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TheAnalysisand ValuationofDisruption

byDerekNelson, SeniorVicePresident&RegionalManagingDirectorAsia HillInternational,Inc

25January2011

TheAnalysisandValuationofDisruption

TableofContents
Introduction WhatisDisruption? WhatisProductivity? WhyisProductivityImportant? Background FactorsAffectingLabourProductivity ProjectChange ExtentofProjectChange DisruptionsandCumulativeImpacts MethodsofQuantifyingLostProductivity ProjectPracticeBasedMethods MeasuredMileAnalysis BaselineProductivityAnalysis SystemDynamicsModelling EarnedValueAnalysis SamplingMethods ComparisonStudies IndustryBasedMethods CostBasedMethods OtherQuantifyingMethods MatchingtheQuantifyingMethodswithProjectPractice Conclusions Attachment 3 3 4 4 5 5 7 8 9 10 13 13 16 17 22 23 24 24 24 25 26 27 31

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TheAnalysisandValuationofDisruption

Introduction
Complaintsofdisruptionandadditionalcostsareroutinelymadeduringthecourseofaconstruction projectyettheyremainnotoriouslydifficulttoprove. Oneofthemainreasonsforthisisthatproductivitylossesareoftendifficulttoidentifyanddistinguish atthetimetheyarise,asopposedtoothermoneyclaimswhicharemoredirectlyconcernedwiththe occurrenceofadistinctandcompensableeventtogetherwithadistinctanddirectconsequence,such as an instruction for a discreet variation during the progress of the works or a properly notified compensationevent. Assuch,mostclaimsfordisruptionaredealtwithretrospectivelyandtheclaimantisforcedtorelyon contemporaryrecordstotryandestablishacausalnexusforidentifiedlosses(causeandeffect)which are all too often inadequate for the purposes of sufficiently evidencing a loss of productivity claim. Whenthishappenstheclaimantisoftenforcedintothesituationwhereitadvancesaweakglobalor totalcostclaimofsortstotryandrecoversomeofitslosses. The cause and effect burden of proof is the same for a claim for loss of productivity as for any other claiminsofarastheclaimingpartymustfirstestablishthattheeventorfactorcausingthedisruptionisa compensable risk event under the contract. To do this, the contract needs to be reviewed to understand the basis of the agreement as certain productivity issues may have been foreseeable and thereforeaccountedforwithintheclaimantsproductivityallowances.Thecontractmayalsoidentifyif apartyexpresslyacceptedcertainproductivityrisks. Where courts and tribunals have a clear focus on linking cause and effect, claims for disruption will comeundergreaterscrutiny.Itisunlikelythatcontractorsandsubcontractorswillsucceedwheretheir claims for disruption are based simply on a global overspend on labour or plant for the whole of the contractworkingperiod.Sufficientdetailisrequiredtoisolatethecauseofthedisruptioncomplained ofandevaluatetheeffectsofthatdisruption.

WhatisDisruption?
Disruption is loss of productivity, disturbance, hindrance or interruption to a Contractors normal workingmethods,resultinginlowerefficiency.Intheconstructioncontext,disruptedworkisworkthat iscarriedoutlessefficientlythanitwouldhavebeen,haditnotbeenforthecauseofthedisruption.If causedbytheEmployer,itmaygiverisetoarighttocompensationeitherunderthe contractorasa breachofcontract.1 Constructioncontractshavetwomajortypesofcostsassociatedwiththem:fixedandvariable. Fixedcostsarethosecoststhatthecontractorprocuresonafixedpricesubcontractorpurchaseorder. Fixedcostsareinherentlylowerinrisk,becausethecontractorhasfixedthemthroughacontract.Risks doexist,suchasthefinancialfailureordefaultofeitheravendororsubcontractorortheinstallationof defective or faulty work by a subcontractor or vendor, but the risks are much less than the risks in variablecostitems.
1

SCLDelayandDisruptionProtocol:October2002. Page|3

TheAnalysisandValuationofDisruption

Variable costs are items such as the contractor's labour, equipment, and site overhead. Extensive literaturehasbeenpublishedaboutdelayclaims,whichprincipallyareclaimsrelatedtotheextended duration of the job and the resulting extended site overhead costs. However, the major variable risk component on a construction project is labour, not extended site overhead. Equipment, on certain types of construction such as utility, heavy, and highway construction, can be a significant cost; however,equipmentcoststendtobeproportionaltolabourcosts.Itisuncommontohavesignificant increasesinequipmentcostswithoutsignificantincreasesinlabourcosts. On many construction projects, the largest single area of cost overrun is in labour costs. This is not surprisinggiventhatlabourisfrequentlythelargestvariablecostforacontractor.Claimsinvolvinglost productivityarefrequentlyreferredtoasdisruptionclaims.

WhatisProductivity?
Productivity = = = = = ProductionOutput/ResourceInput 4mof4pipe/labourhour ActualProductivity/PlannedProductivity 3mperhr/4mperhr 0.75

ProductivityRatio

WhyisProductivityImportant?
HypotheticalProjectCostComponents Labour

40%

Oftenthelargestcost component; Mostvolatilecost component Mostcriticalcosttocontrol

Materials GeneralConditionsandIndirectCosts Overhead Profit Total

40% 10% 5% 5% 100%

Shouldtheaboveprojectsuffera12.5%overrunonthelabourcostcomponent: HypotheticalProjectCostComponents Labour 40% 45% Arisingfroma12.5%overrunon labourcontent Materials 40% GeneralConditionsandIndirectCosts 10% Overhead 5% Profit 5% 0% A12.5%overrunonlabourcontent Wipesoutallprofitontheproject Total 100%
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TheAnalysisandValuationofDisruption

Theexistenceofalabourcostoverrunisnotproofthatanevententitlingacontractortodamageshas occurred. Clearly labour cost overruns can occur for a variety of reasons, not all of which entitle a contractortocompensation. One of the most contentious areas in construction claims is the calculation or estimation of lost productivity.Unlikedirectcosts,lostproductivityisoftennottrackedorcannotbediscernedseparately and contemporaneously. As a result, both causation and entitlement concerning the recovery of lost productivitycanbedifficulttosatisfactorilyestablish. Compounding this situation, there are numerous ways to calculate lost productivity and no uniform agreement within the construction industry as to a preferred methodology of calculating lost productivity. Many methods of calculation are open to challenge with respect to their validity and applicabilitytoparticularcases,thusmakingsettlementoftheissueonaparticularprojectpotentially problematic.2 Withinthepast20years,therehasbeensignificantresearchinconstructionlabourproductivitywhich providesanincreasingbodyofempiricaldataastotheeffectsofvariousfactorsonconstructionlabour productivity.Someofthedifficultiesinapplyingthatdatatoaspecificprojectisoutlinedherein.

Background
Projectchanges,disruptions,cumulativeimpacts,andfactorsaffectinglabourproductivityhavestrong interrelationships.Theyalsoplayavitalroleinestablishingliability,causation,andresultantlossinlost productivity claims. Change is one crucial factor in a range of factors influencing labour productivity. Thefollowingisabriefdiscussionoftheseconcepts.

FactorsAffectingLabourProductivity
Labour productivity is a function of various controllable and uncontrollable factors. Schwartzkopf3 listedthesefactorsundersixgroupscomprising: (1) Scheduleacceleration; (2) Changeinwork; (3) Managementcharacteristics; (4) Projectcharacteristics; (5) Labourandmorale;and (6) Projectlocation/externalconditions.

