Category: Insights

Adverse effects of schedule deficiencies on claim administration

Adverse effects of schedule deficiencies on claim administration

Posted on by Adroit

Dr. Maryam Mirhadi, PMP, PSP

Project schedules provide a basis for communication, execution, monitoring and controlling, and reporting and offer a platform for measuring project progress and performance. In addition, courts bank on project schedules to assess time extensions or time-related compensation requests. As such, project time schedules are one of the key inputs without which many construction claims cannot properly be prepared or investigated. Construction contractors should give proper attention to preparing detailed and reasonable project schedules throughout the project to ensure the project schedules remain acceptable and reliable over the course of the project, and they reasonably represent the plans as well as the actual progression of work. Some of the main issues with project schedules, especially those that adversely affect claim administration efforts, are discussed in this brief article.

The project schedule needs to be continuously updated at reasonably short time intervals; otherwise, project schedules will not reflect the most current information about the actual progression of work on the project. Inaccurate updated schedules and the lack of updated schedules for some of reporting/updating cycles make claim administration challenging because the updated schedules may not contain all pieces of information that a claim investigation team is looking to find. Examples of these pieces of information include planned start and finish dates, actual start and finish dates to quantify the extent of delays, periods of disruption, and the key dependencies that drive critical path delays within each updating cycle. In particular, delays cannot properly be assessed without having accurate project schedules for all the key reporting/updating cycles especially for the cycles in which delays have negatively impacted the progression of work.

Project schedules should not only represent the plans going forward but also illustrate the actual progression of work. In doing so, if an impact prevents a contractor from being able to achieve certain planned dates, these impacts should properly be reflected in the schedule. For instance, if during a time analysis period, a change has impacted a contractor’s work sequence, the project schedule updated at the updating cycle immediately after the change should properly illustrate the impact of this change on the work. Otherwise, retroactively correcting the project schedules may be challenging due to reasons such as lack of access to accurate contemporaneous data or lack of authorization to make changes after the fact. Project schedules also need to be complete to ensure they include a right set of project activities and work packages, properly reflect the project scope of work, and outline all reasonable steps that need to be taken to complete the project scope of work in its entirety.

Depending on the nature of the work, a proper combination of physical, safety, resource, and preferential relationships can be used in defining activity relationships. It is important, however, to make sure that project schedules are free of logic deficiencies. Example logic deficiencies that may call the credibility of project schedules into question include incorrect logic, missing logic, logic loops, excessive or improper use of time lags/leads, and redundant activity ties. Logic deficiencies make the process of delay analysis challenging because a schedule that suffers from logic deficiencies cannot reasonably be used to assess the expected and actual sequence of work.

Resource loading project schedules allows for resource planning, resource tracking, and resource optimization. It also allows for adjusting the schedule based on resource constraints by performing resource smoothing or resource leveling. In a similar way, cost loading project schedules allows for the development of funding plans, budget consumption plans, and cost flows. Resource plans and budgeted costs are also important for claim investigation purposes because they specify how resources and costs were supposed to be expended over the course of the project and identify if certain changes, delays, or productivity factors have impacted these schemes. As such, resource plans and budgeted costs should be prepared at a reasonably detailed level; otherwise, they cannot provide an insight into the impact of change on the project. Properly documenting the basis of estimates and using proper cost breakdown structures are two other important considerations in budget and cost flow documentation. Whenever, a delaying event occurs or a condition adversely influences the project schedule, the contractor should re-assess the project schedule to ensure the schedule is adequately detailed to measure the adverse effect of the delaying event or the condition with a negative impact on the project schedule.

Many factors play a role in the successful use of project schedules in administering construction claims. However, the quality of project schedules is one of the main role players in facilitating successful management and resolution of construction claims. The accuracy of project schedules, their completeness and reasonableness, and proper use of resource- and cost-loaded schedules are some of the important considerations that need to be given to using project schedules in administering construction claims.

—

Our posts to the Insights page share fresh insights and seasoned advice about many project and construction management topics.  To have the Insights monthly newsletter delivered automatically to your email inbox, please subscribe here.

Pricing Change Orders

Pricing Change Orders

Posted on by Adroit

Maryam Mirhadi, Ph.D, PMP

Owners typically have the contractual right to make changes to the scope of work outlined in contracts. Since these changes impact contracts’ scope of work and they potentially have time, cost, and productivity implications, it is important to give proper consideration to pricing change orders.

Pricing is either backward or forward. Backward pricing is used when the pricing is partly or wholly based on the actual cost of a work performed. Forward pricing, however, is based on the estimated cost of work that is yet to be performed. 

If the forward pricing approach is used to price change orders or change order requests, the estimated cost of work is prepared based on the projected cost of materials, systems, products and permanent equipment needed to execute the work plus the costs of resources that need to be acquired in implementing the scope of work. The first category of costs is associated with those items that remain as part of the facility or the system being implemented whereas the second category of costs referenced above is associated with project resources (including workforce, temporary equipment, tools, and machinery) that do not remain in the project but are necessary to accomplish project activities. It is recommended that practitioners differentiate between these two categories of costs to ensure the cost of project deliverables can be differentiated from the resource costs.

