TheAnalysisand

ValuationofDisruption

byDerekNelson,
SeniorVicePresident&RegionalManagingDirectorAsia
HillInternational,Inc

25January2011

TheAnalysisandValuationofDisruption

TableofContents

Introduction
WhatisDisruption?
WhatisProductivity?
WhyisProductivityImportant?
Background
FactorsAffectingLabourProductivity
ProjectChange
ExtentofProjectChange
DisruptionsandCumulativeImpacts
MethodsofQuantifyingLostProductivity
ProjectPracticeBasedMethods
MeasuredMileAnalysis
BaselineProductivityAnalysis
SystemDynamicsModelling
EarnedValueAnalysis
SamplingMethods
ComparisonStudies
IndustryBasedMethods
CostBasedMethods
OtherQuantifyingMethods
MatchingtheQuantifyingMethodswithProjectPractice
Conclusions
Attachment

3
3
4
4
5
5
7
8
9
10
13
13
16
17
22
23
24
24
24
25
26
27
31

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TheAnalysisandValuationofDisruption

Introduction

Complaintsofdisruptionandadditionalcostsareroutinelymadeduringthecourseofaconstruction
projectyettheyremainnotoriouslydifficulttoprove.

Oneofthemainreasonsforthisisthatproductivitylossesareoftendifficulttoidentifyanddistinguish
atthetimetheyarise,asopposedtoothermoneyclaimswhicharemoredirectlyconcernedwiththe
occurrenceofadistinctandcompensableeventtogetherwithadistinctanddirectconsequence,such
as an instruction for a discreet variation during the progress of the works or a properly notified
compensationevent.

Assuch,mostclaimsfordisruptionaredealtwithretrospectivelyandtheclaimantisforcedtorelyon
contemporaryrecordstotryandestablishacausalnexusforidentifiedlosses(causeandeffect)which
are all too often inadequate for the purposes of sufficiently evidencing a loss of productivity claim.
Whenthishappenstheclaimantisoftenforcedintothesituationwhereitadvancesaweakglobalor
totalcostclaimofsortstotryandrecoversomeofitslosses.

The cause and effect burden of proof is the same for a claim for loss of productivity as for any other
claiminsofarastheclaimingpartymustfirstestablishthattheeventorfactorcausingthedisruptionisa
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
thereforeaccountedforwithintheclaimantsproductivityallowances.Thecontractmayalsoidentifyif
apartyexpresslyacceptedcertainproductivityrisks.

Where courts and tribunals have a clear focus on linking cause and effect, claims for disruption will
comeundergreaterscrutiny.Itisunlikelythatcontractorsandsubcontractorswillsucceedwheretheir
claims for disruption are based simply on a global overspend on labour or plant for the whole of the
contractworkingperiod.Sufficientdetailisrequiredtoisolatethecauseofthedisruptioncomplained
ofandevaluatetheeffectsofthatdisruption.

WhatisDisruption?

Disruption is loss of productivity, disturbance, hindrance or interruption to a Contractors normal

workingmethods,resultinginlowerefficiency.Intheconstructioncontext,disruptedworkisworkthat
iscarriedoutlessefficientlythanitwouldhavebeen,haditnotbeenforthecauseofthedisruption.If
causedbytheEmployer,itmaygiverisetoarighttocompensationeitherunderthe contractorasa
breachofcontract.1

Constructioncontractshavetwomajortypesofcostsassociatedwiththem:fixedandvariable.

Fixedcostsarethosecoststhatthecontractorprocuresonafixedpricesubcontractorpurchaseorder.
Fixedcostsareinherentlylowerinrisk,becausethecontractorhasfixedthemthroughacontract.Risks
doexist,suchasthefinancialfailureordefaultofeitheravendororsubcontractorortheinstallationof
defective or faulty work by a subcontractor or vendor, but the risks are much less than the risks in
variablecostitems.
1

SCLDelayandDisruptionProtocol:October2002.

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TheAnalysisandValuationofDisruption

Variable costs are items such as the contractor's labour, equipment, and site overhead. Extensive
literaturehasbeenpublishedaboutdelayclaims,whichprincipallyareclaimsrelatedtotheextended
duration of the job and the resulting extended site overhead costs. However, the major variable risk
component on a construction project is labour, not extended site overhead. Equipment, on certain
types of construction such as utility, heavy, and highway construction, can be a significant cost;
however,equipmentcoststendtobeproportionaltolabourcosts.Itisuncommontohavesignificant
increasesinequipmentcostswithoutsignificantincreasesinlabourcosts.

On many construction projects, the largest single area of cost overrun is in labour costs. This is not
surprisinggiventhatlabourisfrequentlythelargestvariablecostforacontractor.Claimsinvolvinglost
productivityarefrequentlyreferredtoasdisruptionclaims.

WhatisProductivity?

Productivity

ProductivityRatio

=
=

ProductionOutput/ResourceInput
4mof4pipe/labourhour

=
=
=

ActualProductivity/PlannedProductivity
3mperhr/4mperhr
0.75

WhyisProductivityImportant?

HypotheticalProjectCostComponents

Labour

40%

Materials
GeneralConditionsandIndirectCosts
Overhead
Profit
Total

40%
10%
5%
5%
100%

Oftenthelargestcost
component;
Mostvolatilecost
component
Mostcriticalcosttocontrol

Shouldtheaboveprojectsuffera12.5%overrunonthelabourcostcomponent:

HypotheticalProjectCostComponents

Labour
40%
45%
Arisingfroma12.5%overrunon
labourcontent
Materials
40%

GeneralConditionsandIndirectCosts 10%

Overhead
5%

Profit
5%
0%
A12.5%overrunonlabourcontent
Wipesoutallprofitontheproject
Total
100%

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TheAnalysisandValuationofDisruption

Theexistenceofalabourcostoverrunisnotproofthatanevententitlingacontractortodamageshas
occurred. Clearly labour cost overruns can occur for a variety of reasons, not all of which entitle a
contractortocompensation.
One of the most contentious areas in construction claims is the calculation or estimation of lost
productivity.Unlikedirectcosts,lostproductivityisoftennottrackedorcannotbediscernedseparately
and contemporaneously. As a result, both causation and entitlement concerning the recovery of lost
productivitycanbedifficulttosatisfactorilyestablish.

Compounding this situation, there are numerous ways to calculate lost productivity and no uniform
agreement within the construction industry as to a preferred methodology of calculating lost
productivity. Many methods of calculation are open to challenge with respect to their validity and
applicabilitytoparticularcases,thusmakingsettlementoftheissueonaparticularprojectpotentially
problematic.2

Withinthepast20years,therehasbeensignificantresearchinconstructionlabourproductivitywhich
providesanincreasingbodyofempiricaldataastotheeffectsofvariousfactorsonconstructionlabour
productivity.Someofthedifficultiesinapplyingthatdatatoaspecificprojectisoutlinedherein.

Background

Projectchanges,disruptions,cumulativeimpacts,andfactorsaffectinglabourproductivityhavestrong
interrelationships.Theyalsoplayavitalroleinestablishingliability,causation,andresultantlossinlost
productivity claims. Change is one crucial factor in a range of factors influencing labour productivity.
Thefollowingisabriefdiscussionoftheseconcepts.

FactorsAffectingLabourProductivity

Labour productivity is a function of various controllable and uncontrollable factors. Schwartzkopf3

listedthesefactorsundersixgroupscomprising:
(1) Scheduleacceleration;
(2) Changeinwork;
(3) Managementcharacteristics;
(4) Projectcharacteristics;
(5) Labourandmorale;and
(6) Projectlocation/externalconditions.

