Dissecting Disruption

Disruption (or “loss of productivity”) claims are far from rare in the construction industry. For those in the construction industry, this should come as no surprise. After all, for many, if not most projects, labor represents the single largest cost incurred in the completion of a project. This, combined with profit margins that are often squeezed razor thin by competitive bidding, means even relatively small labor productivity losses can quickly devour the entire expected profit on a given project, or even lead to a net loss.

Disruption claims are widely considered among the most difficult to prove and quantify. Unlike many other claims which can be directly tied to discrete, compensable events, damages relating to productivity losses are often amorphous and difficult to distinguish from non-compensable, contractor-caused cost overruns. In addition, disruption claims are often dealt with retrospectively, with claimants relying on poor, inaccurate, and/or non-contemporaneous project records to establish the required causal nexus (cause and effect) and to prove damages to the requisite level of precision.

Distinguishing Between Disruption and Delay

The phrase “delay and disruption” has become so commonplace that the two elements have, to some extent, become conflated. Many may erroneously see the two as a single claim, as interchangeable, or at least inextricably tied to one another. But while a claim for delay and a claim disruption may arise together on a single construction project (and may even result from the same underlying causes), the claims are, indeed, distinct. While disruption can be used synonymously with loss of productivity or inefficiency, it is not synonymous with delay. Neither is a prerequisite for the other; each may stand on its own. Equally important, or in some cases most important, neither claim precludes the other. In many circumstances a contractor will have a legitimate delay claim and also a legitimate disruption claim.

In Bell BCI Co. v. United States, the Federal Court of Claims articulated a clear, simple delineation between disruption and delay claims: “[A] ‘delay’ claim captures the time and cost of not being able to work, while a ‘disruption’ claim captures the cost of working less efficiently than planned.”[1]

Simply put, loss of productivity is the difference between the effort a particular quantity of work “should have” entailed and the actual effort ultimately expended. As such, disruption claims may arise on projects that are timely completed, but nevertheless involve a less-than-expected productivity rate. Disruption may occur irrespective of completion date changes or time extensions, and involves a different set of cost increases than those associated with delay claims.

The distinction between delay claims and disruption claims is also important due to the prevalence of no-damage-for-delay clauses in both private and government construction contracts. Such clauses excuse the protected party (usually an owner) from liabilities it would otherwise incur in the event that the project is delayed. Such clauses are valid and enforceable in most jurisdictions. However, because such clauses can have harsh impacts for a contractor, they are strictly construed by courts. As such, absent additional specific contract language, contractual terms barring recovery of damages for delays generally do not bar recovery of damages for disruption.

Do I Have a Disruption Claim?

Disruption claims arise when a contractor is forced to alter its construction plan – its sequencing, scheduling, volume, labor hours, or flow – as a result of an owner’s actions, inactions, directives, changes, or decisions, or as a result of other factors for which the owner assumes the risk by contract or by operation of law. Often, disruption claims are based on breaches of an owner’s implied duties – including the duties to provide adequate plans and specifications, not to delay, hinder or interfere with the contractor’s work, and to provide access to the jobsite.

Productivity is naturally somewhat variable from day-to-day and job-to-job. In turn, some level of risk is inherent in every construction project, and only losses above and beyond what a contractor can reasonably account for during the bidding phase are compensable. To the extent disruptions are anticipated, or reasonably foreseeable, the likelihood of recovery is greatly diminished.

Disruption claims can be based on a wide variety of impediments. Among the most common bases (factors) for disruption claims are:

• Adverse weather conditions
• Crowding or stacking of trades
• Out-of-sequence work
• Restricted or limited access to the project site
• Idleness
• Differing site conditions
• Acceleration
• Synergistic or cumulative impact of excessive change directives

These factors are not mutually exclusive. In fact, disruption claims will most often include multiple factors working in tandem against a contractor’s productivity. For example, restrictions on site access or stacking of trades may lead to out-of-sequence work or idleness. Often, these factors will result in constructive acceleration at the end of the project.

The Complexities and Difficulties of Disruption Claims

A contractor’s ability to recover cost overruns through a disruption claim largely depends on its ability to prove the causal connection between the impacting condition and the resultant loss. Demonstrating that external factor(s), rather than factor(s) within the contractor’s control, caused loss of productivity, is the key issue in establishing causation. Doing so is often extremely difficult. As noted above, a wide variety of factors may reduce productivity rates. Depending on project-specific circumstances, any given factor may or may not result in actual loss. Further, multiple factors, some of which are compensable and others which are not, may act in concert – sequentially or simultaneously – to cause a particular loss. In addition, because most construction projects include multiple actors, an owner may not be liable for impediments caused by third parties. The actions of the contractor may initiate or exacerbate loss of productivity – so called “concurrent disruptions” which muddy entitlement to additional compensation. Finally, a contractor may be responsible for mitigating the effects of disruptions by adjusting to the new conditions to limit their impact.

