONSTRUCTION DAMAGES budget and actual.* Such calculations are generilly disfavored and are not ac- corded the presumption of reasonableness as are'calculations that establish costs through actual proof. However, these types of calculations may be used to deter- mine direct labor overrun when it is virtually impossible to calculate direct labor costs by any other method.’ The determination of additional hours from produc- tivity loss is discussed in Section 2.06. [B] Determination of Wage Rates ‘The applicable wage rate can be easily determined when the additional labor hours have been carefully segregated by date and class or craft. If such records are present and the contractor used union labor, the union contracts in existence dur- ing the period of overrun will determine the applicable wage rate. On nonunion projects, the contractor's average wage rate in effect for the particular craft at the time of delay may be used to establish the applicable wage rate, Often, however, precise accounting records have not been maintained for the period when additional labor hours were expended. In these cases, the additional hhours must be allocated to the periods in which the delay or change occurred. ‘These types of estimated allocations are necessatily imprecise and are usually re~ viewed carefully.? § 2.03 LABOR BURDENS Labor burden is a cost directly related to the employment of individuals, but not reflected in the employees’ wages, Common labor burdens are taxes, workers’ compensation and other insurance, benefits, and supervisory costs. Labor burdens have been increasing constantly during the past 25 years and can represent a ma- {jor cost in construction claims § Labor burdens are almost always recoverable un- Tess such costs are specifically precluded by contract.? ‘‘H, John Homan Co. v. United States, 418 F.2d 522 (Ct. CL. 1969); MeDevitt & Stet Co. v. Department of Gen, Servs., 377 So. 2d 191 (Fla. Dist. CL. App. 1979}; Pebble Bldg, Co. v. GJ. Hopkins, 288 SE.24 437 (Va. 1982). > Generally, ota cost calculations are permitted when: (1) no altemative calculation is feasible; @) te original bid is found tobe reasoneble; (3) the actual costs incurred are reasonable; and (4) the ‘contractor isnot responsible fr the excess costs. For further judicial discourse onthe use ofthe total cost method, see Skip Kirchdorfer, In. v. United States, 14 Cl. Ct. 594 (1988); In re Meyertech ‘Corp. 831 F-24410 (3d Ci. 1981); Huber, Hunt & Nichols, Inc. v. Moore, 67 Cal. App. 36278, 136 Cal. Rptr. 603 (1977); Seattle W. Indus. v. David A. Mowat Co, 750 P.2d 245 (Wash. 1988). © EC, Ems, Inc v. Koppers Co., 520 F. Supp. 830 (W.D. Pa. 1981). "a. * Sce Fidelity Constr. Co., DOT CAB No. 1113, 81-2 BCA (CCH) 15.345 (1981) (labor bu den markup was 28.4 percent of direct wages). * Racquette River Const. Inc, ASBCA No. 26486, 82-1 BCA (CCH) 4 15,769 (1982); Fidelity Constr. Co., DOT CAB No. 1113, 81-2 BCA (CCH) 15,345 (1981). 40 | ® | | LABOR COSTS: [A] Common Payroll tax payroll taxes, su country, State at ticular state or ¢ uring the past burden costs. ‘The cost 0 labor cost. A co ing the manual cation rate, whi example, a cont ‘of 08, of 80 per compensation i time." Fringe ber costs may also | caleulating labe such costs elsev damages, if dis Other Labi may be recove travel expenses ‘to a work susp the contractor.’ °° Clarke Baric Racquette River C " J Colorado, ” 5D. Hedin '8 The Comps © plication of costs and hliday pay {T]he negotiators) ‘to-ssue that each 1495-1 BCA (( 8 In Tom Sha calculations by ti stipulations relates doubtedly saved ¢ streamlined with ¢ | |2N DAMAGES ad are not ac- establish costs used to deter- te direct labor from produc- iditional labor ch records are existence dur- ‘On nonunion Jar craft at the atained for the the additional age occurred.¢ are usually re- dividuals, but ixes, workers? _abor burdens present a ma- coverable un- 1 & Street Co. v. Mdg. Co. v. GI ation is feasible; table, and (4) the couse ofthe total In re Meyestech App. 34278, 136 sh, 1988), 981) (labor bur. (1982); Fidelity LABOR COSTS: § 2.03(A] 1A] Common Labor Burdens Payroll taxes are almost always recoverable as direct labor costs." Federal payroll taxes, such as the Social Security tax (FICA), are constant throughout the country, State and local taxes, however, vary according to the rate set by the par- ticular state or county. Federal, state, and local taxes have also increased rapidly during the past 25 years, and such costs represent a significant portion of labor burden costs. The cost of workers’ compensation insurance is also recoverable as a direct labor cost. A contractor's workers’ compensation rate is determined by multiply- ing the manual rate, which is set on a statewide basis, by the contractor's modifi- cation rate, which is based on the contractor’s safety record and experience. For example, a contractor with an above-average safety record could have a modifier of 0.8, oF 80 percent of the manual rate, Contractors should be aware that workers’ compensation increases can exceed wages increases over the same period of time." Fringe benefits on union contracts may also be recovered as direct labor costs” Fringe benefits include vacation pay, holiday pay, and sick pay. On large, labor-intensive contracts, fringe benefit costs can be considerable. Fringe benefit costs may also be recoverable as an element of the contractor's overhead costs. In calculating labor burdens, contractors should ensure that they have not duplicated such costs elsewhere in the claim." Duplication of costs in the final calculation of damages, if discovered, detracts from the validity of the entire calculation. Other labor burdens can include subsistence housing and travel costs, and may be recoverable, For example, in Tom Shaw, Inc.,! the contractor sought travel expenses related io labor involved in demobilizing and remobilizing due to a work suspension. The board allowed recovery of the travel costs sought by the contractor.'5 '® Clarke Baridon, Inc. v. Merit-Chapman & Scott Corp, 311 F2d 389 (4th Cie. 1962); Racquette River Const. ne, ASBCA No. 26,486, 82-1 BCA (CCH) {15,769 (1982). "Ym Colorado, for example, the manval rat for ron workers exceed 100 percent of wages. 1D, Hedin Cons, Co. v. United States, 347 F.24235 (CL.Cl. 1965). © The Corps of Engineers’ Consrucrion Contract Negotiating Guide specifically addresses du- lication of cot in this area: “Some feontactors] charge many items such as overtime, vacation ‘nd holiday pay... a the diect costs while others include most ofthese items in job overhead... {Tie negotiator shoukd make certain thatthe contractor beaks out dice cost and overhead areas to assure tat each item is justified and that there i no duplication of charges.” at 12. 195.1 BCA (CCH) 27,457 (1995) ° In Tom Shaw, 95-1 BCA (CCH) 427,487 (1995), he parties eliminated disputes about iabor But of. FrusCon Const. Cor. v. United States, 3 Fed. Cl. 306 (Ct, Cl. 1999) (paintificon- tractor sought damages for lost productivity allegedly caused by unusually severe weather, pl tis expert testified that productivity will normally decrease with an increase in temperatare al dificult ofthe task, and that atypical loss of productivity due to increased temperatures would be ‘proximately 20 %0 30 percent, however, cour’ was unable to discem from expert's analysis a ‘causal relationship between the weather and plaintf’s loss of productivity; plant's loss of 31,024 ‘man-hours was likely the result of factors that were nt included inthe expen clealations, such as jo B§ 2.06101 CALCULATING CONSTRUCTION DAMAGES If a contractor believes that it is suffering a/loss of productivity, it is impor- tant both to give notice tothe owner and to reserve the right to claim that lost pro- ductivity. In Uhl v. Tarlton Corp., a subcontractor’s claim for lost productivity ‘was denied because the court found it had been waived by change order. Apple Electric Company had a contract with Tarlton for electrical work on a high school, which contained a provision requiring written subcontract change orders before performance of work. During the course of construction, there were 23 change or- ders, which inereased Apple’s contract from $572,500 to $873,503, The change orders stated thet, “All other terms and conditions of the subject Subcontract re- ferred to above shall remained unchanged and in full effect.” Apple signed 21 of these change orders without objection or modification, but modified two of the change orders to change the time extension provision. After completion of the ‘work, Apple submitted 2 $480,000 claim for lost labor productivity. Tarlton de- nied the claim based upon Apple’s prior settlement and execution of change or- dts. The Missouri Court of Appeals denied Apple's claim and ruled in favor of Tarlton. The court found it significant that Apple had executed 21 of the change orders without modification, had modified the time extension provision on only two change orders, but had never changed or reserved any right to claim produc- tivity or impact losses. Similarly, in Fru-Con Construction Corp. v. United States the court dex nied an award of acceleration