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    Government Contracting Database

    Loss of Efficiency

    When a contractor claims loss of labor efficiency/productivity, it contends, in essence, that its ability to perform a particular work activity was impaired by government action for which the government must bear responsibility. Necessary to the success of such a claim is a demonstration by the contractor of a normal or expected level of performance, and a demonstration of the extent to which the government caused a deviation in that performance, thereby resulting in a loss of efficiency. A loss in efficiency entitles appellant to an equitable adjustment for this constructive change under the ‘Changes’ clause. Appeal of Arvol D. Hays Const. Co., ASBCA No. 25122, 84-3 BCA ¶ 17661 (citing Fred A Arnold, Inc., ASBCA No. 18915, 75-2 BCA ¶ 11,496).

    It is true that loss of productivity is difficult to prove and often recourse must be had to estimates for quantification. Still, the claimant must show that it was actually damaged as a matter of entitlement before the Board can entertain any estimates as to amount. S. Comfort Builders, Inc. v. United States, 67 Fed. Cl. 124, 144 (2005) (citing Luria Brothers & Company, Inc. v. United States, 369 F.2d 701 (Ct. Cl. 1966)).

    Even if a contractor has proved that its loss of efficiency was attributable largely to the government, its increased costs “are subject to reduction if they include elements for which the government is not responsible. Such elements could include inadequate supervision, incompetent personnel, non-availability of materials, and other similar factors” Appeals of Gulf Contracting, Inc., ASBCA No. 30195, 89-2 B.C.A. (CCH) ¶ 21812 (Mar. 16, 1989) (quoting Sovereign Construction Co. Ltd., ASBCA No. 17792, 75-1 BCA ¶ 11,251).

    It is generally known that loss of efficiency can occur when Engineering changes are introduced into a program and a contractor’s workforce cannot be utilized as efficiently as can be expected under normal circumstances. “Delays caused by defects in the drawings and specifications are compensable under the Changes clause. Foster Wheeler Corp. v. United States, 513 F.2d 588, 601 (Ct. Cl. 1975) (citing J. W. Hurst & Son Awnings, Inc., ASBCA No. 4167, 59-1 BCA ¶ 2095); Ace Constructors, Inc. v. United States, 70 Fed. Cl. 253, 284 (2006), aff’d, 499 F.3d 1357 (Fed. Cir. 2007) (citing La Crosse Garment Manufacturing Co. v. United States, 193 Ct. Cl. 168, 432 F.2d 1377 (1970)). Similarly, lost efficiency caused by drawing defects is compensable. John McShain, Inc. v. United States, 188 Ct. Cl. 830, 412 F.2d 1281 (1969). This lost efficiency may be caused by a disruption of a contractor’s planned sequence of work, International Aircraft Services, Inc., ASBCA No. 8389, 65-1 BCA ¶ 4793; the necessity for its employees to work overtime and holiday hours, Maryland Sanitary Manufacturing Corporation v. United States, 119 Ct. Cl. 100 (1951); Lew F. Stilwell, Inc., ASBCA No. 9423, 1964 BCA ¶ 4128; and/or the need for untrained or less efficient workers, Ortronix, Inc., ASBCA Nos. 12745, 13361, 72-2 BCA ¶ 9564.” Appeal of Parsons of California, ASBCA No. 20867, 82-1 BCA ¶ 15659.

    In order to recover, Appellant “must show three necessary elements-liability, causation, and resultant injury.” Servidone Construction Corp. v. United States, 931 F.2d 860, 861 (Fed.Cir.1991).

    As other commentators have noted:

    Courts and Boards of Contract Appeals exhibit some leniency in accepting contractor proofs of the amount of damages … but they hold contractors to a more rigorous standard in examining proof of causation. The basic rule is set forth in a leading U.S. Supreme Court case: … “there is a clear distinction between the measure of proof necessary to establish the fact the petitioner has sustained some damages and the measure of proof necessary to enable the jury to fix the amount.” Story Parchment Co. v. Patterson Parchment Paper Co., 282 U.S. 555 (1983) ….

    Thus, contractors have failed to recover for loss of efficiency when they were unable to (1) show that the owner was responsible for the claimed loss, (2) demonstrate that the explanation favoring recovery for the loss was more plausible than another explanation that did not support recovery, or (3) provide a reasonable basis for allocating the additional cost among a variety of contributing factors. Gilbert J. Ginsburg and Brian A. Bannon, Loss of Efficiency, 85-12 Construction Briefing.

    It is well established that the amount of loss of efficiency claims may be determined by using percentage estimates of loss of efficiency. This rule is based on the recognition that it would be almost impossible for a contractor to maintain the kind of detailed accounting records to establish the amount of a loss of efficiency claim. Luria Brothers & Company, 177 Ct.Cl. at 376; Atlas Construction Co., Inc., GSBCA Nos. 7903, 8143, 8953, 8653, 90-2 BCA ¶ 22,812. It should also be noted that the other common method of calculating a price adjustment for loss of efficiency is to apply a percentage rate to total labor costs during a given period. E.g., Fischbach & Moore International Corp., ASBCA No. 18146, 77-1 BCA ¶ 12,300.

    A contractor is not expected to keep accounting records from which his loss of efficiency can be ascertained by audit. Paccon, Inc., ASBCA No. 7890, 1963 BCA ¶ 3,659, recons. denied 1963 BCA ¶ 3,730. Instead, as articulated in Drexel Dynamics Corp., ASBCA Nos. 9502, et al., 67-2 BCA ¶ 6,410: [Once] the contractor has proved that it suffered expenses by reasons of changes, delays by the government, etc., the mere fact that the amount of an equitable adjustment cannot be computed with mathematical certainty does not necessarily defeat recovery. If a fair and reasonable approximation can be determined, the Courts and Boards of Contract Appeals have allowed recovery.

    Under Drexel Dynamics Corp., 67-2 BCA 6,410, the loss of labor efficiency and productivity damages may be calculated by identifying what it would have cost to perform the work had it not been disrupted and to compare these costs with the actual costs incurred as a result of owner-caused disruptions. This methodology is often referred to as the “measured mile” approach and has been consistently used and approved. Appeal of — Optimum Servs., Inc., ASBCA No. 59952, 16-1 BCA ¶ 36490 (citing International Terminal Onerating Co., ASBCA No. 18118, 75-2 BCA ¶ 511,470); U.S. Steel Industries, Inc. v. Blake Constr. Co., 671 F.2d 539 (D.C. Cir. 1982); Flex-Y-Plan Industries, Inc., GSBCA No. 4117, 76-1 BCA ¶ 11,713; Cen-Vi-Ro of Texas, Inc., IBCA No. 718-5-68, 73-1 BCA ¶ 9,903; Elliott Constr. Co., ASBCA No. 23483, 81-2 BCA ¶ 15,222 (1981).

    Updated: June 29, 2018

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