It is important to account for projected levels of productivity in pricing change orders because the resource usage rate needed to perform a changed work may differ from the resource usage rates required to implement a work under normal circumstances in which no change is introduced. For example, if changing a scope of work adversely impacts labor productivity, the estimated usage rate of workforce originally used to estimate the unimpacted work does not necessarily suffice to complete a changed (i.e., impacted) scope of work. As such, in pricing change orders, the effects of change on the original scope of work need to be assessed to adjust the estimates.

One of the techniques that can be effective in assessing the impact of a changed work is assessing the project cost flow. Cost flow and cash flow are often used interchangeably. It is important, however, to identify the purpose each of these tools intends to serve. A cost flow diagram shows the budgeted amount of money that is needed over time to make progress as planned. A cash flow diagram, on the other hand, provides the estimated sums of money to which a contractor has access over time.  Assessing the project cost flow 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 as planned. 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.

Per the Federal Acquisition Regulation (FAR), cost estimates used in government contracts have to be reasonable, allocable, and allowable. Moreover, pricing data must be current, accurate and complete. The following excerpts from the FAR define reasonableness, allocability, and allowability of costs:

  1. In defining the reasonableness of costs, Provision 31.201-3 of FAR states:

A cost is reasonable if, in its nature and amount, it does not exceed that which would be incurred by a prudent person in the conduct of a competitive business.

  1. In defining the allocability of costs, Provision 31.201-4 of FAR states:

A cost is allocable if it is assignable or chargeable to one or more cost objectives on the basis of relative benefits received or other equitable relationship.

Per the FAR, a cost is allocable only if it:

(a) is incurred specifically for the contract; (b) benefits both the contract and other work, and can be distributed to them in reasonable proportion to the benefits received; or (c) is necessary to the overall operation of the business, although a direct relationship to any particular cost objective cannot be shown.

  1. Per the FAR, the factors that need to be considered in determining whether a cost is allowable include the following:
  • Reasonableness
  • Allocability
  • Standards promulgated by the CAS Board, if applicable; otherwise generally accepted accounting principles and practices appropriate to the particular circumstances.
  • Terms of the contract
  • Any limitations set forth in this subpart

It is also important to differentiate between direct and indirect costs in pricing change orders and determine which types of direct or indirect costs have to be included to accurately prepare cost estimates. Typical direct costs of executing construction activities include direct labor and workforce, equipment, material, and services provided to each project activity. Direct costs can be assigned to specific project activities whereas indirect costs are intended to cover overhead expenses that are needed to manage, administer and support the work. Indirect costs are not typically assignable to particular project activities. General conditions costs support various aspects of the work and they are typically assigned at the project level,  not at the activity level. Therefore, they are typically considered among the indirect costs unless a different definition of indirect costs is adopted.

Based on what was discussed above, it is important to give proper consideration to pricing change orders. The proper use of pricing approaches including backward or forward pricing is the first step towards properly pricing change orders. The other considerations is to identify the time, cost, and productivity impacts of changes on the original scope of work. Cost flow diagrams can assist in better identifying the impact of change on a project cost, schedule, and productivity. It is also important to ensure proper pricing and estimating practices are used to ensure estimates are reasonable, allocable, and allowable. An effective use of cost engineering techniques throughout the process plays an important role to ensure the estimates prepared for change orders are current, accurate and complete.

—

Our posts to the Insights page share fresh insights and seasoned advice about many project and construction management topics.  To have the Insights monthly newsletter delivered automatically to your email inbox, please subscribe here.

Waiver language in contracts may obstruct recovery of damages

Waiver language in contracts may obstruct recovery of damages

Posted on by Adroit

Dr. Maryam Mirhadi, PMP, PSPS

Project risks are treated in a variety of ways. Contract documents are among the key mechanisms that parties to a contract may use to transfer a risk to another party, accept a risk, or select other risk response strategies to treat the risk. The use of waiver language in contract documents is one way to achieve this objective. Waiver language is increasingly incorporated in various contract documents such as contracts, payment releases, and change order or directive forms. The intent of waiver or disclaimer language is to constrain a contractor’s entitlement to compensation for resultant damages that are not expressly identified as compensable in the executed change order.

Therefore, it is important that contractors closely examine contract documents to identify which risks they are taking by entering into a contract or by accepting to include certain waiver language in the contract documents. This close examination becomes more important if a contractor intends to reserve its right to seek compensation for resultant damages. One of the other reasons that highlight the importance of close examination of waiver language in contract documents is that the impact of some changes on a contractor’s productivity or performance is not readily apparent. In these cases, a contractor may be able to evaluate these damages or assess their actual cost impact only after executing the work. If so, it is likely that the contractor has already been asked to execute a variety of contact documents containing some form of waiver language. Therefore, contractors are generally advised to exercise caution to the extent possible and adjust the contract language to avoid unintended consequences.

