Category: Insights

MCAA Labor Productivity Factors

MCAA Labor Productivity Factors

Posted on by Adroit

Changes that are made to a contract scope of work and modifications of work conditions are among the key causes of conflict in construction projects. When a contractor is faced with changed conditions or needs to work under circumstances that force the contractor to work while its productivity is less than what it expected, the contractor is, in fact, working in the state of inefficiency. The loss of productivity results in monetary damages because working inefficiently forces contractors to incur labor or equipment costs more than what they originally expected. One of the references that claim administration professionals use for quantifying the adverse impact of change on labor productivity is the MCAA labor productivity factors.

The phrases inefficiency and loss of productivity can be used interchangeably. Proving and quantifying the adverse impact of change on the labor productivity of a contractor is, in fact, one of the most challenging topics in construction claims. One of the references that is often used to quantify the adverse impact of change on labor productivity percentages of contractors is a reference published by the Mechanical Contractors Association of America (MCAA) within which labor productivity factors are identified.

MCAA focuses on the special needs of the firms that are involved in heating, air conditioning, refrigeration, plumbing, piping, and mechanical service. In 1971, MCAA published a reference entitled Management Methods Manual, in which it identified factors affecting productivity. The latest MCAA publications, including the 2018 edition of MCAA’s guideline, entitled, Change Orders, Productivity, Overtime—A Primer for the Construction Industry, still contains these labor productivity factors [1]. These productivity factors have also been endorsed by other professional associations including the Sheet Metal & Air Conditioning Contractors’ National Association’s (SMACNA).

The MCAA factors are also known as MCAA labor productivity factors. These factors identify the major causes of labor productivity loss experienced by mechanical contractors. As such, they can be used not only to estimate the adverse effects of particular productivity factors on labor productivity levels but also to measure the extent a contractor has incurred damages as a result of estimated losses of labor productivities encountered over the course of a project.

The MCAA labor productivity factors include factors such as the following:

  • Stacking of trades
  • Crew size inefficiencies
  • Site access issues
  • The ripple effect, and
  • Overtime and shift work

Some critiques indicate that the MCAA factors are not based on the outcome of empirical studies to determine the percentages of loss of labor productivity arisen from specific productivity factors. However, the MCAA factors have successfully been used in many cases brought to courts or reviewed by boards of contract appeals. An example of these cases is the case of CLARK CONCRETE CONTRACTORS, INC., v.  GENERAL SERVICES ADMINISTRATION, in which, the use of the MCAA factors is described as follows:

To assess the impact of unanticipated conditions on productivity …, P&K used a manual published by the Mechanical Contractors Association of America (MCA). This manual was the same one P&K used, with reference to labor rates, in constructing its bid for the project. P&K has used it on other projects to measure similar impacts, and the publication is generally accepted in the mechanical industry for this purpose… We have previously accepted the use of this manual for this purpose as well. Stroh Corp., 96-1 BCA at 141,132; see also Fire Securities Systems, Inc., VABCA 3086, 91-2 BCA 23,743, at 118,902.  The manual lists various types of impacts and, for each, a percentage of labor costs which represents loss of labor productivity under each of minor, average, and severe impacts. [2]

It is important to note that MCAA factors can be used both prospectively and retrospectively. In using the MCAA factors prospectively, a contractor may use the MCAA guideline to price a lost productivity element of a change order proposal to quantify the extent that the labor productivity of the contractor may be impacted as a result of a change. In using the MCAA factors retrospectively, a contractor, however, may use the MCAA guideline to retrospectively quantify the impacts of change on the labor productivity as experienced by a contractor. A retrospective quantification of the impacts of change on a contractor’s labor productivity may become necessary because no other method might be available to measure labor productivity of the contractor over the course of the project due to the lack of detailed records of labor hour tracking.

It is important to use the MCAA productivity factors properly. The method is relevant to the work of mechanical contractors but the use of this method for contractors that work in other disciplines may not be appropriate. In addition, if a contractor has maintained proper, detailed records of labor hour tracking over the course of a project, the use of the MCAA labor productivity factors may not be the best choice of the loss of labor productivity assessment method. That is because the presence of detailed records of labor hour tracking over the course of a project may enable a contractor to use a method such as the measured mile method which may be identified to be a more appropriate method depending on the specifics of a case. The measured mile method measures labor productivity levels during a relatively un-impacted reference period with performance on the same or similar work (similar in type, nature, and complexity) during an impacted period. This method then calculates the productivity for both periods of time and identifies the difference between the two as the productivity loss attributed to the impact.

It is important that claims administration professionals assess the circumstances that have given rise to a claim for loss of labor productivity and decide whether the use of the MCAA labor productivity factors is appropriate. Although the MCAA guideline is not based on the outcome of an empirical study to determine the percentages of loss of labor productivity arisen from specific productivity factors, it has successfully been used in many cases brought to courts or reviewed by boards of contract appeals. However, claims administration professionals and experts need to apply the MCAA guideline with careful consideration once the facts surrounding the claim have closely be examined.