ConstructionIndustryInstitute,AnAnalysisoftheMethodsforMeasuringConstructionProductivity,SD13,Austin,Texas, 1984. 3 Schwartzkopf,W.(1995).Calculatinglostlaborproductivityinconstructionclaims,Wiley,NewYork. Page|5

TheAnalysisandValuationofDisruption

Borcherding and Alarcon4 present a comprehensive review of quantitative information on factors influencing productivity. In addition, they categorised the major components of productivity loss as waitingoridle,travelling,workingslowly,doingineffectivework,anddoingrework.5 As noted previously, a number of factors may influence the actual productivity achieved on a given project:

Figure:Examplefactorsaffectingproductivity6

Clearly not all disruption attracts the payment of compensation. The contractor may be entitled to compensationfortheeffectsoflostproductivitytotheextentthatabreachofobligationexists,acausal linktotheoffendingpartycanbeestablishedandtheeffectsofthatdisruptioncalculatedappropriately. Moststandardformsofcontractdonotdealexpresslywithdisruption.Iftheydonot,thendisruption maybeclaimedasbeingabreachofthetermgenerallyimpliedintoconstructioncontracts,namelythat theEmployerwillnotpreventorhindertheContractorintheexecutionofitswork.7
4 5

Borcherding,J.D.,andAlarcon,L.F.(1991).Quantitativeeffectsonproductivity.Constr.Lawyer,11(1). SpecificfactorsandtheirdescriptionsareavailableinBorcherding,J.D.,andAlarcon,L.F.(1991).Quantitativeeffectson productivity.Constr.Lawyer,11(1),MechanicalContractorsAssociationofAmerica(MCAA)(1994).Factorsaffectinglabor productivity.Laborestimatingmanual,bulletinNo.PD2,Rockville,Md.,13,Schwartzkopf,W.(1995).Calculatinglostlabor productivityinconstructionclaims,Wiley,NewYork,andAssociationfortheAdvancementofCostEngineering(AACE) International,Inc.(2004).Estimatinglostlaborproductivityinconstructionclaims.AACEInternationalRecommended PracticeNo.25R03. 6 Thefigurepresentedisintendedasillustrativeonlyofthetypeofmattersthatmayinfluenceproductivityonagivensite. AdaptedfromapresentationbyDr.IbbsMeasuringProductivityforImprovedProjectPerformance,2009. 7 SCLDelayandDisruptionProtocol:October2002. Page|6

TheAnalysisandValuationofDisruption

ProjectChange
Whilstanumberofthefactorsimpactingonlabourproductivityonaprojectarereadilyidentifiable,the consequencesofchangeareoftenunderestimatedandthereforespecificallyreferencedhere. Changeisnormallydefinedasanyeventthatresultsinamodificationoftheoriginalscope,execution time,cost,and/orqualityofwork8.Therearegenerallyfivetypesofchanges,namely: Changeinscope; Differingsiteconditions; Delays; Suspensions;and Acceleration. Thecostsofperformingchangedworkconsistofboth: (1) Thosecostsdirectlyrelatedtotheaccomplishmentofthechangedwork;and (2) Thosecostsarisingfromtheinteractionbetweenthechangedworkandunchangedwork9. Notwithstandingthatmostformsofcontractrecogniseandprovideforthevaluationofworkrelativeto the circumstances under which it is being executed, this second aspect is often significantly underestimatedorundervaluedbybothContractorsorEmployersandtheirRepresentatives. Thecostsandscheduleimpactsofachangeoccurinfourphases: Phase One is the time prior to the recognition of the change. An example would be a tradesman determining that the plans do not fit the situation encountered. The tradesman first attempts to determine if he is misreading the plans, then will seek direction from the supervisor who, if the supervisorcannotresolvetheproblem,willthenseekdirectionfromtheengineerortheowner.After someperiodoftime,aclarificationmaybeissued.Itmaybedeterminedthatachangeisnecessaryto deal with the situation. During the period before a change is recognised, costs and delays can be incurred. The process of finding a problem and implementing the solution is outlined in summary below10.

Ibbs,C.W.,andAllen,W.E.(1995).Quantitativeimpactsofprojectchange.;Revay,S.O.(2003).Copingwithchanges. AACEInt.Transactions,CDR.25,17. 9 TripleASouth,ASBCANo.46866,943BCA27,194,at135,523. 10 DevelopedfromWilliamSchwartzkopf,CalculatingLostLabourProductivityinConstructionClaims,2ndEdition,Aspen. Page|7

TheAnalysisandValuationofDisruption

Attachment1presentsalargerscaleoftheaboveprocessdiagramme.

Phase Two occurs after the need to make a change is recognised. During this period, materials are procured and the work is scheduled. Tradesmen may either be doing other work while waiting to performthechangeorworkingaroundthechange.Eitheroftheseactionscancauseinefficiencies. Phase Three is the actual execution of the changed work. The costs incurred during this phase are generallyreferredtoasthedirectcostofthechange.Thesecostsrepresentthetimerequiredandcost toperformthechangedwork. PhaseFourrepresentstheworkperformedafterthechangedworkhasbeenperformed.Thecostand scheduleeffectsduringthisphaseandthefirstphaseareindirectandareoftenreferredtoasimpact costs. The amount of these impact costs is often the subject of considerable disagreement. By comparison,thedirectcostsduringthethirdphasecanfrequentlybemeasuredand,therefore,thecost of the labour, materials, equipment, and other items can be determined. If a project is impacted by multiplechanges,itmaybenecessarytoanalysetheeffectofallofthechangessimultaneouslybecause oftheinteractionofthevariouschanges.

ExtentofProjectChange
The degree of project change varies according to each project but can be significant. Among 24 constructionprojectsinwesternCanada,projectcostsincreasedbyatleast30%formorethanhalfand 60%onathirdofprojects11.Severalprojectssuffereddelaysover100%.AstudyoftheJointLegislative Audit and Review Commission12 on approximately 300 road construction projects in Virginia revealed thattheaveragefinancialprojectchangewasmorethan11%. The amount and timing of change are also significant factors affecting productivity. Analysis of 90 constructiondisputesin57independentprojects13showedthattherewasasignificantdirectcorrelation
11

Semple,C.,Hartman,F.T.,andJergeas,G.(1994).Constructionclaimsanddisputes:Causesandcost/timeoverruns.J. Constr.Eng.Manage.,120(4),785795. 12 JointLegislativeAuditandReviewCommission(JLARC).(2001).ReviewofconstructioncostsandtimeschedulesforVirginia highwayprojects.HouseDocumentNo.31,CommonwealthofVirginia. 13 Leonard,C.A.(1987).Theeffectofchangeordersonproductivity.RevayRep.,6(2),14. Page|8

TheAnalysisandValuationofDisruption

between the percentage of change order hours to contract hours and the percentage of lost productivity.Ibbs14foundthat: (1) Thegreatertheamountofchange,thelesstheefficiencyis;and (2) Lateprojectchangemoreadverselyaffectslabourproductivitythanearlychange. Thisfindingwasalsoconfirmedbylaterstudies15.

