Here is the mindset of “De-Coding Construction Risk Management”

December 28, 2011


Part 1 & 2 have been posted, the next segments are almost complete and will be posted before 2011 comes to an end. Read this information and get prepared for 2012.

Potential claims have not always been something that construction companies put in the project management basket, that’s why claims preparation is, for the most part, a forensic procedure. In recent years, the process of early preparation for claims avoidance has been dubbed Risk Analytics. Some of us have pioneered the process through claims avoidance education and many “experts” have cropped up with detailed procedures manuals – still, claims are forensic in nature as management scrambles to “re-construct” the various scenarios that led to the core dispute. I have always preached to my Clients that contemporaneous records are Gold when it comes to legal action. The strength of accurate contemporaneous records as supportive documentation usually leads opposing attorneys to recommend that their Clients reach out for a negotiated settlement.


In recent consulting work, covered by non-disclosure agreements as long and as rambling as the AIA - A201 General Conditions, I have found that the major players definitely don’t want anyone to know that they needed outside help in solving procedural problems. Those problems are a double edge sword; technology has streamlined the production, assimilation and proliferation of documents, however, some stakeholders in the loop don’t thoroughly “read” the documents produced. Some “boiler-plate” has been refined and is very stable, but when someone decides to tweak the standard, cutting and pasting can re-define the results as well as produce unanticipated gaps in the clarity of interpretation.

Artificial Intelligence has not advanced to the point of mitigating the majority of the risks, REAL Intelligence and a strong Knowledge-base is required to create, and integrate procedures for a systematic “hands-on” review of contract documents. Aero-space and government procedures which follow the in-depth military mumbo-jumbo of sets and subsets, cross references that are circular, and have more codes than Microsoft has dollars can be defeated by primitive application of OCR, keyword searches and actually “reading” to determine the intent of words and phrases of contracts and other directional documents.

I am strongly pro-active on the creation of the necessary Knowledge-base, training and motivation to bring staff to another level of awareness in contract administration, the inherent relationship to construction procedures and schedule compliance. Accurate and timely documentation needs to precede and accompany the construction process to avoid losses.

DE-CODING CONSTRUCTION RISK MANAGEMENT

Robert G. Armando
TECTONICS, INC.
rga@tectonicsystems.com
http://www.tectonicsystems.com/  DOWNLOAD this POST as a PDF File

I.   THE IMPORTANCE OF DOCUMENTATION

     A.   Project control and cost accounting to fulfill normal business needs.

     B.   To maintain and establish an ongoing, accurate and comprehensive record of job conditions and problems and their impact upon the project, which records may later be used to assist in:

            1. Risk mitigation

            2. Dispute avoidance

            3. Dispute settlement

            4. Proof of liability and damages in litigation, arbitration or administrative proceedings

    C.    No matter how clear the liability may appear to the contractor; and no matter how much the contractor may claim to have suffered by virtue of the wrongful acts of the Owner, design professional or other third party, the contractor will usually be unable to obtain an acceptable negotiated settlement or recovery unless it can provide authentic, detailed and convincing documentary proof of:

            1. The adversary's acts or omissions which detrimentally impacted the contractor's work;

            2. How, when and to what extent the contractor's performance was affected; and

            3. The resultant cost to the contractor attributable to the other party's culpable conduct.

            4. The Risk Analytics will provide early identification of changes in conditions, previous delays and  effects, emerging trends in the behavior and performance of the project stakeholders.

II. THE CONTRACT DOCUMENTS

    A.     The contract documents include:

            1. Contracts between the contractor and owner and between contractor and subcontractor

            2. The plans and specifications, including an index of any revisions to the contract drawings

            3. The general and special conditions

            4. Technical specifications

            5. Addenda

Note: Any superseded portions of the specifications should be cut or crossed out and the superseding addenda affixed in their stead as a matter of course, along with the addenda date. This will help avoid the embarrassing specter of misplaced reliance upon inapplicable provisions of the specifications during subsequent claims negotiation, arbitration or litigation. It should go without saying that digital copies will be marked up and noted accordingly as well as recorded in the “version history” of the documents.

             6. The bid documents

Consists of information provided by the owner, including, but not limited to; Construction Drawings for Civil, Architectural and Mechanical as well as engineering data, soils analysis information, boring and blasting logs, precedence diagrams, milestone dates, scheduling CPMs, etc.

            7. Any bulletins, letters of clarification, etc.

            8. Anything which the owner or the owner's representative incorporates in the contract by specific reference.

Warning: For any codes or standards which are incorporated by reference, make sure that the proper (usually the latest) edition of any such referenced document is consulted and added to the digital library.

