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Bottom Line Management: Tips for Contractors

HOW TO GET PAID
For Construction Change Orders and Claims

A Partnering Approach to Claims
Because of Pinnell/Busch’s commitment to construction partnering, and our success in advancing positive approaches to dispute resolution, we strongly recommend a more professional, business-like approach to construction change orders and claims. They can and should be pursued in a firm but non-adversarial manner — while seeking a negotiated resolution.

Selecting Experts and Training Staff
   The most important step in preparing a successful change order request or claim is selecting the right expert to prepare it — whether that is your employee or a consultant. Contractors can greatly increase recovery of change order costs and reduce the number of disputes that lead to claims — by training their personnel in good change order proposal procedures and implementing a Change Order Management Program.

Preparing A Preliminary Analysis
A phased approach, including a preliminary analysis before proceeding, is far better than initiating a full-fledged effort. It allows you to identify the significant issues, to develop preliminary findings and recommendations, including recovery theories and the probable recovery, and to establish a work plan, budget and schedule to complete the claim. Because you haven’t committed to an open-ended effort, you can better control your cost and time and avoid dead-ends.

Obtaining and Organizing Documents
The next step is to obtain all pertinent documents from the project files and organize them for review chronologically with the oldest on top. This allows you to approach the project in the same order as the work occurred, but with the advantage of seeing it from all viewpoints.

Determining the Facts and Analyzing Entitlement
When reviewing the chronological file, you can create a word processing file with summary notesregarding the facts about each issue and the date and source document referenced. You may also want tocreate a “detailed as-built schedule” from the daily records and correspondence that displays all pertinent information on a single drawing. Then, by reviewing the detailed as-built schedule and the summary note chronology for each issue, you can produce your analysis of entitlement and causation. Develop an executive summary, schedule analysis, and exhibits — and you’ll have the body of the claim.

Computing Damages
Preliminary damage estimates should be made before analyzing entitlement in order to prioritize your efforts. Final computations generally follow proof of entitlement and causation. They include direct costsof added work, impact costs, acceleration or delay costs, other costs such as additional overhead, and markup (jobsite and home office overhead, profit, bond, insurance and taxes). You also need to include below-the-line costs such as unpaid retainage and contract balances due, interest, attorney fees and claim preparation costs, less credits for non-conforming or unsatisfactory work.
Impact and inefficiency costs are the most difficult to estimate and often require special expertise. We recommend a Rational Approach using a combination of methods for different elements of the claim, including: modified total cost, expert opinion, industry studies and formulas, measured mile, andscientific analysis using time and motion studies, learning curves, work sampling measurements, and other work improvement techniques for analyzing and reconstructing the basic components of work.

Negotiating an Equitable Adjustment
Effective negotiation starts long before the claim is presented by involving the owner in the process so that they seek a win/ win solution. At that time, you can also obtain vital information on the owner’s position and even factual data not otherwise available except through discovery. The most important goal is to maintain a partnering approach to problem resolution. Some essential steps:

 

  1. Be Prepared. Understand the reviewer’s position, and verify they are willing to be fair and are empowered to commit the owner.
  2. Meet and Present the Claim. Discuss the change order request or claim at a joint presentation and review meeting. Establish a positive atmosphere, obtain a commitment for a fair review, clarify ambiguities, avoid misunderstanding, and establish a procedure and schedule for timely, fair resolution.
  3. Follow-Through. Answer questions and provide supplemental information as required. Keep advancing your case using partnering strategies.
  4. Negotiate. Use win/win techniques to reach a mutually acceptable solution.
By |January 20th, 2015|Uncategorized|

Recordkeeping and Notice: To Ensure Fair Payment for Delay Impact

If you’re a contractor’s project manager on a doomed project that’s careening towards the brink with a poor set of plans and specs, an unrealistic schedule or bid, a ‘by-the-book’ inspector, and flakey subcontractors – don’t give up.

First, alert company management to the scope of the problems and get reassurance that you’ll get the resources you need to avoid a disaster – even if you have to blow the general conditions budget. That’s a lot cheaper than major delays or cost over-runs from inefficient operations, delays, or undocumented changes.

Second, dig into the plans and specifications to uncover as many problems and opportunities as possible before the crews encounter them in the field. Discuss the problems with your field supervisors and anyone else who can help. Then, insist on a meeting with the owner and designer, and get paid (if possible) for a constructability review, or submit a change order request.

Give Timely, Contract-Compliant Notice
Document the problems and insist on a prompt response and corrective action. If necessary, ask for a partnering session, or elevate the problem up the management chain to your company president and the highest possible level of the owner’s management team.

Document your position, and don’t fail to provide notice as required in the contract, even if it creates some resentment.

Maintain Good Records
The most important records for recovering extra cost and time are the foremen’s timecards and your accounting system. Ensure that the foremen know the proper cost codes and use them correctly. When work is added, assign a new cost code. All contractors should record weekly production quantities, in order to compute productivity and the impact from changes or delays (and truly control costs) – but few do.

The next important record is the Superintendent’s Daily Report. Verify your field supervisors are recording progress and problems every day with a clear description of problems and delays.

Verify that the project schedule is accurate, sufficiently detailed, and is updated monthly with actual start and finish dates, percent complete, and revised logic as needed.

Verify that your project superintendent is preparing a weekly short-interval/look-ahead schedule and that it is adequately detailed, includes critical subcontractorwork, relates to the master CPM schedule, and is being followed. To ensure it’s being followed, have the superintendent mark the previous week’s plan on the new schedule in order to compare plan versus actual.

