Transcript Avoiding Claims - Mechanical Contractors/Home

Avoiding Claims
MCA of Alaska
What You Need To Know
What claims are and how they operate
Identify conditions that create claims
What You Need To Be Able To Do
Answer the question, ‘Do I Bid This
Job?’
Create strategies that avoid claims on
existing projects

Thus build stronger relationships
Theme
Avoid adversarial
relationships that
give rise to claims
Looking for the
second phone call
Avoiding Adversarial
Relationships
You’re angry. So you shoot a hole in
my boat. Only trouble is, we are in
the same boat.
The Importance of This Topic
FMI – Survey of
Construction
Industry Ethical
Practices (2004)
Rank the five most
critical issues you
face in your work
5. Bid shopping
4. Change order
games
3. Payment games
2. Unreliable
contractors
1. Claim games
10 Principle Causes of
Construction Disputes (CII)
10. Managers who “pass the buck” up to
a higher level or to lawyers.
9. A “macho” or litigious mindset by some
8. A lack of team spirit or collegiality
7. Failure to deal promptly with changes
or unexpected conditions
6. Inadequate contractor management
5. Poor communication between parties
10 Principle Causes of
Construction Disputes (CII)
4. Contractors who bid too low
3. Ambiguous contract documents
2. Unrealistic expectations of the parties,
particularly owners who have insufficient
financing
1. Contract provisions which unrealistically
shift project risks to parties who are
unprepared to cover those risks
Claims
“4.3.1 A claim is a
demand or assertion by
one of the parties
seeking, as a matter of
right, adjustment, or
interpretation of
Contract terms,
payment of money,
extension of time, or
other relief with respect
to the terms of the
Contract”
Claim Components

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
Entitlement
Damages
Relief
Claims
“15.1.1 4.3.1 A claim is a demand or
assertion by one of the parties
seeking, as a matter of right,
adjustment, or interpretation of
Contract terms, payment of money,
extension of time, or other relief with
respect to the terms of the Contract”
AIA-201, 2007 Edition
Entitlement
A change occurred
The change was unexpected
The risk is borne elsewhere
Red Flag
Spearin Doctrine (United States vs.
Spearin, 1918)
“…a contractor who undertakes an entire contract
for erecting a building is presumed, in absence of
an express provision to the contrary, to have
assumed the risk of unforeseen contingencies
arising during the course of the work, unless
performance is rendered impossible by the act of
God, the law or the other party.”
Case Study
Replacement of a
cooling tower
Owner selected
equipment
$44,000 base
contract
A/E drafted
“conceptual” plan
for owner.
Two Questions
Is the contractor
entitled to a change
order?
How could you avoid
this situation?
Avoiding a Claim Before the
Bid
Section I
Avoiding a Claim Before the
Bid
Most effective
Most economical
What is Risk?
Risk Management Steps
Identify risk
Quantify risk
Quantify reward
Account for risk/reward ratio
Risk/Reward Ratio Example
What is the risk to
the contractor?
Go/No Go Decision Making
Thorough investigation of:
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
Owner
Architect
Contractors
Vendors
Project scope
Project risks
Project Risks
Financial
Operational
Environmental
Strategic
Go/No-Go
Decision Making
Have a process!

Checklist form
 Financial
 Operational
 Hazards
 Strategic

Calculation form
MCAA 2006 Strategic Estimating Conference
Category Inventory
High
Financial Risk
Owner default
Subcontractor default
Cash flow
Cost recovery
Budget
Material escalation
Inflation
Liquidated damages
Actual damages
Consequential damages
Surety/bonding
Strategic Risks
Reputation
Profit potential
Long-term relationships
Political considerations
Customer satisfaction
Single project distraction
Constructability
Operational Risks
Schedule
Productivity
A/E performance
Defective documents
Codes & regulations
Subcontractor performance
General Contractor performance
Change orders
System performance
Warranty
Bidding format
Environment Risks
Bio-hazards
Hazardous materials
Business interuption
Substance abuse
Release of pollutants
Insurance
Safety
Med. High
Risk
Average
Med. Low
Low
Include the Internet
After-the-Fact Strategy
“The Owner shall, at the written request of
the Contractor, prior to commencement of
the Work and thereafter, furnish to the
Contractor reasonable evidence that financial
arrangements have been made to fulfill the
Owner’s obligations under the Contract.”
AIA-201A, Paragraph 2.2.1, 1997 Edition
Keeping Track of Emotion
“So what kills the enemy is anger”
Sun Tzu, The Art of War
Case Study
Partnering as a Strategy
A team building process

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Create trust
Recognize inherent risks
Generates a change in attitude
The Results of Partnering
Arizona DOT saved $5.2 million per year due
to reduced claims since it embraced
partnering
Las Vegas Contractor completed $1 million
retail store in 35 days instead of 120 days
with partnering all 22 subcontractors.
“Partnering: Changing Attitudes in Construction”, AGC Publications
U.S. Army Corp of Engineers
“Clearly, the best dispute resolution is
dispute prevention…..By taking the time
at the start of the project to identify
common interests, lines of
communication, and a commitment to
cooperative problem solving, we
encourage the will to resolve disputes
and achieve project goals.” 1
Avoiding Claims Within the
Contract
Section II
Identify and Avoid Claims
Within a Contract
What is a contract?


