Construction labor is always in the news. Last month, I wrote an article for the Nashville Business Journal challenging industry leaders on how to respond to the shortage of skilled labor in the area. Recently, the U.S. Department of Labor issued new overtime regulations, which no doubt will affect your workforce. When you deal with construction claims, many believe that the largest component of any request for additional compensation is generally labor costs.
In a recent Construction Briefings article by Kathleen Harmon, the author breaks down loss of productivity claims based upon a claim of acceleration to overcome excusable delays, or a claim for cumulative impact of an owner’s changes project. In general, labor productivity refers to the measurement or unit of work that is accomplished for a designated period of time. A contractor generally bids a scope of work based upon certain assumptions regarding labor costs and labor productivity. A compensable loss in terms of labor productivity happens when the contractor uses more hours to complete a given unit of work than it would have used absent the intervening cause. According to Harmon, the top seven factors affecting labor productivity losses on a construction project include:
- Weather. Adverse weather is a significant cause of lost productivity on a construction project. The parties contract generally will address where he contractor is entitled to additional time for “unusually severe weather” and the type of proof that may be required for submitting a claim. The lost productivity may include those days when the contractor experiences adverse weather, but also when delays caused by the owner push the project schedule into weather conditions that impact performance.
- Out of sequence work. The contractor may be entitled to seek additional compensation when its work is impacted by having to change its anticipated method of performance or sequence of work. When a contractor has to modify its work plan due to owner interferences or delays, it can experience lost productivity having to work around the unforeseeable event.
- Crowding and stacking of trades. Like out of sequence work, a contractor may be impacted by multiple trade contractors working in an area that was not otherwise anticipated. The crowding and stacking of trades can have a significant impact on labor productivity, and courts have recognized a loss of efficiency experienced by a mechanical subcontractor when the general contractor accelerated the work, causing overcrowding on the project, increased man-hours, and unavailability of materials.
- Overtime. According to Harmon, fatigue and increased absenteeism due to scheduled overtime work can have an adverse impact on productivity. Again, the underlying cause must be compensable for these type of impacts are recoverable.
- Restricted site access. Since the contractor is generally entitled to control its own means and methods of performance, restricted site access can also significantly affect labor productivity. This may include actual access to the site as well as anticipated use of certain laydown areas.
- Unavailability of manpower. Lack of skilled labor has a direct impact on the schedule, many times causing the contractor to accelerate its work to overcome the delays associated with maintaining a steady workforce. Given the traditional contract language placing the risk of labor on the contractor, it is difficult to prove and recover additional compensation due to the unavailability of manpower. But it remains a real problem in some areas.
- Cumulative impact. Contractor may be able to cover for the combined impact of multiple changes on a project. This is sometimes called the “ripple effect” of having multiple changes on the project.
As a construction lawyer, I see the causes of lost productivity after the fact during the claims process or litigation. As a contractor with the right project management team in place, you can see these causes before the fact. Your job should be to identify the events and circumstances leading up to a loss of productivity. You should document both the cause and the impact in your daily reports and other key project documents. It will be very important to identify those causes of delay that are beyond the reasonable control as opposed to inefficiencies caused by the owner or other parties.