Due to these difficulties, attempting to separate costs associated with discrete rework, extra or added work, or idle time from broader losses of productivity is critical. Attributing particular costs, even if estimated, to discrete occurrences is generally considered more reliable, and contractors are thus more likely to recover overages when claimed in this manner.

In addition, a contractor must prove his damages to a sufficient degree of certainty. While courts do not require damages be proven with “absolute exactness or mathematical precision,” evidence must be sufficient to enable a court to make a fair and reasonable approximation of damages. Even with this leeway, calculating damages is no simple endeavor. Determining what level of productivity should have, could have, or would have been expected or achieved on any given project is often debatable. This, again, harkens back to the question of a contractor’s reasonable expectations, and justifiable risk. Presumably, in most cases, it is unrealistic for a contractor to presume perfect, unabated working conditions. Treatise authors Philip Bruner & Patrick O’Connor posit that only “abnormal disruption” is compensable.[2]

Only loss above and beyond reasonable and realistic expectations may be recovered.

Such determinations are both fact intensive and virtually always require the testimony of an expert witness. In Luria Brothers & Co v. United States, the Federal Court of Claims stated:

It is a rare case where loss of productivity can be proven by books and records, almost always it has to be proven by the opinions of expert witnesses. However, the mere expression of an estimate as to the amount of productivity loss by an expert witness with nothing to support it will not establish the fundamental fact of resultant injury nor provide a sufficient basis for making a reasonably correct approximation of damages.[3]

Calculating Disruption Damages

Many methods exist to calculate disruption damages. While certain methods are preferred by courts, the appropriate method for a particular claim is dependent on project-specific factors. The nature of the project and the disruption itself are paramount, as are available project records.

Measured Mile Method

The measured mile method is widely acknowledged as courts’ preferred method for calculating lost productivity claims. In many jurisdictions, presenting a disruption claim using any other method puts the claimant at a severe disadvantage, first needing to justify the use of an alternative method before proving its case.

The basic construct of a measured mile calculation is fairly straightforward. A claimant contractor compares the cost of “impacted” (disrupted) work on the project with the cost of the same work during an “unimpacted” period. The increased cost of performing the work during the impacted period is the measure of damages. Because the measured mile analysis compares actual performance against actual performance, the measured mile approach avoids many of the assumptions and estimates inherent in other methods. While a measured mile analysis is relatively straightforward and simple, it requires a sufficient sample size of both unimpacted and impacted work, and a contractor must have diligently kept detailed records by location and task contemporaneously throughout a project. Where work is impacted throughout the entirety of a project (thus, lacking an unimpacted productivity baseline) or where a contractor has failed to keep adequate contemporaneous records, alternative methods may be appropriate or necessary.

Alternative Methods

Depending on the project specifics, and the documentation available, a number of alternative methods may be applied to calculate damages for a disruption claim.

When a contractor can prove entitlement and causation, but lacks sufficient documentation to support its damages directly, it may be able to use a total cost (or modified total cost) method. A total cost method compares the contractor’s bid (its expected costs) with its actual expenditures. To use the total cost method, a contractor generally must prove:

(1) The impracticability of proving actual losses directly;
(2) The reasonableness of its bid;
(3) The reasonableness of its actual costs; and
(4) Lack of responsibility for the added costs.

Meanwhile, a modified total cost approach, adjusts the expected cost of the work for contractor errors (e.g., bid busts or rework) prior to comparing it to actual costs. To use a modified total cost method, the contractor must show the reasonableness of the bid and actual costs after adjustment.

Other approaches, such as the earned value analysis and comparison to comparable projects, attempt to use other work on the same construction project or comparable work on other completed projects as the baseline “unimpacted” productivity levels. Meanwhile productivity factor analyses – either using industry studies or academic studies – apply factors and productivity loss rates based on industry norms and aggregated data. Because each of these alternative methods include assumptions and estimates, and may fail to account for project uniqueness, they should only be implemented if and when a measured mile analysis is truly impracticable.

Conclusion

Disruption claims are rarely clear-cut winners. However, much can be done throughout a project to improve the odds of a successful claim. As with most construction claims, accurate and contemporaneous project documentation is a paramount priority. Contractors should keep daily records of impediments impacting their ability to maintain optimal productivity levels. In addition, contractors should strive to match payroll records to specific tasks and locations of work on a project. Doing so can do wonders if – and when – their work is disrupted.

 

[1] Bell BCI Co. v. United States, 72 Fed. Cl. 164, 168 (2006)

[2] Philip L. Bruner & Patrick J. O’Connor, Jr., Bruner & O’Connor on Construction Law § 15:102 (2002).

[3] Luria Brothers & Co v. United States, 369 F.2d 701 (1966).