After some eleven-months of COVID restrictions, the building industry still struggles with calculating the impact on time and cost – or budget and schedule, and subsequently predicting it in the preconstruction phase of future work. To make impact estimates more complicated, the impact is anticipated to gradually lessen with the distribution of vaccines that will ultimately make us all healthy and enable business to get back to normal.
Planners and builders anticipated this phenomenon, and those who could postpone or delay their projects until such time as conditions return to normal are considered the lucky ones. These delays reduce the demand for workers in the short term, and create unemployment rates that are just beginning to be measured for impact. Currently, a rate of 10% is estimated. Many contractors like to take advantage of this bubble and offer reduced salaries for their employees, and for their open positions, perhaps to subsidize expected losses.
The right thing for a contractor to do is to conduct a proper risk assessment – a concept most builders should be more familiar with. If a project has a baseline risk assessment (RA), then a COVID-impact RA can be conducted and compared to it. The revised RA will inform the project team of exactly which activities are high-risk to productivity-loss. These activities will then be represented as delayed and impacted, and in need of cost-assignment or responsibility.
Contractors are impacted at different rates according to their building sector and the nature of the projects they build. Some projects are more sensitive to social distancing practices than others, as are the trades that need to work closely together. Exterior work – structural steel and concrete will be less risky, as there is more space to work, and the advantage of maximum outdoor airflow. Inside, mechanics and their apprentices and helpers must negotiate close quarters with social distancing and strict PPE measures.
To be fair, a contractor should not have to assume the cost of COVID-impact-driven production-loss and supply delays – this cost belongs to the owner, who will in turn seek protection from his insurer. However, insurers enumerate the type of force majeures that qualify for coverage, and these vary greatly. Few of them mention epidemics or pandemics specifically, but these are force majeures nonetheless, which insurers are now beginning to sandbag for future occurrences.
As owners and insurers negotiate, contractors are busy quantifying delays or time impact analysis (TIA), which is a slippery slope for schedulers who need to incorporate COVID-impact in a scientific way, despite unknowns and fluctuating variables. It’s a futile exercise to try to predict impact, however, diligent productivity tracking can yield the necessary data sets that can be compared using the measured mile approach.
(The Analysis & Valuation of Disruption, by Derek Nelsen)
Before conditions eventually return back to pre-COVID they will gradually ramp up over an extended period of time, creating variable production rates no one can accurately estimate, however, a more or less acceptable degree of exactitude can be formulated, if one takes the time.
In order to estimate COVID-impact costs, it would seem that a TIA must consider not just two fixed production rates – current and pre-COVID, but gradual increases that change from day to day, as work-sites slowly climb back to normal. Note, the estimated baseor planned productivity rate is not a replacement for actual pre-COVID productivity rates. Also, these rates must be measured over a period of time long enough to yield a valid data set.
COVID-impact: labor and material
In the first, the impact to the supply line of material on time and cost must be considered. Plant closing and lower production rates from manufacturers affect the time it takes to get certain materials to market, creating slip in schedules. Material needed early in the schedule is most sensitive to delay. Products – such as Division 09 Finishes – are installed at the end of a project and are likely less affected. The advantage of the impact of material delays is that they are – in theory – easier to predict, as the delivery date is usually known. The base-effect on labor is far different.
In order to accurately estimate production rates it is necessary to know the delta between the pre-COVID rate, and that during the pandemic, of respective trades. There are several general factors owing to COVID that all workers’ production rates are subject to, for example hoist waiting time, and PPE preparation.
Some trades work more closely together or have larger crews than others. As a factor of social distancing, personnel hoist capacities are limited, creating downtime waiting for the lift to start and end the day, moving between floors, and going on break. During the workday, some trades don’t need the hoist as often as others. The downtime for extra waits will fluctuate depending on manpower. Many sites have reduced overall manpower capacities. Because crews need to social distance, they may not have access to areas when they are ready to mobilize.
Without knowing the breakdown between material and labor costs, it will be hard to estimate COVID-impact. Specialty contractors and trades need to be consulted as to their expected production-rate impact, and that cost carried by ownership. This is an exercise they will be hard put to calculate, however, with a bit of due diligence, they can achieve relative degrees of success.