One of the mechanisms to achieve this objective is to use conditional phrases. An example provision that uses a conditional phrase may be as follows:

The amount of the individual change is in full satisfaction of the changed work and the contractor waives any claim for further compensation for cumulative impact costs unless the contractor expressly reserves that right and no other change concurrently impacts the scope of work.

It is imperative that construction contractors seek legal and expert advice prior to executing contract forms that contain some types of a waiver or release language to determine the best strategies that can be used to avoid unintended consequences of waiver language to the extent possible. Contractors are typically advised to avoid executing overarching waiver provisions.

The second strategy that a contractor may choose to pursue if a client requires the contractor to sign a contract form with some types of overarching waiver or release language is to engage in bilaterally negotiations that aim to include alternative language or adjustments to language as appropriate. These alternative language or adjustments are project-specific conditions or language that the contractor creatively phrases to appear on the contract document or forms, and they may entitle the contractor to reserve, at a minimum, a portion of the contractor’s rights to recover proper damages under defined circumstances.

Accepting a unilateral change order that pays for most of the costs without signing the documents that contain overarching waiver language is another strategy that prudent contractors may pursue if the magnitude of consequential impacts justifies the use of this strategy.

If the contract permits the contractor to carry out the changed work without a settled change order, the fourth strategy that contractors may choose to pursue instead of executing documents that contain overarching waiver language is to complete the work without formally signing the change order form and at the same time use the capacities of the contact dispute clause to seek payments to the extent contractually allowed. 

Prudent contractors should closely examine contract documents to identify which risks they are taking by entering into a contract or by accepting to include certain waiver language in the contract documents. They are also advised to use any of the four main strategies discussed above if they are asked to execute forms that contain overarching waiver language to avoid the negative risks of waiver and release language and mitigate their potential impact to the extent practically feasible.

—

Our posts to the Insights page share fresh insights and seasoned advice about many project and construction management topics.  To have the Insights monthly newsletter delivered automatically to your email inbox, please subscribe here.

Common mistakes concerning project risks

Common mistakes concerning project risks

Posted on by Adroit

Maryam Mirhadi, Ph.D., PMP, PSP

Project risks are uncertain events or conditions that may impact a project if they occur. It is important to note that this impact may be negative or positive. As such, project risk response strategies have to be used to deal with each of the project risks. Different risk response strategies may be used depending on whether the risk is negative or positive. Negative risks pose a threat; however, positive risks are to be treated as opportunities.

A Guide to the Project Management Body of Knowledge (PMBOK® Guide) –Sixth Edition, identifies the following as the five risk response strategies that can be used for managing negative project risks: avoidance, transference, mitigation, escalation, and acceptance strategies (PMI, 2017). The following table provides a short description and example for each of these risk response strategies:

Table 1. Risk-response strategies for managing negative risks

 

The PMBOK® Guide identifies the following as the five risk response strategies that can be used for managing positive project risks: exploiting, sharing, enhancing, escalation, and acceptance strategies (PMI, 2017). The following table provides a short description and example for each of these risk response strategies:

Table 2. Risk-response strategies for managing positive risks


Some of the common mistakes concerning project risks and risk response strategies include the following:

1- Risks are always negative: In fact, not all risks are negative. Although the word risk may have a negative connotation in conversations, risks are not always negative in project management. Risk is “any uncertain event or condition that, if it occurs, has a positive or negative effect on a project’s objectives” (PMI, 2017, p. 720). As such, risks may be negative (i.e., threats) or positive (i.e., opportunities).

2- All risks need to be mitigated: In fact, not all risks need to be mitigated. First, it is important to note that mitigating is a risks response strategy only for treating negative risks. This risk response strategy is not applicable to positive risks or opportunities. In addition, although risk mitigation is one of the main risk response strategies for treating negative risks, mitigation is not the only risk response strategy that can be used for treating negative risks. As shown in Table 1– Risk-response strategies for managing negative risks– aside from mitigation, four other risk response strategies also exist that may be used in response to negative risks.

3- Risks can be certain events or conditions: In fact, certain events or conditions for which no doubt or uncertainty exists should not be treated as risks. Definite, certain events are facts, not risks. For example, in case of “having inadequate time to complete the project”, if it is known that the time needed to complete the project is inadequate, this is not a project risk, instead, it is a fact. If uncertainty is not associated with an event or condition, it cannot be considered a risk anymore. To differentiate project risks from facts and to properly name project risks, it is recommended that project management practitioners always use the cause-risk- effect format to define risks. This format can be used as follows: [uncertain event or condition] may occur due to [the cause] which may result in [the effect]. Here is an example: The contractor may incur damages due to unforeseen site conditions which may result in project delays or disputes.

4- Other mistakes: The above-mentioned mistakes were some of the key mistakes made in defining risks or risk response strategies. However, other mistakes may also be made. Some examples include not accounting for contingency reserves or devising contingency plans as part of risk response plans, not assigning role and responsibilities in managing project risks, and not treating risk management as an ongoing process that needs to be performed throughout the project lifecycle.