DisruptionsandCumulativeImpacts
InCoastalDryDock&RepairCorp.,disruptionisnotedasthecosteffectupon,ortheincreasedcostof performing, the unchanged work due to a change in contract16. In some studies17, disruptions are definedastheoccurrenceofeventsthatareacknowledgedtonegativelyimpactonlabourproductivity. Morebroadly,theAACE;RecommendedPracticestandard18definesdisruptionsasanactionorevent which hinders a party from proceeding with the work or some portion of the work as planned or as scheduled. As noted previously, disruptions can be caused by change. These changes can reduce labour productivityandextendtheprojectduration19.Disruptionscausedbychangecanbebothforeseeable andunforeseeable.Theforeseeableorlocaldisruptionscanoccuratthesametimeandeitherthesame place or within the same resource as the changed work, whereas unforeseeable or cumulative disruptions can also occur at a time or place, or within resources, different from the changed work20. Thewordscumulativedisruptionandcumulativeimpactcanbeusedinterchangeably. Cumulativeimpacthasbeendescribedasbeingtheunforeseeabledisruptionofproductivityresulting fromthesynergisticeffectofanundifferentiatedgroupofchanges.Cumulativeimpactisreferredto as the ripple effect of changes on unchanged work that causes a decrease in productivity and is not analysed in terms of spatial or temporal relationships21. Jones22 argued that when the Board states thatcumulativeimpactcannotbeanalysedintermsofspatialortemporalrelationships,itmeansthat cumulativeimpactcostscannotbesecuredwithinindividualcontractchanges. Pricing of the direct impact due to local disruptions and cumulative impacts due to cumulative disruptionsisdifferent.Thedirectimpactcostsarepreparedonaforwardpricingbasis.Thecumulative impact costs, on the other hand, are more often priced on a backward pricing basis as a contractor cannotforeseeorreadilyquantifytheimpact.Inotherwords,acumulativeimpactclaimaddressesthe

14

Ibbs,C.W.(1997).Quantitativeimpactsofprojectchange:Sizeissues.J.Constr.Eng.Manage.,123(3),308311,Ibbs,W. (2005).Impactofchangestimingonlaborproductivity.J.Constr.Eng.Manage.,131(11),12191223. 15 E.g.,Hanna,A.S.,Russell,J.S.,Gotzion,T.W.,andNordheim,E.V.(1999).Impactofchangeordersonlaborefficiencyfor mechanicalconstruction.J.Constr.Eng.Manage.,125(3),176184. 16 CoastalDryDock&RepairCorp.,ASBCANo.36754,911BCA23,324,at116,989,1990. 17 Thomas,H.R.,andNapolitan,C.L.(1995).Quantitativeeffectsofconstructionchangesonlaborproductivity.J.Constr.Eng. Manage.,121(3),290296.;Thomas,H.R.,andRaynar,K.A.(1997).Scheduleovertimeandlaborproductivity:Quantitative analysis.J.Constr.Eng.Manage.,123(2),181188. 18 AssociationfortheAdvancementofCostEngineering(AACE)International,Inc.(2004).Estimatinglostlaborproductivityin constructionclaims.AACEInternationalRecommendedPracticeNo.25R03. 19 Hanna,A.S.,Lotfallah,W.B.,andLee,M.J.(2002).Statisticalfuzzyapproachtoquantifycumulativeimpactofchange orders.J.Comput.Civ.Eng.,16(4),252258. 20 Finke,M.R.(1998).Abetterwaytoestimateandmitigatedisruption.J.Constr.Eng.Manage.,124(6),490497. 21 CentexBatesonConstructionCo.,VABCANo.4613,991BCA30,153,at149,259,1998. 22 Jones,R.M.(2001).Lostproductivity:Claimsforcumulativeimpactofmultiplechangeorders.PublicContractLawJ.,31(1), 146. Page|9

TheAnalysisandValuationofDisruption

changedworkseffectonworkingconditionsthatwillindirectlyinfluencetheunchangedwork,whereas adirectimpactclaimcoverstheimpactofchangedworkonunchangedwork23. TheAACERecommendedPractice24notes:contractorstendtoblamesuchlossesonownersandaskto becompensated.Owners,ontheotherhand,oftenblameabadbidorpoorprojectmanagementand thus deny additional compensation for lost productivity. Given this situation the root cause of lost productivityisfrequentlyamatterindisputebetweenowners,contractorsandsubcontractors. This paper seeks to set out appropriate approaches and recognised practices designed to overcome thoseinherentobstaclesinanalysingandquantifyingtheeffectsofsuchdisruption.

MethodsofQuantifyingLostProductivity
Theconstructionindustryhasdevelopedandemployedanumberofmethodologiesforestimatinglost labour productivity. Based on the appropriate data input, these methods can be classified into three majorgroups;namely: (1) Projectpracticebased; (2) Industrybased;and (3) Costbasedmethods. The detailed data requirements and corresponding judicial acceptance generally increase as the approachadoptedmovesfromcostbasedtoprojectpracticebasedmethods.

23

Jones,R.M.(2001).Lostproductivity:Claimsforcumulativeimpactofmultiplechangeorders.PublicContractLawJ.,31(1), 146. 24 AssociationfortheAdvancementofCostEngineering(AACE)International,Inc.(2004).Estimatinglostlaborproductivityin constructionclaims.AACEInternationalRecommendedPracticeNo.25R03. Page|10

TheAnalysisandValuationofDisruption

The above figure25 outlines the relationships between the availability, quality and providence of the contemporaneousprojectdocumentation,thereliabilityofthemethodsofquantifyinglostproductivity and the cost and expertise generally required to record, prepare, and document the quantum of damagesderivedthereby. Thehorizontalaxisreferstotheattributesoftheprojectdata.Thetwoverticalaxesrefertoattributes ofthemethodsavailableforcalculatinglostproductivity. Themethodslistedtypicallyincreaseinprecisionastheymovefromthetoptothebottominthegraph andfromlefttoright,i.e.fromatotalcostapproachtoameasuredmileapproach.Thisalsoreflectsthe orderofpreferenceintheresearchliterature26. The cost, effort, and expertise required for quantifying the loss normally increases from left to right. Horizontallytheavailabilityandqualityofcontemporaneousdocumentation requiredincreasesasthe moredetailedmethodsareused. Beforeembarkingonaproductivitylossanalysis,theclaimantshouldcarefullyconsiderwhethertheloss canberecastasanimpactofspecificallydefinableextrawork.Ifthatisthecase,thenthatproductivity lossshouldbeincorporatedintotheestimatefortheextraworkandresolvedinthatmanner.

