Schedule Analysis in Support of Lost Productivity Claims
When a construction project finishes later than planned, there is often a great deal of discussion regarding what caused the delay and who was responsible. As a result, when delays are present on a project, the parties (and their analysts) are often locked in long discussions regarding the project’s critical path — the logical chain through the series of activities that defined the project’s ultimate duration. It is important to remember that there are often impacts on a project that do not affect the critical path, but they are real impacts which may have caused additional costs nonetheless. It is essential to sort out which issues affected the critical path, and to keep those issues separate from other issues that cost the contractor money, despite being subcritical. There are, however, a few simple trends that a forensic schedule analyst can analyze to differentiate the second group, and therefore help support a request for legitimate impacts to subcritical work.
Contractors commonly experience subcritical delays and disruptions that necessitate the addition of labor and equipment. These issues may arise as the result of any of the usual problems encountered on complex construction projects, such as owner-initiated changes, differing site conditions, deficient design, timeliness of change order resolution, or conflicts with adjacent contractors (particularly on multi-prime conflicts). Furthermore, it is possible that these subcritical disruptions might occur while the contractor is successfully executing the work on the project’s critical path and maintaining schedule as a result. In other words, the periodic update schedules could show legitimate predictions of on-time completion, but that doesn’t mean that everything is going according to plan from the contractor’s perspective. Assuming such damages are not barred by contract language, a contractor might be legitimately due additional money to cover the changes to their original plan. It is therefore in the best interests of both parties to analyze these issues fully and in their proper context to determine the extent to which subcritical disruptions caused damage.
Unfortunately, when the post-completion discussion is focused only on critical path delays, contractors sometimes work to make all problems look like critical path problems. This is a mistake. When those problems are subcritical impacts, the mischaracterization of the impact may prevent recovery of costs for legitimate damages. Proof of critical path impacts and proof of subcritical impacts must be handled separately and analyzed via different methods.
The Best Defense: A Fully Developed Critical Path Methodology Schedule
Schedules are a common, even essential, tool to construction managers, program managers, contractors, owners, and planning and scheduling professionals in the construction industry. The industry has largely settled on critical path methodology (CPM) for the creation of construction schedules. Schedules can effectively serve as a tool for planning, communication of intended means and methods, and demonstrating the impacts of changes on the baseline execution plan. Even though CPM scheduling has been around for decades and desktop scheduling applications have been available since the early 1980s, there continues to be a wide variance in the quality of schedules produced on today’s construction projects. After the project is over, these schedules will form the underlying basis of any forensic analysis in support of a claim for additional time or money. It is difficult (if not impossible) to perform good analysis on bad schedules.
That is not to say that schedules must be technically perfect in order to support post-construction claims. In fact, it is likely that most schedules have some minor flaws, and in most instances a good
analyst can identify these minor issues and account for them in his or her analysis. The analyst cannot, however, overcome schedules that possess major technical flaws, such as excessive missing logic; incorrect status information; abandonment of the schedule such that it is not accurately modeling intended means and methods as of the date the schedule was created; or other inappropriate manipulations that often occur in the face of adversarial interest. Major technical flaws undermine the basic reliability of the CPM calculations and therefore limit the usefulness of those schedules in forensic analysis.
Ultimately, the baseline schedule should represent a feasible and reasonable plan to construct the original project scope on time and within the constraints of the contract. Importantly, this plan should be feasible and reasonable as of both the early dates of the schedule, and as of the late dates. In other words, it should be possible for the contractor to build the project as of the latest dates that the schedule will allow — with all float consumed — within the constraints of the bid cost. It may be physically possible to still finish a project on time when work has been stacked toward the end, but to do so will likely require a steep increase in the number of resources on site. Such an increase would cause any margins to evaporate and may, in fact, put the project in the red. Project schedules should be built with soft resource logic to prevent this by assigning relationships between activities to represent crew flows that keep float values consistent with the bid limitations on resources. Having a schedule that is feasible and reasonable as of the late dates is a helpful, perhaps essential, tool in demonstrating the practical effects of disruption on the CPM schedule.
Estimating Lost Productivity — Problems And Solutions
Subcritical impacts often come in the form of disruption and loss of productivity. Productivity loss is when a contractor is not accomplishing its anticipated achievable or planned rate of production, and is producing less output per work hour of input than was originally planned. Thus, the contractor is expending more effort per unit of production than originally planned. The result is a loss of money for a contractor. Proving lost productivity is a contentious area of forensic analysis, because lost productivity is often difficult to track during the project and, as a result, it is difficult to show a clear causal link. On top of that, there is a lot of data necessary to perform common methods of calculating lost productivity, and this data is frequently not present on construction projects.
