Construction Labor and Loss of Productivity Terminology

This is the second blog post in a six-part series that defines terms commonly used in Engineering, Procurement, and Construction (EPC) project management, construction management, and claims. The first post defined language related to costs, damages, and cost estimating. This second post addresses construction labor and loss of productivity. Future posts will cover scheduling and delay, claim and contract types, and project and construction management.

Absenteeism – Absence of crew members may lower the overall crew productivity rate because of fewer resources or different skill levels of the remaining crew. The contractor is usually responsible for the consequences (delay and loss of productivity) for this problem.

Craft Turnover – Learning curve productivity loss results from the continual turnover of labor. Unless it can be demonstrated that the owner is responsible for this problem, the contractor is usually responsible for the consequences (delay and loss of productivity) of this problem.

Cumulative Impact – Cumulative impact is the unforeseeable disruption of productivity resulting from the “synergistic” effect of an undifferentiated group of changes. Cumulative impact is referred to as the “ripple effect” of changes on unchanged work that causes a decrease in productivity and is not analyzed in terms of spatial or temporal relationships. This phenomenon arises at the point the ripples caused by many changes on the metaphorical “pond” of a construction project sufficiently overlap and disturb the surface such that entitlement to recover additional costs resulting from the turbulence spontaneously erupts. This overlapping of the ripples is also described as the “synergistic effect” of accumulated changes. This effect is unforeseeable and indirect. Cumulative impact has also been described in terms of the fundamental alteration of the parties’ bargain resulting from changes.¹

Dilution of Supervision – Splitting up crews to perform base work and changed work, or continual replanning and resequencing of work, can result in less than effective supervision and lower productivity. If the owner is responsible for changes to the work that require dilution of supervision, the contractor may be entitled to recover its loss of productivity costs that result from this problem.

Direct Impact – Direct impact is generally characterized as the immediate and direct disruption resulting from a change that lowers productivity in the performance of the changed or unchanged work. Direct impact is considered foreseeable, and the disrupting relationship to unchanged work can be related in time and space to a specific change.²

Disruption – Disruption can be defined as any change in the method of performance or planned work sequence contemplated by the contractor at the time the job was bid that prevents the contractor from performing in that manner. In other words, disruption is a material alteration in the orderly performance conditions that were expected at the time of bid from those encountered, resulting in increased difficulty and cost of performance. Disruption claims can be asserted by contractors against owners, subcontractors against contractors, contractors against subcontractors, and, when permitted by law, contractors against design professionals.

With respect to contract performance, disruption encompasses three general principles. First, when a contractor bids on a contract, it is entitled to schedule its performance in a series of economical operations, with each stage of performance dependent on a previous stage. Therefore, any disruption to one stage may have a potentially disruptive impact on the subsequent stages. Second, parties to a contract are expected to cooperate with one another and not hinder each other’s performance. A contractor plans to perform its work in a certain manner and sequence, and the owner has an implied duty not to hinder, interfere with, or disrupt the contractor’s planned performance. Third, when a contractor plans its contract performance, it must do so reasonably. A contractor may not make unrealistic assumptions about contract performance. For example, a contractor cannot make a valid disruption claim if it has assumed that it would have sole access to the site when the contract documents indicated that other contractors would simultaneously be onsite.

Earned Hours – The time in hours credited to a worker or group of workers as a result of their completion of a given task or group of tasks. Typically, earned hours are based on the unit productivity rate or budgeted rate for a given task. Actual hours could be less than, equal to, or greater than the earned hours, depending on the worker’s actual productivity.

Earned Value – The value of completed work expressed in terms of the budget assigned to such work. Also referred to as the Budgeted Cost of Work Performed (BCWP).

Fatigue – Productivity declines as workers are tired, and more than normal mistakes, injuries, and accidents may occur. If the contractor can demonstrate that the owner is responsible for such problems, the contractor may be entitled to recover its loss of productivity costs for such problems.

Interference – Owner actions, inactions, or instructions that interfere with, stop, delay, disrupt, or hinder the contractor’s ongoing or planned work. The contractor may be entitled to recover its disruption costs for such interference as well as its delay costs if the activities in its schedule that such interference affected were on the critical path of the project schedule at the time that the interference occurred and if the contractor was not responsible for other concurrent delays at that time.

Labor Relations and Labor Management Factors – Productivity loss may result from union jurisdictional and industrial relations issues, safety issues, evacuation alarms, and late permit and access issues. The party responsible for such labor problems bears the responsibility for the increased costs that result therefrom.

Labor Shortage – Shortage in available labor resulting from injury, widespread illness (epidemics), competition from other projects, or other unusual and unforeseeable circumstances. The lack of skilled labor can also cause a labor shortage even though there is non-skilled labor in plentiful supply. These problems are usually the responsibility of the contractor.

Leonard Study – Charles A. Leonard prepared a study entitled “The Effects of Change Orders on Productivity,” sometimes referred to as the Leonard Study, in 1988 as a master’s thesis at Concordia University, Quebec, Canada. Leonard analyzed data from 90 cases drawn from 57 different construction projects to identify and quantify the effects of Change Orders on productivity.³

Loss of Productivity – The contractor’s actual man-hours per unit of work, such as man-hours per unit of quantity installed, are greater than its planned man-hours per unit of work.