    B.     The importance of familiarity with the contract documents

            1.     An intimate knowledge of the contract and its requirements is necessary for both the home office personnel and the field supervisor and/or foreman in order that any or all might immediately recognize material or labor "requirements" which go beyond the contract obligations, thereby justifying a claim for additional compensation.

            2.     The home office should thoroughly investigate and evaluate all claim data and "red flags" from the field and should from the outset maintain a separate claim file for each issue of potential dispute which can readily be recalled and reviewed at a later date by the contractor, the contractor's attorney and/or any other consultants.

                    a.     This is a “sweet spot” for your digital collaboration capabilities to come to the forefront. What? You don’t have a digital knowledgebase set up for your project? Now is the time to do it!!!

                    b.     Centralized on line or otherwise enterprise and central repository for digital versions of all project documentation can be accessible by not only all permissioned company-wide work stations, but via tablet PC’s and IPads. Due to the growing popularity and utilization of the IPad, the addition of apps for IPad access are a must.

            3.     The prompt recognition of deviations from the contract is necessary to avoid any possibility of "losing" a change order request or a claim through

                   a.     Failure to timely comply with applicable notice provisions; or

                   b.     Failure to preserve necessary supportive evidence; or

                  c.     Acting in a way which permits the owner to allege; and the ultimate finder of facts to determine; that the contractor has performed what would otherwise be extra work on a "volunteer" and therefore non-compensable basis.

            4.     Knowing which parties or individuals have the authority to issue directives and orders for field changes and the correct procedures for making such communications and modifications will prevent the contractor from putting itself in a position where it has performed technically unauthorized work for which no compensation will be paid and for which the contractor may have to bear the expense of removal and / or repair.

            5.     Familiarity with the contract requirements will help ensure that necessary notice to the owner or architect will not be overlooked and a claim lost through failure to timely file necessary documentation.

            6.     Knowledge of what constitutes compensable and non-compensable delays and of contractual exculpatory (favorable) clauses will help ensure that a claim is presented or prosecuted on a proper and recoverable theory of liability.

            7.     NOTE:     It is wise for the contractor to prepare a claims checklist noting the applicable provisions relating to claims and notice requirements under the contract documents of the particular job. Such a checklist (which can be prepared by contractor's own staff, attorney or consultant) should be used and referred to frequently from the beginning of the job.

COMMENT: All of the above emphasize the necessity for a central, digital repository for all project documents, accessible on line, for the duration of the project.

    C.     When in doubt, get it in writing – a.k.a. always get it in writing

            1. Whenever the contractor is uncertain as to whether or not a change has been properly authorized, he should immediately submit written confirmation to the owner, together with an indication, if applicable, that such change constitutes additional work and that performance by the contractor will result in the filing of a claim for relief.

                    a.     Owner's responding alternatives

                           (i)     The owner can override the change directive, thereby saving the contractor from performing such unauthorized work.

                          (ii)     The owner can ratify the communicated directive and confirm that additional compensation will be paid to the contractor, thereby resolving any questions as to the contractor's entitlement for additional compensation.

                        (iii)    The owner can ratify the directive but indicate that the work called for is part of the original contract, thereby entitling the contractor to no additional compensation; in which case the contractor should file a further written protest before proceeding with the work.

                        (iv)   The owner may not respond at all, in which case the court or arbitration panel will probably later find a tacit (knowledgeable) approval of the change and of the contractor's demand for additional compensation.

           2.     Similarly, written confirmation of all oral instructions, directions, and changes should be requested from the A/E, Owner’s Representative or other design professional directly responsible for the related scope of work. Now they can sign your IPad using a stylus.

Coming Soon …………..

III.    MAINTAINING PROPER RECORDS – IN THE TRENCHES

IV.    THE USE OF DISCOVERY PROCEDURES TO DEVELOP CLAIM DOCUMENTATION

V.     DOCUMENTARY PROOF OF CLAIMS FROM RISK MANAGEMENT HISTORY

VI.    RISK, MITIGATION, and THE CLAIM DOCUMENTS

VII.   THE EFFECTIVE USE OF DOCUMENTARY EVIDENCE TO SUPPORT LEGAL SERVICES

VIII.   DOCUMENT INDEXING AND RETRIEVAL SYSTEM; DIGITAL DATA BASE MANAGEMENT AND ON LINE COLLABORATION SYSTEMS.

Go to my Website to DOWNLOAD a PDF file - http://www.tectonicsystems.com/   Thanks Bob Armando

SUPERIOR KNOWLEDGE CREATES DUTY TO DISCLOSE MATERIAL FACTS PRIOR TO BID

The Courts and Boards of Contract Appeals have uniformly held that an Owner, with superior knowledge as to a material fact likely to impact a bidder's cost or schedule of performance, who fails to disclose completely and accurately such information to bidders of record, shall be deemed to have breached the contract; the contractor will be paid for damages resulting therefrom under the "constructive change" theory. This would include the witholding of material facts regarding (1) schedules of other prime contractors and (2) design defects known to the Owner at the time of bid. It includes the witholding not only of technical information, but non-technical information which is critical to the bidder's cost or schedule performance.

