July 27, 2012 | Author: PM Hut | Filed under: Risk Management
Evaluating Disruption in Construction Project Management
By Derek Nelson
Disruption claims are often presented during the course of a construction project yet they remain notoriously difficult to prove and are often disregarded by employers and their consultants.
One of the main reasons for this is that productivity losses arising from specific issues for which the contractor is not responsible are often extremely difficult to distinguish from the general work ongoing at the time they arise.
Coupled with the challenges associated with the clear identification of the source of the disruption, one of the most contentious areas in construction claims is the calculation or estimation of lost productivity itself.
Unlike direct costs, lost productivity is often not tracked and recorded or cannot be discerned separately and contemporaneously. As a result, both causation and entitlement concerning the recovery of lost productivity can be difficult to satisfactorily establish. That position can be contrasted with other money claims which are more directly concerned with the occurrence of a distinct and compensable event together with a distinct and direct consequence, such as an instruction for a variation during the progress of the works or a properly notified compensation event. To compound the issue, even in the assessment of the value of a variation often the full effects of the variation is not accounted for as the disruption associated with, particularly, late change is not included.
Given the inherent difficulties, most claims for disruption are dealt with retrospectively and the claimant is forced to rely on contemporary records to try and establish a causal nexus for identified losses (cause and effect) which are all too often inadequate for the purposes of sufficiently evidencing a loss of productivity claim.
When this happens the claimant is often forced into the situation where it advances a weak global or total cost claim of sorts to try and recover its losses.
The cause and effect burden of proof is the same for a claim for loss of productivity as for any other claim insofar as the claiming party must first establish that the event or factor causing the disruption is a compensable risk event under the contract.
To do this, the contract needs to be reviewed to understand the basis of the agreement as certain productivity issues may have been foreseeable and therefore accounted for, or at least deemed to have been accounted for, within the claimant’s productivity allowances. The contract may also identify if a party expressly accepted certain risks which account for the productivity issues arising.
Common causes of disruption on a construction project that may lead to a loss of production include:
- Site access restrictions;
- Unforeseen site conditions;
- Late or incorrect design;
- Changes in the work;
- Labor availability;
- Remedial/corrective working;
- Client & third party interference;
- Changes in construction methods;
- Adverse weather.
The primary challenges that a claiming party faces in preparing a disruption claim are to identify the actual root cause of the loss of productivity and to quantify the associated labor and equipment productivity losses.
A number of productivity analysis methodologies exist to assist in quantifying a disruption claim such as the measured mile; the modified total cost approach; time and motion study or comparative work analysis. Alternatively, research data published by various associations on the effects of disrupted working may be utilized but care must be exercised as the right method (if such exists) will depend on the project; the project facts; the nature of the events being analyzed and the nature and extent of data available.
Productivity is normally measured as production per unit of effect or output divided by input (i.e. units/hr) or it may be expressed as input divided by output (i.e. hrs/unit). The contractor will suffer a productivity loss when it does not accomplish the anticipated or planned production rates for the same input. In other words, a loss of productivity arises when it takes more labour and/or equipment to do the same amount of work, thereby increasing project costs.
Clearly, the existence of a labor or plant cost overrun is not proof that an event entitling a contractor to damages has occurred. Labor and plant cost overruns can occur for a variety of reasons, not all of which will entitle a contractor to compensation.
I’m writing a paper which reviews and comments on the various considerations and approaches available to analyzing and valuing disruption whilst comparing and contrasting the same with respect to the relative reliability of the methods of quantifying lost productivity and the cost and expertise generally required to record, prepare, and document the quantum of damages derived thereby.
Included within the paper will be a framework from which the suitability of available approaches for analyzing and quantifying the effects of disruption may be discerned. The selection process is primarily based on the availability of and the characteristics of that information available in connection with the project to be reviewed set against the degree of reliability associated with the method referenced.
Derek Nelson is a project manager at McLachlan Lister - a project management consultancy company.
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