We have an inefficiency claim! We are regularly asked by a contractor to substantiate inefficiency costs. We are then told that these costs have arisen due to disruptions which are, according to the contractor, usually in the client’s sphere of influence, such as late delivery of drawings or changes. According to the contractor, these disruptions then result in the deployment of more people to do the same work or a longer deployment of planned people to do the same work.
When this longer deployment results in exceedance to the delivery date, delay is clear. However, when the longer deployment of people on a specific activity does not result in the delivery date being exceeded, the damage is less obvious.
To find agreement on costs and damages due to inefficiency, it is important to understand each other well. In practice, we see that the terms delay, disruption and inefficiency are used in different ways. This is also the case among professionals. Therefore, we hereby provide a brief explanation of the definitions in line with the international literature in this sphere.
When a difference arises between the planned and actual start date, end date or duration of an activity and, as a result, a defined (final) milestone of the work cannot be achieved, there is a delay.
In the UK, the Delay and Disruption protocol of the Society of Construction Law (SCL), 2nd edition, February 2017, is used within construction practice. The protocol says the following on delay: “In referring to ‘delay’, the Protocol is concerned with time – work activities taking longer than planned. In large part, the focus is on delay to the completion of the works – in other words, critical delay. Hence, ‘delay’ is concerned with an analysis of time. This type of analysis is necessary to support an EOT [extension of time] claim by the contractor.”
The internationally authoritative American Association of Cost Engineers (AACE) has established an internationally recommended practice for delay analysis: AACE® International Recommended Practice No. 29R-03 Forensic Schedule Analysis (2011). In it, they use the following definition of delay: “Delay simply means a state of extended duration of an activity, or a state of an activity not having started or finished on time, relative to its predecessor.””
Disruption occurs when there is an obstruction, interruption or disruption to a contractor’s normal working methods, resulting in reduced efficiency in the performance of certain work.
The SCL protocol says the following with regards to disruption: “In referring to ‘disruption’, the Protocol is concerned with disturbance, hindrance or interruption to a Contractor’s normal working methods, resulting in lower productivity or efficiency in the execution of particular work activities. If the Contractor is prevented from following what was its reasonable plan at the time of entering into the contract for carrying out the works or a part of them (i.e. it is disrupted), the likelihood is that its resources will accomplish a lower productivity rate than planned on the impacted work activities such that, overall, those work activities will cost more to complete and the Contractor’s profitability will be lower than anticipated.
Work that is carried out with a lower than reasonably anticipated productivity rate (i.e. which is disrupted) will lead to: (a) activity delay; or (b) the need for acceleration, such as increasing resources, work faces or working hours, to avoid activity delay; or (c) a combination of both — and therefore, in each case, loss and expense. Hence, ‘disruption’ is concerned with an analysis of the productivity of work activities, irrespective of whether those activities are on the critical path to completion of the works.”
The AACE® International Recommended Practice No. 29R-03 Forensic Schedule Analysis (2011) uses the following definition of disruption: “DDisruption: (1) An interference (action or event) to the orderly progress of a project or activity(ies). Disruption has been described as the effect of change on unchanged work which manifests itself primarily as adverse labour productivity impacts. (2) Schedule disruption is any unfavourable change to the schedule that may, but does not necessarily, involve delays to the critical path or delayed project completion. Disruption may include, but is not limited to, duration compression, out-of-sequence work, concurrent operations, stacking of trades, and other acceleration measures.”
Inefficiency occurs when productivity or efficiency in performing specific activities is lower than planned.
The SCL protocol consistently links efficiency to disruption. Lower efficiency is seen as the result of a disruption, hindrance, or interruption to a contractor’s regular work methods. It is then up to the contractor to demonstrate the causal link between the disruption and the inefficiency.
This is consistent with AACE® International Recommended Practice No. 29R-03 Forensic Schedule Analysis (2011), which does not include a specific definition for inefficiency. Instead of the term inefficiency, the term labour productivity is used. Again, it establishes a direct link with disruption. Inefficiency, viewed this way, is a negative effect on labour productivity as the primary consequence of a disturbance.
The terms productivity and efficiency both cover the same ground. However, when it is possible to compare planned and actual productivity of specific equipment, e.g. a piling rig, it has more persuasive power than an overall inefficiency rate.
Delay and disruption are inherently linked
A disruption can lead to delay; if the affected activities are on the critical path, it can be a critical delay. It is also possible that disrupted works are still completed before the agreed completion date. In this situation, a contractor will not have a claim for a deadline extension, but may have a claim for the cost of lost productivity.
Delays can also lead to disruption. If a contractor has less time to carry out work (without delay on the critical path), it is possible that acceleration measures, such as the deployment of more people or equipment for specific activities, will result in these tasks being carried out with lower productivity than planned and therefore at higher costs.
In summary, the groundwork of a claim is not inefficiency but disruption, which may have its cause in delay. Inefficiency can then be a consequence. Settling disputes over delay and disruption requires a multidisciplinary approach.