Circumstances where production labour becomes as much of a prolongation cost as site overhead labour
Authors: John Mullen, Director, UK and Peter Banathy, Quantum Expert, UK
Claims for delay and disruption to construction and engineering projects traditionally address labour in two distinct ways, depending on whether that labour is regarded as work/task-related or time-related:
- Work/task-related labour will include tradespeople, artisans, labourers, helpers etc carrying out permanent construction work. Such “production labour” will usually be included in a disruption claim.
- Time-related labour will include cleaners, canteen workers, crane operators, security staff etc that facilitate the running of the site, and the construction of the Works, without actually carrying out permanent construction work. Such labour will usually be included in a prolongation claim along with other site overhead costs.
A further distinction between these two types of labour is that work-related labour will usually be priced in the measured works sections of any bills of quantities, whereas time-related labour will usually be priced in a preliminaries and general items section and hence may be referred to as “P&G labour”.
This traditional separation of production and P&G labour into two different categories means that the reaction to a prolongation claim that includes both production and P&G labour is invariably that the former should be struck out pending quantification in the form of a disruption or loss of productivity claim. The disadvantage of this for the claimant (and advantage for the recipient) is that prolongation claims tend to be much easier to establish than disruption claims. As John Mullen wrote in Evaluating Contract Claims[1] :
The quantification of losses resulting from disruption to the contractor's works is possibly the most difficult area for anyone engaged in quantifying additional payment that might be due as a result of the time consequences of change under a construction or engineering contract.
However, the danger with a slavish adherence to traditional approaches to such claims is a resulting failure to consider the underlying facts, which should dictate how they are quantified.
Some years ago, we worked together to provide quantum expert evidence on a new highway in the Middle East. Part of the factual background was that construction of some of the road wearing course was suspended because of questions regarding the appropriateness of the specified material and as a result of frequent access issues.
The contractor inevitably claimed for standing time of plant and associated drivers, and this was not contentious. However, it also included in its prolongation claim some road-laying operatives as being time-related. It made no claim for labour disruption or loss of productivity in the usual form and had submitted no contemporaneous downtime records.
The very experienced international arbitration tribunal, although stating that it is an unusual approach to treat such labour costs as time-related, was convinced that the facts were that it had become time-related and therefore was properly included in the prolongation claim.
Those facts included persuasive arguments from the contractor that because of the particular circumstances of the project and the nature of its works, it could not readily or economically re-deploy its labour or mobilise and re-mobilise it during periods of downtime for reasons that were the responsibility of the other party. The claim, therefore, quite properly, turned on its underlying facts. As John also wrote in Evaluating Contract Claims:
The usual reaction to work-related labour within a prolongation claim is to exclude it, but this is not always correct depending on the factual circumstances of the delays and their effects.
More recently, we have worked together in the Expert Advisor role in DAB proceedings on a very large energy related project. The DAB comprised two very experienced construction professionals and a local Senior Counsel, all steeped in construction claims and disputes internationally. Our client was the contractor constructing over 80 individual buildings, each the subject of its own contractual Section, on a site covering some 3.7 km2.
The project had two important intrinsic features with implications for the contractor’s flexibility on labour numbers. Firstly, the site was located far from the nearest urban area. This affected the contractor’s ability to recruit and meant labour had to be locally housed in accommodation near the site. Secondly, a project-wide labour agreement included strict procedural requirements for both the mobilisation and demobilisation of labour.
The contractor’s approved resourced programme planned a maximum of 700 operatives, in four groups rolling through the buildings in batches as they were progressively given access. In the event, access was granted consistently late, in a piecemeal manner, often on a partial basis and with little predictability. Repeatedly, the Engineer would reschedule promised access dates, only for them to be missed again. The longest delayed building access was over six years. The buildings were also subject of many other delay events.
The contractor’s ability to manage its labour numbers in the face of these delay events was also greatly restricted by the behaviour of the Engineer. In denial as to the cause and effect of the delays, it regularly instructed the contractor to either increase its resources or to maintain numbers at the then current levels.
In the event, the Works overran by some 10 years overall, with Sectional completion delays totalling approximately 70,000 days. At the end of the DAB process, it ruled that the Employer was overwhelmingly liable for these delays.
The contractor framed its prolongation claims in the usual way, both for site-wide and Sectional time-related costs, including P&G labour. Its difficulty was what to do with its enormous production labour losses. Its actual peak labour level was more than triple that planned and its total labour hours were around eight times planned.
Early in our appointment we suggested looking at each individual building and the varying extent of delay events and production labour loss on each and see if some correlations might give a basis for a measured mile or earned value approach. After much work by the contractor with its delay expert, this proved fruitless. We came to the suspicion that the labour losses were not dictated by disruption, but by delay. The contractor’s factual witnesses agreed with this. Effectively, on this project the production labour was no less time-related than the P&G labour that the Contractor had included in its prolongation claim. As its quantum experts we supported this as both theoretically possible based on our experience elsewhere, and likely to have been the case here.
The reaction of the Employer and its quantum expert was predictably dismissive. They considered that a separate loss of productivity claim should be made, and that the claim was both global in nature and was simply for total costs incurred. The DAB had similar doubts at the start of our meetings on this claim. They queried whether production labour could have been allocated to other work, noted that production labour was priced in measured works items, asked what records the contractor had kept of its lost productivity and observed that no loss of productivity claim had been registered.
After extensive exchanges and meetings between the quantum experts and the DAB, it decided that we were correct. In this case, based upon the particular facts and circumstances as they were at the time, our client’s production labour (including that of its key subcontractors) had indeed become time related. It was therefore correctly included in each of its Sectional prolongation claims.
Both of these cases illustrate that, in particular factual circumstances, and with the appropriate evidence, production labour can, despite conventional approaches, be as time-related as P&Gs labour and can be claimed accordingly.
This article was originally written for issue 30 of the Diales Digest. You can view the publication here: https://www.diales.com/diales-digest-issue-30
1. Evaluating Contract Claims by J. P Mullen and R.P. Davison, published by Wiley Blackwell, third edition 2020