Determines the
relationship
Assigns risk
 What changed?
How Can a Contract Generate
a Claim?
Creates an atypical
relationship
Offloads risk to
another party
Reading the Fine Print
Three Steps to Use the
Contract in Avoiding Claims
Read the contract
Read the contract
Read the contract
Relationship Changes
“The Subcontractor shall obtain and pay
for all necessary permits and licenses
pertaining to the work and shall comply
with all Federal, State, and Municipal
Laws, codes, ordinances, rules, and
regulations, whether provided for by
the Contract Documents, or not so
provided for without additional change
or expense to the Contractor….”
Relationship Changes
“The Subcontractor shall obtain and pay
for all necessary permits and licenses
pertaining to the work and shall comply
with all Federal, State, and Municipal
Laws, codes, ordinances, rules, and
regulations, whether provided for by
the Contract Documents, or not so
provided for without additional change
or expense to the Contractor….”
Relationship Changes
“The Owners and the Architect’s
interpretation shall govern the scope
and performance of the Work and no
allowances shall be made in behalf of
this subcontract for error or negligence
on his part in this connection.”
Relationship Changes
“The Owners and the Architect’s
interpretation shall govern the scope
and performance of the Work and no
allowances shall be made on behalf of
this subcontract for error or negligence
on his part in this connection.”
Reassignment of Risk (What
changed?)
Types of Changes
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Nonexcusable and noncompensable
Excusable and noncompensable
Compensable
Nonexcusable &
Noncompensable Changes
Excusable and
Noncompensable
Prevents Liquidated
Damages
Extends the
Contract
Allows damages for
acceleration if
Owner fails to
provide a timely
extension
Compensable
Extends both Contract Time and
Contract Sum
What Changed?
“Subcontractor agrees that its sole remedy for any
delay caused by the Owner, Architect, Contractor, or
any of their respective agents, officers, employees
and/or subcontractor shall be an extension of time
for the number of days by which the Subcontractor
has been delayed, as determined by the Contractor
and/or the Owner, and that the Subcontractor shall
not be entitled to any recovery for loss, costs,
expenses, damages, or attorney’s fees suffered in
connection with any such delay.”
What Changed?
“Subcontractor agrees that its sole remedy for any
delay caused by the Owner, Architect, Contractor, or
any of their respective agents, officers, employees
and/or subcontractor shall be an extension of time
for the number of days by which the Subcontractor
has been delayed, as determined by the Contractor
and/or the Owner, and that the Subcontractor shall
not be entitled to any recovery for loss, costs,
expenses, damages, or attorney’s fees suffered in
connection with any such delay.”
What Changed?
“If Contractor shall desire the Work of the
Subcontractor hereunder to be performed with
greater speed than is herein contracted for, the
Subcontractor shall, without affecting or abridging
the rights of Contractor set forth in any Article
hereof, upon receipt of written order from Contractor,
employ overtime work as so directed. The actual cost
of such overtime work as shown on time sheets
checked and approved each day by Contractor shall
be paid by Contractor to Subcontractor, but no
overhead, supervision costs, commissions, or other
costs shall be charged thereon.”
What Changed?
“If Contractor shall desire the Work of the
Subcontractor hereunder to be performed with
greater speed than is herein contracted for, the
Subcontractor shall, without affecting or abridging
the rights of Contractor set forth in any Article
hereof, upon receipt of written order from Contractor,
employ overtime work as so directed. The actual cost
of such overtime work as shown on time sheets
checked and approved each day by Contractor shall
be paid by Contractor to Subcontractor, but no
overhead, supervision costs, commissions, or other
costs shall be charged thereon.”
What Changed?
“Subcontractor shall take all necessary action to
prevent and avoid strikes, picketing, lockouts,
and all other labor disputes and difficulties on
the Project and shall do all things necessary
to prevent and avoid any Work stoppage on
account of any such strike, picketing,
lockouts, or other labor disputes. These
occurrences shall not entitle Subcontractor to
any extension of the Contract time or any
additional compensation or Delay Damages.”
What Changed?
“Subcontractor shall take all necessary action to
prevent and avoid strikes, picketing, lockouts,
and all other labor disputes and difficulties on
the Project and shall do all things necessary
to prevent and avoid any Work stoppage on
account of any such strike, picketing,
lockouts, or other labor disputes. These
occurrences shall not entitle Subcontractor to
any extension of the Contract time or any
additional compensation or Delay Damages.”
10 Principle Causes of
Construction Disputes
4. Contractors who bid too low
3. Ambiguous contract documents
2. Unrealistic expectations of the parties,
particularly owners who have insufficient
financing
1. Contract provisions which unrealistically
shift project risks to parties who are
unprepared to cover those risks
Strategies for Avoiding Claims
During Construction
Great management
of the project
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Documentation
Schedules
New ideas to
consider
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Forward Pricing
Backward Pricing
BIM
Great Management of the Project
The essence of developing long-term
clients