ConstructionIndustryInstitute,AnAnalysisoftheMethodsforMeasuringConstructionProductivity,SD13,Austin,Texas,
1984.
3
Schwartzkopf,W.(1995).Calculatinglostlaborproductivityinconstructionclaims,Wiley,NewYork.
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TheAnalysisandValuationofDisruption

Borcherding and Alarcon4 present a comprehensive review of quantitative information on factors

influencing productivity. In addition, they categorised the major components of productivity loss as
waitingoridle,travelling,workingslowly,doingineffectivework,anddoingrework.5

As noted previously, a number of factors may influence the actual productivity achieved on a given
project:

Figure:Examplefactorsaffectingproductivity6

Clearly not all disruption attracts the payment of compensation. The contractor may be entitled to
compensationfortheeffectsoflostproductivitytotheextentthatabreachofobligationexists,acausal
linktotheoffendingpartycanbeestablishedandtheeffectsofthatdisruptioncalculatedappropriately.
Moststandardformsofcontractdonotdealexpresslywithdisruption.Iftheydonot,thendisruption
maybeclaimedasbeingabreachofthetermgenerallyimpliedintoconstructioncontracts,namelythat
theEmployerwillnotpreventorhindertheContractorintheexecutionofitswork.7

Borcherding,J.D.,andAlarcon,L.F.(1991).Quantitativeeffectsonproductivity.Constr.Lawyer,11(1).
SpecificfactorsandtheirdescriptionsareavailableinBorcherding,J.D.,andAlarcon,L.F.(1991).Quantitativeeffectson
productivity.Constr.Lawyer,11(1),MechanicalContractorsAssociationofAmerica(MCAA)(1994).Factorsaffectinglabor
productivity.Laborestimatingmanual,bulletinNo.PD2,Rockville,Md.,13,Schwartzkopf,W.(1995).Calculatinglostlabor
productivityinconstructionclaims,Wiley,NewYork,andAssociationfortheAdvancementofCostEngineering(AACE)
International,Inc.(2004).Estimatinglostlaborproductivityinconstructionclaims.AACEInternationalRecommended
PracticeNo.25R03.
6
Thefigurepresentedisintendedasillustrativeonlyofthetypeofmattersthatmayinfluenceproductivityonagivensite.
AdaptedfromapresentationbyDr.IbbsMeasuringProductivityforImprovedProjectPerformance,2009.
7
SCLDelayandDisruptionProtocol:October2002.
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5

TheAnalysisandValuationofDisruption

ProjectChange

Whilstanumberofthefactorsimpactingonlabourproductivityonaprojectarereadilyidentifiable,the
consequencesofchangeareoftenunderestimatedandthereforespecificallyreferencedhere.

Changeisnormallydefinedasanyeventthatresultsinamodificationoftheoriginalscope,execution
time,cost,and/orqualityofwork8.Therearegenerallyfivetypesofchanges,namely:
Changeinscope;
Differingsiteconditions;
Delays;
Suspensions;and
Acceleration.

Thecostsofperformingchangedworkconsistofboth:
(1) Thosecostsdirectlyrelatedtotheaccomplishmentofthechangedwork;and
(2) Thosecostsarisingfromtheinteractionbetweenthechangedworkandunchangedwork9.

Notwithstandingthatmostformsofcontractrecogniseandprovideforthevaluationofworkrelativeto
the circumstances under which it is being executed, this second aspect is often significantly
underestimatedorundervaluedbybothContractorsorEmployersandtheirRepresentatives.

Thecostsandscheduleimpactsofachangeoccurinfourphases:

Phase One is the time prior to the recognition of the change. An example would be a tradesman
determining that the plans do not fit the situation encountered. The tradesman first attempts to
determine if he is misreading the plans, then will seek direction from the supervisor who, if the
supervisorcannotresolvetheproblem,willthenseekdirectionfromtheengineerortheowner.After
someperiodoftime,aclarificationmaybeissued.Itmaybedeterminedthatachangeisnecessaryto
deal with the situation. During the period before a change is recognised, costs and delays can be
incurred. The process of finding a problem and implementing the solution is outlined in summary
below10.

Ibbs,C.W.,andAllen,W.E.(1995).Quantitativeimpactsofprojectchange.;Revay,S.O.(2003).Copingwithchanges.
AACEInt.Transactions,CDR.25,17.
9
TripleASouth,ASBCANo.46866,943BCA27,194,at135,523.
10
DevelopedfromWilliamSchwartzkopf,CalculatingLostLabourProductivityinConstructionClaims,2ndEdition,Aspen.
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TheAnalysisandValuationofDisruption

Attachment1presentsalargerscaleoftheaboveprocessdiagramme.

Phase Two occurs after the need to make a change is recognised. During this period, materials are
procured and the work is scheduled. Tradesmen may either be doing other work while waiting to
performthechangeorworkingaroundthechange.Eitheroftheseactionscancauseinefficiencies.

Phase Three is the actual execution of the changed work. The costs incurred during this phase are
generallyreferredtoasthedirectcostofthechange.Thesecostsrepresentthetimerequiredandcost
toperformthechangedwork.

PhaseFourrepresentstheworkperformedafterthechangedworkhasbeenperformed.Thecostand
scheduleeffectsduringthisphaseandthefirstphaseareindirectandareoftenreferredtoasimpact
costs. The amount of these impact costs is often the subject of considerable disagreement. By
comparison,thedirectcostsduringthethirdphasecanfrequentlybemeasuredand,therefore,thecost
of the labour, materials, equipment, and other items can be determined. If a project is impacted by
multiplechanges,itmaybenecessarytoanalysetheeffectofallofthechangessimultaneouslybecause
oftheinteractionofthevariouschanges.

ExtentofProjectChange
The degree of project change varies according to each project but can be significant. Among 24
constructionprojectsinwesternCanada,projectcostsincreasedbyatleast30%formorethanhalfand
60%onathirdofprojects11.Severalprojectssuffereddelaysover100%.AstudyoftheJointLegislative
Audit and Review Commission12 on approximately 300 road construction projects in Virginia revealed
thattheaveragefinancialprojectchangewasmorethan11%.

The amount and timing of change are also significant factors affecting productivity. Analysis of 90
constructiondisputesin57independentprojects13showedthattherewasasignificantdirectcorrelation
11

Semple,C.,Hartman,F.T.,andJergeas,G.(1994).Constructionclaimsanddisputes:Causesandcost/timeoverruns.J.
Constr.Eng.Manage.,120(4),785795.
12
JointLegislativeAuditandReviewCommission(JLARC).(2001).ReviewofconstructioncostsandtimeschedulesforVirginia
highwayprojects.HouseDocumentNo.31,CommonwealthofVirginia.
13
Leonard,C.A.(1987).Theeffectofchangeordersonproductivity.RevayRep.,6(2),14.
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TheAnalysisandValuationofDisruption

between the percentage of change order hours to contract hours and the percentage of lost
productivity.Ibbs14foundthat:
(1) Thegreatertheamountofchange,thelesstheefficiencyis;and
(2) Lateprojectchangemoreadverselyaffectslabourproductivitythanearlychange.

Thisfindingwasalsoconfirmedbylaterstudies15.

DisruptionsandCumulativeImpacts
InCoastalDryDock&RepairCorp.,disruptionisnotedasthecosteffectupon,ortheincreasedcostof
performing, the unchanged work due to a change in contract16. In some studies17, disruptions are
definedastheoccurrenceofeventsthatareacknowledgedtonegativelyimpactonlabourproductivity.
Morebroadly,theAACE;RecommendedPracticestandard18definesdisruptionsasanactionorevent
which hinders a party from proceeding with the work or some portion of the work as planned or as
scheduled.