damages for lost productivity because the plain- tiff-contractor failed fo provide adequate notice that such losses were being caused by unusually severe weather. Despite the contractor's purported inability to complete 50 percent of the anticipated work during the course of some days, plaintiff did not hat its operation. The impact of the heat was not indicated in re- ports, nor did the reports record lot time for heat-related injuries, Plaintiff thus not only filed to aval itself ofthe opportunity to document what its personne! on. site all viewed as obvious handicaps caused by extreme weather, but it also failed to discharge its obligations with regard to recordkeeping under the contract. As a sophisticated contractor, it should have been well aware of its contract obliga- tions. In addition, the court noted that timely notification would have allowed for alternatives to acceleration. For example, portions of the work could have been resequenced or deleted from the project's scope. However, because plaintif?'s evi- dence for any time extension for weather was insufficient, the government did not delete work from the project. Inthe absence of notice and supporting documenta- tion, plaintiff was unable to demonstrate an excusable delay and therefore unable to prove acceleration. physical or mental fatigue or construction erors that were the fault of plaintiff-contractor, most sig- nificantly, the expen's analysis did not delimit a specific loss stributable tothe weather). 34938 S.W2d 59 (Mo, Ct. App. 1997). 55 43 Fed. Cl, 306 (Ct. Cl. 1999), 48 LABOR COSTS. [A] Overtime Overtime is worker, per week half or double tin hour for overtime overtime on a stu work are less per able primarily to dustry studies in week for a peri Sixty-hour work crease of labor pt additional cost of certain the extent tivity may have E Overtime is, worked as a way more money on Droject. Overtime schedules since v project without ar effects of overtir application was t examined the eff study showed d eight-hour days ¢ Pe Sch L % Business Roun dustry Cost Effective Od. 3 Bureau of Lab. Output (1947).N DAMAGES y, itis impor- «that lost pro- +t productivity order. Apple ahigh school, orders before 23 change or- 5. The change abeontract re~ + signed 21 of ed two of the pletion of the y. Tarlton de- of change or- ed in favor of of the change ision on only alaim produc~ the court de- ase the plain- 5 were being orted inability of some days, idicated in re- Plaintiff thus + personel on tit also failed contract. As a ntract obliga- re allowed for ald have been slaintiff's evi- ment did not g documenta- 2refore unable twactor, most sig- ther). LABOR COSTS § 2.0614] 1A] Overtime Overtime is generally defined as the use of labor in excess of 40 hours, per worker, per week. Overtime is paid at a premium wage rate, such as, time and one half or double time. As a result, it is more expensive simply because the cost per ‘hour for overtime hours is greater. Further, it is generally recognized that working overtime on a sustained basis reduces productivity. In other words, the units of work are less per hour of labor. Decreased productivity due to overtime is attribut- able primarily to fatigue and morale problems resulting from overtime work. In- dustry studies indicate that the productivity of laborers who work 50 hours per week for a period of 10 weeks can decrease by as much as 35 percent.* Sixty-hour work weeks performed over the same time period can result in a de- crease of labor productivity of up to 45 percent.” The reduced productivity is an additional cost of overtime. Therefore, payroll records should be examined to as- certain the extent of overtime worked on a project because the project’s produc- tivity may have been adversely affected. Overtime is performed on projects for a variety of reasons. It is sometimes worked as a way to attract additional labor to a project, since workers will make ‘more money on a project where overtime is being worked than on a straight time project. Overtime is often used to accelerate completion of a project orto recover schedules since working overtime permits more hours per week to be put into the project without adding additional manpower. There have been many studies of the effects of overtime on labor productivity. The first study to receive widespread application was published in 1947 by the U.S. Depastment of Labor. This study ‘examined the effects of overtime on productivity in a manufacturing plant. That study showed declines in productivity based upon working more than five ‘eight-hour days per week based on the following table: Productivity as a Function of Work Days Per Week and Work Hours Per Day Scheduled ‘Scheduled Percen Days Hours Productivity 3 8 100% 3 9 95% 5 10 2% 5 u 89% (table continues) % Business Roundtable, Scheduled Overtime Effect on Construction Projects, Construction in- dustry Cost Effectiveness Task Foree Report (1980). Pa 28 Bureau of Labor Statistics, U.S. Department of Labor, Bulletin No. 917, Hours of Work in Output (1947). 49§ 2.0614] CALCULATING CONSTRUCTION DAMAGES i LABOR COSTS Scheduled ‘Scheduled | Percent i: rind Days Hours! Productivity 3 ment concerning 3 2 26% | scheduled overt 3 3 57% |) previously in this 6 9 88% © toprovide additi 6 10 2% | scheduled overti 6 10 18% : data from four it : : oe i major contract di 4 ; ; 7 ae {were both union 7 10 8% | days worked per 7 in 75% | five days with ot 7 2 12% j six-day work we trends on the oun ‘The first study of productivity in the construction industry to receive wide- spread distribution was published by the Business Round Table.” This study is often cited to justify claims for lost productivity on construction projects. How- ver, the report only addresses overtime on the 50- and 60-hour work weeks. Fur- ther, this study is based entirely on data from a single large facility in Green Bay, Wisconsin, constructed in numerous smaller phases over a 10-year period. The re~ port does provide some conclusions in both graphical and tabular forms to show the accumulative effects of overtime on productivity. The study shows that pro- ductivity dectines over time, reaching a plateau at approximately the 12th week. The National Electrical Contractor's Association has published a study of over- time based upon a variety of configurations from five 10-hour days through seven 12-hour days. This study shows productivity declining until it flattens out at the 16th week. ‘The Construction Industry Institute published an extensive study of the ef- fects of schedule overtime and shift production. This study examines seven di ferent heavy industrial projects including refineries, fossil fuel power plants, chemical plants, and natural gas recovery plants. The crafts that were studied in- cluded insulators, pipe fitters, electricians, carpenters, iron workers, and laborers. This report did not conclude that overtime automatically reduces productivities. It did show that short interval overtime, such as several week intervals, can be per- formed without significant productivity losses provided that there is proper man- agement and support. The study reflects that productivity losses generally result from working overtime, but that it is not automatic. » Construction Industry Cost — Effcing This Taskforce, Schedule Overtime Affect on Con- struction Projects (Nov. 1990). Overtime in Productivity in Electrical Construction, National Electrical Contractor's Assoiar tion dd. 1989). “+ Construction Industry Insite, The Effects of Schedule Overtime and Shift Schedule on Con- struction Craft Productivity, 1-93 (De 1988). 50 i 4 ity continued t0 ‘carve originally timate of produc bbe greater or le: upon project circ * [B] Disruptior Thomas'an the effect of dist between disrupt ‘causal link betw and longer work overtime project The analy: with overtime at found that mere time or a norma ciency that is ine The relatic shown in Figure crease in sched time schedule construction for 2H. Randolph ig: A Quantitative.DAMAGES ceive wide This study is ajects. How- ‘weeks, Fur Green Bay, riod. The re- ms to show. ows that pro- 2 12th week. udy of over- rough seven ns out at the dy of the ef- es seven dif: ower plants, +e studied in- and laborers. ductivities. It an be per= Proper man- aerally result “Affect on Con- actor's Associs- shedale on Con LABOR COSTS: § 2.06(8) In August 1994, the Construction Industry Institute published a source docu ment conceraing productivity losses as a result of overtime. The impact of scheduled overtime on productivity had been the source of numerous studies cited previously in this text. The Construction Industry Institute commissioned a report to provide additional quantitative information on productivity Josses as a result of scheduled overtime. In this study, Thomas and Raynar analyzed 121 weeks of data from four industrial construction projects. The projects were free from any ‘major contract disputes and were in areas of good labor environment. The projects were both union and merit shop. The study found, initially, that the number of days wotked per week had the most effect on labor productivity. A work week of five days