MCAA Factors – The Mechanical Contractors Association of America (MCAA) issued Bulletin No. 58, entitled “Factors Affecting Productivity,” in 1976. This document lists sixteen factors that potentially impact productivity and provides a range of productivity losses for each factor, dependent on the severity of the conditions. The factors include Stacking of Trades; Morale and Attitude; Reassignment of Manpower; Crew Size Efficiency; Concurrent Operations; Dilution of Supervision; Learning Curve; Errors and Omissions; Beneficial Occupancy; Joint Occupancy; Site Access; Logistics; Fatigue; Ripple; Overtime; and Season and Weather Change.⁴

Measured Mile Analysis – This methodology computes productivity of work performed by measuring a contractor’s actual productivity rate achieved in a baseline time frame or area of lesser impact (the measured mile) and compares that productivity to the contractor’s actual productivity in a different time frame or area of impact where a specific problem or series of problems have occurred that were not present during the measured mile period. The difference in productivity rates can be viewed as the effect of the problems on productivity.

The analyst should employ the following steps in preparing a measured mile analysis:

1. Determine the discipline (e.g., pile driving, concrete work, or piping) and scope of work (e.g., all piping, System 2100 piping, or six-inch carbon steel piping) to be used in the analysis.
2. Determine the measured mile period of performance where owner-caused problems did not negatively impact the work.
3. Estimate the contractor’s labor productivity in the measured mile period.
4. Estimate the contractor’s “should have been” cost based on actual quantities of work and its measured mile productivity during the impacted period, making any adjustments necessary for contractor-caused problems during the impacted period that were not present in the measured mile period.
5. Estimate the loss of productivity due to the alleged owner-caused impacts using the difference between the contractor’s actual costs and its “should have been” costs, as adjusted for contractor-caused impacts.
6. Develop specific cause-effect matrices and narratives explaining how owner-caused impacts lead to decreased labor productivity.

Overtime – Working more than a standard work week as defined by the contract. Fatigue, increased absenteeism, decreased morale, reduced effectiveness of supervision, and poor workmanship result from excessive use of overtime and cause productivity loss. If the owner is responsible for the need to work more overtime than is contemplated by the contract or by the contractor’s reasonable work plan, such as a failure to grant a reasonable time extension for excusable delays, the contractor may be entitled to recover its increased labor costs and its loss-of-productivity costs that result from such work requirements.

Poor Morale of Craft Labor – Labor enthusiasm and productivity decline as work is continually changed and excessive rework is required. If the contractor can demonstrate that the owner is responsible for such problems, the contractor may be entitled to recover its loss-of-productivity costs for such problems.

Productivity – Productivity is a measurement of rate of output per unit of time or effort, usually measured in either engineering man-hours or construction labor hours. Examples of productivity measurements are engineering drawings completed per man-hour or cubic yards of concrete placed per man-hour.

Rework and Errors – Correction of work due to engineering errors or improperly performed installations results in productivity loss. The party responsible for engineering errors is responsible for the resulting delays and productivity loss costs. The contractor is usually responsible for improper installations unless contractually stated otherwise, such as in a cost plus or time and materials contract where it is stated that the owner pays for all costs.

SCL Protocol – The Society of Construction Law Delay and Disruption Protocol (SCL Protocol) is a document that the Society of Construction Law last published as a Second Edition in February 2017.

The object of the Protocol is to provide useful guidance on some of the common delay and disruption issues that arise on construction projects, where one party wishes to recover from the other an extension of time (EOT) and/or compensation for the additional time spent and the resources used to complete the project. The purpose of the Protocol is to provide a means by which the parties can resolve these matters and avoid unnecessary disputes. A focus of the Protocol therefore is the provision of practical and principled guidance on proportionate measures for dealing with delay and disruption issues that can be applied in relation to all projects, regardless of complexity or scale, to avoid disputes and, where disputes are unavoidable, to limit the costs of those disputes. On certain issues, the Protocol identifies various options, with the choice of the most appropriate being dependent on the nature, scale and level of complexity of a particular project and the circumstances in which the issue is being considered. On other issues, the Protocol makes a recommendation as to the most appropriate course of action, should that be available.⁵

Stacking of Trades – Multiple trades working in the same location such that the contractor’s work cannot be performed efficiently. Less than optimum workspace may cause interference from other workers of the same trade or workers from other trades, resulting in productivity loss. If the owner was responsible for the problems that resulted in trade stacking, the contractor may be entitled to recover its loss-of-productivity costs.

¹      Centex Bateson Constr. Co., Inc., VABCA Nos. 4613, 5162, 5165, 99-1 BCA ¶ 30,153.

²      “Change Orders Productivity Overtime,” MCAA, 2011, pp. 82-83, citing Centex Bateson Constr. Co., VABCA Nos. 4613, 5162, 5165, 99-1 BCA ¶ 30,153.

³      See Leonard, Charles A., “The Effects of Change Orders on Productivity,” M.S. Thesis at Concordia University, 1988.

⁴      “Factors Affecting Productivity,” Mechanical Contractors Association of America, Bulletin No. 58, 1976.

⁵      SCL Protocol, p. 1.

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