Document Everything: How to Ensure a Successful Inefficiency Claim
By Christopher M. Sweeney, Esq., Guest Contributor
Inefficiencies, or losses in productivity, are often daily occurrences on a construction project. However, tracing the cause and quantifying the amount of that inefficiency are rarely on the contractor’s mind until the project is complete or even later when a dispute arises over releasing retention. Unfortunately, this is typically too late. While attorneys, claims consultants, and experts can analyze a contractor’s productivity after the fact, this analysis is only as strong as the contractor’s contemporaneous documentation of the project.
Regardless of the size and nature of the project, construction is a document-heavy endeavor. From drawings and specifications to contracts and purchase orders to change orders and RFIs, documents drive almost every aspect of a project from start to finish. As a result, it is easy to assume that all relevant data for a project is being captured at all times. While this may be true for most issues, it is rarely the case with inefficiency. Productivity claims are an animal all their own and consider many more factors than the more typical construction claims or delay or defect.
If you were to ask a contractor how he knows his productivity has been reduced, his answer would sound like the Supreme Court’s view on pornography: “I know it when I see it.” Unfortunately for that contractor, and for the claims consultants and attorneys advocating on his behalf, courts require a more nuanced analysis. Specifically, the contractor must be able to show not only that its productivity has decreased measurably, but also that another party actually caused the loss in productivity as well as the quantum of this loss. Neither of these is particularly easy to show, much less so if the contractor’s documentation is not robust.
Showing that any one party is responsible for a contractor’s reduced productivity requires ruling out all of the other potential causes, a myriad of which exist on even the smallest construction projects. For instance, a contractor may face reduced productivity due to climate issues, problems with labor and unions, financial circumstances of its own or of its subcontractors and suppliers, regulatory decision, miscommunication or lack of communication with other parties involved in the construction, or coordination and scheduling issues and site conditions. While any one of these issues may disrupt a contractor’s efficiency, these issues are not mutually exclusive and can (and often do) combine to create a measurable impact. This is what makes contemporaneous documentation so critical—separating the wheat from the chaff.
When looking at a project retrospectively, as is typically the case when developing a inefficiency claim, an inefficiency expert must rely on certain data points to try to recreate which of the various potential issues actually or primarily caused a reduction in efficiency. These data points are typically contained in labor and costs reports that capture project expenditures weeks or months at a time. However, without context, the expert can only say whether the contractor was more or less efficient at any given time; the expert cannot say from this data alone what drove the changes in efficiency. This is where the expert must rely on the contractor’s ability to create a context for the changes. Often, the starting point for developing this context is relying on the contractor’s statements pointing the finger at the owner. This alone is not enough. To bolster the argument, attorneys and experts will look at the contractor’s daily reports and minutes of weekly or bi-weekly on-site project meetings for clues that may elucidate the underlying cause.
While a critical snapshot on a project’s progress and productivity, daily reports are often seen by on-site supervisors and foremen as simply a way for the project executives to keep tabs on their employees. Certainly, this is an aspect of the daily report, but this view leads to the reports as being a mere replacement for roll call or time cards. Instead, what is necessary to provide the context discussed above is a true statement and narrative of the daily actions, inactions, and operations of the contractor’s on-site personnel. In other words, the difference between a daily report that simply lists the amount of labor-hours expended on a given day and a daily report detailing the occurrences of that day is the difference between a simple sheet of paper in a file and a potential piece of evidence.
Daily reports and meeting minutes need to be sufficiently detailed such that an individual who has never stepped foot on that project site can review the documents years after the project is complete and understand why the number of labor hours varied each day, or why certain equipment did not run for a period of time, or why a contractor completed one percent of his work in one month and twenty-five percent the next month. This level of detail will allow an attorney or claims consultant to identify root causes of changes in efficiency. Specifically, the impact of actions of owners or other third parties can be separated from impact of circumstances for which the contractor likely assumed certain risk, such as disruption due to weather or labor disputes. Yet, even when any one individual cause cannot be separated out from the rest, an expert in labor productivity can perform a cumulative impact analysis with more reliable data points.