with overtime showed an efficiency loss of 12 percent on average, and a six-day work week showed a 14 percent impact. An analysis was then done for trends on the cumulative impact of overtime. This survey indicated that productiv- ity continued to degrade as overtime continued. The study confirmed that the curve originally published in the Business Roundtable is a reasonable average es- timate of productivity losses caused by overtime. However, efficiency losses can be greater or less than those predicted by the Business Roundtable, depending upon project circumstances. [B] Disruption ‘Thomas and Raynar, as part oftheir study of overtime losses, also looked at the effect of disruptions on productivity. Their study showed a causal relationship between disruptions and productivity losses. This study also demonstrated @ ‘causal link between the frequency of disruptions as a result of lack of resources and longer work weeks, This would indicate that one cause of productivity loss in ‘overtime projects is lack of adequate support resources. ‘The analysis of the data showed that overtime losses were not automatic ‘with overtime and in fact ranged from zero percent to 25 percent, The study also found that merely shifting schedules — that is, going from overtime to regular time or a normal schedule to overtime — will result in a short-term loss of effi- ciency that is independent of whether overtime is being added or deleted. ‘The relationship between number of disruptions and overtime schedule is shown in Figure 2-1. The clear linkage between increase in disruptions and in- crease in schedule indicates that performing the work on an accelerated or over time schedule can result in the overrunning of outside resources by the construction force. “2 H, Randoiph Thomas and Katl A. Raynar, fects of Schedule Overtime on Labor Producty= ly: A Quanttaive Anas, Source Document 98 (Aug 1994), jst‘weather on productivity. The impact of various weather conditions on productiv- ity is significantly affected by the type of work being performed. Cold weather most cases, cc t § 2.061C1 CALCULATING CONSTRUCTION DAMAGES ' LABOR COSTS FIGURE 2-1. DISRUPTION FREQUENCY BY TYPE Q ‘on Productivity 1 r | cold, wind, anc eewom ‘graphs permitt: oa | Smee | dierent ypes t ‘The Nati: r | studies on the + 06 ' ‘were publisher £ | 1974, Clifford 4 ; ‘of temperature 3 04 4 A mather 3 : of climatic con 1 veloped this m- 02) f United States + wwere done ove: i midity and wit 3 Days 4 Daye 5 Daye 6 Days 1 derstand how Days Worked Per Week t applied approp | Governm {C] Weather : to weather wit! 2 In Warwick Cc Weather can have a dramatic effect on productivity. The risk of increased + ‘were allowed costs resulting from performing work during adverse weather is normally bome = tractors as to by the contractor, especially if the contractor originally anticipated performing The Gen during the winter months. Contractors may usually recover for decreased pro- tor’s efficiency ductivity if owner-caused delay forces the contractor to perform work in an ad- Algernon Blais ~verse season that was not originally anticipated.‘ The same is true if a contractor lossdueto wea can establish that the structure would have been enclosed but for owner delays, and that decreased productivity resulted from working in exposed conditions.** 7 PD] Lack of ‘There has been significant research done on the impacts of various types of eee has different impacts on work requiring fine motor skills than on work requiring significant physical exertion. The effects of cold weather on productivity have been researched by the U.S. Army Cold Region Research, an engineering lab in Hanover, New Hampshire, In 1986, they published the “Effect of Cold Weather Luria Bros, 369 F.28 701; Cony Bridge & Supply Co., AGBCA No. 81-149-1, 82:2 BCA (CCH 16,08 (1982); Anderson Dev. Corp. v. Coastal States Crude Gathering Co, $43 S.W.2d 402 (Tex. Civ. App. 1976). “4 Corry Bridge & Supply Co,, AGBCA No, 81-149-1, 82-2 BCA (CCH) 116,008 1982). + Anderson Dev. Corp v. Coastal States Crude Gatheting Co, 543 S.W.20402 (Tex. Cv. APD. 1976. “© JD, Hedin Const. Co. v. United States, 47.24 235 (Ct. Cl. 1965), 52 © Other studi Performance in t Conditions in Pre Employment in th Clifford F.1 Constr. Div. 3191 © Edward J.K ‘matological Cond 2 GSBCA No 51 GSBCA No 8 Aru Pain 5 Clarke Bari ‘Traylor Bros, ENN DAMAGES < of increased ormally borne performing ecreased pro- ork in an ad- fa contractor owner delays nditions.6 tious types of on productiv- Cold weather ‘ork requiring fuctivity have aeering lab in Cold Weather 49-1, 82-2 BCA Co, 543 .W.2d 08 (1982). 1 (lex. Civ. App. LABOR COSTS § 2.06(D] on Productivity,” by Gunars Abele, This technical paper analyzes the effects of cold, wind, and snow on labor productivity. Included within the study are various graphs permitting the estimation of the effects of different weather conditions on different types of work.*” ‘The National Electrical Contractor's Association has conducted empirical studies on the effects of temperature and humidity on productivity. These studies were published by the NECA as “The Effect of Temperatures on Productivity,” 1974, Clifford . Grimm and Norman K. Wagner published a study on the effects of temperature and humidity on masonry production in 1974. ‘A mathematical model forecasting labor productivity based upon @ variety of climatic conditions was published by Edward J. Kuipers in 1976. Kuipers de- veloped this model using data collected from a series of projects performed for the United States Navy involving underground pipeline construction work. These were done over a wide variety of climatic zones, ambient temperature, relative hu- tmidity and wind speed. When using these studies it is important to read and un- derstand how the data was gathered and to make sure that the studies are being applied appropriately in the situation in which they are being used. ‘Government contract appeals boards have awarded productivity losses due to weather without expert testimony and based on apparently limited information. In Warwick Construction Inc..® productivity losses of 40 percent and 60 percent were allowed based upon the testimony of the prime contractor and the subcon- tractors as to the effect weather had on their productivity. ‘The General Services Board of Contract Appeals, though reducing a contrac tor’s efficiency claim, did make an award of efficiency losses due to weather. In Algernon Blair Inc. the contractor had made a claim for 30 percent efficiency Joss due to weather. The board discdunted this to eight percent in making its ward. 1D] Lack of Capable Laborers Productivity may be adversely affected by a lack of capable laborers.*? In ‘most cases, contractors bear the risk of labor shortages. * However, there are © Other studies onthe effects of cold weather oa labor poductvir include W.F. Fox, Human Performance ix the Cold, Human Factors Vol. 9, 203-220 Qune 1967); and M.A. Clap, Weather Conditions in Productivity, Building Vel. 211,171 (Oct. 14,1996); 5. Witock, Reducing Seasonal Enployment nthe Construction Industry, OECD, 284 (1967. * Clifford T. Grimm and Norman K. Wagner, Weather Eifects on Mason Productiviy, 3. of te Const. Div. 319 (Sept. 1974. “© Edward J, Kuipers, A Method of Forecasting te Eiciency of Construction Labor in Any smatplogical Condition (1976), “8 GSBCA No. $070, 82-2 BCA (CCH) 16,091 (1982) 5 GSBCA No. 4072, 762 BCA (CCH)4 12,073 (1976). * arthur Painting Co., ASBCA No. 20,267, 761 BCA (CCH 11,894 (1976) Cake Baridon, lnc. v. Merit Chapman & Scott Corp, 311 F.28 389 (Ath Cit. 1962); SM “Traylor Bros, ENGBCA No, 3942, 82-2 BCA (CCH) 15,937 (1982). j 33 j i§ 2.06(E1 CALCULATING CONSTRUCTION DAMAGES siuaons in which contractors may reover for decreased productivity due ta lack of laborers, as evidenced by Arthur Painting Co.** In that case, the contractor entered into a contract with the government for painting work to be done at ‘Wurtsmith Air Force Base in Michigan. Experienced painters were reluctant 10 travel to the project because the site was remotely located, and thus the contractor was consistently understaffed. The Armed Services Board of Contract Appeals permitted the contractor to recover for decreased productivity resulting from hav- ing to train new and inexperienced workers.® Arthur Painting is the exception, however, and in most cases contractors will not be able to recover for decreased productivity due to a lack of capable laborers. IE] Change in Sequence Performance in a sequence different from that originally anticipated can also have a dramatic effect on productivity.* Contractors have the right to perform ac- cording to their original schedule, and decreased productivity resulting from dis- ruption to the anticipated schedule is a recognized element of construction claims. Productivity or efficiency can be impacted in various ways as a result of a change in sequencing. For example, in Paccon, Inc.;* the Armed Services Board of Contract Appeals recognized that the contractor's productivity was de- creased because much time was expended in transporting employees, retraining employees, and correcting deficient work, all of which resulted from out-of- sequence performance.» To recover for decreased productivity resulting from out-of-sequence performance, a causal link must be established between the de- creased productivity and the disrupted performance.