As noted previously, disruptions can be caused by change. These changes can reduce labour
productivityandextendtheprojectduration19.Disruptionscausedbychangecanbebothforeseeable
andunforeseeable.Theforeseeableorlocaldisruptionscanoccuratthesametimeandeitherthesame
place or within the same resource as the changed work, whereas unforeseeable or cumulative
disruptions can also occur at a time or place, or within resources, different from the changed work20.
Thewordscumulativedisruptionandcumulativeimpactcanbeusedinterchangeably.

Cumulativeimpacthasbeendescribedasbeingtheunforeseeabledisruptionofproductivityresulting
fromthesynergisticeffectofanundifferentiatedgroupofchanges.Cumulativeimpactisreferredto
as the ripple effect of changes on unchanged work that causes a decrease in productivity and is not
analysed in terms of spatial or temporal relationships21. Jones22 argued that when the Board states
thatcumulativeimpactcannotbeanalysedintermsofspatialortemporalrelationships,itmeansthat
cumulativeimpactcostscannotbesecuredwithinindividualcontractchanges.

Pricing of the direct impact due to local disruptions and cumulative impacts due to cumulative
disruptionsisdifferent.Thedirectimpactcostsarepreparedonaforwardpricingbasis.Thecumulative
impact costs, on the other hand, are more often priced on a backward pricing basis as a contractor
cannotforeseeorreadilyquantifytheimpact.Inotherwords,acumulativeimpactclaimaddressesthe

14

Ibbs,C.W.(1997).Quantitativeimpactsofprojectchange:Sizeissues.J.Constr.Eng.Manage.,123(3),308311,Ibbs,W.
(2005).Impactofchangestimingonlaborproductivity.J.Constr.Eng.Manage.,131(11),12191223.
15
E.g.,Hanna,A.S.,Russell,J.S.,Gotzion,T.W.,andNordheim,E.V.(1999).Impactofchangeordersonlaborefficiencyfor
mechanicalconstruction.J.Constr.Eng.Manage.,125(3),176184.
16
CoastalDryDock&RepairCorp.,ASBCANo.36754,911BCA23,324,at116,989,1990.
17
Thomas,H.R.,andNapolitan,C.L.(1995).Quantitativeeffectsofconstructionchangesonlaborproductivity.J.Constr.Eng.
Manage.,121(3),290296.;Thomas,H.R.,andRaynar,K.A.(1997).Scheduleovertimeandlaborproductivity:Quantitative
analysis.J.Constr.Eng.Manage.,123(2),181188.
18
AssociationfortheAdvancementofCostEngineering(AACE)International,Inc.(2004).Estimatinglostlaborproductivityin
constructionclaims.AACEInternationalRecommendedPracticeNo.25R03.
19
Hanna,A.S.,Lotfallah,W.B.,andLee,M.J.(2002).Statisticalfuzzyapproachtoquantifycumulativeimpactofchange
orders.J.Comput.Civ.Eng.,16(4),252258.
20
Finke,M.R.(1998).Abetterwaytoestimateandmitigatedisruption.J.Constr.Eng.Manage.,124(6),490497.
21
CentexBatesonConstructionCo.,VABCANo.4613,991BCA30,153,at149,259,1998.
22
Jones,R.M.(2001).Lostproductivity:Claimsforcumulativeimpactofmultiplechangeorders.PublicContractLawJ.,31(1),
146.
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TheAnalysisandValuationofDisruption

changedworkseffectonworkingconditionsthatwillindirectlyinfluencetheunchangedwork,whereas
adirectimpactclaimcoverstheimpactofchangedworkonunchangedwork23.

TheAACERecommendedPractice24notes:contractorstendtoblamesuchlossesonownersandaskto
becompensated.Owners,ontheotherhand,oftenblameabadbidorpoorprojectmanagementand
thus deny additional compensation for lost productivity. Given this situation the root cause of lost
productivityisfrequentlyamatterindisputebetweenowners,contractorsandsubcontractors.

This paper seeks to set out appropriate approaches and recognised practices designed to overcome
thoseinherentobstaclesinanalysingandquantifyingtheeffectsofsuchdisruption.

MethodsofQuantifyingLostProductivity

Theconstructionindustryhasdevelopedandemployedanumberofmethodologiesforestimatinglost
labour productivity. Based on the appropriate data input, these methods can be classified into three
majorgroups;namely:
(1) Projectpracticebased;
(2) Industrybased;and
(3) Costbasedmethods.

The detailed data requirements and corresponding judicial acceptance generally increase as the
approachadoptedmovesfromcostbasedtoprojectpracticebasedmethods.

23

Jones,R.M.(2001).Lostproductivity:Claimsforcumulativeimpactofmultiplechangeorders.PublicContractLawJ.,31(1),
146.
24
AssociationfortheAdvancementofCostEngineering(AACE)International,Inc.(2004).Estimatinglostlaborproductivityin
constructionclaims.AACEInternationalRecommendedPracticeNo.25R03.
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TheAnalysisandValuationofDisruption

The above figure25 outlines the relationships between the availability, quality and providence of the
contemporaneousprojectdocumentation,thereliabilityofthemethodsofquantifyinglostproductivity
and the cost and expertise generally required to record, prepare, and document the quantum of
damagesderivedthereby.

Thehorizontalaxisreferstotheattributesoftheprojectdata.Thetwoverticalaxesrefertoattributes
ofthemethodsavailableforcalculatinglostproductivity.
Themethodslistedtypicallyincreaseinprecisionastheymovefromthetoptothebottominthegraph
andfromlefttoright,i.e.fromatotalcostapproachtoameasuredmileapproach.Thisalsoreflectsthe
orderofpreferenceintheresearchliterature26.

The cost, effort, and expertise required for quantifying the loss normally increases from left to right.
Horizontallytheavailabilityandqualityofcontemporaneousdocumentation requiredincreasesasthe
moredetailedmethodsareused.

Beforeembarkingonaproductivitylossanalysis,theclaimantshouldcarefullyconsiderwhethertheloss
canberecastasanimpactofspecificallydefinableextrawork.Ifthatisthecase,thenthatproductivity
lossshouldbeincorporatedintotheestimatefortheextraworkandresolvedinthatmanner.

25

AdaptedfromQuantifiedImpactsofProjectChange,Ibbs,Long,NguyenandLee,JournalofProfessionalIssuesinEngineering
EducationandPractice2007.
26
AssociationfortheAdvancementofCostEngineering(AACE)International,Inc.(2004).Estimatinglostlaborproductivityin
constructionclaims.AACEInternationalRecommendedPracticeNo.25R03.
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TheAnalysisandValuationofDisruption

Tribunalsappeartobemorefavourablyimpressedbydamagecalculationsrelateddirectlytotheproject
in dispute and supported by contemporaneous project documentation.27 Therefore, recommended
practiceforpreparingalostproductivitycalculationistoutilise,ifpossible,oneofthetechniqueslisted
inthecategoryofProjectPracticeBasedMethodssetoutbelow.

Thesemethodologiesareprojectspecificandsupportedbypeopleandrecordsdirectlyinvolvedatthe
time of the dispute or the disputed work. That direct relationship to the work and the events in
question are what gives the approach its appeal to a tribunal in favour of a more theoretical or
generalistapproach.

Ifthereisinsufficientinformationavailablefrom contemporaneousproject documentationtosupport

one of these techniques, recommended practice then is to use one of the methods listed under the
category Project Comparison Studies. These methodologies, too, are project specific but rely upon
differentformsofcontemporaneousdocumentation.