References:

[1] Mechanical Contractors Association of America [MCAA] (2018) Change Orders, Productivity, Overtime—A Primer for the Construction Industry, MCAA. Retrieved 24 November 2018, from https://www.mcaa.org/resource/change-orders-productivity-overtime-a-primer-for-the-construction-industry-2/

[2] CLARK CONCRETE CONTRACTORS, INC., v.  GENERAL SERVICES ADMINISTRATION. Retrieved from https://www.gsbca.gsa.gov/appeals/w1434015.txt

 

Author: Dr. Amin Terouhid, P.E., PMP | Principal Consultant

 

If your project has been affected by change orders and if changes have adversely affected labor or equipment productivity on-site, or if you are interested to find out more about labor productivity factors, please contact us. Adroit’s consultants have demonstrated their expertise in the use of this method and will be able to assist. You may also be interested to read the following articles:

Cumulative Impact Claims

Types of Change in Projects

UAVs (i.e., Drones) and Their Applications in Construction

UAVs (i.e., Drones) and Their Applications in Construction

Posted on by Adroit

One of the emerging technologies in the construction industry is the use of unmanned aerial vehicles (UAVs) or drones. In recent years, the use of UAVs in the construction industry is becoming more commonplace and a variety of applications for these devices have started to emerge. Some of the applications of UAVs in the construction industry include project monitoring, project status reporting, surveying, generating maps, and inspection activities.

UAVs significantly facilitate site monitoring of large construction projects by capturing real-time or as-built data. Additionally, as Liu et al. stated in their article, pictures, and videos that UAVs capture help to collect progress data, monitor and control safety practices, and perform inspection, especially for the areas that are hard-to-reach and are not easy to be inspected (as cited in Ham et al., 2016). Some examples of the tools that can be attached to UAVs include high-resolution cameras, RFID readers and laser scanner (Moud et al., 2018).

Despite their several advantages, UAVs may expose their users to some negative risks. In addition, the use of UAVs may be challenging under certain circumstances. For real-time project monitoring and control, UAVs need to collect large amounts of visual data in one single flight. This collected data then needs to be processed, analyzed, and linked to construction elements and activities. Some of the other challenges that users may encounter in using UAVs include independent path planning, the security of UAVs and their in-flight information that is collected, and data collection configuration management to ensure all needed information has properly been captured.

UAVs have also direct and indirect safety hazards for construction site workers. An example of direct hazards of UAVs for construction work include objects that may fall as the result of the collision of a UAV with an element onsite. UAVs may also pose hazards on-site in an indirect manner such as distracting workers due to the movement and sound of UAVs on a construction site (Moud et al., 2018, Ham et al., 2016).

Overcoming technical and managerial challenges that are associated with the use of UAVs in the construction industry requires the use of inter-disciplinary approaches that focus on the applications of these devices in construction and evaluation of particular uses of these devices in construction-related activities. As an example, UAVs are able to recognize the key construction elements and some of their attributes based on a 3D model of a construction site or a facility. Incorporating the data that UAVs collect on a construction site into Building Information Modelling (BIM) platforms may significantly facilitate the process of data analysis, may help reduce safety hazards and/or negative risks associated with using UAVs.

Unmanned aerial vehicles (UAVs) or drones are increasingly used in the construction industry for project monitoring, project status reporting, surveying, generating maps, inspection activities, and many other applications. A familiarity with the capabilities of these devices and assessing both the threats posed by these devices and the opportunities that they bring about are important to ensure these devices are used in the most effective manner on construction sites.

References

Ham, Y., Han, K. K., Lin, J. J., & Golparvar-Fard, M. (2016). Visual monitoring of civil infrastructure systems via camera-equipped Unmanned Aerial Vehicles (UAVs): a review of related works. Visualization in Engineering, 4(1), 1.

Moud, H. I., Shojaei, A., Flood, I., Zhang, X., & Hatami, M. (2018, July). Qualitative and Quantitative Risk Analysis of Unmanned Aerial Vehicle Flights over Construction Job Sites. In Proceedings of the Eighth International Conference on Advanced Communications and Computation (INFOCOMP 2018), Barcelona, Spain (pp. 22-26).

 

Author: Maryam Mirhadi, Ph.D., PMP | CEO and Principal Consultant

 

Schedule constructability review, what does it entail?

Schedule constructability review, what does it entail?

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Dr. Maryam Mirhadi, PMP, PSP

Project schedules play important roles in coordinating the efforts of project team members and identifying the priorities in performing the work. A project work is decomposed into smaller, more manageable pieces of work once work breakdown structures are prepared. The project schedule is then developed to ensure all responsible parties and team members take each and every step that is needed to achieve time, cost, and scope objectives. But an important question that needs to be answered once a project schedule is prepared is how a project team can ensure the schedule is prepared in an appropriate manner? How can project teams make sure the project schedule is reasonable and contains all necessary elements and logical relationships that the project team needs to successfully implement the project? Schedule constructability reviews are expected to answer such questions. Such reviews aim to build confidence in the project schedule by evaluating it and creating a basis for further improvements. This article aims to define what purposes schedule constructability review intends to serve and how a schedule constructability review is performed.

A schedule constructability review verifies that the schedule under investigation meets and/or exceeds the minimum requirements of preparing project schedules. It aims to assess project schedules to ensure they properly represent the steps that need to be taken in implementing the project and verify the feasibility of the construction plan. Schedule constructability reviews aim to closely examine project schedules and determine if they satisfy the requirements outlined in the project scope of work, and confirm that they meet the needs and expectations of project stakeholders, and satisfy technical and contractual requirements of performing the work.

The Construction Industry Institute (CII) defines constructability as “the optimum use of construction knowledge and experience in planning, design/engineering, procurement, and field operations to achieve overall project objectives.” (Construction Industry Institute, 1986) In a similar way, AACE International defines constructability as a “system (process) for achieving optimum integration of construction knowledge in the construction process, balancing various project and environmental constraints to achieve maximization of project goals and performance.” (AACE International, 2017, p. 23) These definitions can be adopted and be used in the context of assessing project schedules to determine the types of evaluations that need to be performed when a schedule is assessed for constructability.  Based on these definitions, it is expected that a schedule constructability review identifies schedule deficiencies such as poor logic, improper duration estimates, omissions, inconsistencies, and conflicts to ensure the schedule is reasonable and sound.