®° In Electronics & Missile Facilities, Inc. v. United States,§' the prime contrac- tor alleged that, as a result of changes in the grading ordered by the contracting of- ficer for the government, its work had to be performed out of sequence. The project involved the construction of 300 units of housing at Hill Air Force Base in Utah During construction, the prime contractor was directed by the contracting officer to strip the top layer from all lawn areas in the project and replace that material with topsoil. The contractor claimed that this resulted in out-of-sequence work. The contractor computed its damages by applying a 30 percent loss-of-efficiency factor 3 ASBCA No, 20,267, 76-1 BCA (CCH) {11,894 (1976). Sid 5 H, John Homan Co. v. United Sites, #18 F.2d 522 (Ct. Cl, 1969); Luria Bros., 369 F.2d 701; ‘Acta Cas, & Sur, Co. v. Doleac Elec. Co., 471 So, 2d 325 (Miss. 1983); Anderson Dev. Corp. v ‘Coastal tates Crude Gathering Co, 543 S.W.2d 402 (Tex. Civ. App. 1976). 2 Louis M. McMaster, Inc, AGBCA No. 76-156, 79-1 BCA (CCH) 4 [3,701 (1979). 5 ASBCA No. 7890, 65-2 BCA (CCH) 4 4996 (1965). Pid. © Savin Bros, Ine. v. State, 45 N.Y.$.24 516 (App. Div. 1978), aff'd, 393 N.E.2d 1041, 419 NY.S.24 969 (N.Y. 1979), 61 416 F.2d 1345 (Cx. CL. 1969), 34 “ LABoR COSTS il ees | } 4 1 t i | i {o its actual pay the contractor” ‘quential costs { that lostproduc tablished A work ¢ fora structural dle South Ene. contractor, Bz siopped by the tractor was dit work had been “electrical conc canily more e: of the other w resulting from of work. On ay in Mary dredging cont, a sequence the area. The res around more awarded dame affirmed on a IF] Trade $ The sir confusion, wh of trades may celeration ord ‘trades is well struction clait Althoug stacking, the upon insuffie © 797 F2d1 © 50Md. Ar Continents F. Sallwell, Inc. Coakley, 431 A. © See. Leo & Bannon, Loss 8 571F. SupN DAMAGES vity due to a ‘he contractor 9 be done at @ reluctant to ‘he contractor tract Appeals .ng from hav- he exception, for decreased vated can also > perform ac- ing from dis construction as a result of ned Services ivity was de- es, retraining from out-of sulting from ween the de- rime contrac- ontracting of- 2. The project Base in Utah, ‘ing officer to material with, ve work. The ciency factor 369 F240 7015, ‘Dey. Corp. v. 979). E24 1041, 419 LABOR COSTS § 2.06(F] to its actual payroll dollars. The Armed Services Board of Contract Appeal denied the contractor's claim on the grounds that the lost productivity costs were conse ‘quential costs that could not be recovered. The Court of Claims reversed, holding that lost productivity costs were recoverable if causation and amount are clearly es- tablished. ‘A work stoppage followed by a remobilization resulted in lost productivity for a structural steel fireproofing subcontractor in Bagwell Coatings, Inc. v. Mid- dle South Energy, Inc.® Nine months after the structural stee! fireproofing sub- contractor, Bagwell, began its fireproofing work, the fireproofing work was stopped by the construction manager. Approximately 16 months later, the con- tractor was directed to restart work. During the shutdown period, significant other ‘work had becn installed in and around the structural steel, including heating ducts, electrical conduit, and piping. This made installation of the fireproofing signifi- cantly more expensive because the workers had to contend with the obstructions of the other work. The federal district court awarded the subcontractor damages resulting from having to work around the obstructions out of the normal sequence ‘of work. On appeal, this award of damages was upheld, In Maryland Port Administration v. C.J. Langenfelder & Sons, Inc.® a than a reason- Working on a shift basis can affect productivity. The following factors can vsed upon testi- all affect the productivity of work being done on a shift basis: is generally a te workers start tart found that ject impacted "actual in- © expert's for plain- is only as re are not uctivity.** Ac- J physical ob- ‘es, Inc.® the to recover for satracks. Spe- period of der walls | differed ‘ime con- resented ork areas ivity because fear that they ble sited States, 347 )14128 (1964); . + Night shifts require additional lighting, Artifical lighting may not be as good as natural light. To minimize productivity impacts, care should be taken to ar- range for adequate artificial lighting. + Inefficiencies will arise as a result of the transition from one shift to another. Each shift must determine where the prior shift ended if they are both working con the same piece of the job. + Tools and equipment will not be in the same location as when the shift last worked, because they will have been used by the next shift. This will result in some additional time needed for finding and reorganizing tools and equipment. + Night shifts generally result in somewhat reduced productivity simply because normal sleeping and working habits are disrupted. + Some dilution of supervision will occur even if complete additional supervi- sion is used, simply because of the transition from one shift to the next. +The cost of support crafts (Such as crane and equipment operators, cleanup per- sonnel, and similar persons) will increase per manhour, because second and third shifts normally have fewer people than day shifts while requiring almost ‘the same number of support crafts. + Ifnot all crafis are working on shifts, there may be coordination problems as a result of the working crafts getting ahead of the other crafts. + Accident rates can increase on shifts as a result of fatigue and disruption of nor- mal habits, It may be necessary to allow for this in pricing worker's compensa- tion costs. 1] Shop Drawing Review ‘The method and manner of shop drawing review can impact construction la~ bor productivity. In Appeal of Mark A. Carrol & Sons, Inc..” the Department of Interior Board of Contract Appeals used what is termed “the jury verdict method” to reduce a contractor’s claim for lost labor productivity caused by the govern~ ment.” The contractor's claim was that many of its submittals had been rejected improperly and that the government was slow to review submittals and respond to 7 IBCA No, 3427 (Mar. 11, 1996). The “jury verdict method” of calculating damages allows the jury to make what it considers a fair and reasonable award based upon equitable, rather than pure mathematical, considerations. See Section 1,09(4), supra, fora detaled iscsson ofthe jury verdict method j 87 j i§ 2.07 CALCULATING CONSTRUCTION DAMAGES. 7 questions conceming conforming materials. The contractor submitted a claim for ‘an additional 453 hours for time it had allegedly spent in handling the submittal problems. The board found that although the contractor had been damaged by the Sovernment’s handling of submittals, the number of labor hours claimed was un- reasonable for the amount of work involved in the days on the project. Further, the contractor had not presented any specific documentation of the number of hours spent handling the submittal problems. The board chose to use the jury verdict method to reduce the claim for manhours by approximately 75 percent. § 2.07 LEARNING AND EXPERIENCE CURVES ‘The amount of labor per unit of work tends to decrease with experience and practice. This effect is known as a leaming curve or experience curve. The effect. of a leaming or experience curve is that each succeeding identical repetitive unit, done with the same crew requires fewer manhours of work than the prior unit, Manufacturing industries have done significant research on experience curves, Generally, the effect is that every time the number of units of work in place dou. bles, the manhour cost per unit decreases by 10 percent. This is known as a 90 percent experience curve, Research into the applicability of leaming and experience curves to the con- struction industry has been done by Randolph Thomas and James Ward at Penn- sylvania State University.” Research has also been done by Gates and Scarpa, Whose rescarch indicated that machine-paced activities show a lower rate of lear. ing than items that are paced by the individual performing the work.” This con- clusion makes intuitive sense because when output is machine driven, itis limited to the operating rate of the equipment. In the construction industry, labor and experience curves can apply to sev- eral different situations. One of the most common is in unit price contracts, such as are commonly used in highway construction and other heavy civil work. Unit price contracts are generally used because the exact quantities of work required are not known until the work is actually performed. This allows the contract to be adjusted for the actual quantities of work performed. A problem can arise in these Contracts when the quantities of work change significantly, particularly ifthe con- tractor is performing significantly fewer units than originally planned. Because the contractor has certain fixed costs that were spread over all units when the bid \was prepared, this can result in a contractor not recovering certain of its fixed costs. Additionally, because the number of units is decreased, the unit rate may in- crease as a result of the contractor not moving as far down the leaming curve as anticipated. “A Validation of Leaming Curve Modes Available to the Construction Industry,” Construc- tion Management Research Series, Report No. 20 (Aug. 1984), Pennsylvania State University, De- Pariment of Civil Engineering, * Learning and Experience Curves, Jourcal of the Construction Division, March 1972, p. 79. 