Unfortunatelyappropriatecontemporaneousprojectdocumentationisnotalwaysavailable.Estimated
costs are, of course, recognised as a legitimate way to calculate damages once entitlement and
causation are sufficiently proven. Legal systems generally recognise that damages cannot always be
calculated with mathematical certainty. Further, it is recognised that contractors frequently have to
prepare and live with cost estimates. Therefore, in the absence of other proof of damages, the legal
systemmayallowestimatestoestablishdamages.28

Estimated damages may be acceptable, under appropriate circumstances, but are more subject to
challenge than direct project costs. Of the damage calculation and estimating methods available,
recommended practice is to use first, one of the studies listed in the Specialty Industry Studies
category. These are specialty studies of specific types of problems and are, generally, based on a
numberofactualconstructionprojects.Ofcourse,toutiliseoneofthesestudies,thecausationofthe
lostproductivityshouldbeappropriatefortheparticularproblemstudied.

Ifnoneofthespecialisedstudiesareapplicabletothesituationinquestionrecommendedpracticeisto
utiliseoneofthestudieslistedintheGeneralIndustryStudiescategories.

Thesestudiesaresubjecttogreaterchallengebecausetheyareindustrywideandnotsubjectorproject
specific.Inaddition,thebasicdataissometimesderivedfromanonconstructionenvironment.Finally,
these studies were largely intended as forward pricing guides, as such, their intended purpose was
distinctlydifferent.

Notwithstanding these criticisms, in the absence of more reliable techniques, claimants have been
allowedtousethesestudiesonceentitlementandcausationhavebeensufficientlyproven.

If the contractor preparing a lost productivity damages calculation can demonstrate entitlement and
causationbutisunabletoutiliseoneofthetechniquespreviouslynoted,recommendedpracticeisthen
touseoneofthemethodslistedintheCostBasiscategory.

To successfully utilise one of these techniques, the claimant generally has to overcome some difficult
legalhurdles,discussedinmoredetailbelow.But,ifthesechallengescanbemet,thenthesetechniques
maybeallowedasameasureoflostproductivity.
27

ForamorethoroughdiscussionofthispointseeSchwartzkopf,WilliamandJohnJ.McNamara,CalculatingConstruction
Damages,2ndEdition,AspenLaw&Business,NewYork,2001,1.03.Seealso,Wickwire,JonM.,ThomasJ.Driscoll,StephenB.
HurlbuttandScottB.Hillman,ConstructionScheduling:Preparation,LiabilityandClaims,2ndEdition,AspenLaw&Business,
NewYork,2003,12.04et.seq.Seealso,RoyS.Cohen,SurveyofCourtsReactionstoClaimsforLossofProductivityand
Inefficiency,Session612,ABAPublicConstructionSuperconference,December10,1998.
28
Schwartzkopf,ibid,1.03[B].
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TheAnalysisandValuationofDisruption

ProjectPracticeBasedMethods

Measured mile analysis, baseline productivity analysis, system dynamics modelling, earned value
analysis, sampling studies, and comparison studies are all project practice based approaches whose
calculationsaredrawnfromtheprojectrecords.

Assuch,theyareexpectedtobemorecrediblethanalternativegeneralapproaches.Courtsandother
tribunals therefore prefer estimations of damages that are directly linked to the disputed project and
supported by its contemporaneous documentation29. The types of contemporaneous documentation
requiredaregenerallydifferentfromonemethodtoanother.Thatis,themostsuitablemethodfora
givenprojectcanonlybedeterminedbasedupontheavailableprojectdata.

MeasuredMileAnalysis
Themeasuredmileapproach30iswidelyacknowledgedasthemostacceptablemethodforcalculating
lostproductivitycosts.

Theanalysiscomparesidenticaltasksinimpactedandnonimpactedperiodsoftheprojecttoestimate
theproductivitylosscausedbytheimpactofaknownseriesofevents31.Itisbasedonanextrapolation
ofactualworkhoursspent32.Themeasuredmilecalculationmightincludecomparisonofsimilarwork
activities and achieve court acceptance33. The attraction of the measured mile is that the actual
contractperformanceratherthantheinitialestimateisusedforthecalculations.Assuchitcompares
actualperformanceonsitewithactualperformance,notsometheoreticalplannedperformance.

29

AssociationfortheAdvancementofCostEngineering(AACE)International,Inc.(2004).Estimatinglostlaborproductivityin
constructionclaims.AACEInternationalRecommendedPracticeNo.25R03.
30
Sometimesreferredtoasdifferentialstudiesormeasuredproductivitycomparisons.
31
Schwartzkopf,W.(1995).Calculatinglostlaborproductivityinconstructionclaims,Wiley,NewYork.
32
Zink,D.A.(1986).Themeasuredmile:Provingconstructioninefficiencycosts.CostEng.,28(4),1921.
33
Jones2003;CalveyandZollinger2003;AssociationfortheAdvancementofCostEngineering(AACE)International,Inc.
(2004).Estimatinglostlaborproductivityinconstructionclaims.AACEInternationalRecommendedPracticeNo.25R03.
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TheAnalysisandValuationofDisruption

The above illustrates a nondisrupted period of excavation and a later disrupted period where the
volumeofexcavationperunitoftimehasbeenadverselyaffectedbyoperationalandaccessrestrictions
imposedupontheContractor.

Thereareseveralassumptionsandprerequisitesunderlyingthemeasuredmiletechnique:
First,theremustbeanonimpactedorleastimpactedperiod,socalledmeasuredmileperiod,
forthespecifictypeofworkbeingassessed.Theadversefactorsaffectingproductivityduring
themeasuredmileperiod,ifany,mustbesolelyattributabletothecontractor;
Second,thelengthofthisperiodshouldbesignificantcomparedtotheimpactedperiodandthe
courseofwork.Itwouldbeunreasonabletoextrapolate2%ofprogressinto80%ofexpected
costs34;
Third,sufficientamountsofcontemporaneousprojectdatashouldbeavailablefortheanalysis.
At most the physical units of work completed have to be periodically recorded so that the
cumulativelabourhourscanbeplottedthroughthecourseofwork.
Fourth, the project data are assumed to be error free. That is, the contemporaneous
documentationmustbeaccuratelyrecordedbythecontractor;and
Finally, all disruptions during the impacted period are due to one partys (say, the owners)
actionsorinactions.Itisextendedthatotherfactorsunrelatedtotheclaimedimpactshaveto
beaccountedforandremovedfrom theimpactedperiodanalysistothedegreethesefactors
occurredduringthemeasuredmileperiod35.

34

Zink,D.A.(1986).Themeasuredmile:Provingconstructioninefficiencycosts.CostEng.,28(4),1921.
AssociationfortheAdvancementofCostEngineering(AACE)International,Inc.(2004).Estimatinglostlaborproductivityin
constructionclaims.AACEInternationalRecommendedPracticeNo.25R03.
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35

TheAnalysisandValuationofDisruption

Considerable limitations are embedded in these assumptions. The measured mile analysis becomes
unreliableorevenimpossiblewheneitheranonimpactedperiodsimplydoesnotexistorthatperiodis
not sizeable. The fact that the analysis requires identical or substantially similar activities for
comparisonscanhamperitsapplicabilityasthemethodisinappropriateforuniqueandcomplextasks36.
Thereliabilityofthemethodischallengedifinaccuratecontemporaneousprojectdataisusedforthe
analysis.Unfortunatelyreportingerrorsarecommonplaceinprojects37.

Otherlimitationsaremoreimplicit.Projectedcumulativelabourhourscanbeextrapolateddifferently
duetodifferentoptionsofthetimeframe.GulezianandSamelian38pointedoutthat:
(1) Different time frame and segments selected within the measured mile period may produce
differentnumbers;and
(2) Variation ofdaily productivity is concealed to varying extents by the cumulating nature of the
measuremileanalysis.

