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Sat 11 Jul 2009 04:00 AM

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Factors to consider when preparing a disruption claim

David Merritt lists some important points to consider before preparing a disruption claim.

Factors to consider when preparing a disruption claim

Disruption claims are routinely made during the course of a construction project yet they remain notoriously difficult to prove. One of the main reasons for this is that productivity losses are often extremely difficult to distinguish, as opposed to other money claims which are more directly concerned with the occurrence of a distinct and compensable event, such as an instruction for a variation during the progress of work or a properly notified compensation event.

Most claims for disruption are dealt with retrospectively and the claimant is forced to rely on contemporary records to try and establish a causal nexus for identified losses (cause & effect), which are inadequate for evidencing a loss of productivity claim.

When this happens the claimant is often forced into the situation where it advances a weak global or total cost claim to try and recover its losses. The claimant must first establish that the factor causing the disruption is compensable risk 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 therefore accounted for within the claimant’s productivity allowances. The contract may also identify if a party expressly accepted certain productivity risks. Common causes of disruption on projects that may lead to a loss of production include site access restrictions, unforeseen site conditions, late or incorrect design, changes in the work, labour availability, remedial/corrective work, testing/inspections, client and third party interference, changes in construction methods and adverse weather.

The primary challenges the claiming party faces in preparing a disruption claim are to identify the root cause of the loss of productivity and quantifying the associated labour and equipment productivity losses. Many methods exist to quantify a disruption claim such as the measured mile; the modified total cost approach; a time and motion study or a comparative work study.

Alternatively research data published by the Mechanical Contractor Association or the National Electrical Contractors Association on the effects of disrupted working may be utilised but care must be exercised because no one size fits all.

Productivity is normally measured as production per unit of effect or output divided by input (ie units/hr) or it may be expressed as input divided by output (ie hrs/unit). A loss of productivity occurs when it takes more labour and equipment to do the same amount of work, thereby increasing project costs. A common error made by a claiming party when preparing a disruption claim is to confuse productivity with efficiency.

Efficiency is a measure of productivity as a ratio or percentage during the affected periods. If target production is 50 units per day and actual production is 25 units per day then given the same input the efficiency of the operation would be 50%. If actual production was equal to the target production efficiency would be 100%. The efficiency formula must take into account the variable input (resources) as well as variable output (production).

For instance it is possible to increase productivity but reduce efficiency. A decrease in efficiency is often associated with one or more secondary factors unrelated to the original excusable event but which are implemented to negate or mitigate the effects of the root cause. These secondary factors include out of sequence working, multiple work fronts, new learning and unlearning curves, fatigue (overtime/shift working), dilution of supervision and stacking of trades in confined spaces.

So when preparing a disruption claim for a loss of productivity it is very important to consider not just immediate effects on the rate of production but also the inefficiencies of some of the secondary factors.

Merritt is a director at Hill International based in Dubai. He is a chartered quantity surveyor and barrister (non-practising) with over 22 years experience in the construction and engineering industries providing commercial and contractual advice to a broad cross section of clients. He has extensive experience of major claim and arbitration in Europe, the Far East, the Middle East and Africa, working with government agencies, developers, contractors, specialist subcontractors, architects and engineers. He is a regular contributor to the Institute of Civil Engineering Surveyors publications and lectures on the vocational courses for the Chartered Institute of Building. He is also an accredited CEDR mediator and registered adjudicator.

The opinions expressed in this column are of the author and not of the publisher.

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