Measuring Delay Damages: Inefficiency or Loss of Productivity and Measured Mile

As is evident from the previous posts of this series, delay damages are complex.  This is Part VIII of the series dedicated specifically to explaining these damages.  Previous posts in the series have discussed proving that a delay occurred, addressed the most applicable and common defenses and varying methods to calculate delay damages—the Total Cost Method, the Modified Total Cost Method, the Jury Verdict Method, the Eichleay Formula and damages for an increase in labor, material and equipment costs.  This post will discuss two methods that award damages for either a total or partial loss of labor productivity.

Measured Mile Method

Similar to the Modified Total Cost Method, the Measured Mile Method (“MMM”) was created out of necessity and judicial fairness.  Due to the difficulty in proving the reasonableness of bids and the numerous variables that may affect productivity, the MMM was viewed as the most acceptable for proving damages related to the loss of productivity.  Calculating damages using the MMM compares a specific period of time that the contractor was able to achieve normal productivity (referred to as the “Baseline”) against the productivity achieved when the delay actually impacted the contractor.[i]  This average productivity is compared to the actual productivity during the disrupted period.  While it sounds simple, difficulties do exist that complicate the measuring of damages.

Failing to accurately track hours worked or the occurrence of multiple delays are examples of some of the difficulties that can arise.  The occurrence of either of these events can eliminate the use of the MMM.[ii]  Another challenge is the difficulty in excluding the impacts of non-compensable disruptions that affect the rate of productivity.  Failure to distinguish the compensable from the non-compensable can prevent recovery.[iii]  Similarly, it is imperative that the time-period used to determine the Baseline is typical, ensuring that any other unexpected factors do not create variations that may skew the comparison.  If the delay is caused in part by the contractor, the MMM is not an appropriate method to measure delay damages.[iv]

Inefficiency or Loss of Productivity Analysis

Despite how simple the MMM seems, costs for inefficiency or lost productivity are claimed quite often, yet are very difficult to prove.  While similar to the MMM, the calculation for Inefficiency or Loss of Productivity Analysis (“ILPA”) focuses on the revenue lost during the delay.  In comparison, the MMM determines any loss of productivity by establishing a Baseline for comparison purposes.  Simplifying a good deal, ILPA calculates the loss of labor productivity damage as the difference between the actual labor costs less the expected labor costs as if no delay occurred.[v]  As holds true with almost all of the previously discussed measurements, specific examples supporting the use of a certain method should be introduced.

Similar to the MMM, a loss of productivity claim using the ILPA should be closely scrutinized to determine whether certain factors used to calculate the damages are reasonable.  To avoid confusion, the minutia of the individualized factors are not discussed.  The factor reached might not be reasonable in light of common practices such as front-end loaded billing and expected labor-intensive periods.

An analogous, but more seldom used, method to calculate damages is the Factor Analysis Method.[vi]  Applying this method, an inefficiency factor is applied to the work because of impacts resulting from the delays.  For example, if the Baseline productivity (or expected productivity) on a specific project was 500 cubic yards per day but the actual productivity rate declined to 300 cubic yards per day, the job would be progressing at 60% efficiency.  The inefficiency factor is thus 40%, or the difference between the baseline and the actual productivity.  The inefficiency factor can then be multiplied by the labor costs for the period in question to arrive at the damages number.  This method is seldom used because multiple concurrent impacts can cause this method to be too speculative to provide a reasonable inefficiency rate.[vii]

Regarding all three methods discussed in this post, if a Baseline rate cannot be established for a specific project, comparison to similar work on other recent or current jobs may substitute as a baseline.  A claims consultant or estimator can generally quantify a reasonable production rate for specific contractors.[viii]