Theyalsoarguethatthemeasuredmiledoesnotnecessarilyreflecttheproductivitynormallyachieved
bythecontractorduetothesmoothingeffectofsuccessivecumulativedataandthenatureofvariation
inunitproductivityvalues.Inaddition,thetwoaverageproductivityrates,whicharereadilycalculated
andcomparedfornonimpactedandimpactedperiods,maymaskthefactthatacontractorgenerally
doesnotattainasinglerateofproductivitythroughoutatimeperiod39.

ExampleMeasuredMileCalculationComparisonofUnitCostforImpactedandNonimpactedAreas40
TheContractorplannedtoperformallofthecrosstaxiwaypavingonanuninterruptedbasis,andtouse
pavingmachinesforalloftheconcretepavingexceptforthefilletareas,whichweretobedonebyhand
pours.

Becauseoftheengineer'schangesinthetaxiwaylightingandarequirementtoputpavementsensing
devices in the concrete for a longrange pavement wear study, the work on the south taxiways was
performed on a sporadic and intermittent basis. In fact, much of it was performed on a hand basis
ratherthanusingthelargeconcreteslipformpavingspread.Thiscausedasubstantiallygreatercostof
performingtheworkonthesouthtaxiwaysthancouldbereasonablyanticipated.

The work on the north taxiways was performed under normal conditions, since the changes were all
made prior to the start of work on the north taxiways and the pavement wear study would not be
conducted on the north taxiways. Runway's cost as a result of these changes can be calculated by
comparingtheunitcostoflabourforthenorthtaxiways(whichwereessentiallynonimpacted)withthe
unit cost of labour for the south taxiways (which were substantially impacted). Both the north and
south taxiways were performed during normal paving periods under good weather conditions. The
samelabourforceandthesameequipment(withtheexceptionthattheslipformpavingspreadcould
notalwaysbeusedduetothechange)wasusedonbothareas.However,theunitlabourcostonthe
north taxiways, which were nonimpacted, was approximately half of the cost incurred on the south
taxiways.

36

Loulakis,M.C.,andSantiago,S.J.(1999).Gettingthemostoutofyourmeasuredmileapproach.Civ.Eng.(N.Y.),69(11),
69.
37
Thomas,H.R.,andSanvido,V.E.(2000).Quantificationoflossescausedbylaborinefficiencies:Whereistheelusive
measuredmile?Constr.LawBus.,1.
38
Gulezian,R.,andSamelian,F.(2003).Baselinedeterminationinconstructionlaborproductivitylossclaims.J.Manage.Eng.,
19(4),160165.
39
Finke,M.R.(1998).Statisticalevaluationsofmeasuredmileproductivityclaims.CostEng.,40(12),2830.
40
DrawnfromSchwartzkopf,CalculatingLostLaborProductivityinConstructionClaims,2ndEdition.
Page|15

TheAnalysisandValuationofDisruption

On the above information and the following simplistic analysis, the Contractor is entitled to be paid
$549,155inadditionalcoststhatitincurred,asillustratedinthefollowingformula:

Hours
SquareMetresProduced
Hours/SquareMetre

IncreaseinUnitLabourRate

QuantityAffectedbyBlockoutandLightChange
IncreasedRate

ManhourIncreaseDuetoChange
LabourCostperManhour

TotalAdditionalLabourCost

ActualNorthCross
TaxiwayProduction
10,116.00
102,256.00
.099

ActualSouthCross
TaxiwayProduction
51,969.00
281,746.60
.184

0.086

281,746.60
0.086

24,096.32
$22.79

$549,155.17

BaselineProductivityAnalysis
Thisapproachwasproposedinordertoavoidsomeofthelimitationsandimpracticalassumptionsofa
currentmeasuredmileanalysis.Similartothe measuredmilemethod,baselineanalysisreliesonthe
contractors actual performance of the project being analysed. A central point of this analysis is to
establish the baseline productivity. It represents the best and most consistent productivity the
contractor was able to achieve on the project41. Analysing a 42 project database42 revealed that the
baseline productivity mainly depends on the complexity of the design and the work methods used.
Unlike the measured mile analysis, a baseline analysis neither needs defined nonimpacted and
impactedperiodsnorbeconsecutivereportingperiodsinthebaselinetimeframe43.Inotherwords,the
baselineanalysiscanbemoreflexibleandhencemoreapplicableincurrentpractice44.

However, the process has not obtained consensus among studies though it is generally agreed that
usingindividualproductivityvaluesisbetterthancumulativeproductivityforthecalculations.Thismay
be due to varying views on the baseline productivity. Unlike Thomas and Zavrki45, Gulezian and
Samelian46 noted that the baseline productivity reflects the normal operating performance of a
contractor.

41

Thomas,H.R.,andZavrki,I.(1999).Constructionbaselineproductivity:Theoryandpractice.J.Constr.Eng.Manage.,
125(5),295303.
42
Thomas,H.R.,andZavrki,I.(1999).Constructionbaselineproductivity:Theoryandpractice.J.Constr.Eng.Manage.,
125(5),295303.
43
Thomas,H.R.,andZavrki,I.(1999).Constructionbaselineproductivity:Theoryandpractice.J.Constr.Eng.Manage.,
125(5),295303
44
AdeterminingprocessofthebaselineproductivitycanbefoundinThomasandZavrki(1999),ThomasandSanvido(2000),
andGulezian,R.,andSamelian,F.(2003).Baselinedeterminationinconstructionlaborproductivitylossclaims.J.Manage.
Eng.,19(4),160165.
45
Thomas,H.R.,andZavrki,I.(1999).Constructionbaselineproductivity:Theoryandpractice.J.Constr.Eng.Manage.,
125(5),295303.
46
Gulezian,R.,andSamelian,F.(2003).Baselinedeterminationinconstructionlaborproductivitylossclaims.J.Manage.Eng.,
19(4),160165.
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TheAnalysisandValuationofDisruption

ThomasandZavrki47andThomasandSanvido48determinethebaselineproductivityasthemedianof
theindividualproductivityvaluesinthebaselinesubset.GulezianandSamelian49calculateitasthe
meanproductivityofthepointsfallingwithinthecontrollimitsafterapplyinganiterativeprocessofan
individualscontrolcharttodealwithdifferentsourcesofvariationofperiodicallyreportedproductivity
values.

Althoughthebaselineanalysissolvesseveralproblemsassociatedwiththemeasuredmileapproach,it
is still limited. The way of calculating the baseline productivity should be more scientific and
straightforward, subject to properly dealing with the reliability of reported data, variation of
productivityvalues,andcasuallinkagestodisruptionsandinefficiency.Someshortcomingsarerelated
totheestablishmentofthebaselinesampleasinThomasandZavrki50andThomasandSanvido51.They
are:
(1) The baseline sample is identified according to the best daily output instead of the best daily
productivity;and
(2) The 10% requirement for the baseline sample size is arbitrary and not based upon scientific
principles52.

Inadditionitisagreedthatthebaselineanalysisisacauseandeffectanalysis,yetitisqualitativeorvery
roughly approximate in nature as in Thomas53. There has been no sound method for which damages
inducedbytheownerandcontractorareclassifiedandquantifiedduringadisputedperiod.Especially,
multipleand/orsimultaneousownerandcontractorcauseddisruptionsarenotuncommoninreallife.

SystemDynamicsModelling
Systemdynamics(SD)modellinghasbeenemployedtounderstandthebehaviourofvariousnatural,
social, and engineered systems54. Developed at MIT55 in the late 1950s, SD is widely used in the
defenceindustry.

