It is well known in the construction industry that labor inefficiencies significantly impact a contractor's bottom line. While lost labor productivity costs are usually recoverable in theory, proving these lost costs is difficult. In the context of federal government contracts, the boards of contract appeals may differ regarding the nature of the proof to establish damages (increased costs) in a loss of productivity claim. In a recent decision involving a substantial loss of productivity claim, the General Services Administration Board of Contract Appeals ("GSBCA" or "Board") affirmed that a "measured mile" approach may be an acceptable method for establishing the measure of recovery. Clark Concrete Contractors, Inc. v. General Services Administration, GSBCA No. 14340 99-1 BCA 6 30,280. While this board decision is only binding in other GSBCA appeals, it could prove to be very persuasive with the other boards of contract appeals.
In September of 1994, the General Services Administration ("GSA") awarded Clark Concrete Contractors, Inc. ("Clark") a $49,461,000 contract to build the new Washington Metropolitan Field Office of the Federal Bureau of Investigation. The project called for the construction of a 13 level (4 below ground and 9 above) cast-place concrete office building. Clark performed the concrete work with its own forces and subcontracted the remainder of the contract.
The basic structure consisted of concrete floor slabs supported by concrete columns. The Critical Path Method ("CPM") schedule, created by Clark and approved by the GSA, called for a smooth flow of continuous pours through a series of discrete pour areas. This schedule maximized Clark's labor efficiency by allowing form work, rebar placing, concrete pouring, and form stripping to occur in different areas simultaneously. Clark began the structural concrete work in late April 1995. By mid-August of 1995, Clark was 71 days behind schedule, due primarily to insufficient manpower and complications in constructing the foundation mud mat. Clark procured additional manpower and additional form work in an effort to make up the lost time.
On April 19, 1995, however, only nine days before Clark began performing the concrete work on this project, the Federal Building in Oklahoma City, Oklahoma, was effectively destroyed by a truck bomb attack. The GSA immediately consulted the project architects on ways to modify the FBI building's design to withstand a similar bomb blast. The result was a series of major structural design changes issued to Clark beginning in mid-1995 and continuing through the spring of 1996.
The redesign called for: increasing the amount of steel reinforcement (50% more on one floor), increasing the size of the columns, changing both the amount and design of the rebar in the beams and floor slabs, and adding a pour-in-place concrete blast wall around the entire perimeter of the first and second floors.
The design changes substantially interrupted the steady flow of work anticipated in Clark's CPM schedule. Columns already fabricated had to be modified. Rebar had to be dismantled and reconstructed. Most of the uninstalled rebar already on site had to be returned to the supplier and substitute rebar fabricated. The pour sequence had to be reworked, and the form work outpaced the concrete pours to the point that some carpenters had to be laid off. The blast walls constricted access to the site, and excess and idle materials piled up. The revised rebar design was much more difficult and time-consuming to install. The result was that the concrete operations, originally planned to finish no later than November 27, 1995, did not finish until July 28, 1996. The GSBCA held that Clark was responsible for 71 days of delay and that the GSA was responsible for the remaining 185 days.
On March 20, 1997, Clark presented the contracting officer with a certified claim for $11,772,567 for unreimbursed impact and indirect costs on behalf of itself and 14 subcontractors. On July 30, 1997, the contracting officer denied all of the claim except for $224,463 already paid under a modification. Clark appealed, and the total claim included many different costs flowing from GSA's design changes. This article, however, focuses only on Clark's claim for additional labor costs due to labor inefficiency during the concrete work.
"Measured Mile" Acceptable
A "measured mile" analysis compares the productivity of a period that has been impacted by a negative condition or event to the productivity of similar work under normal, unimpacted conditions. The theory is that the difference between a contractor's actual inefficient productivity and an identified normal productivity is the amount of excess cost to the contractor as a direct result of labor inefficiencies and loss of productivity.
In deciding this case, the GSBCA recognized that "the ascertainment of damages for labor inefficiency is not susceptible to absolute exactness." The Board noted that the purpose of a measured mile analysis is to show the cost impact of certain actions or events by comparing labor costs during different periods of time. (In fact, while discussing one of the subcontractor's claims, the Board stated that a comparative productivity approach is preferable to using standard, published industry estimates.) "We will accept a comparison," the GSBCA said, "if it is between kinds of work which are reasonably alike, such that the approximations it involves will be meaningful." Clark was able to meet this burden by comparing its productivity rates for work done prior to the design changes to its productivity rates for the same work done after implementation of the design changes.
