Demonstrating a Loss of Productivity Claim
There are two industry recognised techniques for demonstrating, to varying degrees, loss of productivity, these being the total cost and the productivity baseline methods, both of which are discussed below.
The total cost approach is probably the most common technique used to demonstrate a loss of productivity due to its simplistic nature and hence quick compilation but for the very same reasons it is also the most rejected of all the techniques used.
With this approach the contractor simply reviews its original tender submission as compared against its actual costs for the specific element of work in dispute and claims for the additional expenditure. The basis of the claim being that the additional expenditure was caused by loss of productivity suffered by the contractor on the project due to an employer event or events. Because of its global nature there are nominally three hurdles that need to be cleared by the contractor for it to have a successful outcome using this technique. Firstly, the contractor needs to be able to demonstrate that its original tender sum was realistic, i.e. it did not seriously underestimate the amount or type of work to be undertaken and hence provide a significantly lower than reasonable tender price to measure its actual costs against. Secondly, the contractor needs to demonstrate that its actual costs were also reasonable i.e. it only used the labour, plant and materials necessary to carry out the work and not an excessive or redundant level of resources. Finally, the contractor must be able to demonstrate that it was not responsible for the cost overrun claimed i.e. it must be able to show a general causal link between the loss of productivity suffered and an employer event or events. Failure to convincingly demonstrate any of the above will usually result in the claim failing.
Due to the global nature of the above technique and hence the imperfections associated with it, the contractor may wish to submit a claim based on a modified total cost method. The approach is similar to the total cost method but with adjustments made by the contractor to correct inaccuracies in its original tender sum as well as the removal of costs associated with any contractor culpable issues that occurred during construction. The contractor may also take the opportunity to correct its claim for any other matters it perceives as its own culpability or which are recovered elsewhere, i.e. through variations.
In summary, a total cost claim may be successful it the contractor is able to clear the fairly difficult three hurdles mentioned above. Success, however, may be improved if the modified total cost method is used i.e. the contractor removes any issues perceived as its own culpability.
Moreover, a loss of productivity claim may be enhanced if the contractor incorporates the productivity baseline method. The basis of this approach is for the contractor to record the productivity achieved on site for a particular trade and then compares it with industry standards or productivity baseline manuals produced by the various trade groups such as the Mechanical Contractors Association of America or the US Army Corps of Engineers. The claim then submitted by the contractor is based on the cost associated with the additional hours expended due to the loss of productivity recorded when compared with the published productivity baseline. This approach is not therefore reliant on the contractor's original tender calculations and might be seen to be a more reliable basis to measure a loss of productivity from. However, as with the total cost method the contractor is still required to demonstrate that any effect on its actual productivity was as a direct consequence of employer introduced events.
The weakness of all of the above methods is that, to varying degrees, they rely on a theoretical basis as part of the analysis i.e. theoretical tender calculations or a theoretical baseline and as such the claim can be attacked for being unrealistic. In conclusion, it is accepted that demonstrating a loss of productivity on a project is extremely difficult to successfully achieve. It is further acknowledged that, if at all possible, the measured mile technique should be adopted as being the most comprehensive approach due to it using
factual rather than theoretical data. If, for various reasons, it is not possible to use a measured mile then any of the above techniques could be implemented but with a full understanding of each of their weaknesses and pitfalls.