Similar to the way constructability reviews are performed to evaluate construction documents for consistency, clarity, completeness, reasonableness, and feasibility of construction plans, schedule constructability reviews are performed to ensure that a schedule meets the following requirements:

  • Project work packages and activities are properly identified
  • The schedule is complete and entails all the activities that are needed to successfully implement the scope of work
  • Proper logical relationships (including finish-to-start, start-to-start-, start-to-finish, or finish-to-finish relationships along with proper lag and lead values) are used in creating the project network
  • An appropriate combination and choosing of activity relationships (including physical, preferential, resource, and safety relationships) have been created to define activity dependencies
  • The schedule accounts for the technical and technological constraints of performing the work
  • The schedule accounts for site restrictions and physical and space constraints
  • The schedule meets proper contractual milestones, identifies all interim and ultimate contractual deliverables, and satisfies time and resource constraints outlined in the contract
  • The schedule is clear, reasonable, and complete
  • Different sections of the schedule are consistent in terms of the timeline, work priorities, and work sequence
  • The schedule accounts for preparation times, material and equipment lead times, and preparatory steps that need to be taken or prerequisite work that needs to be completed prior to the succeeding work elements

Since project schedules are prepared at different levels of detail in different stages of progress, schedule reviews need to be performed periodically to ensure project schedules meet the minimum requirements over the course of a project. Project schedules are progressively elaborated over the project lifecycle. In other words, as new information is obtained and scope is further developed, project schedules evolve into more detailed schedules that reflect an appropriate level of detail for that specific planning cycle. Therefore, project teams need to perform schedule constructability reviews periodically to ensure the schedule remains a reliable tool that is reasonable, well-thought-out, and compliant with the technical and contractual requirements.

References:

AACE International® (2018). Recommended Practice No. 10S-90 Cost Engineering Terminology. Morgantown, WV: AACE International. Retrieved from http://library.aacei.org/terminology/

Construction Industry Institute (CII). Constructability; A Primer, Publication RS3-1 (July), CM, Austin, Texas, 1986.

 

Note: Our competent experts have been the primary authors of two industry guidelines, entitled AACE International Recommended Practice 91R-16 Schedule Development and 89R-16 Management Summary Schedule. These industry guidelines are two of the key references used by cost engineers and project management professionals. If your firm is looking for experts who can assist in developing project schedules or performing schedule constructability reviews; and would like your schedules to be prepared using the best practices of project planning and scheduling, please contact us for a free consultation session.

The Key Issues with Dangling Activities

The Key Issues with Dangling Activities

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Dr.  Amin Terouhid, PE, PMP

Dangling activities (also known as dangles) are loosely-tied activities in project schedules. They are activities with either open start dates or open end dates. All activities, except the first activity of a network, need to have a predecessor; otherwise, they will have open start dates. Similarly, all activities, except the last activity of a network, need to have a successor; otherwise, they will have open end dates (also known as open-ended or open-end activities).

As noted above, every project activity and milestone except the first and last ones must have at least one predecessor and one successor. An example of the first activity of a network is the notice to proceed milestone and an example of the last activity of a network is the milestone that represents the project completion date. It is recommended that any project schedule starts with a start milestone and finishes with a finish milestone to ensure proper logical ties can be built into the network.

A project schedule that contains dangling activities has deficiencies because its logic is incomplete. This flaw makes the schedule unreliable and inaccurate because the schedule has not fully developed and some activity dependencies (i.e., logical ties) have not been properly identified. The four main types of activity ties include finish-to-finish (FF), finish-to-start (FS), start-to-start (SS) and start-to-finish (SF).

Here are the main issues with dangling activities:

In the event that a schedule contains a dangling activity, one cannot ensure that the projected start or finish dates accurately represent the planned dates because one or more logical ties are missing. For example, an activity with no predecessor (assuming that the activity is not the first activity of the network) has either been forced to be started or completed on particular dates using activity constraints or has been left fully unrestrained. The downside of the former is that instead of a logical tie, one or more constraints have been added to the schedule preventing the schedule from being flexible due to the use of activity constraints in place of activity ties. Schedules need to remain dynamic to ensure the time impact of a delay or a change to an activity’s duration can properly be transmitted to the rest of the project schedule. The disadvantage of the latter is that leaving the activity fully unrestrained allows the activity to move freely every time that the schedule’s as of date (i.e., data date) is changed.

Similarly, an activity with no successor (assuming that the activity is not the last activity of the network) makes the schedule unreliable because one cannot have confidence in the accuracy of the projected start and finish dates (e.g., the finish date of the network). This shortcoming is present because, in the event of a delay that adversely affects the dangling activity, the impact of this delay does not properly transmit to the rest of the schedule and as such, no activity in the network will be delayed as a result because the dangling activity has presumably no successor. In other words, the schedule will not properly be indicative of the impact of a delayed dangling activity because the network’s logic is incomplete. The same issue may become the case when an activity duration is changed because the time impact of a change to an activity’s duration is not properly transmitted to the rest of the project schedule due to the missing ties. A well-prepared project schedule must provide a full network that projects how the project schedule changes in case of a change to activity durations or in the event of delays.

Another issue with dangling activities may surface when delay claims arise. If a dangling activity is negatively affected by one or more delays, the adverse effect of these delays cannot properly be shown by the schedule. In other words, a schedule with an incomplete logic may not be a reliable tool to show the time impact of delays because the schedule logic is flawed. This deficiency results in underestimating the impact of delays. It is generally accepted that networks are reliable when they are fully developed because in this case, the activity ties define the dependencies between activities and accurately determine the projected start and finish dates.