Take photos of all significant operations and all problems. Be certain to date stamp all photos. If helpful, video inefficient operations. Make brief, clear notes of all significant telephone calls, including any agreements, and keep them on file.

Keep the RFIs up-to-date and maintain an accurate RFI log. Classify and prioritize each RFI to ensure that the most critical are handled first, and share the RFI log with the owner to point out slow reviews or other problems. Also check your submittal log to ensure that subcontractors and vendors are submitting when needed and that the owner and architect/engineer are timely in responding. Notify the delinquent party before it’s too late.

Either maintain the weekly/monthly owner progress meeting minutes yourself or notify the owner of any discrepancies or missing information to ensure that they are complete and accurate regarding all issues of importance to you.

If All Else Fails, File a Claim
If you can’t resolve the problems, don’t hesitate to bring in a construction lawyer and a claims expert. Early legal review can help you avoid losing your contract rights and a claims expert can help ensure adequate documentation to prove your claim.

Don’t wait to submit your change order request until the end of the project — when you’re short of cash, the owner doesn’t need your cooperation, and you have failed to give timely notice or have waived your rights.

By |January 20th, 2015|Steve Pinnell, Uncategorized|

Construction Defects: Avoiding and Remediating Defects While Resolving Disputes

1. Introduction

Contractors, Architect/Engineers (A/Es), and Project Owners are all at risk from construction defect problems and the ensuing remediation and litigation. Here, we offer some advice on how to avoid defects, remediate those that do occur, and resolve any disputes before they become a claim or lead to litigation.

2. Design Phase – Owner, Architect/Engineer and Building Envelope Specialist

Project Owners control the project scope, select the project team, and require the team to control cost, time, and quality.

Start with a clearly defined scope of work – an ‘architectural program’ for building construction or ‘design criteria’ for engineering works. Then, verify that your budget is based on the scope and that the schedule is reasonable (don’t try to fast track without expert advice).

Next, hire the right Architect/Engineer. Consider their reputation for defect-free design, in addition to project performance, meeting budgets, timely completion, and good project management.

In addition, require your Architect to hire a Building Envelope Specialist to ensure against water intrusion, mold, and costly remediation – that can cost nearly as much as the original construction and often results in costly litigation. The A/E or Specialist should know local environmental conditions – heavy rains, wind and corrosive salt spray at the coast; extreme cold in Alaska and Montana; and moisture problems throughout the Pacific Northwest.

A Building Envelope Specialist is a person, often an architect or professional engineer, who advises on design (or purchase of an existing building), and investigates building envelope defects, identifies solutions, and oversees remediation. They also testify in court or arbitration on means and methods, costs, and who was responsible for the defect.

Architects may need assistance with current Best Practices for building envelope design, in addition to LEEDS, sustainability and other special services – for which the Owner is expected to pay, since they are the primary beneficiary.

3. Construction Phase
Regardless of whether you are using Design-Bid-Build, Agency CM, CM/GC-GMP, or Design/Build,Owners without ongoing construction programs should hire an Owner’s Representative with the expertise to manage the construction process and avoid defects. You also need a Building Envelope Specialist to ensure that envelope construction complies with the design and the workmanship is satisfactory.

Mockups have traditionally been used for aesthetic issues (color, texture, etc.) which are difficult to specify. Now, contracts are requiring mockups of windows, roofing, and other critical building systems to help avoid defects.Owners and A/Es, or their Building Envelope Specialist, need to identify critical building systems that require preparation and testing of mockups. Manufacturers can often assist with mockups.

4. Maintenance and Operation Phase
Contractors should prepare a Building Owner’s Maintenance Guide and require the Owner to acknowledge receipt and agree to follow the guide. This reduces the risk of system failure due to lack of maintenance, which is often blamed on the A/E or Contractor. The Guide and one-year warranty inspections help identify incipient failures, which avoids continued deterioration and collateral damage, and can head off claims.

5. Litigation Phase
If all else fails, be ready for litigation.

Building Owners should determine the statute of repose in their state, and in addition to their regular inspection program, conduct an in-depth inspection before that date, with a focus on the building envelope and other systems that are prone to failure.

If problems are found, hire an attorney familiar with construction defect disputes. You or your attorney should retain an expert to determine the extent of the problem, whether emergency repairs are required, the needed scope of remediation, the probable cost, duration, and the impact on building use.

Contractors or A/Es contacted by an Owner regarding a potential claim, should first (after calling their attorney) get the details and determine whether the problem can be resolved and serious conflict avoided by working with the Owner to fix it. If the Owner is reasonable and if your firm or subs are probably at fault, it is usually best to fix the problem – as long as there are no insurance problems and your Attorney approves.

Attorneys need the most qualified Expert Witness and field investigation team for successful resolution of a construction defect claim. The ideal building envelope expert is a licensed architect (or engineer for engineering projects and building system failures) with experience as a building contractor and in investigating and remediating construction defects. The expert must also have a reputation for credible testimony on the witness stand and the ability to provide solid, direct evidence that gives an attorney the winning edge.

6. Visualizing the Message
Regardless of the project phase, the visual display of information can be your most powerful tool for creating understandable and clear communication.

Good graphics can tell a complex story with little or no supporting explanation. A graphic image can summarize hundreds of change orders, piles of certified payroll, boxes of files, and the consequence of change, delay, impact and bad weather – all on a single sheet of paper.
When presenting graphics, start with the details to ‘build a foundation’ and then summarize it for understanding with a chain of logic from your source documents to your summary charts.

Patrick Melvin, our Graphics Consultant, works with our clients and our Claims, Construction Management, and Construction Defects divisions to communicate complex, data-intensive stories of what happened and why.

By |January 20th, 2015|Uncategorized|