Cumulative impact analysis attempts to track the impact that any one change may have on the total productivity of the project over the remaining project duration. Essentially, this analysis tries to capture the way in which one change my create ripple effects that expand and multiply over time, affecting productivity more than perhaps originally anticipated. However, knowing what is an expanding ripple and what is another rock thrown into the pond is essential to this analysis. By having more detailed data from the project to compare, a productivity expert can factor superseding causes into or out of the analysis as necessary to strengthen the conclusions. After all, if and when the expert is cross-examined by the owner’s attorney, every assumption and detail in the expert’s analysis will be scrutinized and questioned. The analysis may survive this scrutiny if there is a strong documented record supporting the conclusions. Otherwise, the validity of the expert’s conclusions, and with it the basis of the contractor’s entire argument for entitlement, may entirely fall apart on the witness stand.
Similarly, a contractor’s claim for damages due to reduced efficiency is only as strong as his ability to accurately quantify the actual impact. There are a number of different ways that experts can try to calculate reduced efficiency, but not all analyses are created equal. Attempts to use standardized or industry data in a comparison with individual projects typically are too inaccurate and require too many assumptions. Therefore, analyses using work sampling or industry-based productivity curves fail under any level of scrutiny by an opposing party’s expert. This is unfortunate, because these analyses require the least detailed data from the impacted project, which of course may also account for the inaccuracy.
On the other hand, statistical analyses of actual project data can not only provide realistic approximations of a contractor’s damages due to inefficiency, they have been recognized as reliable and reasonable by a number of courts. The two best methods of quantifying inefficiency are the Measured Mile and the Baseline Analysis.
The Measured Mile approach has been adopted by most courts as the best (or only) way to quantify inefficiency. This analysis relies on real project data to determine two points of comparison, the impacted period and the unimpacted (or least-impacted) period. Essentially, the Measured Mile attempts to establish a contractor’s level of productivity when he is the most productive and use this as a standard against which the levels of productivity during periods impacted by a substantial and clear issue (commonly referred to as the “cataclysmic event”). The challenge in this analysis is having a strong foundation for any conclusion regarding what is the unimpacted or least-impacted period. Once again, this analysis is only as strong as the real project data from the contractor. If, for instance, the contractor is missing days, weeks, or months from its documentation, the statistical analysis of this period and the periods of time around it will be less and less accurate. Alternatively, if the contractor keeps extensive and detailed records throughout the project, the statistical analysis may be sufficiently comprehensive as to be almost iron-clad. Additionally, the productivity expert should be able to more confidently determine the impacted and unimpacted periods to ensure a proper comparison.
Unlike the Measured Mile approach, the Baseline Analysis does not require a cataclysmic event to occur to compare productive and less-productive periods. Instead, the Baseline Analysis looks at the project data overall and determines the baseline level of productivity when the contractor is at his best over the entirety of the project and not limited to a certain period of time like the Measured Mile. Theoretically, this allows for more pointed and specific comparison of points of reduced productivity as opposed to larger periods of time. However, the Baseline Analysis is only viable if the contractor can clearly show substantial, detailed breakdowns of productivity throughout the project as well as specific causes and effects of issues and third parties to the contractor’s work.
Detailed, contemporaneous documentation is the contractor’s best way to mitigate and potentially recover damages due to losses in inefficiency. While most contractors have enough experience to know when they have been made less efficient by outside forces, courts require the data to back up these claims. And, while claims consultants and attorneys can create good statistical and legal analysis after the fact, they cannot recreate information that could only accurately be determined during the project. Therefore, the best offense in an inefficiency claim is a strong defense of detailed and comprehensive contemporaneous documentation. Contractors should work with attorneys and claims representatives regularly to determine whether they are properly capturing project data.
About the Author
Christopher M. Sweeney is is an associate in the Washington, D.C. office of Peckar & Abramson, P.C.
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