As the construction industry recovers from and adjusts to the effects of the COVID-19 pandemic and prepares for a new normal, post-COVID world, claims for losses of productivity on projects that were in progress when COVID-19 struck will likely increase due to contractors performing work under conditions far different than originally contemplated when they bid the project and signed the contract. Consequently, as contractors pursue claims seeking compensation for adverse impacts to the productivity on projects shut down or slowed because of the COVID-19 pandemic, and owners defend such claims, documenting causation and accurately assessing loss of productivity will be vital to both parties. While COVID-19 has changed our lives and the construction industry in many ways, it has not changed the fact that claims for loss of productivity remain some of the most contentious, and most difficult to quantify and prove.
Today, contractors must balance common, but often competing, goals of progressing the work to complete projects while at the same time taking unprecedented steps to protect the safety and health of their workers and the public. In addition to impacts due to design errors and omissions, performing work out of sequence or in adverse weather conditions because of delays, or excessive overtime due to acceleration, contractors must recognize that a host of causes—impacts due to social distancing, labor unavailability due to illness, quarantine, owner restrictions and government restrictions, compliance with OSHA and other safety guidelines, medical testing, work stoppages and suspensions, and supply-chain challenges—may result in losses of productivity on projects. To maintain this balancing act, contractors often expend more actual labor hours on the project than planned, resulting in losses of productivity. Successfully identifying, quantifying and proving such losses is critical to a contractor’s financial success, especially in today’s economy.
While the right to recover for losses of productivity is well-settled, there is no universally accepted standard for calculating damages for these claims. Contractors and their experts rely upon various treatises and studies on loss of productivity to present such claims in mediation, litigation and arbitration proceedings. Over the years, courts have decided claims and awarded damages based on different methodologies for quantifying and proving such claims, often leading to inconsistent results. The American Society of Civil Engineers (ASCE), in conjunction with its Construction Institute, seeks to develop consistency and provide guidance through its soon-to-be-published standard
The methodology that a contractor ultimately employs to calculate damages for loss of productivity due to additional labor, material and equipment costs incurred owing to disruptions on a project is often the most critical issue in prevailing on a loss of productivity claim. While courts do not require such claims to be proven with exactitude or precise calculations, proving that decreased productivity due to disruptions to the manner and/or timing of the work often requires the use of a generally accepted methodology and credible expert testimony; without a foundation of a generally accepted methodology, the expert’s analyses and testimony may be excluded at trial, especially from a jury trial. Contractors must also closely review the contract to ensure it does not expressly exclude claims for loss of productivity due to site conditions, changed weather conditions or other anticipated events or conditions. The methodology chosen also often depends on the facts of the case, and the contractor’s contemporaneous records related to its labor and equipment productivity.
The Measured Mile approach is generally favored by courts and federal agencies as the preferred method of calculating losses of labor productivity. It compares a contractor’s productivity levels between periods in which work was disrupted and periods without a disruption, thereby considering only the actual effects of a disruption and eliminating disputes over the validity of cost estimates or factors impacting productivity due to no fault of the owner. As long as the work during the periods in comparison is reasonably similar, courts and the Board of Contract Appeals have permitted this methodology. This approach, however, cannot be used if the contractor never performed the work efficiently and, therefore, does not have a baseline of unimpacted work for comparison.
Federal and state courts have also allowed contractors to prove their loss of productivity claims using cost-based methods such as “total cost” and “modified total cost.” Under the total cost method, the difference between a contractor’s total actual costs and its estimated costs of completing construction is its “lost productivity damages.” To prevail, a contractor must prove: (1) the nature of the loss makes it impossible or highly impractical to determine lost productivity damages with a reasonable degree of certainty; (2) its bid or cost estimate was realistic; (3) the actual costs it incurred were reasonable; and (4) it is not responsible forUnder the modified total cost method, courts will adjust a contractor’s recovery if it is unable to satisfy all four of these requirements. Using the total cost method as a starting point, courts adjust the contractor’s award down to account for inaccurate bids or to eliminate cost overruns for which the contractor is responsible.
Courts and the Board of Contract Appeals have further allowed the use of industry studies as an alternative means of calculating labor inefficiency. The Board of Contract Appeals accepted the Mechanical Contractors Association of America (MCAA) Manual as alists 16 factors affecting labor productivity, stated as percentage losses to add onto labor costs for the contractor’s labor man-hours, with categories of minor, average and severe, typically determined by conducting fact-witness interviews and doing a complete review of the project records.
The New ASCE Standard
When published, the ASCE standard will be a useful resource for owners, developers, contractors, design professionals, consultants and attorneys for identifying, quantifying and proving loss of productivity claims. It goes through the life cycle of such claims in the context of five distinct, but interrelated, categories: productivity basics; identifying productivity loss; establishing recoverable loss of productivity; quantifying productivity loss; and avoiding productivity loss. Each category includes key principles that function as guidelines or recommended practices to be used by any project participant in prosecuting or defending loss of productivity claims. The application of key principles to each category or phase provides the claimant with both a useful roadmap and a solid foundation for its claims.
From the onset, the standard provides useful guidance on collecting, storing and validating productivity data, which is a critical element of a claim of loss of productivity. Next, it recommends best practices for identifying the causes of productivity loss as early as possible, recording those causes in the project records, taking steps to mitigate such losses and providing notice of such impacts in compliance with the contract. After laying the predicate groundwork, the standard provides valuable guidance on recovering productivity loss by using project labor records, project participants and unbiased experts to validate that the actual conditions differed materially from those that should have been reasonably anticipated, and to estimate productivity losses with a reasonable degree of certainty, even for cumulative-impact changes.
Once a claimant has established causation and responsibility, the standard promulgates a preferred order of methods for quantifying productivity loss. By segregating and ranking different, sometimes inconsistent, damage calculation methods into tiers, the standard should establish consistency. The preferred order of such methods is expected to be: the most preferred approach—the Measured Mile (Tier 1); academic and industry productivity factors studies and modified total cost (Tier 2); and, lastly, the least preferred method—total cost (Tier 3). Before moving to a lower tier, the standard recommends that it be shown with a reasonable degree of certainty that a higher-tier method could not have been used. The standard also recommends using separate productivity analyses that do not overlap for different periods or areas of the project if doing so will improve the overall reliability of the damages estimate.
The ASCE standard, developed from the perspective of various industry sectors, project participants, project delivery methods, project types and sizes, and which will be accredited by the American National Standards Institute (ANSI), has the potential to be a universally accepted, relied upon resource for prosecuting and defending loss of productivity claims. The ANSI accreditation, along with the consensus process managed by the ASCE Codes and Standards Committee, will confer a certain level of credibility. Only time will tell, however, the extent and manner that the standard is consulted and relied upon, and, if so, the extent to which the trier-of-fact finds expert testimony based on the standard to be credible. While it is only advisory, the standard provides key principles on all aspects of loss of productivity claims that, at the very least, provide sound, practical guidance regarding such claims.