July 31, 2023
Impacts of Employee Turnover on Construction Claims
Employee turnover is a common occurrence in industry today, creating significant challenges to operational plants and facilities as well as engineering and construction projects.
The effects of staffing inconsistency can lead to personnel safety concerns, production and processing issues, and environmental catastrophes in running plants. The effects of employee departures can reverberate throughout an engineering and construction project, disrupting progress, impeding productivity, increasing costs, and potentially compromising project success. These complications and issues can lead to potential claims.
Current Industry Data
Separation rate is a measure of employees that have left a company due to termination, attrition, or quitting. Industries related to construction claims and project management have among the highest separation rates, exceeded only by Leisure and Hospitality.1
Separations Rate by Industry2
|May 2022||Feb 2023||Mar 2023||Apr 2023||May 2023 (P)||Change from May 2022 to May 2023|
|Leisure and Hospitality||7.1||6.7||6.4||5.8||6.2||-0.9|
|Professional and Business Services||5.5||4.6||5||4.5||4.2||-1.3|
|Mining and Logging||3.8||4.1||3.7||3.2||3.6||-0.2|
(P) = Preliminary
The total separations rate is the number of total separations during the entire month as a percent of employment.
Current data also indicates that the number of employees quitting is double that of employees being fired.3 Low unemployment rates are contributing to the high levels of employees choosing to “job hop,” change employers, or change industries. Employees leaving by choice often equates to the loss of trained, valuable employees who are more difficult to replace.
Separation rates and low unemployment rates are not expected to change in the near future. This high level of employee mobility leads to safety concerns, lowered productivity, and rework.
Identifying Factors Contributing to Construction Claims
Construction claims can arise from various factors, including delays, disruptions, increased costs, and defective work. Employee turnover can be a significant underlying factor contributing to these problems. High turnover rates can disrupt project timelines, cause inefficiencies, and impact overall work quality, leading to claims related to project delays, cost overruns, and poor workmanship. Moreover, delays caused by turnover can lead to increased expenses related to project extensions, overtime wages, subcontractor fees, and penalty clauses. Understanding and quantifying the impact of employee turnover on construction claims is crucial for contractors, project owners, and stakeholders.
Documentation, including project records, weekly reports, change orders, and correspondence, can provide valuable evidence of the link between employee turnover and resulting claims. The analysis of this data can aid in demonstration and quantification of the impact of employee turnover on a project in the impact areas described below.
Analyzing the Impact of Employee Turnover
A systematic analysis of relevant data is required to quantify the impact of employee turnover on construction claims. Consideration should be given to the following key components:
- Schedule Delays: Loss of skilled and knowledgeable employees requires sourcing of suitable replacements. The process of recruiting, interviewing, and training new employees can significantly impact project schedules, leading to delays in completing tasks and milestones. As a result, projects may experience increased costs and strained relationships with clients. By analyzing employee data with project schedules and comparing the planned timeline with the actual completion dates of project milestones, the extent of delay caused by turnover can be estimated. Additionally, individual work packages for specific scopes, such as piping or civil works, may have been impacted by subcontractor labor shortages or project management changes and should be examined. Long International has several blog posts and articles on schedule analysis on this website addressing labor shortage issues, including the article “Analysis of Concurrent and Pacing Delays.”
- Reduced Productivity and Efficiency: The departure of skilled workers can result in decreased productivity due to the learning curve for new hires, reassignment of tasks, and increased strain on existing employees. Measuring productivity metrics, such as work output or labor hours per unit of work, can help quantify the impact of turnover on overall project efficiency. Employee turnover can also impact project documents such as design submittals and Requests for Information (RFIs), resulting in late submittal dates, excessive RFI response times, etc. AACE International publishes recommended practices for estimating lost labor productivity in construction claims.4
- Project Defects and Rework: Employee turnover can cause the loss of expertise and familiarity with project-specific requirements, compromising quality standards. By tracking the number and cost of rework or defect-related issues, the correlation with turnover incidents can be established. Project records should be reviewed for items such as Notices of Defect, Notices of Delay, Corrective Action Logs, Field Directives, Root Cause Corrective Actions (RCCAs), etc.
- Cost Overruns: The financial implications of employee turnover can be significant. Factors such as recruitment costs, training expenses, overtime wages, and extended project durations can contribute to cost overruns. Analyzing project budgets, actual costs, and changes in expenditure patterns can provide insights into the impact of turnover on overall project costs. Change Order data should also be carefully analyzed for potential impacts from employee turnover.
Often, analysis of data will highlight multiple components of impact. For example, on a previous Long International schedule delay analysis, bi-weekly progress reports were used to assess the replacement of project management personnel. These reports, along with other project data, such as progress “S” curves, demonstrated engineering inefficiencies that led to both reduced productivity/efficiency and schedule delay.
In addition to statistical analysis of the project record, expert opinions can be a valuable tool to utilize. Experts can opine on the specific challenges created by employee changes and their contribution to project disruptions and associated costs. Expert opinion is especially essential when data evidence is absent or in need of augmentation. Long International has multiple experienced testifying Loss of Productivity, Cost/Damages, Project Management, and Schedule Delay experts available.
Employee turnover presents significant challenges for construction projects, impacting timelines, productivity, costs, and overall project quality. Quantifying these impacts is essential for understanding the financial and operational implications for construction projects. By employing an analytical approach that combines statistical analysis, expert opinions, and documentation, stakeholders can gain insights into the relationship between turnover and claims.
1 U.S. Bureau of Labor and Statistics, Economic News Release, 06 July 2023, https://www.bls.gov/news.release/pdf/jolts.pdf.
2 From U.S. Bureau of Labor and Statistics, Economic News Release, 06 July 2023, “Table 3. Total separations levels and rates by industry and region, seasonally adjusted,” https://www.bls.gov/news.release/jolts.t03.htm.
3 See U.S. Bureau of Labor and Statistics, Economic News Release, 06 July 2023, “Table 4. Quits levels and rates by industry and region, seasonally adjusted,” https://www.bls.gov/news.release/jolts.t04.htm and “Construction Safety in the Atypical Wake of Worker Turnover,” Ray Prest, 01 March 2023, Occupational Health & Safety website, https://ohsonline.com/Articles/2023/03/01/Construction-Safety-in-the-Atypical-Wake.aspx?Page=1.
4 See AACE International Recommended Practice No. 25R-03, “Estimating Lost Labor Productivity in Construction Claims, TCM Framework: 6.4 – Forensic Performance Assessment,” 2004.
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