FE 302 Lesson 5 Project Risk Management Execution Changed Conditions on Construction Projects

Lesson 5, Project Risk Management Execution TLOs-Given a construction scenario, analyze project issues and formulate alternative responses. ELOs: Identify assigned project issues. Analyze project issues in terms of impact to project cost, schedule, and performance. Utilize any pre-project initiation risk mitigation plan to complete full analysis. Recommend the project mitigation strategy to keep the project completion on track. Estimate through the remaining project duration any adjustments to the risk management plan.

What Causes Changes on Facilities Government Projects?

What Makes Construction Different? Latent/Patent Ambiguities Contract Interpretation Impact Costs Delays Defective Design Excessive Punch Lists Changed Work Conditions Constructive Acceleration Constructive Changes Over Inspection Superior Knowledge Inspection of Construction Invoicing, Retainage, Withholding FOOH and HOOH Extended OH, Unabsorbed OH Use and Possession Prior to Completion Turnover of Construction Warranties Performance Evaluations Waiver of Completion Date These are all the potential risks which may be encountered during a projects execution. The next slides will present all the various existing authorities to help mitigate and resolve these risks.

Changes Clause FAR 52.243-4 (Fixed-Priced Construction >$150,000) Policy Establishes authority to make changes within the general scope of the contract Purpose Gives government flexibility and compensates contractor Highlights KTR must give written notification to KO within 20 days of perceived change order No adjustments after final payment Now we will look at contractual authorities which will help in mitigating project risk after project initiation. This is the most abused clause in even construction contracting. Students who wish to may look in the FAR and review the things that the changes clause allows. Only these types of changes are allowed under the auspices of the changes clause. Any other type of changed condition must be handled under another appropriate clause. If a student asks about the last paragraph of the clause, tell them that portion will be discussed during constructive changes.

Differing Site Conditions Clause FAR 52.236-2 Policy Requires KTR to notify GOV of any differing site conditions - promptly and before conditions are disturbed Purpose Shift risk to GOV and eliminate bid contingencies Highlights 2 categories (Type I and Type II) Follow same procedure as described for the changes clause. Exculpatory language is any language the Government tries to include in any contract, non-statutory, that attempts to mitigate or relinquish any liability the government may have concerning the conditions present at a project. For example, the Government knows the soil conditions at the facility are questionable, or that the Government does not know what underground situations are present. If in the contract the Government places language much to the effect, “there is no representation of existing conditions and the Government is hereby relieved of all liability regarding the situations present.” Even though this language has been written into the contract and the contractor has signed the contract, this language is considered exculpatory and unenforceable.

Default Clause FAR 52.249-10 (fixed-price construction) Policy Allows GOV to terminate KTR who fails to complete the work Allows KTR to receive time extensions for delays Purpose Provides remedy for breach of contract Highlights GOV can terminate for actual or implied breach 10-day notification requirement Explain the care contracting personnel should take in explaining this aspect of the Defaults clause if they are contracting construction OCONUS. Various business cultures may interpret any document that contains the word Default negatively. For this portion of the lesson concentrate more on the delay aspect of the Defaults clause.

Default Clause FAR 52.249-10 Limitations: The government can’t default a contractor or assess LDs if the delay arises from unforeseeable causes beyond the control and fault of the KTR Some examples are: Acts of God or public enemy Acts of the government Acts of another contractor Strikes Unusually severe weather Delays from subs and suppliers at any tier arising from unforeseeable causes beyond their control and that of the prime contractor The Default’s Clause is the only authority to provide relief for anything beyond the contractor’s control. Under the Default’s clause the only remedy is time.

Disputes Clause FAR 52.233-1 All disputes (and claims) that arise under the contract are resolved under this clause KTR claims over $150,000 must be certified KTR claims accrue interest from the date received by the KO The KO must issue a decision: On claims less than or equal to $150,000 - Within 60 days of receipt On claims greater than $150,000 The KO must notify the KTR of the date which a decision will be made The KO’s decision must inform the KTR of its appeal rights Alternative Disputes Resolution is permitted For any Project there robably will be time when the Govt and contractor may disagree. Most times these disagreements can be worked out; through negotiations. At other times this clause provides a formal way for the contractor to supply their story and the govt to supply their interpretation. The courts or lawyers in some forum will decide the outcome.

Request for Information (RFI) RFIs are submitted by the general contractor who has question(s) about the contract’s terms and conditions and wants a government response. RFIs can appear at any time, but most often: At the preconstruction conference At regular progress meetings On a daily report (CQC or DRI) submitted to the COR KO must respond in a timely manner or a constructive change might occur Project Managers should be kept aware of any of these documents submitted. Resolution is paramount.

