Presentation Title - Greenberg Traurig
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Transcript Presentation Title - Greenberg Traurig
Managing Construction Risks
Presented by:
Robert C. Epstein Greenberg Traurig, LLP
Co-Chair, National Construction Group
[email protected] 973.360.7945
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Successful Construction Projects
On time
On budget
Without defects in design or construction
With minimum conflict among the project
parties
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Construction Project Relationships
Investor
Lender
Owner
Fed/State/Local
• Public/Private Company
E.&O.
Insurance Co.
1st Party
Insurance Co.
Surety
Govt Agencies
• Government Entity
• Developer
General
Contractor
(Or Multiple Primes)
CGL
Insurance Co.
• Architect
• Engineer
• Consultants
Construction
Manager
E.&O.
Insurance Co.
Subconsultants
• At Risk
• Not At Risk
CGL
Insurance Co.
Subcontractors
Suppliers
E.&O.
Ins Co.
CGL
Ins Co.
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Principal Construction Risks
Risk No. 1: The project as designed costs
too much
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Risk No. 1: The project as designed costs
too much
[N]either the Architect nor the Owner has control
over the cost of labor, materials, or equipment,
over the Contractor’s methods of determining bid
prices, or over competitive bidding market or
negotiation conditions. Accordingly, the Architect
cannot and does not warrant or represent that bids
or negotiated prices will not vary from the Owner’s
Project budget or from any estimate of Construction
Cost or evaluation prepared or agreed to by the
Architect.
AIA Form B141 (1987) Standard Form Agreement Between
Owner and Architect
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Risk No. 1: The project as designed costs
too much
Addressing the Risk
Owner involved in design process
Establish a budget
Define the project
Independent cost estimates as design
progresses
Add and delete alternatives
Redesign at no cost
Peer review of design
Preconstruction services
BIM
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Principal Construction Risks
Risk No.2: Defects, Failures And NonConformities
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What Are Construction Defects?
Deviations from plans and specifications
Functional defects
Failure to meet performance criteria
Any element of project does not work properly, or at all
Sudden failures
Code violations
Diminished useful life
Unreasonably high risk of failure
Unreasonably high expense to operate
Aesthetics
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Typical Causes Of Construction Defects
Design does not work
Poor detailing and drafting
Defective materials
Substitution of inferior materials
Poor workmanship
Deficient inspections
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Owner Recourse Against Designer for
Construction Defects
Professional negligence or breach of contract
Liability limitations in professional services
contract
Sufficient funds or insurance
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Professional Liability Insurance
Claims made policies
Defense costs reduce coverage
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Owner Recourse Against Contractor For
Construction Defects
Commercial General Liability Insurance
Covers claims arising from “bodily injury” or “property
damage” caused by an “occurrence” during the policy
period, if not excluded from coverage
Business risk exclusion
CGL Insurance “…does not cover an accident of faulty
workmanship but rather faulty workmanship which
causes an accident”
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Builders Risk Insurance
Covers risk of loss/damage to construction work
during the construction process
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Principal Construction Risks
Risk No. 3: The Project Site Makes The
Project More Difficult
Conditions of site, soils or subsurface that the
Owner did not disclose and which the
contractor could not reasonably have
discovered or anticipated itself
Addressing the Risk
Specific disclaimer
Risk sharing
No damages for delay clause
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Principal Construction Risks
Risk No. 4: Project Completion Is
Delayed
Causes of project delay
Incomplete, inaccurate or poorly coordinated designs
Unforeseen site conditions
Design revisions
Force majeur
Other causes
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Injury To Owner From Delay
Lost product revenues
Lost rentals
Lost use of facility
Liability to contractor for delay damages
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Contractor Delay Damages
Extended equipment rental
Standing by with idle employees
Labor rate escalation
Materials cost escalation
Forced work in winter
Acceleration costs
Inefficiency costs
Additional overhead
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Project Completion is Delayed
Addressing the Risk
Owner’s pre-construction planning
Assure permits are in place
Review design for errors/constructability
Geotechnical studies
No damages for delay clause
Close project supervision
BIM
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Primary Considerations for all Construction
Projects:
Project delivery format
Project management/oversight
Pricing/cost methodology
Programming and design
Development of a project budget and cost
estimation
Scheduling
Trade procurement
Payment disputes and liens
Project team coordination
Insurance and bonding
Completion assurances and remedies
Project close-out
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Typical Construction Contract
Provisions Allocating Risks
Indemnity
Insurance and bonding
Waiver of Consequential Damages
Scheduling commitments
Liquidated Damages
Pricing Commitments
Design standards
Hazardous conditions
Unforeseen conditions
Defects
Changes
Constructability
Project team coordination and cooperation
Warranty provisions
Performance defaults
Budget contingencies
Intellectual Property Rights
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