In sum, every project activity and milestone except the first and last ones must have at least one predecessor and one successor. It is recommended that any project schedule starts with a start milestone and finishes with a finish milestone to ensure proper logical ties can be built into the network. The schedule model must identify all logical relationships to generate a full network. Schedules need to remain dynamic to ensure the time impact of a delay or a change to an activity’s duration can properly be transmitted to the rest of the project schedule. Loosely-tied activities are examples of schedule deficiencies that prevent schedules from properly showing the impact of delays or changes to the schedule on the rest of the network.

If you are in need of schedule development services or would like to monitor and control your schedules in an effective manner, Adroit will be able to assist. For more information, please contact us.

Cumulative Impact Claims

Cumulative Impact Claims

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Dr.  Amin Terouhid, PE, PMP

This article describes the nature and causes of cumulative impact claims and explores the underlying factors that give rise to cumulative impacts in construction projects.

Changes that are made to a contract scope of work and modifications of work conditions are among the key causes of conflict in construction projects. The net cumulative effect of changes is often greater than the sum of the effect of individual changes.  This condition may occur when a contractor realizes that the work has been affected by unforeseeable synergistic effects of multiple changes. This condition is typically the case where the collective cost, time, and productivity impacts of the changes have been impossible for the contractor to foresee while considering each of the effects individually. The collective impacts of these types of changes are typically identified as the cumulative impact. The Construction Industry Institute (CII) describes cumulative impact as follows:

When there are multiple changes on a project and they act in sequence or concurrently, there is a compounding effect – this is the most damaging consequence for a project and the most difficult to understand and manage. The net effect of the individual changes is much greater than a sum of the individual parts. [1]

A cumulative impact claim typically arises when the changes to a contractor’s scope of work are so numerous and overlapping that the contractor had no reason to know that it was not fully pricing each of the change orders at the time it negotiated the changes one at the time.

Cumulative impacts have unique characteristics that differentiate them from other types of impacts. In the case of cumulative impacts, multiple changes occur whose cumulative effect is greater than the sum of the effect of individual changes. It is important to note, however, that the multiple changes that have a cumulative impact on a scope of work should typically be labor-related changes. Therefore, in assessing cumulative impacts, the dollar value of the changes that have occurred is not as important as their intensity in terms of the number of labor hours required to execute the changed work. The number of labor hours needed to perform the change is critical in evaluating cumulative impacts because the ultimate objective of a cumulative impact claim is to demonstrate the extent of loss of labor productivity arisen from the synergistic effects of multiple changes. It is typically expected that the more labor-intensive the changes are, the greater their individual and cumulative impacts will turn out to be.

To quantify the damages resulted from the cumulative impact of multiple changes, a variety of methods can be used some of which include actual cost method, estimated cost method, total cost method, modified total cost method, should have spent method, measured mile, and jury verdict [2]. What is important, however, is to be able to demonstrate that the damages have resulted from the causes in reference. The success of a cumulative impact claim depends primarily on the ability to establish the cause and effect relationships between the causes in dispute and the resultant cumulative impact. No definitive standard has been established or accepted by courts or dispute boards to quantify the loss of productivity claims that contain a cumulative impact component; therefore, it is typically challenging to prove that damage calculations accurately represent the damages incurred as the sole result of cumulative impacts.

As part of a cause and effect analysis, a written narrative that describes the chain of events is essential. The narrative should properly establish the relationship between causes and resultant impacts. Preparing such a written description of the events, causes, and their effects is a minimum requirement for parties involved in a claim to demonstrate the cause-and-effect relationships between various events and resultant damages. Adequate supporting documents such as excerpts from the contract, change directives, meeting minutes, relevant correspondence, and filed reports can play an important role in substantiating the arguments and supporting the statements contained in the claim.

One of the methods that are often used to assess causal relationships between causes and effects in complex construction claims is the system dynamics method. Complex cases of claim involve multiple claim components that are typically intertwined and interrelated; and as such, assessing these cases may require advanced methods such as system dynamics. This method is an approach within the system thinking domain which considers complex systems as a holistic set of interrelated components to provide a better understanding of the system. Four important questions that are asked in the process of developing a system dynamics model include what is the issue at hand, what is flowing into and gets accumulated in the system representing the problem, where and how does it accumulate, and what factors cause it to flow.

Cumulative impacts should not typically be measured right after a change or during the course of the project while the impact of changes has not fully been materialized. Instead, cumulative impacts are typically measured towards the end of the project to ensure the full adverse, synergistic effect of multiple changes can properly be identified and qualified. Untimely evaluations may partly represent the adverse cumulative impacts that take shape over time.

References:

[1]. T. Hester, John A. Kuprenas. & T. C. Chang (1991). Construction Changes and Change Orders: Their Magnitude and Impact. CII Source Document 66.

[2]. Jones, R. M. (2001). Lost productivity: Claims for the cumulative impact of multiple change orders. Pub. Cont. LJ, 31, 1.

 

If your project has been affected by multiple change orders and they have adversely affected labor or equipment productivity on-site, or if you are interested to investigate the adverse effects of cumulative impacts on your project, Adroit will be able to assist in assessing these impacts. For more information, please contact us.

 

 

Differences between cash and cost flow diagrams

Differences between cash and cost flow diagrams

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Dr. Maryam Mirhadi, PMP, PSP

Introduction

The terms cost flow and cash flow are often used interchangeably. It is important, however, to identify the purposes that each of these tools intends to serve. These diagrams are among the important elements of financial analysis prior to the commencement of and over the course of a project. Well-prepared cost and cash flow diagrams should be evaluated before making financial decisions concerning a project.

