Client Alerts
May 28, 2020

New Loss of Productivity Standard on the Horizon

Stites & Harbison Client Alert, May 28, 2020

Later this year, the American Society of Civil Engineers (“ASCE”), in conjunction with its Construction Institute, will publish a Standard on loss of productivity claims, entitled “Identifying, Quantifying and Proving Loss of Productivity” (“LOP Standard”). ASCE’s upcoming LOP Standard has been accredited by the American National Standards Institute (“ANSI”). The LOP Standard provides a series of guidelines and recommendations which can be used to expedite the resolution of loss of productivity disputes. ASCE’s LOP Standard could be much needed medicine for construction industry professionals to identify, quantify and prove such complex claims, particularly with the projected increase in such claims as a result of the COVID-19 pandemic.

Claims experts around the country are predicting a proliferation of loss of productivity claims as a result of the impact of COVID-19 on the construction industry. As contractors complied with various State and municipal Stay at Home Orders around the country, they likely performed their work in a less productive manner. As a result of safety guidelines issued by OSHA or by States’ Governors, workers will not be as productive as they once were prior to the health/safety guidelines being implemented. Disrupted supply chains from around the world will force owners and contractors to either pre-order or stockpile material. Project schedules might be extended to accommodate smaller crew sizes and reduced productivity. The rise of videoconferencing on construction projects will lead to less personal interaction among construction professionals, which could, in turn, lead to lower productivity. Workforce issues could be further impacted as some older skilled craft workers, and perhaps others, might be even more concerned about working in a safe environment on the jobsite. For these reasons and others, loss of productivity claims will likely increase.

Obviously, managing labor productivity is a critical component of project success. In developing its LOP Standard, ASCE learned that, due to labor costs typically being the most variable and major component of overall project costs, tracking and measuring labor productivity is helpful in preventing, mitigating and recovering cost overruns. ASCE determined that inconsistencies exist in the current methodologies used to identify, quantify and determine causation and liability for labor productivity losses. Therefore, ASCE found the need to establish the LOP Standard, which provides guidelines and recommendations for identifying, quantifying and proving loss of productivity. The LOP Standard presents criteria for: defining productivity; preparing, collecting and validating productivity data; tracking and verifying productivity data; analyzing productivity data; detecting the presence and extent of disruptive events; identifying causes and effects of productivity loss; quantifying productivity loss; identifying key resources for proving and quantifying such losses; and avoiding conditions that create productivity loss.

The LOP Standard is broken down into five general categories: (1) Productivity Basics; (2) Identifying Productivity Loss; (3) Establishing Recoverable Loss of Productivity; (4) Quantifying Productivity Loss; and (5) Avoiding Productivity Loss. Within each of these categories, the LOP Standard delineates key principles, which essentially serve as guidelines or “best practices” for identifying, quantifying and proving loss of productivity.

Interestingly, the section dealing with quantifying productivity loss presents a preferred order of methods for such computation. The preferred order is:

  • Tier 1: Actual Direct Costs
  • Tier 2: Measured Mile (comparing productivity in an un-impacted period or area with the productivity in an impacted period or area)
  • Tier 3: Academic and Industry Productivity Factors Studies (such as the tried and true MCAA Factors Affecting Labor Productivity) and Modified Total Cost
  • Tier 4: Total Cost

The LOP Standard provides that, before moving from one tier to a lower tier, a reasonable degree of certainty that a higher-tier method could not be used should be shown. The LOP Standard further provides that the tier structure is the preferred order, but it is not a rigid order and is dependent on the quality, supportability and reasonableness of the analysis.

The LOP Standard also contains an excellent, twenty-one page bibliography on issues relating to the identification, quantification and proof of loss of productivity claims. As examples, the LOP Standard contains leading articles on the measured mile methodology, total and modified total cost approach, cumulative impact, specialized studies relating to weather and seasonal factors, specialized studies relating to overtime, specialized studies relating to congestion and trade stacking, and specialized studies related to poor management.

Currently, a draft of ASCE’s LOP Standard is out for public review and comment. According to Dr. William Ibbs, who chaired the ASCE Standards Committee for the LOP Standard, the review period is scheduled to close in mid-June 2020. Dr. Ibbs further advises that the content should be officially finalized by the end of July 2020. Dr. Ibbs projects that ASCE will formally publish the LOP Standard approximately three months after the content is finalized. Therefore, ASCE hopes to publish its LOP Standard sometime this Fall.

Unquestionably, the coronavirus will continue to impact the construction industry. The aftermath of COVID-19 might result in a proliferation of loss of productivity claims on construction projects. The magnitude and complexity of such claims might also escalate. Fortunately, ASCE had the vision to develop guidelines and recommendations for identifying, quantifying and proving loss of productivity claims well before COVID-19 became part of our daily vocabulary. ASCE’s LOP Standard will give guidance to any project stakeholder in establishing and evaluating loss of productivity, as well as provide tools to them for mitigating or avoiding such issues on construction projects.

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