How to solve a £1m productivity issue

Our client is civils engineering business which is part of a major integrated services plc who perform work in the water sector of the construction industry. In the performance of two contracts with the same water sector client, our client incurred labour costs which were £1m more than it had recovered as revenue.

We were commissioned to reconcile the costs and identify changes which were recoverable under the contract.

The problem with productivity

The problem with productivity is it can be a very difficult to reconcile because, often, the connection between cause and effect is weak at best, and non-existent at worst. We know this through experience, and we didn’t want our client to commit costs to their recovery only to find out their best hope was a global claim.

We proposed a two-stage approach where, in the first stage, we undertook some initial headline analysis to test the hypothesis that the productivity loss was caused by events which were not our client’s risk under their contract. We used a data science method to connect the labour hours recovered and labour costs incurred to the events which showed the impact over time. The analysis demonstrated that there was a link between the periods when productivity losses were occurring and the date of the events.

This gave our client confidence to commit further costs to their recovery.

Connecting cause and effect

Whilst we had established a link at the macro level, we needed to establish the productivity impact of each event for the claim to be successful. This would be challenging because there were gaps in the records we had seen, and the cost records and the operational records were not structured in a way which would allow us to perform quick analysis.

Through a series of workshops with the client, we worked through the issue and located records which gave us a more complete picture. We analysed the records and identified that there were around 8 change event themes which were recuring throughout our client’s performance of the contract.

We used the cost and operational records to prepare a reasonable valuation of these change events. Using the legal advice from our client’s representatives we connected these events to contract entitlement and broadened the valuation to include supervision, staff, and plant.

Final reflections

This was an extremely complicated and intricate piece of work which required us to connect programme, cost, operational and contractual information into one coherent report.

We delivered our report proving a causal link between the sums claimed for each change event and supporting this with contemporaneous records, thereby eliminating a global claim approach.

We have placed our client in a position to negotiate an acceptable outcome with its strategically important client.