Safety First is a regular series for the Civil Engineering Source, written by members of the Construction Institute Safety Committee to highlight safety topics of critical importance to practicing engineers.
In construction, problems, surprises, and issues happen every day. If an issue is not resolved quickly and effectively, it can escalate into a dispute. Disputes that are not resolved can escalate into claims that can be very expensive and take years to reach a conclusion.
When things go wrong on your project, it is important to take the proper steps to properly protect yourself and resolve the dispute quickly.
This article provides guidance on how to properly manage such disputes.
Providing notice
No one likes surprises, so it is important that when an issue arises in the field that all stakeholders are made aware of it. This is not only the polite thing to do; it often is a contract requirement. The contract may require notice of an issue within a certain time period or else any future claims can be rejected. When an issue arises, it is very important to communicate to all stakeholders that you have discovered an issue.
This notice should be in accordance with any contract requirements for such notice and, at minimum, should explain what the issue is, when it was discovered, and if the issue might impact the project budget or schedule. It is not necessary in the notification to state definitively how great the financial impact or delay is likely to be. As the issue develops, it may be necessary to submit additional notifications.
Work on any disputed portion of the project should be suspended until there is agreement between the owner and contractor on how to resolve the issue and how any additional work will be compensated. A contractor that performs additional work without clear direction from the owner, and an agreement on payment, risks never being paid for the additional work.
Compile documentation
Once an issue has been discovered, it is important to start documenting the issue and its impact. Start by developing cost codes in your accounting system to track additional labor and costs. The project team should gather documents that help explain the issue and the costs.
The following is a partial list of documents useful to prepare an issue file:
- Baseline schedule and schedule updates
- Correspondence, including letters, emails, and texts
- Journals/notebooks
- Change orders
- Field orders
- Requests for information (RFIs)
- Submittals
- Purchase orders
- Daily reports
- Diaries/logs
- Progress reports
- Meeting minutes
- Photographs
- Video
- Progress payments
- Delivery tickets
- Inspection reports/certificates
Create an analysis
Use the contemporaneous project records to develop a delay and damages analysis to create or defend against change orders. Delay and damages analyses should follow methodologies and restrictions outlined in the contract. The analysis should tie the damages and delays to the discovered issue.
For schedule analysis to capture delays on a project, the delay analysis can either be a prospective analysis or a retrospective analysis. The prospective analysis will take a schedule just prior to delay and insert a “fragnet” – an activity or activities with schedule logic to represent a delay – into the schedule and determine how much, if at all, the delay fragnet affects the project’s critical path. The prospective schedule analysis is useful to the project whenever the full impact is not known. The prospective schedule analysis skews its analysis toward the inserted fragnet and ignores any concurrent delays or possible delay mitigation.
A retrospective schedule analysis is performed after the project is completed and uses the contemporaneous schedule updates to take periodic snapshots of the project over the life of the project as the critical path changes. A retrospective schedule analysis can be more labor intensive than a prospective analysis but is considered more thorough because this analysis captures delays to date as well as any concurrent delays and mitigation.
Delays on a project are divided into three categories: excusable and compensable, excusable and non-compensable, and non-excusable.
Excusable and compensable are delays to the contractor that are due to the owner’s actions or inactions. The contractor is able to collect delay damages that are the result of excusable and compensable delays.
Excusable and non-compensable delays, on the other hand, are not the responsibility of either the owner or the contractor – things such as weather or labor strikes, or those which are the result of concurrent delays by the owner and contractor.
Non-excusable delays are delays that are the result of the contractor’s actions or inactions. Non-excusable delays can lead to the contractor paying delay damages to the owner.
Damages calculations can be divided into two major categories: delay damages and loss of productivity. Delay damages for a contractor are additional costs that are the result of excusable and compensable delays. Delay damages for an owner are the costs resulting from non-excusable delays, and can be actual damages or anticipated damages that were agreed to at the start of the project in the form of liquidated damages.
Loss of productivity damages happen when contractor-expended additional labor is used to achieve an outcome. As there are many factors that can affect labor productivity, it is very important to directly tie the cause of the impact to the damages. There are many ways to calculate loss of productivity on a project, but the measured mile analysis is widely considered the best methodology to capture such loss. A measured mile analysis is the comparison of productivity for the same crew on the same project doing the same work prior to a disruption and during a disruption period. The difference in productivity rates is the loss of productivity tied to the disruption event.
The delay and damages analysis should include an explanation of how the impacts occurred, with supporting documentation from the project record. This narrative should be thought of as an opportunity to persuade the other side to understand your impacts and work with you to resolve these issues quickly and fairly.
Joseph Hellenbrand, P.E., M.ASCE, is director of claims resolution at K2 Construction Consultants (k2consulting.com) in Bethesda, Maryland. He has more than 30 years of experience in construction and project management, planning, scheduling, engineering, and claims analysis in the private and public sectors.
Hellenbrand is knowledgeable in critical path method scheduling, damage assessment, project controls, site logistics, and construction from project initiation to completion. He performs schedule, productivity, and cost quantification analyses on large commercial and government projects involved in litigation and mediation. He has provided expert testimony in construction delays and construction management at arbitration and presented at mediations on delay analysis, loss of productivity claims, and construction damages.
Hellenbrand can be reached at [email protected].