25

AdaptedfromQuantifiedImpactsofProjectChange,Ibbs,Long,NguyenandLee,JournalofProfessionalIssuesinEngineering EducationandPractice2007. 26 AssociationfortheAdvancementofCostEngineering(AACE)International,Inc.(2004).Estimatinglostlaborproductivityin constructionclaims.AACEInternationalRecommendedPracticeNo.25R03. Page|11

TheAnalysisandValuationofDisruption

Tribunalsappeartobemorefavourablyimpressedbydamagecalculationsrelateddirectlytotheproject in dispute and supported by contemporaneous project documentation.27 Therefore, recommended practiceforpreparingalostproductivitycalculationistoutilise,ifpossible,oneofthetechniqueslisted inthecategoryofProjectPracticeBasedMethodssetoutbelow. Thesemethodologiesareprojectspecificandsupportedbypeopleandrecordsdirectlyinvolvedatthe time of the dispute or the disputed work. That direct relationship to the work and the events in question are what gives the approach its appeal to a tribunal in favour of a more theoretical or generalistapproach. Ifthereisinsufficientinformationavailablefrom contemporaneousproject documentationtosupport one of these techniques, recommended practice then is to use one of the methods listed under the category Project Comparison Studies. These methodologies, too, are project specific but rely upon differentformsofcontemporaneousdocumentation. Unfortunatelyappropriatecontemporaneousprojectdocumentationisnotalwaysavailable.Estimated costs are, of course, recognised as a legitimate way to calculate damages once entitlement and causation are sufficiently proven. Legal systems generally recognise that damages cannot always be calculated with mathematical certainty. Further, it is recognised that contractors frequently have to prepare and live with cost estimates. Therefore, in the absence of other proof of damages, the legal systemmayallowestimatestoestablishdamages.28 Estimated damages may be acceptable, under appropriate circumstances, but are more subject to challenge than direct project costs. Of the damage calculation and estimating methods available, recommended practice is to use first, one of the studies listed in the Specialty Industry Studies category. These are specialty studies of specific types of problems and are, generally, based on a numberofactualconstructionprojects.Ofcourse,toutiliseoneofthesestudies,thecausationofthe lostproductivityshouldbeappropriatefortheparticularproblemstudied. Ifnoneofthespecialisedstudiesareapplicabletothesituationinquestionrecommendedpracticeisto utiliseoneofthestudieslistedintheGeneralIndustryStudiescategories. Thesestudiesaresubjecttogreaterchallengebecausetheyareindustrywideandnotsubjectorproject specific.Inaddition,thebasicdataissometimesderivedfromanonconstructionenvironment.Finally, these studies were largely intended as forward pricing guides, as such, their intended purpose was distinctlydifferent. Notwithstanding these criticisms, in the absence of more reliable techniques, claimants have been allowedtousethesestudiesonceentitlementandcausationhavebeensufficientlyproven. If the contractor preparing a lost productivity damages calculation can demonstrate entitlement and causationbutisunabletoutiliseoneofthetechniquespreviouslynoted,recommendedpracticeisthen touseoneofthemethodslistedintheCostBasiscategory. To successfully utilise one of these techniques, the claimant generally has to overcome some difficult legalhurdles,discussedinmoredetailbelow.But,ifthesechallengescanbemet,thenthesetechniques maybeallowedasameasureoflostproductivity.
27

ForamorethoroughdiscussionofthispointseeSchwartzkopf,WilliamandJohnJ.McNamara,CalculatingConstruction Damages,2ndEdition,AspenLaw&Business,NewYork,2001,1.03.Seealso,Wickwire,JonM.,ThomasJ.Driscoll,StephenB. HurlbuttandScottB.Hillman,ConstructionScheduling:Preparation,LiabilityandClaims,2ndEdition,AspenLaw&Business, NewYork,2003,12.04et.seq.Seealso,RoyS.Cohen,SurveyofCourtsReactionstoClaimsforLossofProductivityand Inefficiency,Session612,ABAPublicConstructionSuperconference,December10,1998. 28 Schwartzkopf,ibid,1.03[B]. Page|12

TheAnalysisandValuationofDisruption

ProjectPracticeBasedMethods
Measured mile analysis, baseline productivity analysis, system dynamics modelling, earned value analysis, sampling studies, and comparison studies are all project practice based approaches whose calculationsaredrawnfromtheprojectrecords. Assuch,theyareexpectedtobemorecrediblethanalternativegeneralapproaches.Courtsandother tribunals therefore prefer estimations of damages that are directly linked to the disputed project and supported by its contemporaneous documentation29. The types of contemporaneous documentation requiredaregenerallydifferentfromonemethodtoanother.Thatis,themostsuitablemethodfora givenprojectcanonlybedeterminedbasedupontheavailableprojectdata. MeasuredMileAnalysis Themeasuredmileapproach30iswidelyacknowledgedasthemostacceptablemethodforcalculating lostproductivitycosts. Theanalysiscomparesidenticaltasksinimpactedandnonimpactedperiodsoftheprojecttoestimate theproductivitylosscausedbytheimpactofaknownseriesofevents31.Itisbasedonanextrapolation ofactualworkhoursspent32.Themeasuredmilecalculationmightincludecomparisonofsimilarwork activities and achieve court acceptance33. The attraction of the measured mile is that the actual contractperformanceratherthantheinitialestimateisusedforthecalculations.Assuchitcompares actualperformanceonsitewithactualperformance,notsometheoreticalplannedperformance.

29

AssociationfortheAdvancementofCostEngineering(AACE)International,Inc.(2004).Estimatinglostlaborproductivityin constructionclaims.AACEInternationalRecommendedPracticeNo.25R03. 30 Sometimesreferredtoasdifferentialstudiesormeasuredproductivitycomparisons. 31 Schwartzkopf,W.(1995).Calculatinglostlaborproductivityinconstructionclaims,Wiley,NewYork. 32 Zink,D.A.(1986).Themeasuredmile:Provingconstructioninefficiencycosts.CostEng.,28(4),1921. 33 Jones2003;CalveyandZollinger2003;AssociationfortheAdvancementofCostEngineering(AACE)International,Inc. (2004).Estimatinglostlaborproductivityinconstructionclaims.AACEInternationalRecommendedPracticeNo.25R03. Page|13

TheAnalysisandValuationofDisruption

The above illustrates a nondisrupted period of excavation and a later disrupted period where the volumeofexcavationperunitoftimehasbeenadverselyaffectedbyoperationalandaccessrestrictions imposedupontheContractor. Thereareseveralassumptionsandprerequisitesunderlyingthemeasuredmiletechnique: First,theremustbeanonimpactedorleastimpactedperiod,socalledmeasuredmileperiod, forthespecifictypeofworkbeingassessed.Theadversefactorsaffectingproductivityduring themeasuredmileperiod,ifany,mustbesolelyattributabletothecontractor; Second,thelengthofthisperiodshouldbesignificantcomparedtotheimpactedperiodandthe courseofwork.Itwouldbeunreasonabletoextrapolate2%ofprogressinto80%ofexpected costs34; Third,sufficientamountsofcontemporaneousprojectdatashouldbeavailablefortheanalysis. At most the physical units of work completed have to be periodically recorded so that the cumulativelabourhourscanbeplottedthroughthecourseofwork. Fourth, the project data are assumed to be error free. That is, the contemporaneous documentationmustbeaccuratelyrecordedbythecontractor;and Finally, all disruptions during the impacted period are due to one partys (say, the owners) actionsorinactions.Itisextendedthatotherfactorsunrelatedtotheclaimedimpactshaveto beaccountedforandremovedfrom theimpactedperiodanalysistothedegreethesefactors occurredduringthemeasuredmileperiod35.