Definitions

A cost flow diagram is a graph that shows expenditures over time. This diagram shows the budgeted amount of money that is needed over time to make progress as planned. Cash flow, however, provides a pictorial representation of income over time. This diagram illustrates how much income the project is going to earn or how much fund will be allocated to the project over the course of a project. A cash flow diagram provides the estimated sums of money to which a project or a project party has access over time. 

In its definition of cash flow, AACE International combines the two aforementioned diagrams. Per the AACE International’s Cost Engineering Terminology (Recommended Practice No. 10S-90), cash flow is a “time-based record of income and expenditures, often presented graphically”, and it shows “inflow and outflow of funds within a project”. A combined view of cash and cost flow illustrates the amount and timing of cash inflows and outflow.

Each of the diagrams discussed above can be prepared from the perspective of different project parties involved in implementing a project. For example, a project cash flow that is prepared from the perspective of an owner may represent how the project is funded from the perspective of an owner but a cash flow prepared from the perspective of a contractor may represent a time-based record of income that the contractor is expected to receive for its particular scope of work.

Benefits

The diagrams discussed above are among the important elements of financial analysis that can be performed prior to the commencement of and over the course of a project. Well-prepared cost and cash flow diagrams should be evaluated before making financial decisions concerning a project.

Prior to the commencement of a project, cost and cash flow diagrams are used to assess the financial justifiability of a project. Once candidate projects are identified, decision makers use cash and cost flow diagrams to decide whether or not a project should be pursued. In project-based organizations that implement a portfolio of projects, these decisions are made to determine if a project can be added to the organization’s portfolio of projects. Capital budgeting methods such as net present value (NPV), payback period, and internal rate of return (IRR) are used to make such decisions.

Over the course of a project, cash and cost flow diagrams can be used to adjust project schedules. If a project team determines that adequate monetary resources are not available to make progress according to the plans, it may decide to postpone some activities to ensure enough funds will be available to be spent when needed. Conversely, if higher-than-expected monetary resources become available during specific periods of time, a project team may decide to ramp up its efforts to benefit from the flexibility that higher-than-expected levels of monetary resources have afforded. For example, if a project-based organization determines that funds will not be available to be allocated to a project, the organization may decide to remove some resources from the project and postpone some activities.

Making a comparison between the cumulative cash and cost flows can also be insightful to identify if adequate monetary resources will be available to fund the project based on its needs. The following figure shows an example of a comparative analysis of cash and cost flow diagram. As this figure indicates, the cumulative cash flow diagram should always represent greater values than the values represented by a cumulative cost flow diagram. A cumulative cash flow diagram that takes values less than the values represented by a cost flow diagram represents insufficiency of funds during certain time periods identifiable by the visual inspection of the diagram.

 

Assessing the project cost flow can also have other benefits. This analysis can help analyze excessive costs and overruns by comparing the budgeted (i.e., time-phased estimates) cost of performing the changed work with the sums of money originally needed to make progress according to the plans. This assessment can help identify the adverse effect of the change on the resource costs needed over time.

This assessment can be insightful only if the cost flow and estimates are prepared at a sufficiently detailed level. Otherwise, they cannot provide an insight into the impact of change because of the lack of granularity of the pricing data available. Properly documenting the basis of estimates and using proper cost breakdown structures are two other important considerations in budget and cost flow documentation. Detailed budgets or cost flows are prepared by relying on certain assumptions and information available at the time of preparing these estimates. These assumptions and information should properly be documented in a document, entitled “basis of estimate”, for future references.

Conclusion

As noted above, the cost flow diagram and cash flow diagram are among the important elements of financial analysis prior to the commencement of and over the course of a project. The terms cost flow and cash flow are often used interchangeably; however, it is important to identify the purposes that each of these tools intends to serve. A cost flow diagram is a graph that shows expenditures over time. This diagram shows the budgeted amount of money that is needed over time to make progress in accordance with the plans. Cash flow, however, provides a pictorial representation of income over time or the amount and timing of funds that are expected to be allocated to the project.

If you need to prepare cost and cash flow diagram or assess these diagrams to perform financial analysis and make informed decisions, Adroit will be able to assist. For more information, please contact us.

References:

AACE International® (2018). Recommended Practice No. 10S-90 Cost Engineering Terminology. Morgantown, WV: AACE International. Retrieved from http://library.aacei.org/terminology/

A well-drafted contract changes clause

A well-drafted contract changes clause

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Author: Amin Terouhid, Ph.D, P.E.

Changes that are made to a contract scope of work and modifications of work conditions are among the key causes of conflict in construction projects. A contract changes clause can play an important role in properly allocating risks among the parties to a contract to ensure each party knowingly assumes risks that it is capable of managing.

The main objective of a contract changes clause is to establish a well-drafted procedure for allowing change to the project scope of work and modifications of work conditions that a contractor is subject to. The following table highlights some of the main considerations that need to be given to drafting a contract changes clause.

