Overworked and Underpaid: Assessing Labor Costs in a Construction Claim

A contractor with a compensable claim on a construction project must assess the direct labor costs to be included in the claim. There are several categories appropriate for assessment of such costs:

1. Increased labor hours to perform certain tasks.
2. Reduced efficiency and productivity for work performed out of sequence.
3. Reduced efficiency and productivity due to changes and disruptions.
4. Increased labor costs due to the impacts of changes and disruption upon unchanged work.
5. Overtime and/or extra labor costs due to acceleration of the work.
6. Loss of productivity due to stacking of trades.
7. Extra labor costs for performance of work in higher wage periods.

Some of these labor costs may be compensable even on a project that meets the original completion date. For example, a delay occurring early in the project might be overcome by acceleration. Although the completion is timely, the contractor may nevertheless have suffered damages.

Acceleration occurs when the contractor is forced to adhere to the original completion date despite the existence of an excusable delay. Industry studies can assist in quantifying acceleration costs. Several studies examine the level of reduced productivity when accelerated work is performed through the use of overtime.

Studies also examine how increased crew sizes may result in lost efficiency. The optimum crew size for a construction task is the minimum number of workers required to perform the task within a discrete time frame. One Corps of Engineers study states:

"Optimum crew size for a project or activity represents a balance between an acceptable rate of progress and the maximum return for the dollars invested. Increasing crew size above optimum can usually produce a higher rate of progress, but at a higher unit cost."

Changed work often has a ripple effect that causes loss of productivity on unchanged work. To recover such loss, the contractor must show that increased performance costs are directly attributable to the owner's changes.

A contractor may be able to prove lost labor productivity by comparing similar work activities on the same project. Another approach is to compare work performed on a disrupted project with work performed on a project that was free from disruptions.

A schedule analysis comparing performance of the work "as planned" to performance of the work "as built" can assist in proving increased labor costs. It can also be used to show that work was performed out of sequence, causing work to be performed less efficiently.

Qualified experts can assist with preparation of construction claims. Experts should understand how claims may be developed, as well as how to attack and defend those claims. In a recent arbitration involving a lost productivity claim, our expert helped prove the type of work performed was actually more difficult than the type of work used as the base line for our lost productivity analysis, adding credibility to the claim.

Careful analysis of each category of direct labor costs is required when preparing and presenting construction claims. Avoid mechanically applying any approach to a claim, since each circumstance is different.

This article is intended to inform the reader of general legal principles applicable to the subject area. It is not intended to provide legal advice regarding specific problems or circumstances. Readers should consult with competent counsel with regard to specific situations.

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