Make your firm more profitable
 More accurate bids
 Reduces risk
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Avoids claims
 Addresses entitlement
Documentation as a Positive Strategy
Avoid claims and improve productivity
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Prompt written notice (a contractual duty)
 Gives the owner/GC/CM as much time as
possible to solve the problem

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Creates more options
Prove you mitigated the damages
 Legal duty
 Relationship building
Documentation as a Negative
Strategy
Level the playing
field
Removes their
defenses

Types?
Documentation as a Strategy
to Avoid Claims
Job log or diary
Site visit report
Change order log
Photographs, video,
etc.
Documentation
Documentation
could have
prevented a claim
Werner Const. Vs. City of York, NE
Documentation
Documentation
Documentation Rules
Clarity
Time is Relative
60
Definition of Documentation
Written records
Persons who were present
In a position to know
Were created at the time or shortly
thereafter
In a normal course of business
61
The Documentation Dial
MEDIUM
HIGH
LOW
62
Documentation
Example on high-end documentation
and the claim process
Time comparison study
Avoiding Claims with Project
Schedules
Overall project schedule
Manpower loading schedules
Short interval schedules
When Schedules Go Bad
Manpower Loading/Resource
Leveling
Manpower Loading/Resource
Leveling Charts
1/
1
1/ 4/0
2
1/ 1/01
28 1
2 /0
2/ /4/0 1
1
2/ 1/01
1
2/ 8/01
25 1
3/ /01
3/ 4/0
1
3/ 1/01
1
3/ 8/01
25 1
4/ /01
1
4 /0
4/ /8/01
1
4/ 5/01
2
4/ 2/01
29 1
5/ /01
5/ 6/0
1
5/ 3/01
2
5/ 0/01
27 1
6/ /01
6/ 3/0
1
6/ 0/01
1
6/ 7/01
24 1
7/ /01
1
7 /0
7/ /8/01
1
7/ 5/01
2
7/ 2/01
29 1
8 /0
8/ /5/0 1
1
8/ 2/01
1
8/ 9/01
26 1
9/ /01
2
9 /0
9/ /9/01
1
9/ 6/01
2
9/ 3/01
30 1
/0
1
What Does This Manpower
Loading Chart Say?
You are in the 8th month of this project
25
Actual Manpower
Estimated Manpower
Letter from CM
demanding more
w orkers
20
Tariffs
removed
15
10
5
-
SIS (2-Week Look Ahead)
When Schedules Go Bad
Underfloor cooling
system
Mechanical
Contractor required
to certify that duct
plenums were
adequately
protected
When Schedules Go Bad
What Changed? Building
Information Modeling (BIM)
Database linked to
intelligent objects
Allows for the
collaborative
management of
building design,
construction and
maintenance/
operation
Best viewed as a
project delivery
method
Building Information Modeling
(BIM) Issues
Blurs the dividing line between entities
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What is the design?
Who is the designer?
Who is in ‘responsible charge’?
Forward Pricing
A process of assessing change order
costs prior to the project
Contractor waives their right to claim
Owner waives their right to Liquidated
Damages and/or claim
Change Order Impact
Percent of Loss if Condition
Factor
1.
2.
STACKING OF TRADES: Operations take place within
physically limited space with other contractors. Results
in congestion of personnel, inability to locate tools
conveniently, increased loss of tools, additional safety
hazards and increased visitors. Optimum crew size
cannot be utilized.
MORALE AND ATTITUDE: Excessive hazard,
competition for overtime, over-inspection, multiple
contract changes and rework, disruption of labor
rhythm and scheduling, poor site conditions, etc.
Minor
Average
Severe
10%
20%
30%
5%
15%
30%
 Mechanical Contractors Association of America, 1994
Forward Pricing
Strategies for Cumulative Changes
– Backward Pricing
Change order labor
Total Direct
Field Labor
Delta
Estimated labor
hrs.
Definition of Delta
MCAA’s Change Order Impact
Calculator
Issued in 2002
Change Order Impact
Calculator
Backward Pricing
Conclusion
Identify those conditions that give rise
to claims
Create strategies to avoid the claims
Build stronger relationships