One of the most contentious areas in construction and claims is the calculation or estimation of loss of efficiency, or lost productivity. Unlike direct costs, the loss of efficiency is often not tracked or cannot be discerned separately and contemporaneously. As a result, both causation and entitlement concerning the recovery of disruption costs are difficult to establish. Compounding this situation, there is no uniform agreement within the construction industry as to a preferred method of calculating the loss of efficiency. There are, in fact, numerous ways to calculate loss of efficiency and the resulting productivity factor.
In Section 5.2, I highlight and expand upon what I consider are three of the most important aspects of loss of productivity.
Productivity loss is experienced when a contractor is not accomplishing its anticipated achievable or planned rate of production. It is best described as a contractor producing less than its planned output per work hour of input. Thus, the contractor is expending more effort per unit of production than originally planned.
Productivity and efficiency are critically important in the context of construction and engineering contracts, both large and small. Construction contractors are typically paid for work completed in place that conforms to the terms of the contract. This is sometimes referred to as pay item work and is generally true whether the ...