Dispute Resolution of Construction Claims
Conflicts are inevitable on construction projects. Sometimes, too often, they can lead to costly and calamitous consequences. General Curtis LeMay, who headed the Strategic Air Command during the Cold War, said that there are no winners in nuclear war, only varying degrees of losers. And so it is frequently with construction claims. In such situations, the owner may not have a building turned over earning revenue on a timely basis, the contractors may be out of pocket substantial sums of money due to labor and general condition overruns. The Frisby Group has developed the following approaches to the management of conflicts.
Knowing the right thing to do and doing it
So often contractors say when first engaging my services: “Well, I didn’t do everything right, you know. And my guys don’t like writing those daily reports and we probably didn’t give the written notices we should have given.” The contractor may still have some basis of recovery, but you can bet your inheritance on the fact that it will not be 100 cents on the dollar. The contractor who knows the right thing to do and does it will enhance the probability of avoiding or at least greatly mitigating the amount of claims. The Frisby Group works with contractors to develop effective contract management procedures, to train its project management and supervisory personnel in how to recognize a potential claim, the proper notifications and field documentation required. And the importance of effective scheduling and schedule updating. We assist contractors in understanding their contractual risks, such as “no damages for delay” clauses, exculpatory and disclaimer clauses, waivers and the like. The best money a contractor can spend is “up front” planning to prevent claims and to manage them properly when they arise.
Implementation of the 25/10 Concept
We learned from the Japanese many years ago that a planning “stand down” prior to actually mobilizing a project has the benefit of developing the tools necessary for project management and eliminating as many potential bumps in the road as possible. So our 25/10 concept was developed to encourage the parties to a contract to work together at the very outset of a project to create an effective schedule, to have desk top meetins to go over drawings to spot conflicts and resolve them early on, to get submittals underway and coordinated, to get the supervisors on board with full understanding of the project ahead . . .and most importantly, to develop measurable goals for the first 25% or so of the project. If those goals are met, the likelihood of project success has been measurably enhanced. We faciliate this process for the project team.
Partnering, effectively conducted, can be a tool for implementation of the 25/10 approach. The Frisby approach to partnering is not a social scientist, let’s everyone love each other approach, but a structural, systemitized one which encourages collaboration in problem prevention and problem resolution. The Frisby Group has facilitated countless partnering sessions and, knock on wood, never had one of these projects turn sour. For example, the Frisby Group facilitated partnering for millions of dollars of projects at Clark County Sanitation District in Nevada, during about a decade all projects met the goals of both the owner and the contractors. It took the efforts of the Frisby Group, but more importantly, it took the collaboration and good faith of all the parties for this to occur.
On site mediation
Often, as an extension of the partnering program, if conflicts on the project arise, our firm is called in so that in real time solutions can be derived which will maintain the momentum of the project. Stalemated projects can be most costly. On the High Beam Laser Facility at Los Alamos a number of years ago the contractor’s rebar submittal was held up by a green engineer for a number of months to make a fairly minor change, resulting in excavation and concrete being performed in winter months. With no time extension, the contractor was forced into an acceleration which resulted in a $2 million claim which was eventually won by the contractor. Interestinly enough, that change to the rebar had a value of only $5,500.
Delay Damage Claims
The contractor is entitled to a time extension if delays occur which are excusable under the contract, and those delays effect the critical path. Sounds easy but these can be very tricky for a number of reasons. The schedule may be flawed, it may not be effectively updated. The contractor may have failed to give timely notice; it may not have adequte job site records to demonstrate the impact of the delay. There may be no damages for delay clauses which act as a bar, or it may be that the contractor has signed off on change orders and given away its rights to a delay damage claim (we call this an accord and satisfaction). The Frisby Group can assist the contractor as it navigates through these troubled waters in perfecting its claim against the owner. And often as the case of the Laser Facility described above,l the “trouble in the waters” may not have started off as more than a ripple. In the case of the Aloha Stadium where the Pro Bowl has been played, the interior wings move along a 90 long concrete runway by an air movement system to form a baseball diamond configuration and then back again to form the football arena shape. Didn’t work at first and the parties basically just did nothing and glared at each other for some time. We were called in, got help in resolving the technical problem and negotiated successfully the commercial issues. The cost of the “fix” was only around $87,000. The labor impact and delay damage claim we negotiated was over $3,500,000.
