When a contractor bids a job, it does so based on a planned sequence of work and productivity of job labor. There are many issues that can arise while building a project that affect labor productivity, and many of those issues are not the contractor’s responsibility. The terms of the contract will often dictate whether a loss of productivity is compensable.
A contractor that suffers a loss of productivity may be entitled to additional compensation. Many methods have been used to calculate loss-of-productivity damages.
In JH Kelly, LLC v. AECOM Technical Services, Inc., a federal court recently considered several different methods for calculating a loss of productivity on a project.
In that case, a subcontractor sued a design-builder for additional costs the subcontractor allegedly incurred due to excessive changes that imposed significant additional work and more difficult working conditions on the subcontractor. Part of those damages included over $8 million in loss-of-productivity damages.
The design-builder argued that the subcontractor’s expert should be precluded from testifying at trial about the subcontractor’s loss-of-productivity damages essentially because the expert did not properly apply several different methods for calculating the damages.
The court ruled that the expert would be allowed to testify as to his loss-of-productivity damages calculation based on several different methodologies, including the following:
1. Measured Mile Method: The court explained the measured mile method as “a technique where an expert compares unimpacted construction work to work that has been disrupted and measures the difference. The assumption is that the difference between the labor or equipment hours in the unimpacted and impacted work represents the loss to the contractor.” But for the measured mile method to work, “the impacted and unimpacted activities being compared must be reasonably similar.”
The design-builder argued that the expert misapplied the measured mile method because he only compared the disruption to one trade activity (main gas piping), which he found to be 36.1%, and then applied that calculation to the remaining scopes of work.
The court agreed that the extrapolation of one type of work to an entire project warranted scrutiny. But the court found that the flaws in the expert’s loss-of-productivity analysis were better left for the jury to consider, and the expert would be allowed to present his measured mile analysis.
2. Industry Association Analysis: Experts can also sometimes attempt to rely on industry association studies regarding the loss of labor productivity on jobs. That is what the expert in JH Kelly did when he relied on the Mechanical Contractors Association of America’s factors analysis. The MCCA’s factors analysis outlines “16 factors recognized by mechanical industry observers as being harmful to labor productivity,” and aligned “against those factors are three degrees of severity: minor, average, and severe. MCAA factors analysis consists of matching an impact with the appropriate severity level and applying that figure to labor hours to estimate project disruption.”
The design-builder argued that the MCAA factors analysis should not be allowed because other courts had supposedly rejected the use of the MCAA factors. The court distinguished those cases because they were post-trial cases where the courts had allowed testimony on the MCAA factors, and one of the cases did not analyze the type of MCAA factors analysis that the expert undertook. Thus, the court ruled that the expert could testify about his findings under the industry association study performed by the MCAA.
3. Modified Total Cost: Under the total cost method, the contractor shows the amount it cost to complete its work and subtracts the contract amount. For example, if the contract amount was $10 million, but it cost the contractor $15 million to complete its work, the contractor might claim that it is owed $5 million. Courts frequently reject the use of the total cost method because it does not consider damages resulting from the contractor’s unrealistic bid or the contractor’s own improper performance of its work.
In contrast, the modified total cost method takes into account unreasonable contractor costs or other costs that the contractor’s own errors or omissions caused.
The JH Kelly court rejected the design-builder’s challenge to the expert testifying based on a modified total cost approach because the court had already rejected an earlier summary-judgment motion challenging the use of the modified total cost method. I wrote an earlier post about that decision, which you can read by clicking here.
In short, the court ruled that the subcontractor’s expert would be allowed to offer opinions about the total of the subcontractor’s alleged lost-of-productivity damages based on all three of the above methodologies. While the court recognized that there may be legitimate issues how the above methods were applied, the court ruled the jury would have to determine what weight, if any, to give the expert’s testimony.
Bottom Line: There are many methods for attempting to calculate a contractor’s loss-of-productivity damages. When choosing a methodology, the claimant needs to select the methodology that can prove a causal link between the actions that disrupted the contractor’s work at the project and the resulting damages.
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