34 35

Zink,D.A.(1986).Themeasuredmile:Provingconstructioninefficiencycosts.CostEng.,28(4),1921. AssociationfortheAdvancementofCostEngineering(AACE)International,Inc.(2004).Estimatinglostlaborproductivityin constructionclaims.AACEInternationalRecommendedPracticeNo.25R03. Page|14

TheAnalysisandValuationofDisruption

Considerable limitations are embedded in these assumptions. The measured mile analysis becomes unreliableorevenimpossiblewheneitheranonimpactedperiodsimplydoesnotexistorthatperiodis not sizeable. The fact that the analysis requires identical or substantially similar activities for comparisonscanhamperitsapplicabilityasthemethodisinappropriateforuniqueandcomplextasks36. Thereliabilityofthemethodischallengedifinaccuratecontemporaneousprojectdataisusedforthe analysis.Unfortunatelyreportingerrorsarecommonplaceinprojects37. Otherlimitationsaremoreimplicit.Projectedcumulativelabourhourscanbeextrapolateddifferently duetodifferentoptionsofthetimeframe.GulezianandSamelian38pointedoutthat: (1) Different time frame and segments selected within the measured mile period may produce differentnumbers;and (2) Variation ofdaily productivity is concealed to varying extents by the cumulating nature of the measuremileanalysis. Theyalsoarguethatthemeasuredmiledoesnotnecessarilyreflecttheproductivitynormallyachieved bythecontractorduetothesmoothingeffectofsuccessivecumulativedataandthenatureofvariation inunitproductivityvalues.Inaddition,thetwoaverageproductivityrates,whicharereadilycalculated andcomparedfornonimpactedandimpactedperiods,maymaskthefactthatacontractorgenerally doesnotattainasinglerateofproductivitythroughoutatimeperiod39. ExampleMeasuredMileCalculationComparisonofUnitCostforImpactedandNonimpactedAreas40 TheContractorplannedtoperformallofthecrosstaxiwaypavingonanuninterruptedbasis,andtouse pavingmachinesforalloftheconcretepavingexceptforthefilletareas,whichweretobedonebyhand pours. Becauseoftheengineer'schangesinthetaxiwaylightingandarequirementtoputpavementsensing devices in the concrete for a longrange pavement wear study, the work on the south taxiways was performed on a sporadic and intermittent basis. In fact, much of it was performed on a hand basis ratherthanusingthelargeconcreteslipformpavingspread.Thiscausedasubstantiallygreatercostof performingtheworkonthesouthtaxiwaysthancouldbereasonablyanticipated. The work on the north taxiways was performed under normal conditions, since the changes were all made prior to the start of work on the north taxiways and the pavement wear study would not be conducted on the north taxiways. Runway's cost as a result of these changes can be calculated by comparingtheunitcostoflabourforthenorthtaxiways(whichwereessentiallynonimpacted)withthe unit cost of labour for the south taxiways (which were substantially impacted). Both the north and south taxiways were performed during normal paving periods under good weather conditions. The samelabourforceandthesameequipment(withtheexceptionthattheslipformpavingspreadcould notalwaysbeusedduetothechange)wasusedonbothareas.However,theunitlabourcostonthe north taxiways, which were nonimpacted, was approximately half of the cost incurred on the south taxiways.

36

Loulakis,M.C.,andSantiago,S.J.(1999).Gettingthemostoutofyourmeasuredmileapproach.Civ.Eng.(N.Y.),69(11), 69. 37 Thomas,H.R.,andSanvido,V.E.(2000).Quantificationoflossescausedbylaborinefficiencies:Whereistheelusive measuredmile?Constr.LawBus.,1. 38 Gulezian,R.,andSamelian,F.(2003).Baselinedeterminationinconstructionlaborproductivitylossclaims.J.Manage.Eng., 19(4),160165. 39 Finke,M.R.(1998).Statisticalevaluationsofmeasuredmileproductivityclaims.CostEng.,40(12),2830. 40 DrawnfromSchwartzkopf,CalculatingLostLaborProductivityinConstructionClaims,2ndEdition. Page|15

TheAnalysisandValuationofDisruption

On the above information and the following simplistic analysis, the Contractor is entitled to be paid $549,155inadditionalcoststhatitincurred,asillustratedinthefollowingformula:
Hours SquareMetresProduced Hours/SquareMetre IncreaseinUnitLabourRate QuantityAffectedbyBlockoutandLightChange IncreasedRate ManhourIncreaseDuetoChange LabourCostperManhour TotalAdditionalLabourCost ActualNorthCross TaxiwayProduction 10,116.00 102,256.00 .099 ActualSouthCross TaxiwayProduction 51,969.00 281,746.60 .184 0.086 281,746.60 0.086 24,096.32 $22.79 $549,155.17

BaselineProductivityAnalysis Thisapproachwasproposedinordertoavoidsomeofthelimitationsandimpracticalassumptionsofa currentmeasuredmileanalysis.Similartothe measuredmilemethod,baselineanalysisreliesonthe contractors actual performance of the project being analysed. A central point of this analysis is to establish the baseline productivity. It represents the best and most consistent productivity the contractor was able to achieve on the project41. Analysing a 42 project database42 revealed that the baseline productivity mainly depends on the complexity of the design and the work methods used. Unlike the measured mile analysis, a baseline analysis neither needs defined nonimpacted and impactedperiodsnorbeconsecutivereportingperiodsinthebaselinetimeframe43.Inotherwords,the baselineanalysiscanbemoreflexibleandhencemoreapplicableincurrentpractice44. However, the process has not obtained consensus among studies though it is generally agreed that usingindividualproductivityvaluesisbetterthancumulativeproductivityforthecalculations.Thismay be due to varying views on the baseline productivity. Unlike Thomas and Zavrki45, Gulezian and Samelian46 noted that the baseline productivity reflects the normal operating performance of a contractor.

41

Thomas,H.R.,andZavrki,I.(1999).Constructionbaselineproductivity:Theoryandpractice.J.Constr.Eng.Manage., 125(5),295303. 42 Thomas,H.R.,andZavrki,I.(1999).Constructionbaselineproductivity:Theoryandpractice.J.Constr.Eng.Manage., 125(5),295303. 43 Thomas,H.R.,andZavrki,I.(1999).Constructionbaselineproductivity:Theoryandpractice.J.Constr.Eng.Manage., 125(5),295303 44 AdeterminingprocessofthebaselineproductivitycanbefoundinThomasandZavrki(1999),ThomasandSanvido(2000), andGulezian,R.,andSamelian,F.(2003).Baselinedeterminationinconstructionlaborproductivitylossclaims.J.Manage. Eng.,19(4),160165. 45 Thomas,H.R.,andZavrki,I.(1999).Constructionbaselineproductivity:Theoryandpractice.J.Constr.Eng.Manage., 125(5),295303. 46 Gulezian,R.,andSamelian,F.(2003).Baselinedeterminationinconstructionlaborproductivitylossclaims.J.Manage.Eng., 19(4),160165. Page|16