IDItemsDescription
1The right to make changesA well-drafted contract changes clause needs to recognize proper rights to make changes. These rights are typically, but not always, given only to the owners. If the intent is to specify the individuals who are authorized to direct changes, this requirement must be included and clearly be stated in the contract.
2The size of changes that can be madeThe contract changes clause should clearly identify any limitations on the permissible adjustment to the subcontract price.
3Notice requirementsProper means of communication and issuing change directives need to be defined in the contracts. In addition, the contract should clearly specify the notice requirements that need to be satisfied prior to performing any additional work (e.g., performing additional work following an unwritten change directive) as well as any ramifications of failure in giving proper notices in a timely manner.
4Estimating and pricing considerationsThe contract should identify proper mechanisms for estimating and pricing change orders (e.g., defining pre-approved unit rates and force account procedures), and the roles and responsibilities of the contracting parties in defining the scope of change and providing the information needed for pricing change orders.
5Change order resolution timetableThe contract should provide a procedure to specify the steps that need to be taken for the resolution of cost and time adjustments to the contract due to changes. A change order resolution timetable should also be contained as part of the procedure to define expectations from the time management and construction administration perspectives.
6Conflict resolution proceduresConflicts are inevitable especially in large construction projects. The more changes are made to the contract scope or work conditions, the more likely the conflicts are. As such, a well-drafted contract changes clause needs to define proper conflict resolution procedures to facilitate successful management and resolution of claims and conflicts.
7Unwritten change ordersThe contract should clearly state if unwritten change orders are permissible, and if so, under what circumstances.
8Working under protestIt is important to ensure that a contract changes clause specify if the contractor is contractually required to proceed with a changed work even if the contractor is not in agreement with the directing party about the price of the changed work.
9Time impactsA contract changes clause should define the conditions under which time extensions are issued due to changes. It should also specify if the contactor needs to submit its time extension request in a specified format or within a defined time frame.
10Productivity and cumulative impactsA contract changes clause should specify if productivity or cumulative impacts are permissible to be accounted for in pricing change orders in the event of a change, and if so, how and/or within what time frames the contract allows the contractor to seek compensation for the adverse effects of changes on the contractor’s labor and equipment productivity or request for compensation due to unexpected cumulative impacts whose synergistic effects were unknown at the time of evaluating individual changes.
11Emergency changesIt is expected that a contract changes clause defines if emergency changes are allowable to be made under a serious, unexpected, and often life-threatening or property-damaging emergency requiring immediate action, and if so, what the roles, rights, and obligations of the involved contracting parties are if such a need for change arises.

Since changes to the contract scope or work conditions typically have significant impacts on construction projects, they potentially have time, cost, and productivity implications. Therefore, it is important to take proper steps in minimizing the likelihood and/or impact of conflicts between contracting parties. This article focused on one of these steps and identified some of the key considerations that need to be given to drafting a contract changes clause that exposes the involved parties to smaller risks arisen from changes that take place in construction projects.

If your project has been affected by multiple change orders and they have adversely affected labor or equipment productivity on-site, or if you are interested to investigate the extent of time and cost impacts due to change orders, Adroit will be able to assist in assessing these impacts. To find out more about Adroit’s Construction Claims Consulting services, call 352.327.8029 or contact us using this form.

Activity Duration Types in Primavera P6

Activity Duration Types in Primavera P6

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In preparing project time schedules in Oracle’s Primavera P6, project planning and scheduling professionals need to properly select duration types. Primavera P6 uses the following two formulae to determine units of work:

Resource Units = Resource Units per Time Unit * Duration

Remaining Resource Units = Resource Units per Time Unit * Remaining Duration

Based on these two formulae, the user is able to make one or two element(s) of the equation fixed, and input or change the other element(s). That way, Primavera P6 will calculate the remaining elements of the equation. To determine which element(s) of the formula to solidify, the users need to take the nature of the work or information at-hand into account and make an informed decision concerning the elements that need to be solidified. This decision then helps the user to choose among the four main types of activity duration types.

Four types of activity duration types can be defined in Primavera P6. They include 1) Fixed Duration & Units, 2) Fixed Duration & Units/Time, 3) Fixed Units, and 4) Fixed Units/Time. The following discusses each of these activity duration types in more depth:

1- Fixed Duration & Units: This types of activity duration is used in Primavera P6 when the duration and the amount of the resources are known and supposed to remain fixed in the schedule. It is recommended that project planning and scheduling professionals use this duration type for time- and budget- constrained projects prior to making schedule updates. The two possibilities include the following:

  • Option 1: Duration does not change when resources are added or removed, or if the user changes Units/Time.
  • Option 2: A change to the Duration will change the Units/Time; however, Units remains unchanged.

2- Fixed Duration & Units/Time: This type of activity duration is used in Primavera P6 when the duration and resource performance are known and are supposed to remain fixed (i.e., unchanged) in the schedule. In other words, activity durations remains unchanged in the schedule; however, the remaining units change. If an activity is supposed to be completed within a certain, fixed time frame irrespective of the number or amount of resources being assigned to the activity, this activity duration type is the right choice that needs to be used for that activity. This activity duration type is most often used if the user uses task dependent activities (not resource dependent activities). The two possibilities include the following:

  • Option 1: Duration does not change when resources are added or removed, or when Units/Time changes.
  • Option 2: A change to the Duration will change the Units; however, Units/Time remains unchanged.

The use of this activity duration type locks the duration, and the default Units/Time (productivity) values for each resource added. Nevertheless, this activity duration types allows the overall Unit cost to increase when resources are assigned to the activity. It is recommended that project planning and scheduling professionals use this duration type during the planning phase because doing so will force Primavera P6 to honor activity duration estimates and increase the work (Units) and, therefore, the budget, based on additional quantities of work performed (Units/Time).

It is important to note that this duration type disables the User Preferences, Calculations tab option Recalculate the Units, Duration, and Units/Time for existing assignments based on the activity types.