Each activity, or work sequence, has its own unique impact factor that affects a respective trade. This impact must be added to the base-impact in order to know total-impact:
Base Impact (all trades) + Trade Impact = Total Impact
Assume a total scope of work for architectural metals is $1,000,000. 70% (700,000) of the contract is for material, for which it must be determined if and how a delivery delay could create slip in the schedule. The other 30% (300,000) is for labor.
Downtime is a baseline impact that affects all work. The biggest factor affecting vertical work is hoist down time. For example, a crew may average sixty-minutes of pre-COVID hoist waiting times, and one-hundred-twenty minutes in the impacted period. That delta in itself adds 12.5% (8 hours/1 hour) downtime, or lost productivity before factoring on-task social distancing.
Each activity must include a calculation for COVID-impact, as the rates will vary. Once all the values are known, an average impact can be determined as in the detail below:
The aggregate of COVID-impact for the project is 190,000, or 19% of the base cost. I daresay if a large, complex, project was only impacted by 19%, that this is par for the course. That’s because the above doesn’t include downtime for things like donning PPE, and hand cleansing and sanitizing.
Base production rates (pre-COVID) for each activity are known from measured mile analysis, and impacted rates are measured against them to determine the delta. Because different activities by a trade have different rates of impact, only an average rate for the entire trade can be estimated. In other words, it’s inaccurate to factor productivity loss at the same rate for every activity.
With the knowledge that production rates will vary, best practice dictates that contractors carefully monitor progress closely each week, and calculate each week’s impact according to the respective rate of productivity loss. This process is not unlike the requirement of any other productivity loss claim in that it requires valid data sets – easier said than done for many trades. Those who make only estimated claims will have a lower rate of approval for extra cost claims.
Following the productivity loss study, it is necessary to calculate the effect of COVID restrictions on schedule in order to know the full cost impact. Several criteria must be considered:
Given project areas and scopes of work that are typically congested will have reduced manpower capacities – smaller crew sizes. In many cases, social distancing guidelines will also limit the number of trades or trade crews that can work in one area. Owing to these restrictions, the strategy of lag and trade overlap will be employed only where conditions allow it, and mostly finish-to-start relationships will be planned. Many contractors have mobilized additional shift work, which is traditionally more expensive (premium time) and less efficient than standard workdays. Noise ordinances greatly restrict the ability for contractors to perform such shift-work.
Reduced manpower capacities will lower production rates when crews are smaller, and when they need to be separated. Some trades will be affected more than others, as well as impact trades they are driving. For example, electricians may be ready to start, but need to wait for steamfitters to clear an area, creating downtime.
In the big picture, schedule delays on a project can impact a contractor’s backlog or ability to take on future work. In most cases, the overall delay is unknown, and a contractor is ill put to plan his resources.
Any duration extension comes with increased overhead and general conditions for the contractor as well as his trades. Duration extension can be anticipated once all the production rates have been adjusted for impact, and all manpower factors have been calculated. In the most simple example, we can assume a project allowed for staggered start-to-start trade mobilizations pre-COVID, and these relationships were changed to finish-to-start, as in the examples below:
The above staggered-start fit-out sequence takes 128 calendar days from ‘mobilization to white-box. The next bar chart shows the same sequences without staggered starts:
Without overlapping trades, the same sequence takes 301 calendar days, or 2.35 times longer than the baseline. This required time extension should be compared with depreciated rates of production as calculated by an estimator, if for no other reason than to determine an EOT claim and general conditions.
Many contracts have a vehicle for EOT claims, however, they are mute on the discussion of compensable EOT claims. Such claims dictate that it is incumbent on the contractor to demonstrate how and why he experienced delays. If his calculations are not in order, it will be difficult for him to demonstrate, and the claim will be denied. Naturally, if workers on a site test positive for the virus, a site may have to stop work for two-weeks, losing production altogether.
Because ownership absorbs losses for delayed operating revenue and loan carrying cost, he is unlikely to embrace the idea of absorbing his contractor’s losses, as well. That makes it even more exigent that a contractor does due diligence to figuring his productivity losses. It is the contractor who fails to prepare who will be left with the short end of the stick: claim management must begin the minute a notice of delay letter is issued, not when the impact is no longer a factor.