58 - ally between 10 2 LABOR COSTS Conversely, a ically increase wit ihata contractor is costs were original ally were installed may also move fut for the additional » _» Some contrac change by more tk those quantities of owner is allowed t. _ than the set percent ~imexcess of the se ‘unit price may onk, tity change. Asan tities at a lower w excessive by the 0° improve the unit p change as a result ‘A Board of € to Jeaming curve € in the originally s struction of six se - @Alene Indian Re ment under a “Va that either party ¢ formed varied by 1 amount, The Boat penses, stating: It is appropria that would hav below 75 pere costs as nonre overhead expe Absent a cot ‘quantity changes, unit price to be r ASBCA No. 32: ma2N DAMAGES ted a claim for 3 the submittal amaged by the aimed was un- ct. Further, the amber of hours ae jury verdict rent. experience and rve. The effect repetitive unit the prior unit. srience curves. «in place dou- anown as 2 90 ves to the con- Ward at Penn- 2s and Scarpa, srrate of leam- tk.”5 This con- an, itis limited 1 apply to sev- zontracts, such wil work. Unit work required + contract to be varie in these arly if the con- nned. Because s when the bid in of its fixed aitrate may in- ‘ming curve as usury” Construc- se University, De- ch 1972, p. 79. LABOR COSTS § 2.07 Conversely, an owner may significantly overpay ifthe units of work dramat- jcally increase without an adjustment in unit price. This is for the same reasons that a contractor is unfairly penalized for significant decreases. That is, since fixed costs were originally to be spread over a much smaller number of units than actu- ally were installed, an over-recovery of fixed costs may result. The contractor may also move further down the experience curve, resulting in a lower unit rate for the additional units of work. Some contracts have clauses providing for revising unit prices if quantities change by more than a set percentage. These provisions typically apply only to those quantities of work above or below the set percentage amount, Which is usu- ally between 10 and 25 percent. In application, neither the contractor nor the owner is allowed to renegotiate the unit price unless the quantity change is greater than the set percentage, and then the changed price only applies to those quantities in excess of the set percentage amount. These clauses generally provide that the ‘unit price may only be changed for changes in cost that are the result of the quan- tity change. As a result, they do not permit an ownet to obtain the increased quan- tities at a lower unit price simply because the markup in the price is viewed as excessive by the owner, nor do they allow a contractor who has a low unit price to improve the unit price on the increased units, if in fact the cost per unit does not change as a result of the quantity increase. 'A Board of Contracts Appeals decision found that a contractor was entitled to learning curve expenses as a result of a reduction of approximately 50 percent in the originally scheduled work. Les Kilgore’s Excavating’ involved the con- struction of six septic tank and drainfield systems on the Nez Perce and Coeur @ Alene Indian Reservations in Idaho, The contractor sought an equitable adjust- ment under a “Variations in Contract Amount” clause in the contract that stated that either party could seek an adjustment if the total dollar value of work per- formed varied by more than 25 percent above or below the original total contract amount. The Board found that the contractor was entitled to learning curve ex- penses, stating: It is appropriate, therefore, for the equitable adjustment to include any costs that would have been allocated to and paid in the price for the umordered work below 75 percent ofthe original contract amount... This would include such costs a8 nonrecurring start up costs (including bonding and insurance), fixed ‘overhead expense, and leaming curve expense. ...”” ‘Absent a contract provision allowing the unit prices to be renegotiated for ‘quantity changes, the general rule is that a contractor ot an owner cannot require a unit price to be renegotiated simply because of a quantity change. In DeFoe % ASBCA No. 32261, 96-3 BCA (CCH) 4 19,117 (1986). mid j 39 iCALCULATING CONSTRUCTION DAMAGES. Construction Corp. v. Beame,?* the court held that the owner of the project was not entitled to reduce the unit price for contractér-pumped water when the quan- tity of wator greatly increased over the estimated quantity. In Kingsley v. City of Brooklyn,” an owner was not entitled to reduce the contract price when the piles were driven to shallower depths than anticipated. A contractor's costs can be affected by more than just a change in the actual quantity of units. If'a schedule or sequence change requires a contractot to per- form the work with multiple crews rather than a single crew, this can affect the unit cost of the work. Each crew would perform fewer repetitions and would not ‘move as far down the learning curve asa single crew, thereby resulting in a higher ‘unit rate than expected for the work. Such increased costs would perhaps be more properly termed an acceleration impact rather than an impact resulting from a quantity change, since such a change could occur even if quantities did not change atall. § 2.08 EFFECT OF CHANGES ON LABOR PRODUCTIVITY Although changes in a construction project are normal and expected, they are a source of concer for both owners and contractors. Changes frequently are the root causes of cost overruns and schedule delays, and they may also cause pro- ductivity impacts on the unchanged work. ‘Change orders are a major part of most construction projects. Ithas been esti- ‘mated that change orders annually range between $13 and $26 billion. As a result, there is significant ongoing research into the effects and costs of change orders in the construction process. The Construction Industry Institute released a study in 1995 on the effects of change orders entitled “Quantitative Impacts of Project Change.” This study looked at data from 35 different construction organizations, representing 104 projects totaling more than $8 billion in total installed cost. The information was gathered using a uniform format, and a significant amount of sta- tistical analysis — more than 79 separate different analyses — was performed on the data, Based upon this statistical analysis, two hypotheses were validated. The research group was able to validate the hypothesis that the more change there is on project, the more negative impact there ison labor productivity.** The statistical analysis also proved that the hidden change costs increase ‘with project change. The research group defined hidden costs as both impact and consequential costs. Jmpact costs are defined to be the indirect effects the changes have on project budgets and schedule as a result of delays, lowered productivity, and material wastage. Consequential costs were defined as the effect of changes 1 7$ Mise, 2.309, 347 N.Y.S.24 626 (1973). % 78 N.Y. 200 (187). © Authored by CW. Ibbs & Walter E, Allen, Source Document No, 108 (May 1995), Sida, 60 acini ee LABOR Costs that are non-proj tion, Examples 0 solving material the construction project are imple ect, was not speci team concluded dence existed to : This study a the effect of chany tion productivity ysis confirmed t productivity and t neering design ho tively impacted by changes. Charles A. L change orders, bas sents a series of cur original contract lal cal analysis of the + tween the pereentag productivity of the labor is of total labe Work. The study fir causes of productivi deliveries of equip of productivity loss changes, _/ The Leonard sti impact on base contr overall labor. Ina stu Committee on Const Research Counsel, ch erage, were found to umber of projects t ree avian Effect of Chang 8. Tis my ation ‘ese onl lr bes Sp ee Prodi cng ‘Were similar. peeN DAMAGES e project was ‘hen the quan- iley v. City of vhen the piles >in the actual ractor to per- can affect the ind would not ng in a higher chaps be more ulting from a lid not change xpected, they frequently are Iso cause pro- has been esti- n.Asaresult, ange orders in ied a study in cts of Project organizations, Med cost. The mount of sta- performed on validated. The age there is on 2osts increase th impact and ts the changes | productivity, set of changes 1995). LABOR COSTS § 2.08 that are non-project-related but can be traced to project change after implementa~ tion. Examples of consequential costs are supervision time for another project, re- solving material supply problems, reordering parts, and other problems outside of the construction project. A third hypothesis, that changes occurring late in the project are implemented less efficiently than changes that occur early in the proj- cect, was not specifically validated statistically by the study. However, the research team concluded that the hypothesis was probably valid because significant evi- dence existed to support it. This study also includes significant statistical and graphical data concerning the effect of changes on projects, Of particular interest is a study linking construc- tion productivity with the percent of construction change cost. The statistical anal- ysis confirmed that the greater the changes, the greater the reduction in productivity and the greater the losses. The study also looked atthe effect on engi- neering design hours of changes in the process. Not only is construction nega- tively impacted by the change process, but design productivity is also reduced by changes. Charles A. Leonard compiled a detailed empirical study of the impact of change orders, based upon 90 cases from 57 different projects.