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:
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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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