A number of delay and disruption claims have been successfully settled with extensive support of SD
modelling.OnesuchsuccessfulstorywasthedevelopmentandapplicationofaSDcomputersimulation
modeltoresolvea$500millionshipbuilderclaimconsistingofthedirectimpactandtherippleeffects
between Ingalls Shipbuilding and the U.S. Navy in the 1970s56. Other successful applications of SD
modellingindelayanddisruptionclaimsandlawsuitshavealsobeenreported57.
47

Thomas,H.R.,andZavrki,I.(1999).Constructionbaselineproductivity:Theoryandpractice.J.Constr.Eng.Manage.,
125(5),295303.
48
Thomas,H.R.,andSanvido,V.E.(2000).Quantificationoflossescausedbylaborinefficiencies:Whereistheelusive
measuredmile?Constr.LawBus.,1.
49
Gulezian,R.,andSamelian,F.(2003).Baselinedeterminationinconstructionlaborproductivitylossclaims.J.Manage.Eng.,
19(4),160165.
50
Thomas,H.R.,andZavrki,I.(1999).Constructionbaselineproductivity:Theoryandpractice.J.Constr.Eng.Manage.,
125(5),295303.
51
Thomas,H.R.,andSanvido,V.E.(2000).Quantificationoflossescausedbylaborinefficiencies:Whereistheelusive
measuredmile?Constr.LawBus.,1.
52
Ibbs,W.,andLiu,M.(2005).Improvedmeasuredmileanalysistechnique.J.Constr.Eng.Manage.,131(12),12491256.
53
Thomas,H.R.(2005).Causationandcauseeffectanalyses.Constructionclaimsonline,WPL,3(4).
54
Itsprinciples,concepts,andtoolscanbefoundinForrester,J.(1961).Industrialdynamics,PegasusCommunications,
Waltham,Mass,Richardson,G.,andPugh,A.(1981).Introductiontosystemdynamicsmodelingwithdynamo,Pegasus
Communications,Waltham,Mass,andSterman,J.D.(2000).Businessdynamics,systemthinking,andmodellingforacomplex
world,IrwinMcGrawHill,NewYork.
55
MassachusettsInstituteofTechnology.
56
Cooper,K.G.(1980).Navalshipproduction:Aclaimsettledandaframeworkbuilt.Interfaces,10(6),2036.
57
Ackermann,F.,Eden,C.,andWilliams,T.(1997).Modelingforlitigation:Mixingqualitativeandquantitativeapproaches.
Interfaces,27,4865;Eden,C.,Williams,T.,Ackermann,F.,andHowick,S.(2000).Onthenatureofdisruptionanddelay.J.
Oper.Res.Soc.Jpn.,51,291300;Williams,T.M.,Ackermann,F.,andEden,C.(2003).Structuringadisruptionanddelay
claim.Eur.J.Oper.Res.,148,192204.
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TheAnalysisandValuationofDisruption

The SD approach seeks to create a computer model of the project that maps all relationships and
feedbackloopsinacomprehensivedynamicmodel.Asimplisticrepresentationofthatmodelmaylook
somethinglike:

Thesequenceofmodelledeventsmayrunalongthefollowinglines:

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TheAnalysisandValuationofDisruption

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TheAnalysisandValuationofDisruption

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TheAnalysisandValuationofDisruption

Problemsearlyintheprojectpropagatetodownstreamwork.Changeimpactsoriginallyisolatedinthe
engineeringphasemayendupaffectingconstructionaswell.Thereanothersimilarsetofdynamicsis
triggered, with the addition of some physical impacts as well, such as crowding (congestion, trade
stacking).Allthesedynamiceffectsinconstruction,astheyaffectlabourproductivity,canamplifythe
magnitudeofdisruptionimpactsfromchanges.

IllustrationsdrawnfromProjectChanges:Sources,Impacts,Mitigation,Pricing,Litigation&Excellence,PAConsultingGroup

ByusingSDmodellingquantificationofcumulativeimpactscanovercomeoneofthelimitationsofthe
measured mile and baseline analyses. As noted earlier the two methods are not able to easily
accommodate multiple and/or concurrent disruptions caused by different project parties. SD models
canquantifyownerresponsibledelayanddisruptionimpactcostsanddemonstratethecauseandeffect
relationshipofthecumulativeimpacts58.AkeyfeatureofSDsimulationmodellingisthatitallowsand
directsansweringapoolofwhatifquestionssuchas:Whatifoneparticularcategoryofdisruptions
hadnotoccurredbutallothershad?Whatiftheownerinterventionshadnotoccurred?59.Inaddition,
it visualises causality and allows for validation of causal logic in quantitative terms and against actual
dataatanyperiodoftheprojectindispute60.

SD modelling has not achieved popularity in construction disputes compared to the measured mile
analysis.

58

Cooper,K.G.(1980).Navalshipproduction:Aclaimsettledandaframeworkbuilt.Interfaces,10(6),2036.
Cooper,K.G.(1980).Navalshipproduction:Aclaimsettledandaframeworkbuilt.Interfaces,10(6),203;Eden,C.,
Williams,T.,andAckermann,F.(2005).Analysingprojectcostoverruns:Comparingthemeasuredmileanalysisandsystem
dynamicsmodelling.Int.J.Proj.Manage.,23,135139.
60
Eden,C.,Williams,T.,andAckermann,F.(2005).Analysingprojectcostoverruns:Comparingthemeasuredmileanalysis
andsystemdynamicsmodelling.Int.J.Proj.Manage.,23,135139.
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59

TheAnalysisandValuationofDisruption

One main reason is that SD simulation models are not readily understood due to the dynamic
complexity and quantitative nature of those models61. In addition, unless the SD model is properly
validated,itispointless,barelycredible,andthereforeuseless.

ValidationofaSDmodelisproblematicandtimeconsumingandrequiresextensiveexpertiseoftheSD
methodology.Insomecircumstances,itisassumedthatthereasonablenessoftheoriginalestimatein
SD modelling can draw inaccurate and unpersuasive quantum of damages. Also, although the causal
coefficients indicating the relationships between activities are very important to the accuracy of a SD
model,theyarenoteasytoestimate62.

EarnedValueAnalysis
Productivitymeasurementissometimesdifficultwhenthereisinsufficientinformationconcerningthe
physical units of work installed on the project. In these situations, a simplistic form63 of the earned
valueanalysismethodcanbeutilisedtocalculateestimatedlabourhours.64Thecontractorsestimate
or alternatively the monetary value of payment applications, contract amounts or unit prices can be
usedtodeterminelabourhours,whentheywereexpendedand,possibly,onwhatactivities.65Physical
unitsofworkcompletedmultipliedbybudgetunitratescanbeusedtodetermineearnedhours.The
earned hours are then compared to the actual hours expended for the period of the impact and the
differencebetweenthetwomaybeusedtocalculatetheproductivitylossexperienced.

Earnedvaluemeasurementofcontemporaneousprojectdocumentation,suchaspercentagescomplete
from schedule updates or payment applications can assist with calculating labour productivity.66
Additionally, the claimant may calculate the actual revenue per hour of labour versus the planned
revenueperhour,asanalternative.67Earnedvalueanalysismayalsobeutilisedtocalculateestimated
labourhours.68

Whenusingtheearnedvalueanalysistechnique,itiscautionedthatthebudgetusedtogeneratethe
earnedvaluemetricsbecarefullyreviewedandverifiedforreasonableness.Anyearnedvalueanalysis
basedupon anunreasonablebudget ishighlysuspect. Finally,itisnoted thatafullyresourceloaded
(labourandquantities)CPMscheduleisagoodsourceforobtainingearnedvaluemetricsandallowsfor
liketimecausationanalysis.

An earned value analysis can also be used to estimate the cumulative impacts, especially when the
physical units of work completed have not been recorded adequately for employing a more reliable
methodlikethemeasuredmileandbaselineanalyses.

61
62
63

Howick,S.(2005).Usingsystemdynamicsmodelswithlitigationaudiences.Eur.J.Oper.Res.,162,239250.
Ibbs,W.,andLiu,M.(2005).Systemdynamicmodelingofdelayanddisruptionclaims.CostEng.,47(6),1215.