In sum, many mistakes are made in defining project risks and identifying risk response strategies; however, the main ones include treating all project risks as negative events or conditions with an adverse effect on the project, treating mitigation as the only risk response strategy that can be imagined, and treating definite events or conditions as risks. A proper understanding of project risks and the strategies that can be used to manage project risks is necessary to ensure risks can successfully be managed. If project risks are left unmanaged, they have the potential to force the project to deviate from its plans or fail to reach its objectives.

Reference:

Project Management Institute [PMI]. (2017). A Guide to the Project Management Body of Knowledge (PMBOK ® Guide) (6th ed.). Newton Square, PA: PMI Publications.

—

Our posts to the Insights page share fresh insights and seasoned advice about many project and construction management topics.  To have the Insights monthly newsletter delivered automatically to your email inbox, please subscribe here.

Changes that arise from design-related causes

Changes that arise from design-related causes

Posted on by Adroit

Dr. Maryam Mirhadi, PMP, PSP

Contract documents for a construction project consist primarily of the agreement, conditions of the contract, drawings and specifications, and any addenda issued to clarify, or modify the bidding or proposal documents before the contract for construction is signed. As such, construction drawings and specifications are parts of the legal documents of the agreement that are issued to delineate the requirements regarding the materials, products, systems, installation guidelines and procedures, standards and workmanship, and quality aspects involved with the execution of the work. This short article identifies some of the design-related factors that may result in change orders.

Defective specifications are examples of design-related issues that may result in contract modifications. An owner may specifically direct a contractor to make changes to the contract scope of work if it finds out that the specifications are defective. It is more likely, however, that defective specifications result in constructive changes. Incomplete or inaccurate specifications are examples of defective specifications.

Here are examples of changes that may occur due to design-related reasons:

Changes due to incomplete specifications: If specifications provide insufficient information necessary to implement the work outlined in the contract, they are considered incomplete. In addition, if specifications provide inadequate information in coordinating construction details between different design disciplines (e.g., structural, mechanical, electrical), specifications are considered incomplete. A complete set of specifications are intended to provide adequate information necessary to execute the work to achieve the project objectives set forth in the contract.

Changes due to design discrepancies: If the construction drawings associated with different trades are inconsistent, a design discrepancy exists between contract documents. In addition, differences and discrepancies among plans, specifications, and details or discrepancies between planned and actual equipment details may be indicative of design discrepancies that need to be rectified by issuing proper change orders.

Changes due to physical or technological constraints: Specifications may also be considered defective if a project design does not provide adequate space for fitting all the elements or does not meet physical or technological constraints that need to be considered in design and construction. Depending on the level of complexity of the issue, site conditions, and other technical and contractual requirements, resolving such issues may require changes in design, modification of requirements, and subsequently making minor or major adjustments on-site where appropriate.

Changes to satisfy regulatory requirements. Design documents are supposed to satisfy the requirements of applicable codes, standards, and regulations. Therefore, if the project team finds out that the project scope of work needs to be modified to properly satisfy regulatory requirements, a change order may be needed to ensure the requested change is properly reflected on design documents and implemented to satisfy regulatory requirements.

Latent conditions: Some changes are made due to differing site or subsurface conditions, unknown at the time of bidding. They are conditions within the project site that are materially different from what was shown on the contract documents or those that substantially differ from conditions that are obvious and apparent.

Other changes that occur due to design-related reasons may include changes due to a change in needs and expectations, changes made to address value engineering concerns, and modifications due to technology-related needs, and those due to errors and omissions. It is important to identify, properly document, and control changes over the course of projects to ensure project scope is managed in an effective manner, and to ensure time and cost overruns arisen from scope-related issues are minimized.

—

Our posts to the Insights page share fresh insights and seasoned advice about many project and construction management topics.  To have the Insights monthly newsletter delivered automatically to your email inbox, please subscribe here.

Adverse effects of shiftwork on labor productivity

Adverse effects of shiftwork on labor productivity

Posted on by Adroit

Dr. Maryam Mirhadi, PMP, PSP

One of the factors with adverse effects on labor productivity is shiftwork. Shiftwork is defined as working other than regular daytime hours. Shiftwork is the most commonly utilized alternative to overtime; however, these two methods may be used together so that segregating the two may not be straightforward. It is also important to note that overtime and shiftwork adversely influence productivity in a generally similar way.

When work is performed on a shiftwork basis, labor productivity is adversely affected because of reasons such as stress on circadian rhythms, additional resource or preparation needs, or other factors such as additional coordination, labor, and supervision. These factors need to be considered when work on a shiftwork is scheduled to ensure informed decisions are made.

One of the key issues with shiftwork is its adverse effect on circadian rhythms. Circadian rhythms are the approximate 24-hour variations in bodily functions in individuals. The key cyclic changes that occur in bodily functions in individuals include sleep patterns, blood pressure, heart rate, and core body temperature. Bodily functions tend to increase right after awakening, increase in midafternoon, and then steadily decrease in the middle of the night. As such, those who need to perform on a shiftwork basis typically experience a degradation in performance.

