Presented by: Jane Bachynski March 1, 2016 Avoidance and Management of Construction Claims – Fact or Fiction?

Why does it matter? Success of a construction project in large measure is attributable to the efficacy of risk allocation in order to avoid: Additional costs Schedule delays Defaults Many disputes on a construction project can be avoided if the risks and responsibilities of the parties are clearly defined in unambiguous contracts which assign risk to the party best able to evaluate, control, manage and assume the risk

Avoidance and Management of Construction Claims - Overview Avoiding Construction Claims What causes claims to arise? What can you do at the design phase? What can you do at the tender phase? What can you do at the contract phase? Managing Construction Claims How can you avoid construction claims on site? How can you manage construction claims on site? If you can’t manage them on site, what are your options?

Avoiding Construction Claims

What causes claims to arise? Causes: Incomplete design or insufficient plans and specifications Inadequate risk assessment Unfair risk allocation Constrained owner’s budget Late start-ups – permit issues Differing site conditions Inexperienced contractor, owner or consultant Unrealistic schedule Changes (owner and non-owner requested) Delays in construction due to weather, late delivery of supplies/materials, etc.

What causes claims to arise? Causes (continued): Poor management and administration of construction site Failure of a party to disclose material information Termination of contract by owner or contractor Failure to adequately schedule or coordinate the work Failure of the parties to cooperate with each other in the performance of the work An understanding of the causes and types of construction claims at the outset will assist the parties in avoiding disputes/claims by allowing them to ensure that risks are properly allocated in the contract and that attention is paid early on to avoidance, dispute resolution and management of claims

What can you do at the design phase? Claims avoidance can be accomplished most effectively during the design phase of construction Plans and specifications – the more comprehensive, the less likely that claims will arise Design defects can be caused by errors and omissions or lack of coordination among the various aspects of the design Main result of deficient plans and specifications – delay

What can you do at the design phase? Consultant/Architect/Engineer: Prepare drawings and specifications with care and skill of such persons of ordinary competence If plans and specifications are insufficient – consultant will be first party to determine the issue If additional design is needed – act promptly Owner: Hire reputable design consultants

What can you do at the tender phase? Make the tender documents simple and understandable Include limitation and exclusion of liability clauses Include claims resolution process that is simple with short time duration Tender process: Submittal requirements must be clear Bid forms are clearly defined and unambiguous Review period is identified and appropriate

What can you do at the tender phase? As a contractor: Examine designs prior to bidding Inquire about patent design errors prior to submitting bid Perform a thorough site review Thorough site investigations include considering: General site conditions: soil conditions, utilities, etc. Surface conditions Subsurface conditions Permits, fees and tax requirements Weather data Equipment and materials to be used on site

What can you do at the contract phase? Careful preparation of well considered contracts offers the next greatest opportunity for claims avoidance Contract documents must reflect the intent of the project Be as clear as possible – contra preferentum rule may apply against you Be clear as to each party’s roles and responsibilities Review the contract documents for conflicts between different sections Ensure limitation clauses are worded appropriately and that you are comfortable with their content Allocate the risk to the party best able to control it

What can you do at the contract phase? Key elements: Scope of work Responsibilities of the parties Clear performance criteria Quality assurance system Reasonable schedule Change order procedures Payment provisions Disputes resolution procedure Notice requirements Applicable laws

Managing Construction Claims

How can you avoid construction claims on site? Once contracts are signed and construction begins, the avoidance of claims becomes more difficult, although the impact of claims can still be mitigated through timely management actions and effective contract administration Identification of potential claims: The earlier you identify potential claims – the easier they are to deal with Observation is key Know your contract and reference project documentation Keep track of the evolution of the project

How can you avoid construction claims on site? In order to identify claims early on: Implement cost, schedule and quality control procedures Keep track of the person-hours and cost of changed work in the field Keep track of progress Hold periodic progress reviews and inspections to ensure compliance

How can you avoid construction claims on site? Project documentation The party with the best paperwork wins!!

How can you avoid construction claims on site? Project documentation: Project records and documentation are the most critical element in a successful claim Facts have to be recorded and preserved A well-prepared package of facts and figures will support a negotiated settlement But remember: if a law suit is started against you, you will have to disclose all relevant documents to the other side

How can you avoid construction claims on site? Daily reports: Great tool to identify problems as they arise Records work progress Should include: Project name and number, date, weather and site conditions, contractor’s own forces (including supervisory personnel), hours worked (activity and description), equipment used, subcontractor hours and information, overtime hours, production and material installed, accidents, change orders Communication device between the field and the office If complete, detailed and factual, will become useful evidence in future litigation

How can you avoid construction claims on site? Deficient daily report: A deficient daily report can hurt you Most common mistakes: Leaving space blank Missing report Report not completed daily Misleading and vague information Imprecise wording

How can you manage construction claims on site? Notice: What are the contractual notice requirements? Do you have insurance notice requirements? Limitation periods?

How can you manage construction claims on site? Be reasonable Put reasonable people in charge of claims and give them authority to settle them Undertake weekly meetings to try and chip away at claims as the project proceeds Use the project consultant to mediate disputes to find early resolution

How can you manage construction claims on site? Communications: Be careful of “without prejudice” Think carefully before sending an – Would you want that to be read in Court? Have a pro-active and creative attitude Compromise: “Discourage litigation. Persuade your neighbours to compromise whenever you can. Point out to them how the nominal winner is often a real loser - in fees, expenses, and waste of time.” Abraham Lincoln

If you can’t manage them on site, what are your options? Access to counsel: Involve them early Collaborate with counsel in investigating and strategizing This will help minimize losses and limit the impact

If you can’t manage them on site, what are your options? In the event a dispute cannot be resolved quickly, the parties should carefully consider the dispute resolution provisions contained in the construction contract governing the project in question and the stipulated time requirements to make and advance the claim Possible dispute resolution mechanisms include: Graduated negotiations On site personnel Use of independent experts Without prejudice agreements Mediation Informal process Third-party professional assists you in reaching an agreement Mediation/Arbitration Two step process Mediator assists parties in reaching a negotiated settlement, failing which that person will have the right to make a final and binding decision

If you can’t manage them on site, what are your options? Possible dispute resolution mechanisms include (continued): Arbitration More formal process Arbitrator will make a final and binding decision Other: Dispute Review Board Rent-a-Judge-like mechanisms

Thank you!

Questions?