# The study pre- sents a series of curves that can be used to estimate the impact of change orders on ‘original contract labor productivity. The curves were developed through a statisti- cal analysis of the case data. Leonard’s study shows a significant correlation be- tween the percentage of overall labor that is devoted to change order work and the productivity of the balance of the work. The greater the percentage change order labor is of total labor, the greater the labor inefficiencies on the non-change order work. The study further found that these inefficiencies are greater when other causes of productivity loss also exist on the project, such as acceleration or late deliveries of equipment. This study provides an empirical basis for the existence of productivity loss on base contract work when there are significant numbers of changes. “The Leonard study states that, based on the data, itis difficult to estimate the impact on base contract labor when change order labor is less than 10 percent of ‘overall labor. In a study titled Construction Contract Modifications (1986) by the ‘Committee on Construction Change Orders Building Research Board, National Research Counsel, change orders as a percentage of overall contract work, on av- ‘erage, were found to range from five to nine percent. This study looked at a large number of projects that were sampled in various studies done by the Census © The Effect of Change Orders on Productivity.” presented to Concordia University in Febra- ary 1988, This study differed fiom that done by Ibbs and Alle, referenced in fa. 80, supra, in that it ‘considered only labor hours, and not the dollar ost ofall changes. Although the Ibbs and Allen sta- tistical stady indicated that total dollar value of changes was a more reliable indicator of construc- tion productivity changes than the labor hour percentage ratio used by Leonard, the overall effects wore similar. i 6§ 2.08 CALCULATING CONSTRUCTION DAMAGES. iu, the Corps of Engineers Naval Facility’ Commander, and the Veterans Ad- ministration to determine what is an expected percentage of change orders in a construction project, This latter study demonstrates the difficulty of estimating the impact of change orders on base contract labor in the majority of construction projects, since most projects will experience change orders of less than 10 percent of overall labor. Because changes are such a significant cost factor on construction projects, additional research has been done on their effects. The Construction Industry In- stitute commissioned a study on the effects of change orders on labor productiv- ity.® This study found that the efficiency when performing changed work is 70 percent of the efficiency when performing similar unchanged work. The authors of the report performed various statistical. analyses to validate this conclusion. This study indicates that the presence of changes is an indirect factor, this is logi- cal since changes themselves do not lead to productivity losses. If this were the case, productivity loss would be automatic; this is not consistent with either re- search of simple observation. Changes can cause other factors that affect produc- tivity to come into play. These factors can include additional congestion of the work area, loss of momentum, change in work sequence, and disruption of other work. The loss of productivity is the result of changes in both the scope and com- plexity of the work and changes to the environment in which the work is done. In the Construction Industry Institute study, the authors looked at 11 differ- ent industrial projects, focusing on the mechanical and electrical trades. The time periods studied were between eight and 16 weeks. Their study found that work changes affect material availability, tool availability, equipment availability, in- formation availability, congestion, and sequencing. These factors all resulted in disruption to the work and resulting impacts to efficiency. The study concluded: 1, The effect of construction changes on labor efficiency averages a 30 percent loss. The major variable affecting the amount of loss isthe tim- ing of the change in relation to performance of the work. 2. Lower labor performance strongly related to the performance of changed work, disruptions, and rework, 3. As work on changes is performed and performance degrades, there is a 30 percent increase in the number of days in which disruption is found, 4. Changed work causes disruptions and disruptions are the de facto cause of lost productivity. In an analysis of the effect of changes on project cost, an attempt was made to quantify the impacts on cost based on the timing of the change. An analysis © HL Randolph Thomas and Carmen L. Napolitan, “The Effects of Changes on Labor Produetiv- ity: Why and How Much” (Aug. 1994), Mark T. Chen, Changed Control and Tracking, 1992 Transactions of American Ass'n of Cost Engineers U.2.1 (1992). 62 | | | ; | | ' 1 i 4 LABOR COS was done of Paper Comps ‘cost of a che change at 10 ‘making the s mentation di point is reac ‘with constra change is me impact on ot These possible in o ‘uments relat them to got the changed In Cole ages for the found that tt work being | G. Williams rect errors in tractor a. 15 argued that ‘changes. Ho sate the cont formance of compensatio In App compensatio changes, the another boat tractor was 1 The court fo whole they ¢ § 2.09 © Labor Moreover, it © 593 Fad % ASBCAI * GSBCAI * GSBCAIDN_DAMAGES » Veterans Ad- ge orders in a estimating the if construction han 10 percent ction projects, m Industry In- bor productiv- ced work is 70 «. The authors is conclusion. ot; this is logi- ? this were the with either re- affect produc- gestion of the iption of other sope and com- ork is done. dat 11 differ- ides. The time und that work vailability, in- all resulted in y concluded: averages a 30 loss is the tim- formance of ades, there is a otion is found. the de facto snpt was made & An analysis Labor Productiv- san Ass'n of Cost Bo oes LABOR COSTS § 2.09111 jvas done of project costs on various projects being constructed by Weyerhaeuser Paper Company, Based upon this analysis, a curve was developed to correlate the cost of a change with the time it was made in the construction cycle, Making a change at 100 percent mechanical completion costs almost six times as much as aking the same change at or prior to the issuance of the first piping and instru- mentation diagrams. The most severe increases in cost arise after the 50 percent point is reached, when the curve becomes much steeper. This study is consistent ‘with construction field experience, which shows that the later in the project a ‘change is made, the more difficult and expensive itis to make, and the greater its Jmpact on other parts of the work. ‘These studies amply demonstrate that changes should be issued as early as possible in order to minimize the impact of those changes. The drawings and doc- uments relating to the change should be issued in sufficient numbers to allow them to go to the field and, when possible, separate crews should be assigned to the changed work to minimize disruption of the ongoing unchanged work. In Coley Properties Corp. v. United States,® a contractor was awarded dam- ages for the effect of multiple change orders on the unchanged work. The court found that the cumulative effect of the change orders resulted in the unchanged work being performed out of sequence and at a higher cost. In Appeal of Charles G. Williams Construction, Inc.,* the government issued 26 change orders to cor- rect errors in the drawings and specifications. The change orders allowed the con- tractor a 15 percent markup for overhead and indirect costs. The government argued that this markup compensated the contractor for any impacts of the changes. However, the board ruled that this markup did not adequately compen- sate the contractor for the cumulative disruptions (lost labor productivity) to per- formance of the contract. As a result, the contractor was awarded additional compensation for cumulative impact costs. Tn Appeal of Atlas Construction Co.