Clark's Inefficiency Claim
Clark divided its labor inefficiency damages into four work activities: forming of the floor slabs, stripping of the floor slabs, the combined forming and stripping of the columns, and the combined forming and stripping of the stairs. This work was further subdivided into three periods: unimpacted, highly impacted, and lessor impacted. Clark then used a "measured mile" analysis to determine the unreimbursed labor costs associated with the separate activities for each impacted period. Clark subtracted the unimpacted productivity rates from the actual productivity rates achieved during each impacted period. Clark multiplied the resulting figures by the quantities of work performed to determine the number of "lost man-hours," and then multiplied this number again by the average labor rate. The result was the total labor inefficiency cost for each activity.
For the first activity, forming of the floor slabs, Clark identified the time between the beginning of the form work and its receipt of the first major design change as the unimpacted period. Clark's productivity rate for this activity during this period was .048 man-hours per square foot. Clark then identified the period involving the forming of the slabs adjacent to the blast wall as the highly impacted period, and the remaining time as the lessor impacted period, with productivity rates of .113 and .065 man-hours per square foot, respectively.
In its claim, Clark also attempted to reduce the unimpacted productivity rate by an additional 10%, asserting that under normal conditions, productivity is 10% better when pouring slabs above ground than below ground. The Board rejected this adjustment, stating that it was questionable and unsupported by the evidence in the case. However, the GSBCA did accept the remainder of the "measured mile," stating: "Although no perfect comparison involving different construction techniques on different floors during different periods of time could be devised for this project, the measured mile proposed by [Clark] is the most reasonable one advanced."
Clark identified similar production periods for stripping floor slabs. Here, Clark identified its unimpacted productivity rate as .059 man-hours per square foot and its highly impacted and lessor impacted productivity rates of .147 and .108 man-hours per square foot, respectively. Again, Clark attempted to modify its unimpacted base rate in its claim. An expert witness for Clark testified that the ability to use an outrigger to move materials from one floor to another - now prevented by blast walls - would have made the subsequent above ground stripping work 50% more productive than the unimpacted below ground work. Although GSA presented no evidence directly refuting the expert's conclusion, the Board found no sound basis in the factual record to support this conclusion, and therefore declined to make the adjustment.
In discussing the remaining two categories of work, the Board merely stated that Clark had used "measured mile calculations" and reported the recoverable cost amounts. The total reimbursable amount allowed to Clark for labor inefficiency, after markups for overhead and general and administrative expenses, was $1,082,490.
A "measured mile" analysis may lead to a larger recovery than under either a modified total cost or a published industry impact estimate approach. The "measured mile" rewards efficient contractors by allowing them to use their own productivity rate in the comparison. It is possible that where a contractor can show that it would have been able to perform the job under budget, the costs will be calculated using its unimpacted productivity rate instead of a less efficient budgeted rate. Historically, the boards have often arbitrarily reduced claims based on published impact standards because of the uncertainty as to their accuracy.
Record keeping is critical to a successful "measured mile" analysis. Contractors must be able to calculate and support their labor inefficiency claims. They can do this by segregating their records by activity and event. It also helps to keep records of productivity rates on similar projects, especially records that support better than average baseline productivity rates. Contractors should also keep an eye out for identifiable "unimpacted" work periods, and be careful not to relax their productivity while establishing this potential baseline.
The "measured mile" method can be a very effective tool for recovering unreimbursed costs. The GSA's acceptance of the "measured mile" analysis as a method of proving labor inefficiency and loss of productivity costs increases the contractor's chance of recovering on a lost productivity claim. It can also result in contractors receiving larger recoveries than would otherwise be provable.
In light of the Clark decision, contractors should - at the very least - reevaluate their record keeping procedures to ensure that the information necessary for a "measured mile" analysis is being collected and maintained. Its acceptance by the GSBCA is a significant step towards ensuring that contractors do not get stuck with costs that are not their fault.