Labor Impact Claims
We call these the “killer bee claims” as impact to labor caused by out of sequence work, overtime, crew crowding and the like can cause the cost of labor to increase exponentially instead of simply arithmetically. We have studed the impact on labor productivity for years, have conducted our own studies and have an extensive library of the research iin this field by others. Proof of labor impact is a fine art and not many contractors really know how to go about it. And neither do many consultants, perhaps. For example, total and modified total cost claims are frowned on and so it is important to attempt to develop what we call “cause and effect pricing”, meaning to attempt to identify the event which caused the extra cost and then through job site records (included tools such as earned value, daily records which identify the impact items, “measured mile”) show how the contractor’s productivity was affected by that item. Going back to the first paragraph on Prevention, the contractor needs to understand what job site tools are needed to capture such costs and to train his personnel in how to use those tools . . .and then to monitor to assure that those tools are being used.
Differing Site Conditions
The contract itself may be as murky as the subsurface conditions being encountered. A prebid site condition clause always exists, sometimes (more often than not) there are disclaimer clauses which in effect say: “Hey, here is a soils report or log borings but you rely on them at your own peril”, and then there are issues of notice, expert opinions that the conditions encountered are truly “different” from those indicated in the contract documents. The Frisby Group has assisted contractors such as Johnson Brothers which was constructing a dam at Silver Jack, Colorado when it went out to the job site one morning and couldn’t find the dam it was building, although it was about 85% completed. The top of a glacial mountain had slid right on top of the dam and the owner, USBR, claimed that this was an act of God for which the Government was not responsible. Turns out the government was responsible to the tune of millions.
If the contractor claims the specifications are defective but the owner takes the position that they are not and directs the contractor to perform at its own cost and risk, this is what we call a “constructive change” if in fact the position of the contractor is the valid one. On the Washington, D.C. mass transit project, the mortar pads on which the rails are attached (they in effect are like “railroad ties”) were bound to the invert concrete structure by epoxy. Epoxy in those days was something of a state of the art material, and the mortar pads were not adhering. The owner, The Corps of Engineers, took the position that the contractor’s quality program was at fault. However, after some research, it turned out that the reason for the failure of the expoxy is that the specified material would “cheese” or not adhere if there was any moisture on the invert structure. Sure enough, the owner’s specifications required the contractor to wash off the structure before applying the epoxy and voila! the expoxy would cheese and not adhere. The contractor was reimbursed for all of its expenses. Because of the experience of the Frisby Group (it had worked with Dr. Art Anderson who constructed the first precast concrete barge, the components of which were “glued” together with expoxy.) We were able to assist with an understanding of and resolution of the technical issues as well as develop and negotiate the contractor’s claim for delay and labor impact damages.
Services Provided: Dispute Resolution
The Frisby Group tailors its services to the needs and budget requirements of its clients. It has no “one size fits all” approach. Instead, a scope of work is developed which involves the roles of both the Frisby Group and the client, action items and schedules are established, and from that a budget is created. The range of services may be in the area of claims preparation:
- Advising the client along the way, and not being responsible for work product. In this manner, the client is guided into the steps that need to be undertaken and its work products are evaluated.
- In collaboration with the client and his project personnel, eviewing and evaluating the documentation and participating in the creation of work products. In this scenario, the client often becomes his own “expert witness” and is the lead in negotiation or mediation.
- Being responsible for the work product, taking the lead in negotiations and mediations.
- Elevating to the next step would be to act as an expert witness on behalf of the client.