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Labor Inefficiencies

Loss of Labor Productivity

A contractor's request for damages due to loss of labor productivity relates to the additional labor costs incurred when work is disrupted or delayed.   The following are examples of events that could cause a loss in labor productivity:

  • Adverse weather conditions
  • Adverse job site conditions
  • Restricted access to a jobsite
  • Excessive safety inspections
  • Excessive change orders
  • Overtime on an extended basis
  • Out of sequence work
  • Out of scope work
  • Untimely response to RFIs
  • Untimely approval of submittals

When a contractor is forced to perform work in an out-of-sequence manner due to an act or omission of the Government, the contractor's costs for loss of labor efficiency may be recoverable.

Burden of Proof

The excerpt below from the Appeal of The Clark Construction Group, Inc., CAB No. 2003-1, Contract Appeals Board, 2004 GAOCAB LEXIS 2 (GAOCAB 2004) , illustrates the burden of proof required to recover loss of labor productivity.

It is a rare case where loss of productivity can be proven by books and records; almost always it has to be proven by the opinions of expert witnesses. However, the mere expression of an estimate as to the amount of productivity loss by an expert witness with nothing to support it will not establish the fundamental fact of resultant injury nor provide a sufficient basis for making a reasonably correct approximation of damages.  The support commonly relied upon for identifying and measuring labor inefficiency is a comparison to some accepted standard. Herman B. Taylor constr. Co., GSBCA no. 15421, July 21, 2003, 03-2 BCA P 32,320 at 159,503-04; DANAC, Inc., ASBCA no. 33394, July 31, 1997, 97-2 BCA P 29,184, at 145,152, Recon. Denied, 98-1 BCA P 29,454. Where a claim of labor inefficiency is based on assumptions that are not supported by reliable empirical data, the claim of labor inefficiency will be denied for insufficient proof.   Herman B. Taylor Constr. Co., Supra, at 159,504.  Iron provided no expert witness testimony or a comparison to some accepted standard for its claimed labor inefficiencies, and we therefore reject its inefficiency claims because no probative evidence has presented that would support recovery.

A mere estimate of labor inefficiencies will not suffice.

Measured Mile Approach

The preferred method of calculating loss of  labor productivity is the “Measured Mile” approach. This method first analyzes work that was performed in an  area that did not experience delay or disruption.  For example, if it took 100 labor hours to install 100 feet of conduit in an non-impacted area, the efficient rate of installation would be 1 ft. per hour.  This measured mile can then be compared to the rate of conduit installation in disrupted areas.  The difference represents the loss of productivity.

The Court of Federal Claims and Boards of Contract Appeals have upheld use of the Measured Mile techniqueThe Measured Mile calculation is favored because it considers only the actual effect of the alleged impact and thereby eliminates disputes over the validity of cost estimates, or factors that may have impacted productivity due to no fault of the owner.

The Measured Mile methodology cannot be used if the contractor never performed the work efficiently and therefore does not have a baseline to compare to.  Courts and Boards of Contract Appeals have allowed the use of industry studies as an alternative means of calculating labor inefficiency.

MCAA Manual as a Means of Measuring Labor Inefficiency

Courts and Boards of Contract Appeals have allowed the use of industry studies as an alternative means of calculating labor inefficiency.  In the Appeal of the Clark Construction Group, Inc., VABCA-5674, 2000-1 B.C.A. (CCH) P30,870 (April 5, 2000), the Board of Contract Appeals accepted the Mechanical Contractors Association of America (MCAA) Manual as a means of measuring labor inefficiencies:

Quantification of loss of efficiency or impact claims is a particularly vexing and complex problem. We have recognized that maintaining cost records identifying and separating inefficiency costs to be both impractical and essentially impossible. Therefore, we have found percentage estimates of loss of efficiency to be an appropriate method to quantify such losses and that is how we will calculate the amount of equitable adjustment due PKC here. Centex Bateson, 99-1 BCA ¶30,153; Fire Security Systems, Inc., VABCA No. 3086, 91-2 BCA ¶23,743.

We will utilize the productivity factors from the MCAA manual as the best method to arrive at the percentage estimates of PKC's and USM's undeniable productivity losses. We find no other basis in the record on which we could better calculate the amount of PKC's productivity losses in this appeal and, as we previously recognized in Fire Security, the MCAA productivity factors are a reasonable starting point to estimate efficiency losses. Despite the inherent subjectivity of the MCCA factors, the record here demonstrates that the MCAA factors are a widely used industry standard method of accounting for the impact of inefficiency on mechanical work. We will utilize the MCAA manual's direction and descriptions of the percentage inefficiency factor to be applied to the inefficiency element for which entitlement has been proven. As contemplated by the MCAA manual, we will use our reasonable judgment of how the factors apply to this contract and the two contractors. 
Fire Security Systems, Inc., 91-2 BCA ¶23,743; Stroh Corporation, GSBCA No. 11029, 96-1 BCA ¶28,265.

The MCAA manual lists sixteen (16) factors   affecting labor productivity. The factors are stated as percentages to add   onto labor costs for the contract man-hours of labor. The individual MCAA   factors are ranked as Minor, Average or Severe.Percent Loss if Condition Exists

Factor

MinorAverageSevere
1. Staking of trades.10%20%30%
2. Morale and attitude.5%15%30%
3. Reassignment of manpower.5%10%15%
4. Crew size inefficiency.10%20%30%
5. Concurrent operations.5%15%25%
6. Dilution of supervision.10%15%25%
7. Learning curve.5%15%30%
8. Errors and omissions.1%3%6%
9. Beneficial occupancy.15%25%40%
10. Joint occupancy.5%12%20%
11. Site access.5%12%30%
12. Logistics.10%25%50%
13. Fatigue.8%10%12%
14. Ripple.10%15%20%
15. Overtime.10%15%20%
16. Season and weather change.10%20%30%

 

Thus, if in the event all of these factors were present on a job in the "Severe" category, an add-on mark up for loss of productivity would be 413% on the direct labor hours.

MCAA Bulletin Labor Inefficiencies (2011)

Causation

An important element of a loss of productivity claim is proving causation.  This requires the contractor to prove that the loss of productivity was caused by an unreasonable act or omission by the Government.  The Government may argue in defense to a labor inefficiency claim that the contractor is responsible for its labor losses by failing to estimate the job properly, by failing to properly schedule the work or by failing to coordinate the work.

Be Careful When Agreeing to Releases

Often, the Government will ask the contractor to sign a waiver or release when executing a change order.  This may preclude a contractor from claiming labor inefficiencies based on the changes’ impact on unchanged work, i.e. ripple effect.  It is therefore imperative that the contractor reserve its right to labor inefficiencies when signing a change order.  Be very specific when reserving your rights to avoid a dispute later over the scope of the release.

 

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