Production loss claims are one of the key issues addressed by quantum experts in construction arbitration and litigation, and because such a variety of factors can cause lost productivity, such claims are notoriously difficult to evidence.
The primary problem that we encounter when trying to value lost production is that we often begin from the English Law premise which dictates that we are to seek those out-of-pocket expenses only for the effects of the breach relied upon. In other words, we need to establish cause and effect.
To be able to value lost production at all we need to be able to establish:
- What production was being achieved or possible.
- What production was achieved with the same resources in differing circumstances.
- What proportion of the lost production emanates directly from the change/breach.
The first thing you will note is that unless you are very careful a lost production claim can look very much like a global claim, that is:
Actual Production – Production in Tender = Lost Production.
For this simple methodology to produce a result that is acceptable as evidence, we need to show that the only changes to the workplace environment and the workforce that reduced the contracted production rate, were initiated and imposed by others, or were risks borne by others. In addition to this we also have the challenge of showing that our tendered production rates were realistic when we contracted.
These are the 5 immediate defences to any lost production claims, and further examples are likely to be many and varied:
- Your productivity norms were unrealistic on a working site, they may work in a controlled environment but not in the real world.
- Your productivity norms were based on the best operatives working with unrestricted access in fine weather conditions. You were aware of restricted working prior to contracting, you failed to attract appropriately qualified and experienced personnel, and you encountered bad weather conditions that are typical of the climate and time of year.
- Your site organisation was poor, and we saw labour waiting for work to be allocated, we also saw labour struggling to work around other trades. Finally, we noticed that your labour gangs were proportionately different to the planned gang size and experience matrix.
- A high proportion of work was substandard and had to be reworked, thus your asserted ‘lost production’ includes carrying work out twice or more times.
- The work was carried out differently or at a different time of year due to your own failures elsewhere. You made the work more difficult and achieved less production as a result.
You will probably be able to see from this list that a number of the listed complaints will still be arguable, even if you have sufficient evidence to support a reasonable ‘measured mile’ methodology.
Calculating Lost Production
The most used method for valuing loss in labour productivity due to disruption is the use of the “measured mile” technique. As an expert witness who has, for the last thirty years, both proffered and critiqued lost production claims successfully, I can say that the claims that succeed under the banner of Measured Mile, have these characteristics.
- The original production estimates were reasonable and achievable on the building site.
- A short period of unaffected working showed that the production levels were achievable.
- Other labour claim issues were separated out and accounted for separately, such as; overtime, downtime, welfare time and acceleration measures.
- The labour records and allocation sheets were detailed and accurate.
- The labour force remained static in quality and quantity.
How do we manage that on a real project? You may ask, well that is a topic for another day. Having experienced many cross examinations around the world on lost production, I would be happy to help contractors and clients alike establish a system of control and recording that would allow production to be reasonably measured. Sadly, people often prefer to call specialists in after the event. I would recommend taking advice early, it is less expensive in the long run.
Two of the documents freely available on the internet, that identify different methods of calculating lost production, many of which are excellent when used correctly, are:
Estimating Lost Productivity in Construction Claims: AACE, 2004, and,
Productivity in Construction, Dozzi & AbouRizk: National Research Council Canada. 1993.
Conclusion and Advice
There are many ways to value lost production, some very persuasive. However, when I see claims made on this topic, I note that most are global, many double-dip, and most are poorly evidenced with contemporaneous records absent.
To avoid losing production, and to prepare yourself to submit a lost production claim if it is inevitable, here is some hard-won advice:
- Produce a realistic and achievable logic linked programme using a sophisticated software programme that allows forensic interrogation.
- Prepare resource histograms showing the planned workforce as they appear in the sequence of the works.
- In your tender pricing/contract price, show how the labour price was constructed, including norms and realistic production levels. If you can, in your tender cite previous contracts where these production levels were achieved, that will really help a third-party dispute resolver to make a decision.
- Keep time records that allocate staff to specific works, ensure that real names are recorded along with certifications and qualifications (especially with welders etc.).
- Manage the works with precision, list changes and their impact on the workforce. Email these records to the client so that they are aware of the lost production contemporaneously. You might say “Your change to the staircase meant that plasterers were diverted to another part of the site, this will cause lost production. Or you could say “At 10:30am the following plasterers were moved from the staircase level 2 and from the work they were doing, to building B, level 3. They lost 65 minutes just in the relocation alone, then they had to work on unprepared surfaces, reducing their productivity. We will be recording that lost production shortly.”
Lost Production is hard to evidence forensically. Ask a specialist how to protect yourself in advance of starting the work, and if you still encounter problems, speak to an expert early in the dispute process. Preparing a generalised claim for loss will be both costly and wasteful because it will need to be done again in all likelihood.
As a testifying expert witness, I can say that a great many thousands of pounds are spent by contractors on optimistic claims that fall well short of evidencing the real loss. Production losses are recovered every day, follow the guidelines, seek help early and you will recover your losses too.
Jeffery Whitfield LLB,FRICS,MCIArb