One of the most difficult and complex challenges facing a claimant on a construction contract is establishing entitlement and proper quantification of impacts associated with change orders, delays and lost labor productivity. These issues can arise during the project based on events that have just occurred, and thus require forward pricing of change order impacts or requests for extensions of time. If these issues are not resolved during the project, they become a battleground for retrospective disputes, arbitration and litigation. Published industry standards and factors are often used to estimate lost productivity and serve as a template for the presentation of change order requests during the course of a project. Additionally, such published industry standards are frequently used as support for claims presented in arbitration or litigation.
For many years the Mechanical Contractors Association of America (MCAA) has published various guides and bulletins for its membership on these subjects. The best-known and certainly the most widely discussed MCAA publication are the “Factors Affecting Labor Productivity”, often referred to as the “MCAA Factors”, initially published by MCAA in the early 1970s. The MCAA Factors and other MCAA publications have become a standard in the construction industry and are widely relied upon by mechanical and other specialty contractors, attorneys in construction practice, and consultants.
As part of its efforts to educate its membership and to address continuing issues faced by contractors in the current construction environment, the MCAA recently released a comprehensive update to its major reference document: “Change Orders, Productivity, Overtime—A Primer for the Construction Industry” (hereinafter called Change Orders Productivity Overtime). The publication has been endorsed by the Sheet Metal and Air Conditioning Contractors Association (SMACNA). The National Electrical Contractors Association (NECA) has endorsed the MCAA Factors as a basis for electrical contractors’ claims for lost productivity and is continuing to review the other chapters in the publication. Because of its widespread acceptance in the contracting community, this document should be reviewed and consulted by parties supporting or opposing change order requests and claims.
The publication was prepared by various construction experts within FTI Consulting as well as other outside experts, and was subject to peer review from a number of leading industry executives. It addresses three critical subjects in current construction project management and dispute resolution:
1. Change Orders. The Change Orders Section contains the following chapters:
- “How to Identify and Manage Change Orders” addresses change order issues and provides extensive guidance on the pricing of changes. Topics covered include issues that give rise to a change order, what the contractor should do when a change is identified, including pricing of the direct costs of the change as well as any indirect impacts. This chapter includes guidance on preparing claims under some of the various standard forms of agreement such as AIA and concludes with a “Recommended Procedures” along with forms and checklists. Contractors, consultants and their attorneys should be familiar with these procedures in order to enhance their ability to recover for changes and delays. By the same token, as the chapter points out, failure to adhere to the “Recommended Procedures” can undermine the credibility of the contractor’s claim.
- “How to Organize and Submit a Claim” sets forth general principles and procedures to follow in preparing and submitting a claim for additional compensation, sets forth basic general protocols to follow in preparing a claim for additional compensation, including delay impacts, actual or constructive acceleration, and lost labor productivity.
- “Time Impact Analysis – Measuring Project Delay” provides guidance as to how to prepare a prospective “time impact analysis” of delay events that occur during the course of the project, including the maintenance of proper CPM schedules, following the contract procedures and methods for obtaining an extension of time, and specific techniques for quantifying and establishing delay entitlement during the course of the project.
2. Productivity. By far the most important subject in the book is the productivity section, which consists of the following chapters:
- “Maintaining Control of Labor Productivity” sets forth the type of contemporaneous records that a contractor must prepare and maintain in order to record and track labor productivity during the course of the project. By maintaining such records, a contractor can more effectively present a claim for lost productivity in a forward pricing change order request as well as in a retrospective quantification of lost production.
- “Factors Affecting Labor Productivity” restate the MCAA Factors affecting labor productivity. The sixteen factors that have an adverse effect on labor productivity are described, and a percentage loss is ascribed to each factor based on whether the impact of that factor is “severe”, “average” or “minor.”
- “Connecting the ‘Cause’ and ‘Effect’ in Labor Productivity Claims” is a brief discussion by retired Board of Contract Appeals Judge Gerson B. Kramer that emphasizes that use of the MCAA Factors must be based on applying the particular facts of each project to the factors at issue, and that any quantification based on the MCAA Factors must be tied to the specific events that occurred on the project.
- “How to Use the MCAA Factors” is the chapter of greatest interest to attorneys and their consultants since it addresses the proper application of the MCAA Factors. This chapter, initially published by the MCAA in 2005 and updated in 2011, represents a major restatement of the application of the MCAA Factors to quantify lost labor productivity. While the MCAA Factors have been accepted as a reliable basis for measuring lost productivity in court and Board of Contract Appeals decisions, there are cases where the use of the MCAA Factors has been rejected because the MCAA Factors were not properly applied. The chapter “How to Use the MCAA Factors” provides detailed guidance on how to properly utilize the MCAA Factors in a forward pricing application as well as a retrospective application so as to avoid the problems identified in those cases where the MCAA Factors were not accepted. Among this chapter’s topics that are of interest to attorneys, experts and project managers are:
- The incorrect application of the percentage loss to the total manhours expended on the project.
- The proper methods of quantifying the MCAA Factors, noting that simply adding up the factors cumulatively is rarely an accurate measure of productivity.
- The requirement that a retrospective application of the MCAA Factors be performed by a construction expert, as opposed to the contractor’s own personnel.
For any practitioner or contractor contemplating a lost production claim based on the MCAA Factors or a party opposing such a claim, Change Orders Productivity Overtime provides the latest guidance from MCAA on the proper application of the MCAA Factors. In addition to the current publication, the MCAA is about to release a chapter on the subject of quantifying the cumulative impact of changes on productivity, based on studies and research conducted by Dr. William Ibbs, PhD, University of California, Berkeley.
3. Overtime. The following chapters address the subject of lost productivity as a result of overtime:
- “How to Estimate the Impacts of Overtime on Labor Productivity” sets forth an excellent summary of the various published studies on the productivity effects of working extended overtime, including the the Business Roundtable Study, the NECA study on overtime, studies conducted by Dr. Randy Thomas of Penn State University and the study conducted by the U.S. Army Corps of Engineers. Each of these studies has been accepted or relied upon by courts and project participants to calculate lost productivity due to overtime. The chapter concludes that the four studies that were reviewed in detail showed “striking similarity of results” and, as a result, these studies may be useful in establishing a claim for lost productivity due to overtime. The chapter then discusses various methods to apply the results of these studies to both forward priced claims for overtime as well as a retrospective application.
- “Shift Work and Its Affects on Productivity” discusses various factors that a contractor should take into account before proceeding with shift work in an effort to maintain scheduled progress.
While designed primarily for the mechanical contracting community, the publication is an essential tool for any practitioner who is required to advise a client regarding the presentation of a forward-priced change order request or a retrospective application. In the latter case Change Orders Productivity Overtime provides several recommended practices that can be useful in supporting or defending against a claim in arbitration or litigation.