Theuseofthetermearnedvaluemeansdifferentthingstodifferentpeople.Inthiscontext,simplifiedearnedvalueis
usedtodistinguishbetweenformEarnedValueasrequiredbytheUSGovernmentonmanyoftheirprojectsandearnedvalue
aspracticedbymanyEPCcontractors.SeeforexampleKennethK.Humphreys,JelensCostandOptimizationEngineering,Third
Edition,McGrawHill,NewYork,1991;JamesM.Neil,ConstructionCostEstimatingforProjectControl,PrenticeHall,Inc.,
EnglewoodCliffs,NewJersey,1982;andSkillsandKnowledgeofCostEngineering,FifthEdition,AACEInternational,
Morgantown,WestVirginia,2004.
64
SeeStumpf,George,R.,editor,AACEIProfessionalPracticeGuidetoEarnedValue,AACEI,Morgantown,WV,1999.
65
SeeCass,DonaldJ.,EarnedValueProgramsforDOEProjects,CostEngineering,Vol.42,No.3,February2000.
66
SeeFleming,QuentinW.andJoelM.Koppelman,EarnedValueProjectManagement,ProjectManagementInstitute,Upper
Darby,PA.1996.
67
SeeMcCally,BobM.,DemonstratedLaborEfficiency:AnEffectiveCostControlandAnalyticalTool,CostEngineering,Vol.41,
No.11,pp.3337,November1999.
68
SeeJonesandDriscoll,Ibid,pageB24.
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TheAnalysisandValuationofDisruption

Foraproject,thedifferencebetweenearnedhoursdeterminedfromtheearnedvalueanalysismethod
andactualhoursexpendedforanimpactedperiodcanbeusedtocomputetheinefficiencysuffered69.
As an earned value analysis is based on the percent complete and the budget, the credibility of the
methodcanbequestionable.Thereasonsarethat:
(1) The percent complete method is not as detailed and accurate as the physical units of work
completedmethod70usedinthepreviousquantifyingmethods;and
(2) The original estimate is likely to be unsubstantiated. Any earned value analysis relying on an
unreasonablebudgetisverydoubtful71.

SamplingMethods

Two sampling methods used for estimating lost productivity are work sampling and craftsmen
questionnairesamplingmethods.Introductiontothesemethodscanbefoundelsewhere72.

Worksamplingisamethodinwhichalargenumberofdirectobservationsoftradesmenaremadeto
determinewhattheyaredoingatvariouspointsintime.WorksamplingisdefinedasAnapplicationof
randomsamplingtechniquestothestudyofworkactivitiessothattheproportionsoftimedevotedto
differentelementsofworkcanbeestimatedwithagivendegreeofstatisticalvalidity.73

From these observations the claimant determines, on a percentage basis, how much time is spent
betweendirectwork(payitemwork);supportwork(movingtoolsandmaterialstotheworklocation);
ordelays(timewhennoworkisbeingperformed).Byperforminganumberofworksamplingstudies,
the analyst can draw comparisons of productivity before and after known events, between work
activitiesorcrews,etc.Worksamplinghasbeenofferedasameansofdeterminingproductivitylossbut
itcanonlybeperformedduringthelifeoftheprojectandisnotcompatiblewithahindsightanalysis
effort.74

The sampling methods are typically simple and inexpensive to analyse labour productivity. Although
theycanbeusedforlostproductivityclaims,theirtrustworthinessisnothighastheyareonlyasampled
measureoflabourproductivity.

Forinstance,anassumptionofworksamplingthatthereisapositiverelationshipbetweenproductive
timeandlabourproductivitywasfoundtobefalse75.

Thequestionnaireapproachallowscraftsmentoestimatetheamountoflostproductivetimeinthefield
on a daily or weekly basis, identifying the reason for the lost time. While, perhaps, not the most
scientificofstudies,thisiscontemporaneousdocumentationifadministeredproperly.Theclaimantcan
thentietheresultsofsuchasurveytotheentitlementandcausationarguments.76

69

AssociationfortheAdvancementofCostEngineering(AACE)International,Inc.(2004).Estimatinglostlaborproductivityin
constructionclaims.AACEInternationalRecommendedPracticeNo.25R03.
70
Schwartzkopf,W.(1995).Calculatinglostlaborproductivityinconstructionclaims,Wiley,NewYork.
71
AssociationfortheAdvancementofCostEngineering(AACE)International,Inc.(2004).Estimatinglostlaborproductivityin
constructionclaims.AACEInternationalRecommendedPracticeNo.25R03.
72
e.g.,Oglesby,C.H.,Parker,H.W.,andHowell,G.A.(1989).Productivityimprovementinconstruction,McGrawHill,New
York..
73
AmericanInstituteofIndustrialEngineers,AmericanNationalStandardZ94.11,IndustrialEngineeringTerminology1120
(1989).
74
SeeFwuShiunLiouandJohnD.Borcherding,WorkSamplingCanPredictUnitRateProductivity,JournalofConstruction
EngineeringandManagement,Vol.112,No.1,page90(March,1986).Seealso,Jenkins,JamesL.andDarylL.Orth,Productivity
ImprovementThroughWorkSampling,CostEngineering,Vol.46,No.3,pp.2732,(March2004).
75
Thomas,H.R.(1991).Laborproductivityandworksampling:Thebottomline.J.Constr.Eng.Manage.,117(3),423444..
76
LuhMannChangandJohnD.Borcherding,EvaluationofCraftsmenQuestionnaires,JournalofConstructionEngineeringand
Management,Volume111,No.4,page426.(December,1985)
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TheAnalysisandValuationofDisruption

AvariationofthismethodistheuseofaCraftsmenQuestionnaireattheendofthejob,toconfirmor
modify a productivity loss analysis performed utilising another method. For example, a Board of
ContractAppealscaseallowedaCraftsmenQuestionnairetobeusedasamodifierofanindustrywide
studyandawardedlostproductivitycoststoamechanicalsubcontractoronthisbasis.77

ComparisonStudies
Comparisonstudiescanbeclassifiedascomparableworkandcomparableprojectstudies.AACE78also
classifiesthecomparableworkstudiesintwoforms:
(1) The contractor estimates lost productivity on the impacted period, and then locates an
analogousorsimilarworkactivityonthesameproject,whichwasnonimpactedandcalculates
itsproductivity;and
(2) The contractor compares productivities during the impacted period and of similar but non
impactedworkperformedbyanothercontractoronthesameproject.

Comparable project studies are used to contrast the productivities of similar work activities on the
projectbeinganalysedandasimilarproject.

The successful use of comparison studies can be difficult to secure given that the definition of similar
workorasimilarprojectarerarelyagreedbyprojectparties.Assuchbaselineproductivityanalysisor
systemdynamicsmodellingshouldbeconsideredforsizableclaimswhenthereisnoclearnonimpacted
period. The other methods can be adopted as complementary and used to further substantiate the
outcomeresultsachieved.Theremaybetimeswhentheyarethebestalternativeavailable.

IndustryBasedMethods

Specialtyindustryandgeneralindustrystudiesarecalledtheindustrybasedmethods.Astheirnames
imply a specialty, industry study employs results of specific studies directly related to the cause of
damages, whereas a general industry study is based on industrywide manuals and/or reports. The
specific studies can be about acceleration, learning curve, overtime, weather, and so forth79. The
industrybasedanalysesmaybeemployedwhenthereisinsufficientprojectdocumentation.Theycan
alsobeusedwithanothermethodtoaugmentsupportiveevidenceofdamages.Ingeneral,although
the industry based methods are quick and inexpensive, their use in calculating lost productivity is not
thefirstpreference.