‘ the contractor received additional compensation for lost labor efficiency as a result of the cumulative impact of changes, the cost of updating CPM schedules, and additional field office costs. In another board case, Appeal of Freeman-Darling Inc." it was ruled that the con- tractor was not entitled to additional compensation as a result of change orders. ‘The court found that although the change orders were numerous, when taken as a whole they did not have a substantial cumulative impact -on the contractor’s work. § 2.09 CALCULATING PRODUCTIVITY LOSS Labor productivity is difficult to quantify and calculate with precision. Moreover, it may be difficult if not impossible to segregate the events that have 593 F.2d 380 (Ct CL.1979). & ASBCA No, 33766 (Feb. 27, 1989). ® GSBCA No. 8593 (Mac. 1, 1990). *% GSBCA No. 7112 (Apr. 27, 1989)., i 6§ 2.09(A1 CALCULATING CONSTRUCTION DAMAGES impacted labor productivity. Numerous methods exist to calculate the loss of la- bor productivity, and although no method is generally accepted, some methods are preferred over others. Below are the major methods by which decreased pro- ductivity is calculated. IA] Measured Mile Calculations The most widely accepted method of calculating lost labor productivity is known throughout the industry as the “measured mile” calculation. This calcula- tion compares identical activities on impacted and nonimpacted sections of the project in order to asceriain the loss of productivity resulting from the impact.® ‘The measured mile calculation is favored because it considers only the actual ef- fect of the alleged impact and thereby eliminates disputes over the validity of cost estimates, or factors that may have impacted productivity due to no fault of the owner. Measured mile calculations first require the labor productivity ratios to be calculated for a nonimpacted performance period. As discussed previously, labor productivity ratios are determined by dividing the actual amount of hours® by the actual quantities of work performed The productivity ratio during the ‘nonimpacted period is the standard, or the performance mile, by which productiv- ity is measured. ‘Next, the contractor must isolate the period of performance that was alleg- ‘edly impacted due to one or more of the reasons discussed in § 2.06. The produc- tivity ratio for the impacted period is calculated in the same manner as the nonimpacted period. The lost productivity is the difference in the productivity ra- tios between the impacted and nonimpacted periods 2? On highly troubled projects, however, it may be impossible to segregate one period of performance that was not impacted. Even if a nonimpacted period is available for comparison with the impacted period, it may be that wholly different types of work were performed during the two periods, making 2 measured mile calculation impractical or inaccurate. Therefore, on such projects an alternative ‘method may be more appropriate to calculate labor inefficiency. ‘The measured mile method of productivity analysis was successfully used by the mechanical contractor in Natkin & Co. v. George A. Fuller Co. Natkin © United Stats Indus, Inc. v. Blake Constr. Co, 671 F-24 539 (D.C. Cit, 1982); Flex-Y-Plan Indus, GSBCA No, 4117, 161 BCA (CCH) {11,713 (1976) °° Actual costs and labor hours maybe determised by labor reports, timesheets, and other veri- fying da. 7% Quantity of work performed may be determined by reference to contractor records, inspector port, and other quantitative data, 8. Leo Hamonay, Inc. v. Binks Mi, $97 F. Supp. 1014 (S.D.N.Y. 1984); A.W. Burton, AGBCA No, 431, 7-1 BCA (CCH) {12,307 (1877); Flesc¥-Plan Inu, Inc, GSBCA No. 4117, 76.1 BCA (CCH 11,713 (1976). ° 347 F.Supp. 17 (WD. Mo. 1972), reconsidered, 626 F.2d 324 (th Cit. 1980). 4 LABOR COSTS entered into a cot Wester Electric “Wester Electric contained specific specified times. F dating, and distrit, Fuller and Wester tric’s refusal to a Fuller’s inability and Western Elec stone dates and w Western Ele ing information fi nificant losses of Blectric for dama detailed records « spent to perform tion of pipe durin, during the impact ages for lost prod during the two pe ‘court specifically ‘unimpacted perio Ina similar calculating its da Co.,* Emst was for the general ce ing the engineerit maintain the sche by Koppers. Ems ity losses. The m ‘was to assign mai ‘tion method on th hhad assigned mar and further assign some revisions re sive amounts of pacts were felt i though the work the calculation w % 476 F.Supp. 72ON DAMAGES + the loss of la- some methods decreased pro- productivity is 1. This calcula- sections of the 1 the impact. y the actual eft validity of cost no fault of the ity ratios to be viously, labor “hours by the © during the tich produetiv- that was alleg- 5. The produc- nanner as the roductivity ra- segregate one seted period is, holly different neasured mile an alternative cessfully used Co.% Natkin '82); Flex-Y-Plan s,and other veri- ‘ecords, inspector 4), A.W. Burton, SBCA No. 4117, ». LABOR COSTS § 2.09(A] centered into a contract for mechanical construction of a manufacturing plant for Westem Electric in Shreveport, Louisiana. Natkin's contract was assigned by Western Electric to a general contractor, George A. Fuller Company. The contract contained specific milestone dates requiring completion of certain work areas at specified times. Fuller, as general contractor, was responsible for preparing, up- dating, and distributing a CPM schedule for the project. During construction, both Fuller and Wester Electric abandoned the CPM schedule, due to Westem Elec- tric’s refusal to accept the completion dates projected by the CPM schedule and Fuller's inability to maintain the schedule, After abandoning the schedule, Fuller and Westem Electric insisted upon completion of the project by the original mile- stone dates and would not acknowledge time extension requests. Western Electric delayed furnishing equipment and drawings and engineer- ing information for the later stages of the project; as a result, Natkin suffered sig- nificant losses of productivity, Natkin filed suit against both Fuller and Western Blectric for damages resulting from the lost productivity. Natkin had maintained detailed records on the quantities of materials installed and the labor manhours: spent to perform the work. A measured mile was performed comparing installa- tion of pipe during the unimpacted period of the start ofthe job with the manhours during the impacted periods on the later part of the job. Natkin’s request for dam- ages for lost productivity was based upon the difference in the manhours per unit during the two periods. Natkin was awarded its lost productivity claims, and the court specifically found that comparing the unit costs during the impacted and ‘unimpacted periods was a reasonable manner in which to compute the damages. Ina similar situation, an electrical subcontractor used a different method of calculating its damages and was denied recovery. In £.C. Ernst, Inc. v Koppers Co.. Emst was the electrical contractor for construction of a coke oven battery for the general contractor/designer, Koppers Company. Koppers was late in issu- ing the engineering drawings and also made substantial changes. As a result, to maintain the schedule, a significant acceleration of the work effort was directed by Koppers. Emst suffered extensive overruns in its abor as a result of productiv- ity losses. The method by which Emst calculated productivity losses, however, ‘was to assign manhours to each drawing revision. The court rejected this calcula- tion method on the basis that it was a hypothetical allocation of manhours. Ernst had assigned manhours to drawing revisions that did not contain electrical work and further assigned an equal number of manhours to all revisions, even though some revisions required only a minor amount of work and some required exten sive amounts of work. Emst’s calculation method further assumed that the im- pacts were felt in the time period in which the drawings were received, even though the work was often done in a later period. The trial court concluded that the calculation was based on an artificial and inappropriate method, and denied 476. Supp. 729 (WD. Ps. 1979). ;§ 2.09[8] CALCULATING CONSTRUCTION DAMAGES recovery. Emst appealed the decision and te fe was remanded. On remand, Emnst recovered its productivity damages when they were recalculated using a ‘more appropriate method. A measured mile calculation based on a superintendent's observation was used to award damages in Appeal of Batteast Construction Co.