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ThomasandZavrki47andThomasandSanvido48determinethebaselineproductivityasthemedianof theindividualproductivityvaluesinthebaselinesubset.GulezianandSamelian49calculateitasthe meanproductivityofthepointsfallingwithinthecontrollimitsafterapplyinganiterativeprocessofan individualscontrolcharttodealwithdifferentsourcesofvariationofperiodicallyreportedproductivity values. Althoughthebaselineanalysissolvesseveralproblemsassociatedwiththemeasuredmileapproach,it is still limited. The way of calculating the baseline productivity should be more scientific and straightforward, subject to properly dealing with the reliability of reported data, variation of productivityvalues,andcasuallinkagestodisruptionsandinefficiency.Someshortcomingsarerelated totheestablishmentofthebaselinesampleasinThomasandZavrki50andThomasandSanvido51.They are: (1) The baseline sample is identified according to the best daily output instead of the best daily productivity;and (2) The 10% requirement for the baseline sample size is arbitrary and not based upon scientific principles52. Inadditionitisagreedthatthebaselineanalysisisacauseandeffectanalysis,yetitisqualitativeorvery roughly approximate in nature as in Thomas53. There has been no sound method for which damages inducedbytheownerandcontractorareclassifiedandquantifiedduringadisputedperiod.Especially, multipleand/orsimultaneousownerandcontractorcauseddisruptionsarenotuncommoninreallife. SystemDynamicsModelling Systemdynamics(SD)modellinghasbeenemployedtounderstandthebehaviourofvariousnatural, social, and engineered systems54. Developed at MIT55 in the late 1950s, SD is widely used in the defenceindustry. A number of delay and disruption claims have been successfully settled with extensive support of SD modelling.OnesuchsuccessfulstorywasthedevelopmentandapplicationofaSDcomputersimulation modeltoresolvea$500millionshipbuilderclaimconsistingofthedirectimpactandtherippleeffects between Ingalls Shipbuilding and the U.S. Navy in the 1970s56. Other successful applications of SD modellingindelayanddisruptionclaimsandlawsuitshavealsobeenreported57.
47

Thomas,H.R.,andZavrki,I.(1999).Constructionbaselineproductivity:Theoryandpractice.J.Constr.Eng.Manage., 125(5),295303. 48 Thomas,H.R.,andSanvido,V.E.(2000).Quantificationoflossescausedbylaborinefficiencies:Whereistheelusive measuredmile?Constr.LawBus.,1. 49 Gulezian,R.,andSamelian,F.(2003).Baselinedeterminationinconstructionlaborproductivitylossclaims.J.Manage.Eng., 19(4),160165. 50 Thomas,H.R.,andZavrki,I.(1999).Constructionbaselineproductivity:Theoryandpractice.J.Constr.Eng.Manage., 125(5),295303. 51 Thomas,H.R.,andSanvido,V.E.(2000).Quantificationoflossescausedbylaborinefficiencies:Whereistheelusive measuredmile?Constr.LawBus.,1. 52 Ibbs,W.,andLiu,M.(2005).Improvedmeasuredmileanalysistechnique.J.Constr.Eng.Manage.,131(12),12491256. 53 Thomas,H.R.(2005).Causationandcauseeffectanalyses.Constructionclaimsonline,WPL,3(4). 54 Itsprinciples,concepts,andtoolscanbefoundinForrester,J.(1961).Industrialdynamics,PegasusCommunications, Waltham,Mass,Richardson,G.,andPugh,A.(1981).Introductiontosystemdynamicsmodelingwithdynamo,Pegasus Communications,Waltham,Mass,andSterman,J.D.(2000).Businessdynamics,systemthinking,andmodellingforacomplex world,IrwinMcGrawHill,NewYork. 55 MassachusettsInstituteofTechnology. 56 Cooper,K.G.(1980).Navalshipproduction:Aclaimsettledandaframeworkbuilt.Interfaces,10(6),2036. 57 Ackermann,F.,Eden,C.,andWilliams,T.(1997).Modelingforlitigation:Mixingqualitativeandquantitativeapproaches. Interfaces,27,4865;Eden,C.,Williams,T.,Ackermann,F.,andHowick,S.(2000).Onthenatureofdisruptionanddelay.J. Oper.Res.Soc.Jpn.,51,291300;Williams,T.M.,Ackermann,F.,andEden,C.(2003).Structuringadisruptionanddelay claim.Eur.J.Oper.Res.,148,192204. Page|17

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The SD approach seeks to create a computer model of the project that maps all relationships and feedbackloopsinacomprehensivedynamicmodel.Asimplisticrepresentationofthatmodelmaylook somethinglike:

Thesequenceofmodelledeventsmayrunalongthefollowinglines:

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Problemsearlyintheprojectpropagatetodownstreamwork.Changeimpactsoriginallyisolatedinthe engineeringphasemayendupaffectingconstructionaswell.Thereanothersimilarsetofdynamicsis triggered, with the addition of some physical impacts as well, such as crowding (congestion, trade stacking).Allthesedynamiceffectsinconstruction,astheyaffectlabourproductivity,canamplifythe magnitudeofdisruptionimpactsfromchanges.

IllustrationsdrawnfromProjectChanges:Sources,Impacts,Mitigation,Pricing,Litigation&Excellence,PAConsultingGroup

ByusingSDmodellingquantificationofcumulativeimpactscanovercomeoneofthelimitationsofthe measured mile and baseline analyses. As noted earlier the two methods are not able to easily accommodate multiple and/or concurrent disruptions caused by different project parties. SD models canquantifyownerresponsibledelayanddisruptionimpactcostsanddemonstratethecauseandeffect relationshipofthecumulativeimpacts58.AkeyfeatureofSDsimulationmodellingisthatitallowsand directsansweringapoolofwhatifquestionssuchas:Whatifoneparticularcategoryofdisruptions hadnotoccurredbutallothershad?Whatiftheownerinterventionshadnotoccurred?59.Inaddition, it visualises causality and allows for validation of causal logic in quantitative terms and against actual dataatanyperiodoftheprojectindispute60. SD modelling has not achieved popularity in construction disputes compared to the measured mile analysis.
58 59

Cooper,K.G.(1980).Navalshipproduction:Aclaimsettledandaframeworkbuilt.Interfaces,10(6),2036. Cooper,K.G.(1980).Navalshipproduction:Aclaimsettledandaframeworkbuilt.Interfaces,10(6),203;Eden,C., Williams,T.,andAckermann,F.(2005).Analysingprojectcostoverruns:Comparingthemeasuredmileanalysisandsystem dynamicsmodelling.Int.J.Proj.Manage.,23,135139. 60 Eden,C.,Williams,T.,andAckermann,F.(2005).Analysingprojectcostoverruns:Comparingthemeasuredmileanalysis andsystemdynamicsmodelling.Int.J.Proj.Manage.,23,135139. Page|21

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One main reason is that SD simulation models are not readily understood due to the dynamic complexity and quantitative nature of those models61. In addition, unless the SD model is properly validated,itispointless,barelycredible,andthereforeuseless. ValidationofaSDmodelisproblematicandtimeconsumingandrequiresextensiveexpertiseoftheSD methodology.Insomecircumstances,itisassumedthatthereasonablenessoftheoriginalestimatein SD modelling can draw inaccurate and unpersuasive quantum of damages. Also, although the causal coefficients indicating the relationships between activities are very important to the accuracy of a SD model,theyarenoteasytoestimate62. EarnedValueAnalysis Productivitymeasurementissometimesdifficultwhenthereisinsufficientinformationconcerningthe physical units of work installed on the project. In these situations, a simplistic form63 of the earned valueanalysismethodcanbeutilisedtocalculateestimatedlabourhours.64Thecontractorsestimate or alternatively the monetary value of payment applications, contract amounts or unit prices can be usedtodeterminelabourhours,whentheywereexpendedand,possibly,onwhatactivities.65Physical unitsofworkcompletedmultipliedbybudgetunitratescanbeusedtodetermineearnedhours.The earned hours are then compared to the actual hours expended for the period of the impact and the differencebetweenthetwomaybeusedtocalculatetheproductivitylossexperienced. Earnedvaluemeasurementofcontemporaneousprojectdocumentation,suchaspercentagescomplete from schedule updates or payment applications can assist with calculating labour productivity.66 Additionally, the claimant may calculate the actual revenue per hour of labour versus the planned revenueperhour,asanalternative.67Earnedvalueanalysismayalsobeutilisedtocalculateestimated labourhours.68 Whenusingtheearnedvalueanalysistechnique,itiscautionedthatthebudgetusedtogeneratethe earnedvaluemetricsbecarefullyreviewedandverifiedforreasonableness.Anyearnedvalueanalysis basedupon anunreasonablebudget ishighlysuspect. Finally,itisnoted thatafullyresourceloaded (labourandquantities)CPMscheduleisagoodsourceforobtainingearnedvaluemetricsandallowsfor liketimecausationanalysis. An earned value analysis can also be used to estimate the cumulative impacts, especially when the physical units of work completed have not been recorded adequately for employing a more reliable methodlikethemeasuredmileandbaselineanalyses.