CostBasedMethods

Ifitispossibletodemonstrateentitlementandcausationbutthereisinsufficientprojectdocumentation
tosupportdamagecalculationsusinganyoftheabovetechniques,recommendedpracticeistouseone
ofthecostingmethodssetforthbelow.Thesemethodsrequireanalysisoftheprojectjobcostrecords.
The purpose of such preliminary analysis is to determine actual direct labour hours and costs (having
77

SeeHenselPhelpsConstructionCo.,GSBCANos.14,744&14,877,011BCA31,249.January11,2001.
AssociationfortheAdvancementofCostEngineering(AACE)International,Inc.(2004).Estimatinglostlaborproductivityin
constructionclaims.AACEInternationalRecommendedPracticeNo.25R03.
79
Sourcesofthesequalitativeand/orquantitativestudiesforvarioussubjectscanbefoundinBorcherding,J.D.,andAlarcon,L.
F.(1991).Quantitativeeffectsonproductivity.Constr.Lawyer,11(1)andAssociationfortheAdvancementofCost
Engineering(AACE)International,Inc.(2004).Estimatinglostlaborproductivityinconstructionclaims.AACEInternational
RecommendedPracticeNo.25R03.
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78

TheAnalysisandValuationofDisruption

stripped out materials, installed equipment, supplies, field and home office overhead, small tools and
consumables,etc.).

Total cost and modified total cost methods are grouped into cost based methods. AACE80 further
dividesatotalcostmethodintoatotalunitcostandatotallabourcostmethod.Underthetotalcost
method,thecontractorsubtractsitsestimatedlabourcostsfromthecostsactuallyincurredtoarriveat
theresultingoverrunasthebasisforitsinefficiencyclaims81.Themajordifferencebetweenthetotal
costandmodifiedtotalcostmethodsisthatdamagesquantifiedbymodifiedtotalcostcalculationtakes
into account unreasonable estimates and/or inefficiencies due to contractors problems. Thus, the
secondmethod,outofthetwo,ispreferable.

Successful use of the cost based methods is limited. In order to employ a total cost analysis, a
contractorgenerallyhastoprovethefollowingrequirements:
(1) Theimpracticabilityofprovingactuallossesdirectly;
(2) Thereasonablenessofitsbid;
(3) Thereasonablenessofitsactualcosts;and
(4) Lackofresponsibilityfortheaddedcosts82.

Therequirementsfortheuseofthemodifiedtotalcostmethodaresimilarbutthebidandactualcosts
shouldbereasonableafteradjustment

OtherQuantifyingMethods

There are other inefficiency estimations such as expert testimony and jury verdict. A considerable
portionoflostproductivitycalculationsisbasedprimarilyuponanexpertstestimony83.Althoughthis
method might work, it is extremely uncertain due to a lack of supporting analysis. Similarly, the jury
verdict approach that is occasionally applied by USA boards, courts, and other bodies to determine
damageshasnogroundonwhichacontractorshouldrely.

80

AssociationfortheAdvancementofCostEngineering(AACE)International,Inc.(2004).Estimatinglostlaborproductivityin
constructionclaims.AACEInternationalRecommendedPracticeNo.25R03.
81
Jones,R.M.(2003).Updateonprovingandpricinginefficiencyclaims.Constr.Lawyer,Summer,311;Klanac,G.P.,and
Nelson,E.L.(2004).Trendsinconstructionlostproductivityclaims.J.Profl.IssuesEng.Educ.Pract.,130(3),226236.
82
CentexBatesonConstructionCo.,VABCANo.4613,991BCA30,153at149,261,1998.
83
Sanders,M.C.,andNagata,M.F.(2003).Assessingmethodologiesforquantifyinglostproductivity.AACEInt.Transactions,
CDR.18,18.
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TheAnalysisandValuationofDisruption

MatchingtheQuantifyingMethodswithProjectPractice

Theabovefigure84presentsaframeworkfromwhichthesuitabilityofavailableapproachesforanalysis
andquantifyingtheeffectsofdisruptionmaybediscerned.Thisselectionprocessisprimarilybasedon
theavailabilityandthecharacteristicsofinformationavailablesetagainstthedegreeofreliabilityofthe
quantifying method. Available information can be from particular project practice and/or industry
studies.

Aseriesofquestionsareaskedtoselecttheappropriatequantifyingmethod.Accordingly,thematching
processstructurescriticalquestionsbyvariousdecisionpoints.Thesedecisionpointsareorganisedin
suchawaythatmoregeneralquestionsregardingprojectpracticearisefirstsothatavailablemethods
cangraduallybeclassifiedintermsoftheirfeasibility.Finally,themostadvantageousmethodemerges
amongthefeasiblesetforacertaintypeofprojectdataandindustrystudies.Therelativeadvantages
and disadvantages of the lost productivity quantifying methods are discussed in the previous section.
84

AdaptedfromQuantifiedImpactsofProjectChange,Ibbs,Long,NguyenandLee,JournalofProfessionalIssuesinEngineering
EducationandPractice2007.
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TheAnalysisandValuationofDisruption

Theaboveframeworkrecommendsthemostfavouredapproachratherthanasetofpossibleones.This
meansthat,forexample,anearnedvalueanalysiscanalsobeusedincaseameasuredmilestudyisnot
available. However, the measured mile method is most favoured in that circumstance and hence is
recommended. In addition, comparison studies do not appear in the possible outcomes of the
framework since much more credible methods such as baseline productivity analysis and system
dynamicsmodellingarepreferredwhentime,availabledocuments,andresourcespermit.

Conclusions
Underappropriatecircumstances,allofthemethodssetforthhereinaretechnicallyacceptable.Ofall
the methods identified above, the most reliable are those reliant upon the analysis of factual,
contemporaneousinformationdrawnfromthespecificprojectinquestion,i.e.ProjectSpecificStudies.

These methods are based upon contemporaneous documentation and knowledge from the project.
Thus,theyaretheclosesttoapproximatingactualdamagesfromtheproject.Allothermethodologies
discussed are estimating techniques with varying degrees of reliability. Therefore, they must be
consideredlessrobust.Thisagainhighlightstheimportanceofkeepinggoodrecordsfromtheoutsetof
theproject.

To reliably quantify and successfully claim for lost productivity, damages have to be associated with
cause.Resultantinjurygoeshandinhandwithliabilityandcausationtoformthetriadofproof.

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TheAnalysisandValuationofDisruption

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AnalysisofChangeOrderMarkupAllowancesonStipulatedPriceBuildingContracts,AminahRobinsonFayek;MosesY.Nkuah,
CostEngineeringJournal,Vol.44/No.1January2002
AnalyzingtheCumulativeImpactofChanges,DavidD.Reichard;CherylL.Norwood,AACEInternationalTransactions,2001
Analyzing the Impact of Change Orders on a Schedule, Jeffrey A. Veenendaal, Cost Engineering Journal, Vol. 40/No. 9
September1998
AppropriateRiskAllocationinLumpSumContractsWhoShouldTaketheRisk?,Dr.FrancisT.Hartman,PE;PatrickSnelgrove,
P.Eng.;Dr.RafiAshrafi,CostEngineeringJournal,Vol.40/No.7July1998
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Baseline Determination in Construction Labor ProductivityLoss Claims, Ronald Gulezian, Frederic Samelian, Journal of
ManagementinEngineering,Vol.19,No.4,October2003
Calculating Construction Damages, Second Edition, William Schwartzkopf, John J. McNamara, 2001, 2005 Cumulative
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CalculatingLossofProductivityDuetoOvertimeUsingPublishedChartsFactorFiction,RegulaBrunies,ZeyEmir,TheRevay
ReportVolume20,Number3,November2001
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