The Series – View from the Field
View from the Field is a series of blog posts providing a practitioner’s view of the management processes and challenges associated with construction megaprojects as well as large and complex projects. Addressed by both Edward W. Merrow of Independent Project Analysis, Inc. (IPA) and construction lawyer Andy Ness at a recent ABA Forum on Construction Law conference, their high-level perspectives are elaborated herein. This multi-part series has and will expand upon some practical aspects of the many challenges facing managers as well as highlight suggestions for implementation by inside or outside counsel.
Summary – Forensic Labor Productivity Management and Disruption
Purpose – The importance / value of this post:
Protect Clients / Direct Hire Contractors from compensable losses due to overruns in Field Labor Direct Labor Hours.
Protect Clients / Owners (reimbursable cost contracts) from improper charges for unproductive Field Labor Direct Labor Hours by the direct hire party.
Enhance probability of success and amount of damage recovery in dispute resolution processes.
Disruption
By the terminology Forensic Labor Productivity Management, I refer to productivity issues / losses or disruption that occur during changed work or that has occurred in a completed project.
Field Labor Disruption – the other “D” (Delay)
It is crucial to differentiate between delay and disruption. While the two may exist concurrently or on the same project, either (delay or disruption) can occur or be present without the presence of the other. Further, either (delay or disruption) can be recovered (through dispute resolution process) without reliance on the other being recovered or recoverable.
This has several important implications. In dispute resolution process, a two (or more) paths forward to recovery of damages enhance the probability of recovery. Potentially, Disruption and Delay are two separate paths. Recovery of damages from one (delay or disruption) does not necessarily rely on entitlement or recovery of damages from the other. Further, since the two derive damages from different cost pools or cost accounts, the potential recovery is increased.
The following table differentiates between the Disruption and Delay at a relatively high level:
*M&M is a consulting firm. We are not attorneys. These are practitioner views.
Changes and Variances – this is basic project “blocking and tackling.”
The presence and need for changed work provisions within larger projects is a necessary managerial and contract administration tool. Scope of Work, external conditions, other factors depart from the contract baseline. Equitably adjusting the contract for variances makes the stakeholders whole. Regarding disruption, the party(ies) taking the risk of labor Direct Work Hour quantities must be compensated for change-related variances. This includes one-off impacts such as cumulative impact.
Pricing changed work will use contemporaneous project productivity from the Field Labor Productivity curve (see below). This ensures full compensation for changed work.
Change Order releases must be skillfully implemented. Specificity and completeness are key. For example, if productivity impacts and costs are to be resolved by the change, it is essential that the intent is clear and that the releases are consistent with the intent. If cumulative impacts are not resolved (generally, cumulative impact cannot be resolved until project completion), make sure that the release is clear in this regard.
Process
Productivity Key Performance Indicators (KPI)
During the execution of the work, contemporaneous Productivity Ratio (PR) should be calculated, graphed and reported (in Monthly Progress Report – MPR). This Field Labor Productivity graph serves to detect variances over time, compile the data, report results (Cumulative and Incremental – 3-week moving average).
Time Periods 1, 2 and 3 indicate (possibly) differing cause(s) of reduced Field Labor Productivity. Hence, the fact set / evidence for each Time Period must be established / compiled. An effective compilation tool is shown below:
Contract Types and Stakeholder Considerations
In his ABA Forum on Construction Law presentation, Mr. Merrow, IPA presented the following regarding Contract Types and Outcomes:
Focusing on disruption, in any of the Contracting Approaches:
Fixed Price – generally the direct hire contractor is at risk for labor overruns due to disruption.
Reimbursable Cost – generally the owner is at risk for labor overruns due to disruption.
The at-risk / aggrieved party must have a mechanism for recovering damages that are caused by others. This is particularly true in the Reimbursable Cost Contracting Approach. Hence, contract provisions must be fashioned such that the risk profile has processes for recovering damages. This is particularly tricky when the risk is Field Labor Disruption.
Single Source of Truth (SSOT)
The data management associated with field labor productivity is a key consideration. A major limitation on both the recognition and recovery potential of disruption damages is the lack of data. More specifically, the data needs to establish output or progress per Direct Work Hour.
Define the productivity-related data in the Project Execution Plan. Gather the data on a contemporaneous basis (needed regardless), and control access to the editing or changing of this data. This ensures availability if claims for additional compensation for productivity-related losses become desirable.
Analytical methodologies, along with order of preference, are thoroughly discussed in AACE International Recommended Practice No. 25R-03, ESTIMATING LOST LABOR PRODUCTIVITY IN CONSTRUCTION CLAIMS.
Damage Calculation Options and Methods
Reconciliation to Actual As-Built Conditions
Delay – When performing schedule analyses, the analyst typically reconciles from the schedule baseline (As-Planned) to As-Built schedule.
Disruption – When performing disruption analyses, the analyst should reconcile to Actual Direct Work Hours. Payroll data is a typical source. The reconciliation can be displayed graphically using a pie chart where the entire pie represents Actual Direct Work Hours. Slices of the pie are groupings of key allocations such as: As-Planned, Issue #1 DWH’s, Issue #2 DWH’s, Contractor Responsible or Unallocated.
References
Useful references are available through: CII, AACE, ASCE, MCAA, NECA, USACE, SCL, BRT, Ibbs, Bramble & Callahan, Wickwire, Dale & D’Onofrio, ABA, Schwartzkopf and others.
Conclusions (Part 5)
Forensic Direct Labor Productivity management focused on field labor productivity can have many business and dispute resolution considerations:
Using proper Key Performance Indicators (KPI’s) during project execution can achieve timely recognition of field labor productivity issues as well as facilitate contemporaneous gathering of data and documentation to support a potential change order request or claim (see prior post – Part 4 for suggestions).
Incorporating a disruption claim into a dispute resolution package can enhance probability of a successful outcome.
Costs of dispute resolution process can be mitigated by spreading the elements over the elements of the claim / complaint.
For the direct hire contractor, disruption recovery becomes a potential Competitive Edge.
For the owner (cost reimbursable type contracts), disruption recovery becomes a potential leverage or claim relative to the managing entity.
View from the Field – Scope of Work Management (Part 6)
Having discussed Retrospective Labor Productivity Management, Part 6 of this series will address managing the scope basis / baseline including changes thereto.
Author George T. McLaughlin PMP CCM has worked worldwide in this industrial marketplace since the early 1980’s. He serves Owners, Prime Contractors, and Subcontractors. For the most part, Mr. McLaughlin’s work is performed on-location where the relevant work is being performed hence the title “View from the Field.” Mr. McLaughlin is a testifying expert, speaker and author. Mr. McLaughlin is a principal of McLaughlin & McLaughlin out of Austin, Texas.