3- Fixed Units: Primavera P6 users need to use this type of activity duration if the amount of work needed to complete an activity (e.g., 8,000 bricks to be laid) is fixed. If this type of activity duration is used, decreasing units per time causes the activity duration to increase; however, if the user updates the duration or units per time, the Units remain unchanged. Increasing the resources allocated to an activity whose duration types is Fixed Unit, decreases the activity duration. It is best to use this activity duration type where the duration is “resource dependent” (and not “task dependent”). If in a project, the budget is set and it is difficult to get additional cost increases approved, the Fixed Units activity duration type is the right choice assuming the other above-mentioned requirements are also satisfied.

4- Fixed Units/Time: Primavera P6 users need to use this type of activity duration if the activity has fixed productivity output per time period (regardless of activity duration). In other words, this duration type is supposed to be used when the user would like the resource units per time to remain unchanged while the activity duration or units change. For example, if a piece of equipment requires two workers to operate, the Fixed Units/Time duration type might be the right choice. When the duration of an activity whose duration type is Fixed Units/Time increases, the amount of budgeted labor units also increases while resource Units/Time remains unchanged. This activity duration type is most often used if the user uses resource-dependent activities.

In addition, users have the choice to choose to preserve “the Units, Duration, and Units/Time for existing assignments” or recalculate “the Units, Duration, and Units/Time for existing assignments” in the User Preferences, Calculations tab of Primavera P6. This choice, as well as the choice of activity duration types, determines what element(s) remain(s) unchanged and what element(s) change(s). These scenarios are outlined in the following two tables:

The User Preferences, Calculations tab option “Preserve the Units, Duration, and Units/Time for existing assignments” is chosen when the user adds or removes multiple resource assignments on activities but would like Units, Units/Time, and Durations to remain unchanged when additional resources are assigned to an activity. When the User Preferences, Calculations tab option “Preserve the Units, Duration, and Units/Time for existing assignments” is selected, here are the various scenarios that are encountered:

The User Preferences, Calculations tab option “Recalculate the Units, Duration, and Units/Time for existing assignments” is chosen when the user adds or removes multiple resource assignments on activities and would like to determine a resource assignment’s remaining values based on the activity’s duration type. When the User Preferences, Calculations tab option “Recalculate the Units, Duration, and Units/Time for existing assignments” is selected, here are the various scenarios that are encountered:

As discussed, four types of activity duration types can be defined in Primavera P6. They include 1) Fixed Duration & Units, 2) Fixed Duration & Units/Time, 3) Fixed Units, and 4) Fixed Units/Time. It is important to pay attention to the nature of work that is being performed to select the right type of activity duration types. This article defined each of this activity duration types and explained where each option needs to be used and what the implications of using these duration types are from the scheduling perspective.

References:

Harris, Paul E (2017). Planning and Control Using Oracle Primavera P6 Versions 8 to 17 PPM Professional. Eastwood Harris Pty Ltd.

Oracle (2018). Primavera P6 Professional User Guide Version 17. Available online at: https://docs.oracle.com/cd/E80668_01/English/User_Guides/p6_pro_user/helpmain.htm?toc.htm?62789.htm

 

A critical comparison between CPM and LSM

Posted on by Adroit

In a previous article (Diagrams to illustrate repetitive construction activities), we identified the main diagrams that construction project practitioners use to illustrate repetitive construction activities. In that article, we described the two main classes of linear scheduling methods (LSM) and line of balance (LOB) techniques that are used in linear projects.

Below, we are going to provide a critical comparison between the critical path method (CPM) and linear scheduling method (LSM). As a deterministic network model, the CPM method uses duration estimate for project activities to determine the longest duration path for the project and to identify the earliest and latest dates for schedule activities based on the use of forward- and backward-pass network calculations, respectively. LSM schedules, however, use velocity diagrams representing each activity. The schedule format may provide the planned and actual production rates on a time-scaled format. The main differences between the CPM and LSM methods can be summarized as follows:

Critical Path Method (CPM)Linear Scheduling Method (LSM)
Application Although this method is typically used in non-linear projects, it can also be used in linear construction projects.It is used in linear construction projects, where the majority of the work is made up of highly repetitive activities. In these projects, a set of project activities are repeated in each location for the entire length of the work. Once a project activity is started and/or ended in one location, it is repeated in another location.
Accuracy With using forward and backward network calculations, the CPM method determines the expected project completion with accuracy. The LSM allows for accurately planning and scheduling of project activities from the perspectives of both time and location.
Uncertainty in activity durationsWith some modifications, the CPM method can change to Program Evaluation and Review Technique (PERT) which allows for randomness by introducing uncertainty to activity duration estimates (i.e., using optimistic, most likely, and pessimistic durations to calculate the expected time for schedule completion).The current forms of LSM do not allow for randomness in activity durations.
Uncertainty in activity relationships With some modifications, the CPM method can change to Graphical Evaluation and Review Technique (GERT) that allows for conditional and probabilistic treatment of logical relationships (i.e., depending on the outcome of the predecessor activities, succeeding activities may or may not be performed).The current forms of LSM do not allow for conditional and probabilistic treatment of logical relationships.
Critical pathThe CPM identifies the critical path based on forward and backward network calculations. The LSM algorithm identifies the controlling activity path (CAP) which can be considered a path with the same function as the critical path in the CPM method. The LSM also identifies location criticality.
Spatial aspectsIt might be inadequate for effective planning and scheduling of linear construction projects because it does not account for work locations or spatial aspects and does not effectively model project activities that are repetitively performed.It uses velocity diagrams representing each activity, accounts for work locations or spatial aspects, and effectively models project activities that are repetitively performed.
Readability and usefulness The CPM method becomes convoluted in complex projects because of the high number of project activities and activity dependencies. This complexity makes it difficult for practitioners to effectively use, communicate, and understand project CPM schedules in complex projects.The LSM method is easy to understand and an effective tool to communicate the project time objectives with all team members including those individuals who lack an in-depth knowledge of project planning and scheduling.
Ease of use and development Computer programs have significantly facilitated the use and development of CPM schedules; however, software programs have become complicated and require extensive training. The LSM is intuitive and can easily be produced with or without the use of computer programs. However, the limited number of computerized implementation platforms restricts the use of this method in large projects.
Ease of updating Computer programs have significantly facilitated the process of updating CPM schedules; however, updating complex CPM schedules may become challenging due to the increased number of activity, activity dependencies, activity constraints, activity calendars, and resource calendars in these schedules. Updating an LSM schedule is typically simple and intuitive.