61 62
63

Howick,S.(2005).Usingsystemdynamicsmodelswithlitigationaudiences.Eur.J.Oper.Res.,162,239250. Ibbs,W.,andLiu,M.(2005).Systemdynamicmodelingofdelayanddisruptionclaims.CostEng.,47(6),1215.

Theuseofthetermearnedvaluemeansdifferentthingstodifferentpeople.Inthiscontext,simplifiedearnedvalueis usedtodistinguishbetweenformEarnedValueasrequiredbytheUSGovernmentonmanyoftheirprojectsandearnedvalue aspracticedbymanyEPCcontractors.SeeforexampleKennethK.Humphreys,JelensCostandOptimizationEngineering,Third Edition,McGrawHill,NewYork,1991;JamesM.Neil,ConstructionCostEstimatingforProjectControl,PrenticeHall,Inc., EnglewoodCliffs,NewJersey,1982;andSkillsandKnowledgeofCostEngineering,FifthEdition,AACEInternational, Morgantown,WestVirginia,2004. 64 SeeStumpf,George,R.,editor,AACEIProfessionalPracticeGuidetoEarnedValue,AACEI,Morgantown,WV,1999. 65 SeeCass,DonaldJ.,EarnedValueProgramsforDOEProjects,CostEngineering,Vol.42,No.3,February2000. 66 SeeFleming,QuentinW.andJoelM.Koppelman,EarnedValueProjectManagement,ProjectManagementInstitute,Upper Darby,PA.1996. 67 SeeMcCally,BobM.,DemonstratedLaborEfficiency:AnEffectiveCostControlandAnalyticalTool,CostEngineering,Vol.41, No.11,pp.3337,November1999. 68 SeeJonesandDriscoll,Ibid,pageB24. Page|22

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Foraproject,thedifferencebetweenearnedhoursdeterminedfromtheearnedvalueanalysismethod andactualhoursexpendedforanimpactedperiodcanbeusedtocomputetheinefficiencysuffered69. As an earned value analysis is based on the percent complete and the budget, the credibility of the methodcanbequestionable.Thereasonsarethat: (1) The percent complete method is not as detailed and accurate as the physical units of work completedmethod70usedinthepreviousquantifyingmethods;and (2) The original estimate is likely to be unsubstantiated. Any earned value analysis relying on an unreasonablebudgetisverydoubtful71. SamplingMethods Two sampling methods used for estimating lost productivity are work sampling and craftsmen questionnairesamplingmethods.Introductiontothesemethodscanbefoundelsewhere72. Worksamplingisamethodinwhichalargenumberofdirectobservationsoftradesmenaremadeto determinewhattheyaredoingatvariouspointsintime.WorksamplingisdefinedasAnapplicationof randomsamplingtechniquestothestudyofworkactivitiessothattheproportionsoftimedevotedto differentelementsofworkcanbeestimatedwithagivendegreeofstatisticalvalidity.73 From these observations the claimant determines, on a percentage basis, how much time is spent betweendirectwork(payitemwork);supportwork(movingtoolsandmaterialstotheworklocation); ordelays(timewhennoworkisbeingperformed).Byperforminganumberofworksamplingstudies, the analyst can draw comparisons of productivity before and after known events, between work activitiesorcrews,etc.Worksamplinghasbeenofferedasameansofdeterminingproductivitylossbut itcanonlybeperformedduringthelifeoftheprojectandisnotcompatiblewithahindsightanalysis effort.74 The sampling methods are typically simple and inexpensive to analyse labour productivity. Although theycanbeusedforlostproductivityclaims,theirtrustworthinessisnothighastheyareonlyasampled measureoflabourproductivity. Forinstance,anassumptionofworksamplingthatthereisapositiverelationshipbetweenproductive timeandlabourproductivitywasfoundtobefalse75. Thequestionnaireapproachallowscraftsmentoestimatetheamountoflostproductivetimeinthefield on a daily or weekly basis, identifying the reason for the lost time. While, perhaps, not the most scientificofstudies,thisiscontemporaneousdocumentationifadministeredproperly.Theclaimantcan thentietheresultsofsuchasurveytotheentitlementandcausationarguments.76
69

AssociationfortheAdvancementofCostEngineering(AACE)International,Inc.(2004).Estimatinglostlaborproductivityin constructionclaims.AACEInternationalRecommendedPracticeNo.25R03. 70 Schwartzkopf,W.(1995).Calculatinglostlaborproductivityinconstructionclaims,Wiley,NewYork. 71 AssociationfortheAdvancementofCostEngineering(AACE)International,Inc.(2004).Estimatinglostlaborproductivityin constructionclaims.AACEInternationalRecommendedPracticeNo.25R03. 72 e.g.,Oglesby,C.H.,Parker,H.W.,andHowell,G.A.(1989).Productivityimprovementinconstruction,McGrawHill,New York.. 73 AmericanInstituteofIndustrialEngineers,AmericanNationalStandardZ94.11,IndustrialEngineeringTerminology1120 (1989). 74 SeeFwuShiunLiouandJohnD.Borcherding,WorkSamplingCanPredictUnitRateProductivity,JournalofConstruction EngineeringandManagement,Vol.112,No.1,page90(March,1986).Seealso,Jenkins,JamesL.andDarylL.Orth,Productivity ImprovementThroughWorkSampling,CostEngineering,Vol.46,No.3,pp.2732,(March2004). 75 Thomas,H.R.(1991).Laborproductivityandworksampling:Thebottomline.J.Constr.Eng.Manage.,117(3),423444.. 76 LuhMannChangandJohnD.Borcherding,EvaluationofCraftsmenQuestionnaires,JournalofConstructionEngineeringand Management,Volume111,No.4,page426.(December,1985) Page|23

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AvariationofthismethodistheuseofaCraftsmenQuestionnaireattheendofthejob,toconfirmor modify a productivity loss analysis performed utilising another method. For example, a Board of ContractAppealscaseallowedaCraftsmenQuestionnairetobeusedasamodifierofanindustrywide studyandawardedlostproductivitycoststoamechanicalsubcontractoronthisbasis.77 ComparisonStudies Comparisonstudiescanbeclassifiedascomparableworkandcomparableprojectstudies.AACE78also classifiesthecomparableworkstudiesintwoforms: (1) The contractor estimates lost productivity on the impacted period, and then locates an analogousorsimilarworkactivityonthesameproject,whichwasnonimpactedandcalculates itsproductivity;and (2) The contractor compares productivities during the impacted period and of similar but non impactedworkperformedbyanothercontractoronthesameproject. Comparable project studies are used to contrast the productivities of similar work activities on the projectbeinganalysedandasimilarproject. The successful use of comparison studies can be difficult to secure given that the definition of similar workorasimilarprojectarerarelyagreedbyprojectparties.Assuchbaselineproductivityanalysisor systemdynamicsmodellingshouldbeconsideredforsizableclaimswhenthereisnoclearnonimpacted period. The other methods can be adopted as complementary and used to further substantiate the outcomeresultsachieved.Theremaybetimeswhentheyarethebestalternativeavailable.

