The construction industry has begun the process of proactively addressing the disruption caused to contracts by the COVID 19 restrictions. The Construction Leadership Council (CLC) have launched the COVID 19 Cost Assessment Toolkit, which is billed as a methodology for assessing and reporting cost implications of post-COVID 19 working conditions. These are the initial outputs from the CLC working group who stated that beyond the COVID 19 assessments, they have a desired outcome for the measurement and assessment of productivity to become a standard site practice.
Although the guidance is aimed at the smaller sized, traditional build construction projects, the overall guidance does provide some useful starting points for assessing the COVID 19 impacts on engineering construction projects. What the guidance does emphasise and rely on, is good quality estimating data and a thorough assessment of resources, the traditional hallmarks of good estimating processes.
The tool kit consists of 4 tools:
- COVID 19 productivity measures – an assessment process that attempts to determine the cost impact of COVID 19 through differentiation of cash flow and gross value added by workers.
- Estimates adjustment methodology – a simple formula showing how future assessments based on historical data should be adjusted by the assessed disruption from tool 1.
- Qualification statement for estimates – a useful standard wording that should be added to tenders to exclude COVID 19 impact costs from bids.
- Risk assessment framework for estimates – a checklist of possible COVID 19 risks that may be included or excluded from estimate risk assessments.
In addition to the toolkit, further commercial guidance on disruption is given in the CLC’s COVID 19 Contractual Best Practice Guidance Document.
The disruption and resulting impacts of COVID 19 are assessed through two basic groups of indicators. The first looks at differences in revenue generated from a site, by comparing planned versus actual revenue and the gross value added by an operative on a daily basis and/or revenue generated per manhour worked. The second set of indicators looks at differences pre and post COVID 19 restrictions in operative numbers on a site.
The purpose behind these two groups of measures is to acknowledge that disruptions costs are only likely to affect labour costs and those indirect cost associated with either additional supervision or prolongation of the schedule.
The model attempts to preclude the early and end lags in contract performance, along with heavily front-loaded cash flows, by proposing a three-month curtailing of data in the beginning and end of the contract, suggesting that project cash flow between those periods is stabilised. And that the 3 month period needs to have occurred 3 months before the March 2020 lockdown started. This gives an ideal data baseline of September 2019 – November 2019 and a disrupted working period of March 2020 to June 2020. Therefore, for the model to effectively work would require a contract to have been working since May 2019 and likely to extend beyond October 2020 – given a 3-month lag.
Monthly data captures the need to occur thereafter to prove ongoing disruption.
The guidance notes acknowledged that experience and professional judgement is required in the assessment. Furthermore, a more comprehensive disruption assessment may need to consider the effect of inflationary and deflationary impacts on a project or possible disruption due to a shortage of supplies and resources. Some of these disruptions may become evident in published tender price indexes in the coming months as contracts seek to include the disruption costs in tender prices.
While the CLC should be applauded for this proactive approach, the assessment is not foolproof, nor may it correctly assess disruption costs. Part of the assessment problem relies on having very good pre-disruption data on operative numbers, productivity and cash flow, together with a ‘measured mile’ to compare that data with. As we know, the latter is rare. Even with this data, the model may not be representative of true disruption, especially engineering based works where high-value work s are often developed offsite and delivered in modular form.
The changing nature of cash flows and the differences between planned and actual productivity makes the assessment difficult. There is an underlying assumption that cash flow is related to the value of work performed on site and that no other factors have caused the disruption in productivity. The assessment may also preclude changes in execution strategy that have allowed mitigation of disruption, but at an additional cost – such as increased offsite fabrication, change to modular wiring or change to methodology.
To be successful in a disruption claim, the model would have to be based on data that has been collected and accurately representative of actual progress. Considerable analysis would also have to consider that COVID 19 related risks may change over time, and the impact of these changes may need to be reconsidered. Moreover, productivity factors are likely to vary with construction typology and point in the programme. The early installation of high-value equipment, which is low on resource requirements, will show a very high level of productivity as opposed to electrical terminations that are resource-heavy, yet low in gross value added.
What the model does do, is to align to our belief that within the estimating phase, concentration should be on resource assessment and not cost. It also supports the issue outlined in Kingfield’s COVID 19 Cost Briefing that the importance of success in any client claim will be accurate data matched with objective assessment.
Commercially, to be successful would require essential information on productivity and resource loading information to be part of the contract baseline. Like the traditional police statement, the baseline in a contract should say something that you may wish to rely on in the future. For these assessments, making sure the contract baseline includes a resources loaded schedule and a clear statement as to the basis for indirect cost and productivity assessment are well-advised.
Notwithstanding this, Force Majeure (or other contractual remedy) may still need to be declared and permissible under the contract in order for some clients to be willing to consider any disruption costs. As we have advised in the Kingsfield webinars on the consequences of COVID 19, reference will always have to be made to the contract.
It is good to see the industry moving a proactive approach to assessing disruption and the encouragement of collecting site performance data. What these measures do emphasise is that to move forward and improve productivity, we need to step back and return to placing the emphasis in estimating operations to assess resource requirements and not merely assessing probable pricing.
Christopher Marsh – Associate Kingsfield Academy