Although the body of those individuals who perform on a shiftwork basis tend to adapt to night work, the circadian rhythm does not in fact completely shift and bodily adjustment periods tend to be long. Some indications that may suggest shiftwork has adversely affected an individual’s body include higher rates of accidents and error in performing tasks, fatigue, appetite loss, increased sickness rates, digestive problems, and other health problems.

Consequences of shiftwork are not limited to those effects that adversely affect the circadian rhythms of individuals who perform on a shiftwork basis. Other issues with shiftwork include the following:

1- The adverse effects of shiftwork on social interactions and negative effects on family life of those who perform on a shiftwork basis.

2- Dilution of supervision typically occur as a result of shiftwork because the supervising team may not use the same working pattern than the working pattern used by shift-working individuals.

3- Challenges in exchanging performance information among individuals who work in different shifts.

4- Higher work setup times. Different shift-working teams tend to work with the same set of tools, machinery, and equipment; therefore, work setup times are typically higher when multiple teams (instead of one team) use the same set of tools, machinery, and equipment. In addition, extra time is needed in shiftwork for the process of hand-over and transition from one shift to another.

5- Work environment considerations: Since shiftwork is performed in hours other than daytime hours, work environment considerations need to be identified. Examples include natural lighting vs. artificial lighting and additional demands for air conditioning.

All of the above-mentioned factors adversely influence work performance in performing tasks that are implemented on a shiftwork basis. Moreover, successful implementation of the work that needs to be performed on a shiftwork basis typically requires additional resources to accommodate the shift project. Additional resources that are generally needed to support shiftwork can be categorized into the three main categories of labor, supervision and job-specific costs. Each of these categories are further discussed in the following:

1- Labor needs

Shiftwork typically requires hiring of additional personnel; however, it is important to note that, because of the learning curve effect, the efficiency level of new hires are typically lower than the efficiency of the current team members. In addition, employers need to pay for shift premium differentials, as needed. Other labor-related considerations that need to be given to shift-working include long bodily adjustment periods, especially for those individuals who are not used to shift-working, higher accident and error rates in performing shiftwork, higher likelihood of improper alcohol consumption before or during shiftwork, and poor attitude towards shiftwork.

2- Supervision needs

Adequate supporting and supervisory personnel are needed when a work is performed on a shiftwork basis. Establishing relationship between work shifts and proper hand-over process between shifts are also important to ensure the work smoothly progresses across different work shifts.

3- Job-specific needs

Examples job-specific needs that have to be evaluated include safety requirements, higher demands for air conditioning or heat equipment to perform shiftwork, and adequacy of equipment, tool, machinery, and material to ensure enough resources are available on-site to make progress as expected.

A number of studies address the adverse effects of shiftwork on productivity. Some of the key studies include the Bureau of Labor Statistics, the Business Roundtable, NECA 1969 study, and the Construction Industry Institute (CII). The American Association for Cost Engineering (AACE) has identified some of the recommended specialized studies that can be used to evaluate the adverse effects of shiftwork on productivity (AACE, 2004). AACE categorizes the specialized studies related to overtime and shiftwork into the same category because these two areas overlap and the adverse effects of overtime and shiftwork on productivity are similar

One set of models that are often used to assess the adverse impact of shiftwork and/or working overtime on labor productivity is the work of Hanna and Haddad (2009), which is a modified version of the NECA study.  The work of Hanna and Haddad (2009) proposes using macro and micro approaches. The macro approach is used for projects in which no specific overtime schedule is used whereas the micro approach is used in projects in which a fixed overtime schedule (e.g., such as six 10 hour days per week throughout a certain number of weeks) is utilized. Both models indicate that as the number of weekly hours worked increase, the labor productivity declines. The following two figures illustrate these two models:

.

(Adapted from the work of Hanna and Haddad (2009))

In Figure 1 a regression line is fitted to the data which plots the performance factor index (i.e., earned hours / actual hours) against the total hours worked per week. Figure 2 plots productivity against the number of weeks in which a fixed overtime schedule (e.g., such as six 10 hour days per week throughout a certain number of weeks) is utilized. Since this model uses Measured Mile Method (MMM) to calculate productivity loss in periods with and without overtime, the outcomes of the model are shown as MMM. These outcomes are compared against the NECA 1969 study.

In sum, shiftwork is one of the methods that are used to accelerate projects. It is important to note, however, that, similar to working overtime, shiftwork has adverse effects on labor productivity. Some of the key issues with shiftwork include its adverse effect on circadian rhythms, dilution of supervision, challenges in exchanging performance information among individuals who work in different shifts, the adverse effects of shiftwork on social interactions, and higher work setup times. The methods used to assess the adverse effects of shiftwork on productivity overlap with the methods used to evaluate the loss of labor productivity due to overtime because the adverse effects of overtime and shiftwork on productivity are similar.

References:

AACE International (2004), Recommended Practice 25R-03 Estimating Lost Labor Productivity in Construction Claims, AACE International, Morgantown, WV.

