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This feature is part of ‘The Dotted Line’ series, which takes an in-depth look at the complex legal landscape of the construction industry. To see the entire series, click here.
The construction sector scores the dubious distinction of having among the more and more expensive demands. Scope changes are constantly a the main cause of these disputesaccording to HKA Global, a London-based consultancy specializing in construction risk mitigation and dispute resolution.
These conflicts cost contractors time and money. The sums in dispute for projects in the Americas reached more than a third of their value, averaging $100 million or 33.6% of capital expenditures. HKA’s recently released Crux Information Report Found. However, this situation is not inevitable – there are many steps contractors can take to avoid claims.
Construction professionals can mitigate this risk by understanding and planning for the common causes of project disputes. Change orders are a key point that needs to be addressed before shovels hit the ground, legal experts say.
In order to take such proactive measures, however, builders must first get over the psychological hump of accepting that unexpected circumstances will almost certainly occur throughout a job, said Dan Feinblum, partner at HKA Global. Builders may be hesitant to communicate problems as they arise for fear of straining their relationship with the owner, but this often leads to mistrust and conflict down the road.
Dan Feinblum
Courtesy of HKA Global
“One of the most important things about change management and change controls is to recognize that change happens in every project,” Feinblum said. “I don’t think I know of any project that hasn’t had some kind of change … if you’re not willing to acknowledge change, you’re not going to take any of these steps to protect yourself.”
Be ready
When starting a new project, it’s instructive to review previous ones with a similar contract structure or procurement route, said HKA Global Partner and Civil Engineer Caryn Fuller. Take note of failures and successes and use them to make a plan to avoid similar pitfalls. Creating a “lessons learned” package at the end of a project can help builders go into future negotiations better informed.
The next step is to really know your contract. Everyone managing and executing the work should know what the project’s scope, milestones and provisions are, and clearly define change and notification provisions, Fuller said. Because of this, it is vital to facilitate clear communication within the team and between teams from the jump.
“Sometimes there’s a miscommunication between the people who are negotiating the contract and the people who are going to execute the project,” Fuller said, and that can lead to unrealistic expectations being placed on the deal and potentially frustrated later on. “Having better communication and coordination between this contract execution phase with the actual execution team could be very valuable.”
Next, create a solid change management plan that clearly defines how to process a change or address unforeseen conditions. Project or process manuals are one tool for this: they can include key contractual clauses about changes and workflows that break down exactly what to do when a change occurs, i.e. who to email and how to document.
Caryn Fuller
Courtesy of HKA Global
Put a project monitoring program in place: Make sure progress, productivity and costs are properly updated and reported accurately and regularly, Fuller said. Builders and clients can review these reports to ensure the project is progressing as expected and resolve any issues quickly.
However, even with the best laid plans, sometimes conflicts will still arise. Contractors must be prepared by properly documenting changes as they progress and keeping relevant documentation organized in one place and up to date. Without proper documentation, builders may not be able to prove their case. Fortunately, a wealth of technology tools are now available to help contractors track, document and organize changes, Feinblum said.
Design conflicts
Amid the increase in design-build projects, in recent years Feinblum said he has noticed increased conflict between design and construction teams.
Prominent examples of this include the $2.3 billion Boston MBTA Green Line Extension. Its builders filed a lawsuit in August against engineering firm STV, alleging that its allegedly flawed designs caused more than $35 million in cost overruns. On Corpus Christi, Texas, Harbor Bridge ProjectTexas DOT shut down the work and issued a notice of default due to design defects.
With a fixed-price and high-price contract, designers are used to being consultants and asking clients for more money when they need it; In a design-build project, they are effectively subcontracted and the price has been set, and contractors may not want to foot the bill for changes that designers want, Feinblum said. Also, as designs are finalized, owners may request changes that are costly and difficult.
One approach to mitigating this is to share risk where possible. In a progressive design-build contract, for example, the contractor and owner collaborate to develop the design and budget for the project. According to Feinblum, “pain-sharing, gain-sharing” agreements, particularly between designers and builders, can also be a useful tool. Scheduling incentive bonuses can help motivate the entire team to meet timeline goals.
Another way to reduce this friction is by a design integration manager, which keeps the project aligned with design expectations through every step of the construction process and proactively mitigates conflicts. Usually supplied by the builder, they liaise with the design manager, construction manager and owner, addressing issues as they arise by breaking down communication silos.
Contracts get complicated, Feinblum said, but the best written agreement is no substitute for communication.
“Lawyers are trying to write the smartest contract they can, and in doing so, they’re putting in more and more restrictions, instead of the two sides getting together and talking and figuring out how to work out a change,” he said. . Feinblum.
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