Planning for and Avoiding Construction Disputes – Part One
Planning for and Avoiding Construction Disputes – Part One
Many construction projects face considerable claims and disputes, along with increasing difficulty resolving such disputes in an effective, timely and economic manner. In part one of this article, we list some process-oriented dispute management recommendations, which if implemented, should reduce the likelihood and severity of disputes during the construction phase.
Communicate within the Owner Organization
The Owner Project Management Team (OPMT) should establish, document, and circulate (in writing) the boundaries of authority and responsibility within their own project organization for the various construction phase functions (a communication and authority protocol).
The OPMT should encourage collaborative relationships and implement partnering on the project. Partnering is a structured project management (PM) approach whereby all parties agree to trust-based relationships based on open and honest communications and a commitment to achieving mutual goals. It is a voluntary system of handling normal job site issues between the parties before issues escalate into claims or disputes. All stakeholders commit to resolving issues by employing a positive and cooperative dispute resolution approach. This collaborative approach should be supplemented by conducting regular health checks throughout the life cycle of a project to monitor performance and relationships and act as an early warning system.
Discuss Scheduling and Time Extension Requirements
One method for preventing disputes related to scheduling requirements is to hold a pre-construction meeting. The purpose of this meeting is to discuss scheduling, and requirements related to updates, three-week look ahead schedules, delay analysis and time extensions.
Review the Schedule of Values
It is common on lump sum projects for the contract to require that the contractor prepare a schedule of values to be used as a payment schedule. The OPMT should carefully review the proposed schedule of values to prevent the practice of front-end loading.
Designate an On-site Owner Representative
The OPMT should arrange for a representative to be on the site at all times when the contractor is working, since so many project decisions have to be made or approved by the owner’s representative. Such representation facilitates decision-making and should result in fewer project delays. The OPMT should be readily available to make timely decisions.
Review and Respond to All Contractor Letters
Contract documents are replete with requirements for written communications (e.g., confirmation of field agreements, submittals, change order requests, notices of delay or differing site conditions, etc.). Contractors and Owners are obligated to comply with the terms and conditions of the contract, including notice and other communication requirements. Respond in a timely and accurate manner and review and respond to all contract communications. Create a correspondence log documenting the date of receipt of the contract communication, the issue addressed, and the response date.
Finally, experienced PM staff should review all OPMT responses to contractor communications, to ensure the information is accurate and does not exacerbate a situation, or turn a routine matter into a future dispute. When done in a timely manner, this approach should decrease the number of claims and disputes.
Prepare a Project Management Plan
The OPMT should require their engineers and/or construction managers to prepare a project management plan detailing systems, policies, procedures, and document logs such as Notices of Variations/Changes and proposals, Requests for Deviations, Requests for Information (RFIs) etc. Such standardized project management procedures should mitigate delays related to these issues, and in turn, decrease claims and disputes.
Use Standard Forms
The OPMT should create and use a standard set of forms to address RFIs, change orders/variations, cost proposals, material testing, submittals, etc. Standardized forms, policies and procedures make document processing easier and help mitigate claims and disputes over issues such as late return of document submittals and disruption due to improper handling.
Agree Upon Timeframe for RFI Responses and Submittal Reviews
If the contract documents do not specify timeframes for responses to RFIs and submittals, Owner and contractors may, during the partnering sessions or kick-off meetings, negotiate and agree upon standard review times for various documents.
Utilize Project Photography
In the event of a claim or dispute, photographs or video are often more easily understood than the written word. Consider employing an on-site photographic monitoring system. Not only do such systems accurately record project progress on a real time basis, but the photos can be digitized and incorporated into 4D Building Information Modelling (BIM) and Virtual Design and Construction (VDC) systems. Comparisons of actual project photography with time-scaled BIM and VDC models can digitally display planned versus actual project status at any point during construction. Such systems make it easier to document delays, resolve delay claims and concurrency issues, etc., and thus prevent end-of-job disputes.
Do Not Use RFI Responses to Correct Errors or Redesign Project
The OPMT and their engineers and construction managers should avoid the use of RFIs to correct errors or redesign elements of the project. If the design needs to be changed during construction to achieve the Owner’s needs—or if the Owner simply wants a change—the OPMT should issue a notice of change and negotiate a change order. Failure to do so will likely cause contractors to respond by filing change orders or constructive change claims, both of which may lead to disputes.
Do Not Object to Written Notices
Written notices of changes, delays, suspensions of work, differing site conditions, etc., are almost always required in construction contracts. The intent of such written notice requirements is to alert the OPMT to problems or issues that may have potential cost and/or impact the timeframe. The best means for Owner to avoid this situation is to not object to written notices, and always remind contractors to file written notice whenever a situation (requiring written notice under the contract) arises.
Depending upon the terms of the contract, contractors may seek routine reimbursements for work successfully completed during previous periods (months). The OPMT needs to establish systems for the prompt handling of contractor payment requests in order to prevent: 1) late payments which may subject owners to legal challenges; or 2) slow payments which may adversely impact a contractor’s financial ability to execute the work as planned, leaving the owner exposed to claims of interference with the work. The Owner must emphasize to their project staff the need for prompt handling of all payment requests and equally prompt resolution of disagreements over such payment requests.
The OPMT must carefully review routine payment requests to ensure that any materials and equipment claimed to be onsite were in fact delivered and properly stored. The OPMT should also perform a physical inspection of the work in progress and construction status to ensure the accuracy of the payment request. Prior to authorizing payment, payment requisitions must also be checked against appropriate unit prices and payment breakdown line items. Underpayment or overpayment to the contractor may be problematic for all sides and should be avoided.
Use of these processes will likely minimize the number, frequency, and severity of disputes during construction. Part Two of this article will address ways to manage change and progress issues.
Dr. George Jergeas, P. Eng., Professor Emeritus of Project Management, University of Calgary. George has a strong passion in collaborative relationships, claims & disputes, and project management consulting and training. George appeared as an Expert Witness before the Commission of Inquiry regarding the Muskrat Falls project. Currently he is engaged in mediation of a construction dispute in Alberta.