Hanna, A. S., & Haddad, G. (2009). Overtime and productivity in electrical construction. In Construction Research Congress 2009: Building a Sustainable Future (pp. 171-180).

—

Our posts to the Insights page share fresh insights and seasoned advice about many project and construction management topics.  To have the Insights monthly newsletter delivered automatically to your email inbox, please subscribe here.

Types of Change in Projects

Types of Change in Projects

Posted on by Adroit

A variety of reasons may cause an increase or decrease in the amount of work from the scope of work specified in the original contract. These reasons result in either directed changes or constructive changes to the project’s scope of work. This article briefly describes each of these main categories of changes. It also outlines the potential implications of changes to a contract scope of work from the time, cost, and productivity perspectives.

In general, owners have the contractual right to make changes to the scope of work outlined in the original contract. Since owner changes impact contract scope of work and they potentially have time, cost, and productivity implications, it is important to identify various types of change in project scope of work and recognize potential effect of each type of change on project contracts. Examples of the most common changes include:

  • Changes in means and methods or material to be installed
  • Differing site conditions not envisioned in the original contract price
  • Modifications that change the planned work sequence as originally envisioned
  • Changes to the scope of work due to constructability issues or conflicts between systems
  • Changes in construction, prescriptive, proprietary, or performance specifications
  • Corrections made due to errors or omissions
  • Modifications as a result of the actions or inactions of third-parties

A directed change is issued when the owner specifically directs the contractor to make a change. This type of change may or may not affect the contract price. A directed change that influences only the schedule is an example of a directed change with no effect on the contract price. As another example, a directed change that impacts a project’s configuration, work sequence, or space requirements may adversely influence labor and equipment productivity on-site. A directed change with cost impact may reduce or add the contract price. Directed changes are typically not complicated because the owner specifically directs the contractor to make a change and as such, directed changes are easier to recognize.

Constructive changes, on the other hand, occur as a result of non-owner-directed events that implicitly necessitate modifying the scope of work. Unlike directed changes, the owner does not specifically direct the contractor to make a change in case of a constructive change. Instead, as a result of non-owner-directed events or actions or inactions of the owner, the contractor is forced to modify the scope set forth in the contract. Typically, constructive changes are not easy to recognize because they generally occur due to non-owner-directed events or circumstances. In addition, in case of a constructive change, the owner does not typically have explicit acknowledgment of a change to the original scope of work set forth in the contract. Examples of the most common types of constructive changes include:

  • Verbal communications that implicitly necessitate making changes
  • Deficient drawings or specifications
  • Ambiguity in architect-provided responses to information requests
  • Differing site conditions
  • Over-inspection

It is important to identify changes in a timely manner, especially in case of constructive changes whose effects are not explicit and readily recognizable. The reasons for each change need to properly be identified and documented in proper change management logs. Moreover, the effects and implications of each change need to properly be documented to ensure sufficient documentation and historical records are readily accessible to substantiate contractual entitlements. 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. For more information, please contact us.

—

Our posts to the Insights page share fresh insights and seasoned advice about many project and construction management topics.  To have the Insights monthly newsletter delivered automatically to your email inbox, please subscribe here.

Cause-and-Effect Analysis in Loss of Productivity Claims

Posted on by Adroit

The construction industry is one of the labor-intensive industries with a significant contribution to the economy. As such, labor productivity plays an important role in successful implementation of construction projects to ensure construction activities can be implemented in an efficient manner.

Productivity or efficiency is a relative measure of output relative to inputs. In construction projects, inputs are typically labor and equipment whose work result in certain outputs, which are typically represented by quantities of installed equipment and material onsite.

In the event of a loss of productivity claim, one of the key pieces of missing information is typically accurate and well-maintained contemporaneous productivity records to show how the contractor managed its labor force over the life of the construction project. Construction contractors also need to be able to provide adequate productivity information to properly demonstrate their original plans to ensure they are able to perform a comparative analysis to measure differential productivity over the course of the project and identify loss of productivity issues when they occur.

A myriad of factors with potential adverse effects on labor productivity have been identified in the literature. Examples include frequent change orders, stacking of trades, lack of proper site access, crew size inefficiency, and excessive overtime. Many loss of labor productivity claims suffer because they do not contain a well-established cause-and-effect analysis to properly show how productivity factors resulted in loss of productivity in a particular case.

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 the resultant impacts. Preparing such 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 sometimes is 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 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 causes it to flow.

In system dynamics, stocks are like storage reservoirs which represent values that accumulate or decay over time. For instance, in a construction project, the project may accumulate the amount of work performed (i.e., cumulative progress) or may incur damages (i.e., cumulative damages incurred). Storage levels are increased or decreased by inflows or outflows respectively causing Units to accumulate or decay. Units can be units of measurement for monetary damages in case of a construction claim. Inflows and outflows are controlled by Rates. Examples of Rate in a construction projects include productivity or defect rates. All these elements are illustrated in a graphical representation, which is considered a insightful tool for understanding and assessing complex problems.

