Efficiency and productivity are not defined in the JCT family of contracts. They are elusive and difficult to measure or define.
This is, of course, because what amounts to an efficient performance or an acceptable level of productivity depends upon what the employer and the contractor agree in the context of each specific project and very different arrangements may be made.
For example, a contract to point the brickwork and paint a large building may be tendered for by one contractor on the basis that he would scaffold the building for 6 months and use one man and one “boy” to undertake the job. The same project may be procured on the basis that the scaffolding is erected for 6 weeks and 30 men are used to do the job. Efficiency and productivity will be measured on different bases depending which method of procurement is adopted.
It is precisely because different ways of performing the project can be agreed that the JCT makes no attempt to define efficiency or productivity within the standard forms.
Any attempt to assess efficiency is made more difficult by the fact that the JCT contracts do not, generally, make the contract programme a contract document. A contract programme can be useful evidence in measuring progress and performance. However, if it has no contractual status, its significance must necessarily be limited.
Authoritative guides on what constitutes an acceptable level of productivity are hard to find. Spons or give a guide to how many hours an activity should take for pricing purposes. However, if you ask a Quantity Surveyor how much work should have been undertaken in one day of daywork the answer is likely to be “it depends…”.
The Ancient Romans were better at assessing the productivity of a slave than we are at assessing the productivity of a skilled man today.
The JCT does use language in its contracts which indicates that efficiency and productivity are promised. For example, a contractor’s employment can be terminated if he fails to proceed regularly and diligently with the works.
In dealing with applications for an extension of time there is a proviso that “the Contractor shall use constantly his best endeavours to prevent delay in the progress of the Works”.
What the JCT contracts do not do, however, is to provide a mechanism for measuring efficiency.
Some of the initiatives to reform the construction industry at the end of the last century gave rise to the realisation that we need to measure efficiency and productivity and that contractual terms are needed to do so.
The NEC form of contracts, now known as the Engineering and Construction Contract, has an option, known as the X12 Partnering Option, which provides for value engineering and value management and specifically provides for measuring performance by using Key Performance Indicators. Key Performance Indicators are used to measure performance with a view to the payment of a bonus as an incentive. The NEC has another option, Option X20, which also uses Key Performance Indicators to measure performance with a view to paying bonuses under an Incentive Schedule if targets are met. KPI’s are to be objective measurements – e.g. setting a number of days to complete each floor of the building.
The Project Partnering Contract PPC 2000, amended 2003 also uses Key Performance Indicators agreed between the Partnering Team members for measurement of their performance under the project. However, under Condition 23 of PPC 2000 Conditions, Key Performance Indicators are a device for reviewing performance and continuous improvement, rather than a means of assessing incentive payments.
At last, not to be outdone, the JCT has introduced Performance Indicators and Value Engineering, not into the standard forms of contract themselves, but into its Framework Agreement. The Framework Agreement can be used as a binding or non-binding version as and over-arching “partnering” type framework for a series of projects or contracts, each of which will be done under a standard form JCT contract.
Under Clause 21 of the Framework Agreement the Service Provider’s contribution to progress in achieving the Framework Objectives will be monitored and assessed by reference to Performance Indicators. On completion of the project the Service Provider will be provided with a written report from the Employer assessing his performance against the Performance Indicators.
We seem to have the early stages of a movement towards defining and measuring efficiency and productivity in the context of performance in construction contracts. At the moment, this seems to be largely limited to a means of reviewing performance or incentivising performance rather than punishing poor performance. This is a good thing and ought to lead to increased efficiency by creating certainty and defining acceptable levels of performance.
Contractors must be aware, however, that once the parties can define agreed performance, the failure to achieve that level of performance will be a breach of contract.
Comments
Philip's blog on 'Efficiency and Productivity' is very informative on the contractual provisions, or lack of, in the JCT and NEC Contracts in respect of efficiency and productivity. Under the JCT Contract, a Contractor would include these elements in his Loss and Expense claim, and probably under the 'heading' of Disruption.
Lost productivity, or reduced efficiency, is probably the most elusive form of claim on a project. The costs are real but the proof is difficult.
A number of problems can prevent a contractor from achieving its planned rate of production; such as, differing site condition, instructions from the contract administrator, interference by other contractors on the project, to name but a few. In any event, the contractor finds itself forced to alter its intended method of construction. Labor and equipment efficiency decrease. Construction costs go up and profit goes down.
One of the most contentious areas in construction claims is the calculation or estimation of lost productivity. Unlike direct costs, lost productivity is often not tracked or cannot be discerned separately and contemporaneously. As a result, both causation and entitlement concerning the recovery of lost productivity are difficult to establish. Compounding this situation, there is no uniform agreement within the construction industry as to a preferred methodology of calculating lost productivity. There are, in fact, numerous ways to calculate lost productivity.
Proving a claim for lost productivity is a challenge. The threshold issue is causation. A contractor cannot hold an employer responsible, or a subcontractor cannot hold a main contractor responsible, for increased costs the other party did not cause. Given the number of parties involved on a typical construction project and the number of factors that can affect productivity, proof of causation is difficult. In fact, a standard response to a lost productivity claim is often, “You caused the problem yourself.”
I have been involved in preparing or analysing disruption claims for a number of years, and my experience has taught me that the 'cause and effect' linkage is most important. This link is demonstrated through a careful and thorough review of project documents and contemporaneous records. Interviews with project personnel may be required to clarify and define the details of project events. Educating the other party is paramount to promoting a settlement and making sure a contract administrator, adjudicator or judge understands the issues. A valuable rule of thumb is to keep the claim and supporting narrative simple and to concentrate on a few core issues or root causes. Causes like changes or design deficiencies are often events that happened on the project in response to one of the core issues or root causes. It is important to link the core issues of the claim to the root causes of labor inefficiencies, like lack of materials, out-of-sequence work, or rework.
A note of caution is in order at this point. Most lost productivity claims involve situations where the loss of productivity is due to multiple causes. It cannot be emphasized enough that calculation of productivity loss is not a simple exercise. As a result, it is critical that the root cause of the lost productivity be determined from project records or project personnel before deciding how to proceed to estimate the labour impact.
Roger Gibson
Gibson Consulting Limited
