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ConstructionPro Week, Volume: 6 - Issue: 25 - 06/23/2017

Claims Mitigation During Construction Phase

 By:  Jim Zack, Navigant Construction Forum

 

Construction claims are becoming increasingly prevalent and expensive.  It is key that owners and contractors work together to keep the project on schedule and communicate any deviations from plan.

 

Partnering

Partnering establishes the organizational framework and structure to promote team work focused on project success.  Partnering recognizes that it takes a team of the owner, contractor, designer, construction managers and subcontractors in order to complete a project on time and on budget.  When successful, partnering helps owners achieve successful projects and helps contractors make more money.

 

Partnering is not a panacea to make all problems disappear and is not a guarantee of no changes, no claims and no disputes.  Partnering does not require a contractor to give up any rights in the contract or allow them to change any provisions of the contract.  But, successful partnering can help minimize disputes.

 

Partnering must be bought into by senior management and imposed from the top down in both the owner’s and contractor’s organizations.  Partnering starts with a facilitated meeting at project outset with routine, follow-up meetings required – preferably monthly but at least quarterly.

 

Upper management on both sides must continuously sell the benefits of partnering to staff.  The sooner problems are identified and fixed, the less damage they will cause.

 

Open Communication

The key to successful projects is communicate, communicate, communicate!  Whether you are dealing with a partnering situation or a normal construction project, it is imperative to openly communicate early and often. 

 

In reality, in construction, we often stifle communications for fear of liability.  But, bad news delivered early is useful information.  Bad news delivered late is a disaster! 

 

From the project start, emphasis must be placed on open communications.  Staff should be rewarded, not punished, for bringing problems to light early.  The earlier the better.  Claims are mitigated by early identification and teamwork in crafting possible solutions.  Prompt action can help to resolve issues that may eventually result in claims.

 

Pre-construction Audits

Pre-construction audits may be specified as a condition of contract award after bidding.  Once the low bidder has been established, the owner uses their own accountants or auditors to review the contractor’s chart of accounts, accounting system, overhead rate structure and typical cost accrual procedures.  The audit should look at what the normal accounting practices are so that the owner can hold the contractor to their own standard accounting practices when change orders and claims are being negotiated.  When the owner gets a change order or claim, they can ensure that the contractor is following those practices.

 

Delegation of Authority

On many projects all decision making is reserved to upper management.  As a result decisions are delayed because of this upper-management bottleneck.  The bottom line is that this sort of bottleneck can delay decisions costing time and money on projects for both owners and contractors.

 

It is imperative that some level of authority be delegated to the project level to allow for faster decision making on projects, based on a dollar amount.  This delegation must be in writing and provided to all parties to prevent confusion and disputes.  

 

Upper management should still maintain control of larger issues and should maintain a clear reporting system concerning smaller issues to prevent gamesmanship with change orders. 

 

Project Trending

Contractors use job costs to track progress whereas owners use schedules and routine measurements of “work in place” to track progress.  Both track progress, but they work in isolation of each other and both run a month late.  To be effective, project trending must be current to maximize effectiveness and predict the future. 

 

Consider implementing labor trending.  Specify labor resource loading on the baseline schedule and compare as-planned to actual labor on the site.  For example, if the baseline schedule requires 80 electricians on the site and the contractor only has 52, that should be a red flag that could impact the critical path and cause project delay.   Examining labor trends weekly allows an early warning of potential problems.

 

Project trending can also track all submittal and procurement activities.  It is recommended that all submittals and procurement activities be included in the baseline schedule.  If the owner was scheduled to receive 15 submittals and three equipment deliveries during the week and received less than that, it could create a project delay.  Planned submittals and procurement activities should be compared weekly to ensure that the project is on plan.

 

Another tool to consider is earned value tracking and trending that tracks cost variance, schedule variance cost performance index and schedule performance.  Earned value can help predict project outcome early in the project.

 

Document Tracking

Contracts require hundreds of submittals and often have thousands of RFIs and each has the potential to delay and disrupt work.  There is a lot of software today that provides electronic tracking to track progress and alert you when something is potentially late.  Many projects use no tracking system and other projects still use manual tracking systems – often spreadsheets.  They are good for reporting dates in and out but are not able to alert you when response is running late.  Use of an electronic tracking system helps prevent delay and constructive suspension of work claims due to late responses.

 

Time Lapse Photography

The old adage “a picture is worth a thousand words,” is very appropriate for construction work.  But, a typical photo often fails to capture the entire situation.  Time lapse photography and videos provide an up to date view of the project and a better project record.  Current technology time and date stamps pictures and stores them electronically for future use.  This allows you to see daily progress, review past activities and help resolve issues on the basis of fact.

 

Submittal of Contractor Daily Logs

Owners and contractors all have their own logs.  As a claims consultant I often have both the owner’s and contractor’s logs up on my computer screens at the same time to compare them and I often ask myself, are you guys really on the same project?  Owners and contractors often have a different perception of project status, progress, etc.  

 

Owners should include contract language requiring the contractor to submit a daily log at the end of each work day or shift.  The owner should assign a staff member to read the contractor’s and owner’s daily logs, side by side, on a daily basis.  This way the owner receives notice of issues as soon as they come to the contractor’s attention.  To make this system work for the benefit of the project, action must be taken as soon as a problem is identified.

 

Submittal of Short Interval Schedules

Most contractors use some sort of internal scheduling – often a bar chart for daily and weekly scheduling.  Some use short interval schedules which typically is a three-week schedule consisting of last week, this week and next week.

 

Owners should consider requiring the contractor to submit these short interval schedules weekly.  This can enable owners to detect delays and potential problems earlier and the owner and contractor can work together to overcome issues.

 

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