System dynamics has matured over the last few decades, and many software packages such as Stella, Vensim, and iThink have been developed for practitioners operating in this field. A famous case that was settled using the above-referenced approach was a $500 million shipbuilder claim against the US Navy (Cooper, 1981). For more information about system dynamics or to learn more how system dynamics may be used to assess a construction claim, please contact Adroit.

Reference: Cooper, K. G. (1980). Naval ship production: A claim settled and a framework built. Interfaces, 10(6), 20-36.

—

Our posts to the Insights page share fresh insights and seasoned advice about many project and construction management topics.  To have the Insights monthly newsletter delivered automatically to your email inbox, please subscribe here.

Construction Claims and Their Types

Posted on by Adroit

Dr. Maryam Mirhadi, PMP, PSP

A wide range of claims may arise between contract parties in a construction project. In case of a construction claim, one or more parties seek entitlement to time extension or compensation for damages under the terms of a legally binding contract. Construction claims can be categorized in a variety of ways and based on different criteria. This short article identifies the main construction claims and categorizes the main construction claims in a tree-like structure that can be used as a basis for identification and review of such claims.

AACE International® defines claims as “a demand or assertion of rights by one party against another for damages sustained under the terms of a legally binding contract. Damages might include money, time, or other compensation to make the claimant whole” [1]. The PMBOK Guide [2] provides a slightly different definition and states “contested changes and potential constructive changes are those requested changes where the buyer and seller cannot reach an agreement on compensation for the change or cannot agree that a change has occurred. These contested changes are variously called claims, disputes, or appeals”.

As the above definitions suggest, a claim is made when one or more parties demand their contractual rights. These demands are materialized in the form of seeking entitlement to time extension or compensation for damages.

Construction claims can be categorized in a variety of ways and based on different criteria. One may categorize construction claims based solely on responsibilities; whereas, another practitioner may prefer to categorize construction claims based primarily on their cause. The following tree-like structure provides an example structure that can be used to categorize the key types of construction claims.

Construction Claims and Their Types
Construction Claims and Their Types

As the above figure illustrates, construction claims can be categorized into the three main categories of claims against the contractor, claims against the owner, and claims against the other contract parties. Claims against the contractor can further be broken down into delay-related claims, defective construction work, tort claims, termination claims, and other claims. These claims are typically made by owners and they primarily arise when an owner finds out that the contractor has not satisfied certain contract requirements in one way or another. Under such circumstances, the owner claim arises because the owner believes the contractor has failed to perform one or more obligations required under the construction contract.

Claims against the owner are primarily made by contractors. These claims typically arise when contractors identify that some of the assumptions they made during the bidding phase are invalid. These assumptions may have been made about project scope, project specification, site conditions, or about other project requirements such as expected delivery dates of owner-furnished equipment or material. These claims can generally be categorized into delay claims, productivity / disruption claims, acceleration claims, payment claims, scope related claims, termination claims, and other miscellaneous claims.

Claims against the other contract parties can be categorized into the main groups of duty claims, warranty claims, delay claims, disruption claims, and other claims. These claims can be against a design firm that prepares and governs the design process, construction management firm that manages the construction process, or any other major contracting party that is involved in contract disputes.

Since the relationship between contract parties are governed by the terms of the construction contracts, these terms are the basis against which entitlements should be assessed and determined. In assessing construction contracts, not only contract forms and contract documents must be evaluated, contemporaneous evidence and records must also be assessed to ensure entitlements are assigned in a reasonable and equitable manner. A tree-like structure to categorize construction claims, such as the one provided above, is a good starting point to properly identify construction claims and differentiate between the types of construction claims that may arise in a construction project.

References:

[1]. AACE International®. Recommended Practice No. 10S-90 Cost Engineering Terminology. Morgantown, WV: AACE International, 2004

[2]. Project Management Institute. (2013). A guide to the project management body of knowledge (PMBOK guide). Newtown Square, PA: Project Management Institute. ISBN: 9781935589679

The Main Challenges in Time Management of Subway Rehabilitation Projects

Posted on by Adroit

Dr. Maryam Mirhadi, PMP, PSP

This article is part of a technical article, entitled Planning and scheduling requirements of subway station rehabilitation/renovation projects, that Adroit’s competent professionals have authored and presented in AACE International’s 2016 Annual Meeting in Toronto.

To identify the major challenges in time management of subway rehabilitation projects, the authors of this technical article conducted a series of semi-structured interviews with senior managers and professionals with extensive experience in subway rehabilitation projects [1]. The following provides a summary of findings from these interviews:

Special Services

The availability and proper management of special services and resources, such as diversions, flaggers, work-trains, and inspectors are considered among the key challenges of subway rehabilitation projects. These resources and services are usually enterprise-wide shared resources in transit companies. Since different departments within transit companies (e.g., operation, maintenance, and capital improvement departments) have their own prioritized projects, these services are not necessarily assigned with respect to the prioritization specified by other agencies.