Request for Equitable Adjustment (REA) Submitted by contractors, usually after submitting an RFI, who have encountered a perceived change to the contract, that is not authorized by the KO REAs usually include a request for money, time or both Project Managers must keep a running total of all REAs and the project funding to see where the project costs are and if more funds should be asked, scope redefined, tradeoffs made, reprogramming requests submitted.

Constructive Change Definition: Unauthorized change ordered by the government affecting scope of work, including money, time, or both This next session of the lesson concentrates on the last paragraph of the changes clause. Constructive changes risk is completely on the Govt’s side. We will discuss each category further in the next slides.

Differing Interpretations of the Contract Most Common Type of Constructive Change KTR & GOV’T Differ On What Is Required Order Element – GOV’T directs KTR to perform in accordance with GOVT interpretation Case Law Supports that KTR May Prevail If They have a Reasonable Interpretation Ask the students if the Govt ever determines that performance of a contract should be in a specific way, informs the contractor, and later the Contracting Officer discovers that someone with a technical background determined the job should be done as they consider, not necessarily the requirements of the contract. Underscore to the students that there may be different interpretations of the method of performance for any construction contract. If the Govt and KTR cannot come to an agreement on the appropriate method and the case is elevated, Administrative and Judicial judges seek any reasonable interpretation. If the contractor’s interpretation is reasonable, no matter if the Govt’s is also reasonable, the contractor will prevail. If faced with this type of situation, contracting personnel should raise themselves above being just the employee of the Govt and try to look to reasonableness of interpretation.

Don’t Forget the Wild Card: The Duty to Inquire Rule INTENT RULES The Hierarchy of Contract Interpretation Whole Instrument Rule Express Language Rule MECHANICAL RULES Conduct of the Parties Knowledge of the Other Party’s Interpretation Prior Course of Dealings Rule Custom in the Trade Rule This slide is very important. It depicts how the courts will view the contract and the Project as one complete entity. Notice Order of Precedence, which is in every contract and has how the contract vehicle will be interpreted with importances, falls way down towards the last thing considered by the courts. Miscellaneous Maxims Order of Precedence Rule Contra Preferentem Don’t Forget the Wild Card: The Duty to Inquire Rule

Defective Specifications “Protection for the Government” DFARS 252.236-7001(b) Contract Drawings and Specifications The Contractor shall: Check all drawings immediately Compare all drawings and verify before layout Promptly notify the KO of discrepancies Be responsible for any errors that might have been avoided by complying with above Ask the students if the Govt ever publishes projects that have defective specs. Risk, most of the time, will be the Govt’s. On occasions an A-E may have some responsibility.

Defective Specifications “Protection for the Government” DFARS 252.236-7001(d) Contract Drawings and Specifications What about omissions from the drawings and specifications or the misdescription of details of work that are manifestly necessary to carry out the intent of the drawings and specifications or that are customarily performed? These situations: “shall not relieve the contractor from performing such omitted or misdescribed details of the work. The contractor shall perform such details as if fully and correctly set forth and described in the drawings and specifications.”

Claim A claim is a written demand by one of the contracting parties seeking money, time, or both. Two Types of Claims: Entitlement – Gov’t Disputes Right for Additional Compensation. Quantum – Gov’t Considers Meritorious, But Not Agree On Amount The claims process for contracting is the same process for construction contracting. In construction, many times we agree that the contractor is entitled to a remedy for a changed condition, but often we disagree with the amount (quantum) for that remedy. Remind students that FE personnel have the duty to settle all issues arising in construction acquisition fairly, equitably, and quickly as can be done. DOD looks to us to resolve issues, if at all possible, at our level.

“A Claim is an REA but an REA is not Necessarily a Claim” REA vs. Claim “A Claim is an REA but an REA is not Necessarily a Claim” Both can include direct costs, indirect costs, profit, and time. REAs: The costs of preparing an REA (legal and accounting fees and negotiation expenses are allowable). But interest is unallowable Claims: The costs of preparing a claim and the prosecution of a claim are unallowable But interest will accrue from the date submitted until the date of payment

Disputes Process If the contractor does not agree with the contracting officer’s final determination, this slide shows the two forums a contractor may pursue to be heard. Have the students notice how long this process can become. Thing to notice also, the lawyers will be asking for all types of documentation for the cases.

Alternative Disputes Resolution ADR is defined as “Any procedure or combination of procedures voluntarily used to resolve issues in controversy without the need to resort to litigation.” FAR 33-201 The next two slides provide a number of ways for resolving claims without litigation.

Lesson 5 Exercise Your team will be given various issues which have arisen in your assigned project. Your task is to propose resolutions identifying and quantifying the impacts. You will also revisit your previously submitted RMP and determine if adjustments need be made

Questions?