Planning for and Avoiding Construction Disputes – Part Two: Managing Changes and Issues
Planning for and Avoiding Construction Disputes – Part Two: Managing Changes and Issues
In Part Two of this article, we continue listing recommendations on dispute management that, if implemented, should reduce the likelihood of disputes during the construction phase of a project. In particular, we address ways of managing change orders and delays that are common sources of disputes.
Review and Evaluate Change Order Requests
The Owner Project Management Team (OPMT) must do a timely review and evaluation of all change order requests submitted by the contractor. Evaluating such requests (to determine entitlement under the contract) should be a priority. Ignoring change order requests may lead to larger disputes.
Deal with Delay and Impact Damages
Changes and delays are nearly inevitable on construction projects, and most construction contracts require prompt notice of delay, and submittal of delay claims shortly after the event has passed. However, many owners refuse to deal with delay and impact damages at the time of the delay. Once notice of delay or potential delay is filed, the OPMT should meet with the contractor to find out what is going on, in order to determine how to mitigate such delays.
Review All Time Extension Requests and Time Impact Analyses
“Constructive acceleration” is generally defined as compelling a contractor to complete their work on time despite legitimate, documented requests for time extensions. Such claims arise most often when a contractor files a request for a time extension (either excusable or compensable) and the owner denies all, or part, of the request (or ignores it entirely), directing the contractor to complete work by the original date or threatening liquidated damages for “failure to complete on time.” These responses force the contractor to accelerate their efforts to complete work on time, thus incurring actual damages. Owners should ensure that their project team deals with time extension requests promptly, objectively and in accordance with the terms and conditions of the contract.
Hold Regular Project Progress Meetings
Experience teaches that communication on a project is critical to its successful completion without outstanding disputes. Regular face-to-face conversations provide more—and more current—information than written communication. Routine meetings (preferably weekly) with formal written agendas, attended by all appropriate project team members from both Owner and contractor organizations—including project managers, schedulers, quality control/quality assurance, procurement managers, subcontract managers, etc.—help define the project status, bringing problems to light early and providing a forum to ask questions and air concerns. If senior managers of both teams walk the jobsite together, on either side of these meetings, each side will better understand the other’s perspective.
Allot Time during Progress Meetings for Contractor Needs
As part of the regular meeting agenda, the contractor should identify the specific needs of the Owner, construction manager and/or design team. Contractors can then advise the Owner of what is important for the progress of the work (including explanations and timing information), and can work with the OPMT to prioritize necessary items.
Require Major Subcontractor Participation in Meetings
All “major” subcontractors should attend and participate in all project progress and schedule review meetings. Having all parties there helps to fully communicate actual project status, progress, problems, etc. Open project communication is key to successfully completing projects without disputes at the end. Allot each subcontractor time to discuss their issues and any delays, to make the OPMT aware of actual project status. Their responses should be carefully recorded in the meeting minutes.
Promptly Circulate Meeting Minutes to All Participants
The OPMT (or designee) must keep accurate written meeting minutes. These minutes serve as a “project history” establishing the contemporaneous project priorities; what current issues need to be resolved, by whom and when; and what agreements have been reached between the project teams, etc. Process and circulate these minutes to all attendees and relevant project executives within a day or so of the meeting.
Create Daily Reports from the Owner
The OPMT and/or their onsite representatives should keep and maintain daily reports listing:
- all activities worked on by the contractor and each subcontractor, by trade;
- daily manpower;
- all onsite equipment, whether used or idled;
- daily weather;
- site visitors;
- site inspection activities; and
- ongoing or potential delays, etc.
These reports must not include opinions, only factual comments and observations. They must be created daily and reviewed by the project manager for accuracy and completeness.
Monitor Contractor’s Production
The OPMT should routinely monitor or request the contractor’s field labour production and compare it to the planned production in the baseline schedule or current schedule revision/update. Identifying problems early makes it easier to correct them before they become a dispute, and helps mitigate and defend against later delay and impact damages claims.
Prepare and Issue Deficiency Reports
The OPMT should routinely prepare interim reports of deficiencies while the work is in progress—providing them to the contractor and obtaining the contractor’s commitment to immediately remedy such defects—without waiting until the end of the job. The OPMT should follow up to ensure that appropriate corrections have actually been completed.
Implement a Clearly Regimented Change Control Process
The Owner’s project management plan should establish a rigorous change management plan coordinated with the terms and conditions of the contract documents. Use standard forms and a standardized procedure for the issuance of change requests, review of contractor proposals, negotiation of changes, etc. To help avoid disputes, the owner’s senior management should delegate authority to the project team.
Establish a Mechanism to Promptly Pay for Changes
Successfully negotiated change orders are typically included in the list of pay items, allowing contractors to proceed with change order work and receive payment. However, all too often, contractors are instructed to begin work on change orders on a time and material (“T&M”) basis. When this occurs, the T&M change order is not included on the list of pay items because there is no agreement on the cost of the changed work. As a result, the contractor cannot seek payment for the change order work in process. Establish a system allowing contractors to obtain partial payments for ongoing T&M change orders, especially if the change is large and/or long. Unpaid change order work can place serious financial strain on a contractor, which may impact their ability to finish the work, or lead to a major dispute later on.
Settle All Changes in Full and Final Language
Some changes will be resolved by prospectively settled change orders, wherein the scope, time and cost of the change is agreed upon by the OPMT and contractor before any work is performed on the change. More frequently, however, changes will be settled retrospectively, with the work completed prior to the change order being issued. In either event, all changes should be settled with full and final settlement language in the change order.
Advise Contractors of Significant Changes as Early as Possible
Owners and their design professionals and construction managers frequently consider and scope potential changes prior to advising the contractor about potential change orders. We recommend advising contractors as early as possible about changes under consideration. Where possible, the OPMT should involve contractors in planning and assessing potential change orders, to help mitigate the impact on existing construction activities. The technical details of the change should remain under the purview of the design professionals, but contractors can provide input from the construction perspective to help mitigate time and cost impacts of the change. This approach may also help resolve change orders more quickly and facilitate agreement on prospectively priced change orders, thus avoiding later disputes over time, cost, and impacts.
Minimize Design Changes during Construction
If the OPMT and design professionals thoroughly plan and design the project, there is little need for design changes during construction. To minimize design changes, the OPMT should ideally make all critical decisions during the planning and design phases of the project. During the construction phase, the OPMT should resist the urge to change their initial decisions or order changes to obtain betterments during construction. Minimizing design changes substantially reduces the chances of disputes at the end of a project.
George Jergeas, PhD., P.Eng. Professor Emeritus and former Director 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 a mediation of a construction dispute in Alberta.