There are many methods that have been used to estimate lost labor productivity, with two of the most common being the measured mile analysis and earned value (EV) analysis. However, there is no uniform agreement within the construction industry as to which method is the best. So, while it may be necessary to perform a measured mile analysis to help quantify losses, forensic schedule analysis can assist in providing the causal link between what happened on the project and the damages being presented.
Here are three supplementary trends to watch — beyond watching just the critical path — in a schedule series (whether you’re looking at the schedules during project execution, or afterward in a forensic setting). Keeping track of these trends, both during and after the project, can help demonstrate impacts and give the proper justification for the cause of increased costs.
Slippage of Subcritical Work to Later and Later in The Project
This is best described as stacking of work toward the end of the project, and often occurs in schedules that do not properly apply resource logic or are not resource-leveled. When work that was planned to occur sequentially must be performed concurrently, there is often a need to increase the resources on a project.
The earliest indicator that there is a problem with subcritical work is the slippage of work past the early start dates. Continually missing start dates in successive update schedules (even when there is no critical path delay as a result) can indicate that there is an impact to subcritical work. But the most effective way to track the slippage of subcritical work is to plot the total float values of each of the major areas of work each month. By creating a graph that records the total float values for each update, you can see which areas of the project show float erosion. Linking this trend to increases in resources can help support a lost productivity analysis.
Keep in mind that most schedule specifications claim total float as being for the benefit of the project, and that claiming you are owed money because float was consumed will be a difficult proposition. If you are tracking float erosion over time and you start to see a possible need to increase resources as work stacks toward the end of the project, it would be beneficial to add the missing resource logic in a subsequent update and provide supporting documentation to the owner that justifies your current resource level as the plan envisioned in the bid. Or, better yet, when you build the schedule, ensure that it has enough resource logic to demonstrate your original plan. If you are looking at the schedules post-completion, however, tracking float erosion over time is an excellent trending tool.
Slow Rate of Installation of Work, Compared to Plan, Over Time
Linking missed starts and finishes to the slow rate of installing work, and tying those missed starts and finishes to specific causes, can greatly assist in supporting an estimate of lost productivity. Inability to install a sufficient amount of work per month over the course of the project could be an indicator of a certain amount of friction loss in the execution, which could be related to lost productivity and disruption. There are countless EV metrics that analysts can use to judge the health of a project (such as schedule variance, cost variance, schedule performance index, complete performance index, and so on). But one of the simplest implementations of EV is also among the most effective — what is the contractor planning on installing per month, on average? What is their peak installation per month? And are they making that installation rate? For instance, if the planned value curves (or the budgeted cost of works scheduled, or the s-curve, depending on who you’re talking to) show that the contractor had planned on installing $1 million per month, but they are only installing $600,000 steadily for several months, then they are not meeting the plan.
Furthermore, when the contractor is unable to execute work early in the project, the work still needs to be executed later in the project. For instance, in this case, the contractor may have to start installing $1.5 million per month for the remainder of the project, because of the early impacts to work. This is another example of stacking of work at the back end of the project, and it could require that significant extra labor and equipment costs be incurred by the contractor.
Stacking of Resources at the End of the Project
Provided that the analyst has access to resource information such as planned and actual labor hours (for both the prime contractor and for subcontractors) it is very effective to plot resource graphs for the baseline schedule and for each of the subsequent update schedules. A histogram showing the number of planned resources required to accomplish the planned work as of each schedule’s data date can be useful in demonstrating that the continued missed starts and finishes has pushed subcritical work into later periods. As a result, the histogram for the necessary planned resources to complete the work at periodic intervals can help tell the story of what happened to a contractor’s baseline plan and why disruption ultimately occurred.
Ultimately, every analysis is performed in a manner consistent with the availability and quality of the source data. However, with some good scheduling practices in place, it will be much easier for contractors to support claims of lost productivity by creating a link between the contemporaneous schedules, labor records, and any measured mile or EV analysis designed to calculate lost productivity. Keep an eye on these supplementary trends in order to correctly diagnose problems after the project is over, and to support claims for those subcritical delays and disruptions that can severely affect a contractor’s profitability.
© Copyright 2019. The views expressed herein are those of the author(s) and not necessarily the views of Ankura Consulting Group, LLC., its management, its subsidiaries, its affiliates, or its other professionals. Ankura is not a law firm and cannot provide legal advice.