• J. A. Jones Construction Co. v. United States, 182 ct. cl. 615 (1968)
• Hardeman-Monier Hutcherson v. United States, 198 ct. cl. 472, 458 F.2d 1364 (1972)
• Helene Curtis Industries, Inc. v. United States, 160 ct. cl. 437
• E. L. Peamer Co. v. City of Swartz Creek, 256 N.W. 2d 447
• G. W. Galloway Co., ASBCA 17436, 77-2 BCA 12,640

DUTY NOT TO DELAY, HINDER, OR INTERFERE WITH PERFORMANCE

For years, courts have held that all parties to a contract have an implied duty to refrain from delaying, hindering, or interfering with others in the performance of their contracts. Numerous cases have found Owner liability for violation of this implied duty to the contractor. Where the Owner was unreasonably slow in providing the required access, failed to provide adequate advance planning, or committed numerous other negligent errors which contributed to unnecessary delay, the courts have found that the Owner breached its implied obligation not "to unreasonably interfere with or delay the contractor's performance". Likewise, in a number of cases, the failure to provide adequate plans and specifications, or the failure to make timely delivery thereof, constituted breach of duty.

• Lewis-Nicholson, Inc. v. United States 550 F.2d 26 (ct. cl. 1977)
• United States ex rel Gillioz v. John Kearns Construction Co., 140 F.2d 792 (8th Cir. 1944)
• Sydney Construction Co., 21377, 77-2 BCA 12,719

EFFECT OF OWNER APPROVALS & ACQUIESENCE

If the Owner advertises a Pre-Bid Schedule or does not reject or raise timely objections to an "As-Planned" Schedule submitted by a contractor, it will be bound by the schedule and expected to meet its obligations thereunder.

• Fullerton Construction Co., ASBCA 12275, 69-2 BCA 7,876
• Frank Briscoe Co., Inc., GSBCA 3545, 73-1 BCA 9,890

Standards of Proof - A Brief Resource for Construction Claims

The standard of proof should be distinguished from the question of who bears the burden of proof. In civil actions, including construction claims arising from delay or acceleration, the standard of proof is relaxed to "a preponderance of the evidence". The preponderance standard simply means that the proponent of a claim must present the greater weight of the competent, persuasive evidence, even if that is only 51% of the evidence.
One further distinction that has been drawn by the courts and boards touches on the quantum of proof required for causation of delay, and the quantum of proof relating to the amount of damages. Generally, a greater certainty is necessary for proof of the causation of delay than for proof of the amount of damages.
The U.S. Court of Claims has held, in Wunderlich Contracting Co. v. United States, 351 F.2d 956, 173 ct. cl. 180 (1965) :

A claimant need not prove his damages with absolute certainty or mathematical exactitude. It is sufficient if he furnishes the Court with a reasonable basis for computation, even though the result is only approximate. Yet this leniency as to the actual mechanics of computation does not relieve the contractor of the essential burden of establishing the fundamental facts of liability, causation, and resultant injury.

See also Dale Construction Co. v. United States, 161 ct. cl. 825 (1963).
Once entitlement is established, damages will not be refused solely because the contractor has not proved their amount to a mathematical certainty. Most courts and boards are willing to accept a reasonable estimate or a logical method of calculation.
See: Peter Kiewit Sons Co. v. Summit Construction Co., 422 F.2d 242 (8th Cir. 1969; and Lauria Bros. & Co. v. United States, 369 F.2d 701 (1966).

DELAY, DISRUPTION, LEARNING CURVES

Analysis and comparison of project schedules is the best means of determining the impact of delays or disruptions upon a construction project. A compensable delay is one for which the Owner is responsible. The delay or disruption may be shown by comparison of the various project schedules. The impact of "pure" delay is usually readily assessable, but extended or numerous minor delays, and the effect of other disruptions also have impacts which may be demonstrated by schedule analysis. Loss of "learning curve" efficiencies is a common impact of Owner disruption. Here, actual labor costs and estimated labor costs applied under the "As- Planned" schedule are extremely helpful. Loss of labor efficiency is another impact of disruption readily demonstratable through use of project schedule analysis. Working under adverse weather conditions, overtime hours, etc. all contribute to inefficiency and result from delay or other disruptions.

• Teledyne McCormick-Selph v. United States, No. 448-76 (ct. cl. Dec. 13, 1978)
• Fairchild Stratos Corp., ASBCA 9169, 67-1 BCA 6,225