IndustryBasedMethods
Specialtyindustryandgeneralindustrystudiesarecalledtheindustrybasedmethods.Astheirnames imply a specialty, industry study employs results of specific studies directly related to the cause of damages, whereas a general industry study is based on industrywide manuals and/or reports. The specific studies can be about acceleration, learning curve, overtime, weather, and so forth79. The industrybasedanalysesmaybeemployedwhenthereisinsufficientprojectdocumentation.Theycan alsobeusedwithanothermethodtoaugmentsupportiveevidenceofdamages.Ingeneral,although the industry based methods are quick and inexpensive, their use in calculating lost productivity is not thefirstpreference.

CostBasedMethods
Ifitispossibletodemonstrateentitlementandcausationbutthereisinsufficientprojectdocumentation tosupportdamagecalculationsusinganyoftheabovetechniques,recommendedpracticeistouseone ofthecostingmethodssetforthbelow.Thesemethodsrequireanalysisoftheprojectjobcostrecords. The purpose of such preliminary analysis is to determine actual direct labour hours and costs (having
77 78

SeeHenselPhelpsConstructionCo.,GSBCANos.14,744&14,877,011BCA31,249.January11,2001. AssociationfortheAdvancementofCostEngineering(AACE)International,Inc.(2004).Estimatinglostlaborproductivityin constructionclaims.AACEInternationalRecommendedPracticeNo.25R03. 79 Sourcesofthesequalitativeand/orquantitativestudiesforvarioussubjectscanbefoundinBorcherding,J.D.,andAlarcon,L. F.(1991).Quantitativeeffectsonproductivity.Constr.Lawyer,11(1)andAssociationfortheAdvancementofCost Engineering(AACE)International,Inc.(2004).Estimatinglostlaborproductivityinconstructionclaims.AACEInternational RecommendedPracticeNo.25R03. Page|24

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stripped out materials, installed equipment, supplies, field and home office overhead, small tools and consumables,etc.). Total cost and modified total cost methods are grouped into cost based methods. AACE80 further dividesatotalcostmethodintoatotalunitcostandatotallabourcostmethod.Underthetotalcost method,thecontractorsubtractsitsestimatedlabourcostsfromthecostsactuallyincurredtoarriveat theresultingoverrunasthebasisforitsinefficiencyclaims81.Themajordifferencebetweenthetotal costandmodifiedtotalcostmethodsisthatdamagesquantifiedbymodifiedtotalcostcalculationtakes into account unreasonable estimates and/or inefficiencies due to contractors problems. Thus, the secondmethod,outofthetwo,ispreferable. Successful use of the cost based methods is limited. In order to employ a total cost analysis, a contractorgenerallyhastoprovethefollowingrequirements: (1) Theimpracticabilityofprovingactuallossesdirectly; (2) Thereasonablenessofitsbid; (3) Thereasonablenessofitsactualcosts;and (4) Lackofresponsibilityfortheaddedcosts82. Therequirementsfortheuseofthemodifiedtotalcostmethodaresimilarbutthebidandactualcosts shouldbereasonableafteradjustment

OtherQuantifyingMethods
There are other inefficiency estimations such as expert testimony and jury verdict. A considerable portionoflostproductivitycalculationsisbasedprimarilyuponanexpertstestimony83.Althoughthis method might work, it is extremely uncertain due to a lack of supporting analysis. Similarly, the jury verdict approach that is occasionally applied by USA boards, courts, and other bodies to determine damageshasnogroundonwhichacontractorshouldrely.
80

AssociationfortheAdvancementofCostEngineering(AACE)International,Inc.(2004).Estimatinglostlaborproductivityin constructionclaims.AACEInternationalRecommendedPracticeNo.25R03. 81 Jones,R.M.(2003).Updateonprovingandpricinginefficiencyclaims.Constr.Lawyer,Summer,311;Klanac,G.P.,and Nelson,E.L.(2004).Trendsinconstructionlostproductivityclaims.J.Profl.IssuesEng.Educ.Pract.,130(3),226236. 82 CentexBatesonConstructionCo.,VABCANo.4613,991BCA30,153at149,261,1998. 83 Sanders,M.C.,andNagata,M.F.(2003).Assessingmethodologiesforquantifyinglostproductivity.AACEInt.Transactions, CDR.18,18. Page|25

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MatchingtheQuantifyingMethodswithProjectPractice

Theabovefigure84presentsaframeworkfromwhichthesuitabilityofavailableapproachesforanalysis andquantifyingtheeffectsofdisruptionmaybediscerned.Thisselectionprocessisprimarilybasedon theavailabilityandthecharacteristicsofinformationavailablesetagainstthedegreeofreliabilityofthe quantifying method. Available information can be from particular project practice and/or industry studies. Aseriesofquestionsareaskedtoselecttheappropriatequantifyingmethod.Accordingly,thematching processstructurescriticalquestionsbyvariousdecisionpoints.Thesedecisionpointsareorganisedin suchawaythatmoregeneralquestionsregardingprojectpracticearisefirstsothatavailablemethods cangraduallybeclassifiedintermsoftheirfeasibility.Finally,themostadvantageousmethodemerges amongthefeasiblesetforacertaintypeofprojectdataandindustrystudies.Therelativeadvantages and disadvantages of the lost productivity quantifying methods are discussed in the previous section.
84

AdaptedfromQuantifiedImpactsofProjectChange,Ibbs,Long,NguyenandLee,JournalofProfessionalIssuesinEngineering EducationandPractice2007. Page|26

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Theaboveframeworkrecommendsthemostfavouredapproachratherthanasetofpossibleones.This meansthat,forexample,anearnedvalueanalysiscanalsobeusedincaseameasuredmilestudyisnot available. However, the measured mile method is most favoured in that circumstance and hence is recommended. In addition, comparison studies do not appear in the possible outcomes of the framework since much more credible methods such as baseline productivity analysis and system dynamicsmodellingarepreferredwhentime,availabledocuments,andresourcespermit.

Conclusions
Underappropriatecircumstances,allofthemethodssetforthhereinaretechnicallyacceptable.Ofall the methods identified above, the most reliable are those reliant upon the analysis of factual, contemporaneousinformationdrawnfromthespecificprojectinquestion,i.e.ProjectSpecificStudies. These methods are based upon contemporaneous documentation and knowledge from the project. Thus,theyaretheclosesttoapproximatingactualdamagesfromtheproject.Allothermethodologies discussed are estimating techniques with varying degrees of reliability. Therefore, they must be consideredlessrobust.Thisagainhighlightstheimportanceofkeepinggoodrecordsfromtheoutsetof theproject. To reliably quantify and successfully claim for lost productivity, damages have to be associated with cause.Resultantinjurygoeshandinhandwithliabilityandcausationtoformthetriadofproof.

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