Establishing shared goals as well as prioritizing and scheduling subway rehabilitation projects in agreement with or with consideration of the priorities announced by other departments can mitigate risks that are likely to be faced due to shared nature of these resources. For instance, awarding too many contracts during a relatively short timeframe may lead to an over-allocation of enterprise resources which may jeopardize successful completion of these projects. Therefore, it is important for the enterprise to efficiently utilize shared resources by implementing effective program and enterprise resource management practices.

In developing time schedules for subway rehabilitation projects, planning for acquisition of special services plays an important role. Backup and risk response plans should always be in place in the event these services do not become available as planned.

Design Management

Among many practices used for effective design management, integrated design management, proper use of building information modeling (BIM), and efficient coordination among different trades are among the most important factors that play important roles in preventing construction delays. The following provides a summary of the most common design-related causes of delays in subway rehabilitation projects:

Long or more than expected time to review and approve drawings and making ambiguous or unclear comments on shop drawings prepared by contractors are common causes of delay that can be prevented by providing effective design management support. These issues are seen more frequently in areas that are complex in nature or require special engineering expertise (e.g., communication and electrical drawings).

For station equipment and material selection during basic or detailed engineering, close attention should be given to the availability of the chosen items to ensure they are easily-purchasable from local markets. Subway rehabilitation projects are sometimes delayed as a result of either the contractor’s inability to find requested or specified material or due to the long lead time necessary to procure certain items. An example for this condition is special architectural materials that are chosen to match the material used in existing or adjacent areas.

Since subway rehabilitation projects are mostly small to medium size projects, they are typically executed using a design-bid-build delivery system [2]. Nonetheless, the quality of design plays an important role in successful implementation of subway rehabilitation projects and ensuring they are completed on-time and on-budget.

Design changes usually occur due to technical or technological requirements, special needs of operations and maintenance departments, emergency, and change in project prioritization.  During early phases of subway projects, design changes are significantly less costly, especially if the changes are initiated prior to contract award. As soon as construction contracts are awarded, design changes become significantly more difficult to manage and they typically result in substantial cost and time impacts.

Utility Relocations

Some subway rehabilitation projects require construction teams to work in or under public streets with complex utility systems such as sewer lines, gas, water, electrical, phone, fiber optic, and storm drains. These utilities are under the authority of different agencies. For relocations of these lines, the project team needs to fully involve proper agencies, and execute relocation activities with close coordination with all affected parties. However, the relocation work is sometimes executed by utility agencies. In these cases, construction contractor can only oversee the on-site operations and cannot interfere or be actively involved with relocation operations. Since utility relocations and maintenance work are executed throughout a year, various changes may occur to a utility line in a short period of time. Therefore, it is important to note that the existing as-built drawings are not always up-to-date and accurate.

Even if the design team considered the latest as-built drawings of utility lines for a design subject, it is good practice to verify the accuracy of as-built drawings to ensure construction work will not encounter any differing site conditions. A close coordination with utility agencies, achieved through either direct contact or liaisons, is required to ensure the accuracy of as-built utility drawings.

Due to many uncertainties involved in in utility relocation work, relocation operations have the potential to significantly delay subway projects. Establishing proper channels of communication and coordination between transit companies, contractual parties, and local utility agencies is essential to mitigate risks.

Performance of Contractors

Despite their complexity, station rehabilitation projects are not usually considered among large or mega projects from the budget perspective. As a result, large construction contractors are not usually interested in attending bid processes for these projects. The high profit margin of large construction contractors and low chance of winning the bid are other reasons that large construction contractors are not usually involved in public projects for rehabilitation of subway stations. Subway rehabilitation projects are typically complex and have special needs. Limited technical and managerial capacities of small construction contractors (e.g., limited capabilities in project management in general and in execution planning, resource planning, and scheduling in particular) may adversely impact the successful implementation of subway rehabilitation projects. The risks become greater if a contractor / subcontractor overly commits to too many projects at the same time because under these conditions, resource management becomes more challenging.

Project team

In addition to the performance of contractors, the availability and quality of clients’ project teams play an important role in effective time management of subway rehabilitation projects. Key examples of the required capabilities and personal skills include having the required knowledge and experience, having effective communication skills, dedication, making on-time and decisive decisions, and adherence to decisions made.

Organizational processes

Late approval of additional work orders (AWO), late issuance of notices to proceed (NTP), and untimely approval of change orders frequently cause delays in subway rehabilitation projects.  Improving organizational procedures and effective use of operational management practices can significantly increase the productivity of public transit companies and improve organizational capabilities of these agencies in effective project management. Examples of processes to improve organizational performance in project management include coordination processes, procedures for issuing task orders, review and approval processes, and contract management.

References:

[1]. M Mirhadi Fard, Planning and scheduling requirements of subway station rehabilitation/renovation projects, AACE International’s 2016 Annual Meeting, Toronto

[2]. Kildare, S.L., Blank, G.P., Developing Program Controls for a Large Program, AACE International Transactions CSC.03, 2001.

—

Our posts to the Insights page share fresh insights and seasoned advice about many project and construction management topics.  To have the Insights monthly newsletter delivered automatically to your email inbox, please subscribe here.