References:

Mirhadi M. and Terouhid, A. (2018). AACE International Recommended Practice 91R-16 (RP 91R-16): Schedule Development. AACE International (The Association for the Advancement of Cost Engineering). Retrieved from https://web.aacei.org/docs/default-source/toc/toc_91r-16.pdf?sfvrsn=2

Adroit Consultants, LLC (2018). Diagrams to illustrate repetitive construction activities. Retrieved from https://www.adroitprojectconsultants.com/2018/08/06/diagrams-to-illustrate-repetitive-construction-activities/

The project scope has changed, now what?

The project scope has changed, now what?

Posted on by Adroit

Project teams need to use effective strategies to minimize changes to the project scope of work; however, change is inevitable and it arises due to a variety of reasons. Examples include the change in an owner’s needs or expectations, design errors and/or omission, differing site conditions not envisioned in the original contract price, changes to the project scope of work due to constructability issues or conflicts between systems, and modifications due to actions or inactions of third-parties. From a contractor’s perspective, the change may arise due to reasons outside the contractor’s control; therefore, it is important for contractors to know what actions they need to take if a change in the project scope of work arises.

In case of a change to the project scope of work, one of the first actions that a contractor needs to take is to provide a proper change notice to the project owner. It is important to note, however, that owners may not be the contracting party or the only contracting party that needs to be notified in case of a scope change. For example, if a scope change modifies a subcontractor’s scope of work, the subcontractor may need to notify the prime contractor first. Typically, contracts contain provisions that define the requirements for timely issuance of change notices.

Most contracts require contractors to issue proper change notices prior to proceeding with the work. They also require contractors to submit proper supporting documentation in a timely manner for reimbursement. Most contracts require that contractors provide a descriptive narrative, an adequately-detailed supplemental information to specify the changed work, and reasons for the change to ensure the changed scope of work is defined with adequate specificity and it is justified and properly documented. They also require that contractors specify the potential impacts of the change on cost, time, and productivity.

The changes to the project scope of work are categorized into the two main classes of directed and constructive changes. The differences between these two types of change are described in Table 1. The need for proper documentation of the change is more evident when a constructive change arises because, in the case of a constructive change, the owner does not specifically direct the contractor to make a change. Instead, the change arises as a result of non-owner-directed events that implicitly necessitate modifying the scope.

Table 1. The differences between directed and constructive changes

AttributeDirected ChangeConstructive Change
The role of ownersIt is issued when the owner specifically directs the contractor to make a change.This change is not a result of owner-directed changes.
Reason for changeThe change occurs because the owner’s needs or expectations have changed.The change occurs as a result of non-owner-directed events that implicitly necessitate modifying the scope.
Owners’ awareness towards the changeThe owner is fully aware of the change because the owner specifically directs the contractor to make a change.The owner does not typically have explicit acknowledgment of the change and/or need for change.
The role of contractors Contracts typically require contractors to make changes as the owner wishes.The contractor is forced to make the change and/or accept its implications.
Ease of recognizing the change It is easier to recognize. It is not easy to recognize.
Degree of complexityIt is typically not complicated because the owner specifically directs the contractor to make a change.It is typically complicated because the owner does not typically have explicit acknowledgment of the change and/or need for the change; and thus, may dispute the change.
Effect on the contractThis change may or may not affect the contract price or timeline.This change typically affects the contract price and/or timeline.
Type of effect on the contractThis change may reduce or add the contract price and/or elongate the expected project duration.This change typically increases the contract price and/or elongates the expected project duration.

Not all contracts allow for proceeding with the work prior to the signing of the change order. Also, some contracts do not contain provisions for constructive changes. Therefore, it is of utmost importance for contractors to know what the contract requirements are for documenting the change and what supporting documentation the owner expect to receive. It is recommended that contractors take the following steps if the owner has directed them to proceed with the work prior to the signing of the change order:

  1. Fully comply with the change notice requirements and give notices in a fashion promulgated by the contract
  2. After reviewing the contract documents and making sure that the scope has changed, submit a change order request, provide proper justification for the change, describe the scope of change, and provide estimates of the potential impacts of the change on time, cost and productivity.
  3. If an adequate information does not exist to prepare accurate estimates of the potential impacts of the change on time, cost and productivity, consider the need for formally reserving the rights to ensure entitlements are not unintentionally waived.
  4. If the contracting parties are not in agreement on the change or its impact, follow the steps outlined in dispute resolution procedures, and give a notice of intent (NOI) to file a claim,  if warranted.
  5. To the extent practically feasible, keep separate tracks of the costs of change using a cost coding that differs from the cost coding used for the base contract to ensure the cost impact of change can be segregated from the cost of performing the original scope of work.

Taking the aforementioned steps are important to facilitate the resolution of any modification to the project scope of work with the owner and to minimize disputes to the extent possible.