Disputes between contracting parties occur more frequently over the timeliness of the contractor’s performance than they do over any other single cause. Loss of productivity claims are becoming more frequent. Labor costs have a high degree of variability. Productivity can vary when factors encountered during the project differ from what was anticipated at the time of contracting.

While delay claims are typically disputed between the contracting parties, contractor claims including loss of labor productivity or inefficiency can be one of the most contentious. The higher the dollar value of the loss of productivity claim, the more that is at stake for both parties.

The analysis of loss of productivity claims is complex for many reasons, arising from the need to work, the identification and quantification of productivity loss, and determination of the causation and liability of the productivity loss.

The contract terms are a critical part of the analysis. The analysis will also depend on the facts and timeline of the project and the project’s contemporaneous records. Frequently, it is difficult to identify the cause(s) of loss of productivity because the issue is not discussed until late in the project. If contemporaneous project records do not exist and project participants are no longer available to assist in reconstructing the project history, then the environment is ripe for disagreements and contention. Because of the complexity of the analysis, there is not a one-size-fits-all analysis that will be valid for all projects.

Similarly, there is no universally accepted standard for calculating damages for loss of productivity claims. As a result, there are inconsistencies in the methodologies that experts and contracting parties have used to identify, quantify, and determine causation and liability for labor productivity claims. This has led to inconsistent results in court decisions.

In May 2021, the American Society of Civil Engineers (ASCE) published a new Standard 71-21 – Identifying, Quantifying, and Proving Loss of Productivity. This standard presents guidelines and recommendations for how to collect productivity data and apply standard practices. This is a useful resource for all project participants. The standard is an advisory guideline that provides a primer on the key principles to be used by any project participant in asserting or defending a loss of productivity claim regarding the systems necessary to identify and report productivity loss.

The standard contains sample reports and graphs illustrating how labor trends, variances and forecasts are reported. It also outlines guidance regarding how to establish a recoverable loss of productivity and the quantification of productivity losses.

The standard provides the following preferred order of methods for quantifying productivity loss:

• Tier 1: Measured Mile;
• Tier 2: Academic and Industry Productivity Factors Studies and Modified Total Cost; and
• Tier 3: Total Cost.

The standard establishes the guideline that the Measured Mile is the method to use to quantify productivity losses. If the contractor shows a reasonable degree of certainty that the Measured Mile cannot be used, then the contractor would be permitted to move to a Tier 2 analysis.

Similarly, to move to Tier 3: Total Cost, a reasonable degree of certainty must be shown as to why Academic and Industry Productivity Factors Studies and Modified Total Cost cannot be used. A summary flow chart illustrating the tiered approach is provided to illustrate the analysis.

Finally, the standard explains principles to reduce or avoid productivity loss, and the Appendix includes hypothetical examples of how to apply the methods to quantify loss of productivity to a sample project. There is also an extensive bibliography of key relevant publications organized by category. This is a useful resource for further reading on the topics addressed in the standard.

Although the degree to which this new standard will be relied on in the future prosecution of loss of productivity claims is currently unknown, this is a resource for project participants in creating or maintaining an effective labor tracking performance system and determining the resources necessary to monitor and analyze productivity by collecting and storing productivity data.

For the contractor, managing labor productivity is critical to managing project costs and maintaining profitability. For owners, understanding the contractor’s labor productivity trends is critical to effectively managing the project. Project success requires a proactive approach, and it is a worthy investment to dedicate the appropriate resources to ensure the accuracy and reliability of a labor tracking performance system.