* Batteast was awarded a contract by the Army to construct a barracks and dining facility at Fort Bragg, North Carolina. The buildings were load-bearing concrete masonry block with brick exterior. After the project started, the government issued a contract modification that changed the mortar mix and added centering clips for the verti- cal reinforcing stee!. Batteast claimed that this change reduced its labor productiv- ity. Batteast submitted a claim calculated by subtracting the budget labor cost from the actual labor cost. The board denied recovery under this approach, but ‘granted recovery based upon the testimony of the project superintendent. The su- perintendent had testified that prior to the change, the production rate was 140 blocks per mason per day. After the change, the production rate was 75 blocks per mason per day. Using this measured mile calculation, the board awarded lost pro- ductivity damages to Batteast. In Clark Concrete Contractors, Inc. v. General Service Administration, % the contractor was permitted to recover damages in accordance with a measured mile analysis for labor inefficiencies resulting from design changes implemented by the government. The Board noted that the “purpose of a measured mile analysis is to permit a comparison of the labor costs of performing work during different pe- rods of time, so as to show the extent to which costs increased from a standard during periods impacted by certain actions.” Such a comparison of labor costs will be accepted ifit is between kinds of work that are “reasonably alike, such that the approximations it involves will be meaningful.” In Goodwin Contractors, Inc.” the Board rejected the contractor’s attempt to quantify its excess labor costs through use of the total cost method. The Board, however, permitted the contrac- tor to quantify its damages using a measured mile approach. In doing so, the con- tractor compared its impacted period of performance with a period of unimpacted performance, {B]_ Comparison with Similar Projects In certain cases, contractors may be required to calculate lost productivity by ‘comparing the anticipated productivity ratio with the actual productivity ratio. ‘The anticipated productivity rate must be supported by reference to the productiv- ity rates on the same or a similar project. 9 ASBCA No, 35818 (Dec. 31, 1991), % GSRCA No. 14340, 99-1 BCA (CCH) § 30,280 (199). AGBCA No, 89-148-1, 92-2 BCA (CCH) 4 24,931 (1992). 66 i : LABOR COSTS Ideally, si evidence to su Sons, Inc.® ap the actual prod project. Howev on other project The proje ‘upon which the sonable to comy facility with the tivity ratio wou the project, whi Any calcu and include sup such document against claims f mentation shoul the estimated la IC] Industry Industry 1 tivity actually si to the particular are sometimes r port the claims « Industry g tor’s anticipatec productivity rat manuals may rel industry manual ness of an antici ‘A number ductivity losses Industry Cost E: time Effect on € ° Robert MeMi 1d, 191d 2 Asthor Paint "ra,ON DAMAGES od, On remand, culated using a bservation was 9 Batteast was 1 facility at Fort masonry block sued a contract gs for the verti- abor productiv- dget labor cost 5 approach, but endent. The su- n rate was 140 18 75 blocks pet sarded lost pro- istration,” the measured mile plemented by tile analysis is ag different pe- rom a standard labor costs will ~, such that the tractors, Inc. 3s labor costs ed the contrac- ing s0, the con- of unimpacted productivity by ductivity ratio. » the productiv- LABOR COSTS § 2.091C) Ideally, similar work on the same project by another contractor is the best evidence to support an estimated productivity ratio. In Robert McMullan & Sons, Inc. a painting contractor's estimated productivity ratio was supported by the actual productivity ratio for another painting contractor working on the same project. However, in most cases, contractors will have to refer to the productivity on other projects to suppor its labor productivity estimate, ‘The project chosen for purposes of comparison should be similer to that upon which the contractor is seeking to recover. For example, it would be unrea- sonable to compare the labor productivity ratio for concrete forming at a detention facility with the productivity ratio for similar work on a hotel. The labor produc- tivity ratio would be greater at the detention facility due to the limited access to the project, which is integral to the design of the facility. Any calculation based on similar work at another project should reference and include supporting detail and documentation ftom that project. Conversely, such documentation should be closely examined in analyzing and defending against claims for decreased productivity. Any comparison without back-up docu- mentation should be neither submitted nor accepted as evidence of the validity of the estimated labor productivity ratio. IC] Industry Standards Industry manuals or standards are rarely conclusive as to the loss of produc- tivity actually suffered by a contractor because industry manuals have no relation to the particular conditions encountered at the site. Moreover, industry manuals are sometimes regarded as self-serving publications that are promulgated to sup- port the claims of contractors in that industry.!0 Industry guides can also be used to attack the reasonableness of a contrac- tor’s anticipated productivity ratio." If a contractor asserts that its anticipated productivity ratio was normal or was the accepted productivity ratio, industry ‘manuals may rebut such assertions. Courts and boards are more inclined to accept industry manuals as rebuttal evidence rather than direct proof of the reasonable- ness of an anticipated productivity ratio.!®2 A number of industry groups publish studies and tables for calculating pro- ductivity Losses due to a variety of effects. The Business Roundtable Construction Industry Cost Effectiveness Task Force issued a report titled, “Scheduled Over- time Effect on Construction Projects” (Nov. 1980-82), which contains a series of ° Robert McMullan & Sons, Inc, ASBCA No, 19,129, 76:2 BCA (CCH) 12,072 (1976). % te 1 Arthur Painting Co, ASBCA No, 20,267, 76-1 BCA (CCH) 11,894 (1976). mid§ 2.0910] CALCULATING CONSTRUCTION DAMAGES. tables on what impact working various ovens schedules has on labor produc- tivity. This report is a compilation of various other studies." The National Blectrical Contractors Association! has published a series of five reports dealing with various aspects of labor productivity. These reports are: * ‘The Effect of Multi-Story Buildings on Productivity (1975); * Overtime and Productivity in Electrical Construction (1989); + The Effect of Temperature on Productivity (1974); + Normal Project Duration (1984); + Project Peak Workforce Report (2d ed, 1987). These reports are based on empirical research, in the case of the effect of tempera- ‘ure on productivity, and industry surveys and studies, forthe other reports. ‘The Mechanical Contractor's Association estimating manual contains two appendixes: Appendix A, which covers the cost of overtime, and Appendix B, which covers the cost of a large number of other factors affecting productivity, ‘such as stacking of trades, morale and attitude, reassignment of manpower, crew size and efficiency, concurrent operations, dilution of supervision, learning curve, errors and omissions, beneficial occupancy, joint occupancy, site access, logistics, fatigue, ripple, overtime, and seasonal weather changes. These appendixes are based upon both other studies and surveys of mechanical contractors. [D] Experts and Consultants Exports or consultants are often used to establish and prove the costs in- ‘curred as a result of decreased productivity. Expert testimony must be based on project productivity studies, and such studies usually consider construction docu- ‘ments, cost data, correspondence, and other relevant information, Expert opinion or analysis by itself is not sufficient to establish decreased productivity. Expert testimony must be based on the project records, and such tes- ‘timony must be reasonable in light of the surrounding circumstances."*5 As with all expert testimony, any opinions offered must be supported by corroborative evi- dence. ‘An expert’s opinion as to lost labor productivity must be tied to project rec- cords. In John E. Green Plumbing & Heating Co. v. Turner Construction Co.," ‘© The Business Roundtable can be contacted at 200 Park Avenue, New Yark, NY 10166. 14 The Association can be contacted at 7315 Wisconsin Avenue, Bethesda, MD 20814. "8 Luria Bros., 369 F 24 701 "Id. See also Cosmic Constr. Co, ASBCA Nos, 4,014, 24,036, 88-2 BCA (CCH) ¥ 20,623 (1988). 197749 F.2d 965 (6th Ci. 1984), i } i LABOR COSTS: the expert witness method used in de testimony given by affected by the all for that work were nied. An expert, both the anticipate tion and explanatic ‘manuals or studies IE] Total Labor The total lab- ceased labor prod ductivity is caloub from the actual co: Total labor c gate the factors t method, the diffen to be the result of ingly, the total Labi In Peter Sea Court, Appellate 1 ‘tempt to calculate Specifically, the C The defendant bor costs for t been repeated the bid estimar elements of a! to fault of the Total cost ca tions may be used "08 WRB Corp. v- 24,014, 24,036, 88.21 (CCH)4 21,379 (1988 "© Servidone Cons Nos. 24,014, 24,036, ¢ BCA (CCH) 421,379) He $89 N.Y 8.24 11