The Importance of "Putting It In Writing" In Design and Construction Contracts

It is often well worth the effort to clarify those obligations in design and construction contracts that otherwise may be implied and cause troublesome disputes for at-risk parties, a pair of partners in the law firm of Allen, Matkins, Leck, Gamble, Mallory & Natsis LLP (AMLGM&N) stressed to participants.

 

"It's easy at the early honeymoon stage of a project to kind of assume that everyone's going to be engaging in transactional negotiations at the start of a project in good faith and dealing fairly with each

other [as opposed to] later on in the project when people are worried about where the money went and why they can't afford it and why it's taking too long and all of the other things that happen on a project," AMLGM&N partner Robert Cathcart told the webinar audience. "It might be harder to resurrect and define these implied duties than it is [to address them] up front."Cathcart explained that such contracts represent a "roadmap" for the signatories.

 

"It's better to put all of this down in writing and put it in the contract so that the roadmap is clear so that everybody knows what the risks are that are allocated and how you can proceed in the event, ultimately, that it isn't all a happy paradise going through to the final conclusion, notice of completion, final payment, ...," Cathcart said.

 

Added AMLGM&N partner Bryan Jackson: "A contract is just an allocation of risk. So if you have a sophisticated contract or maybe a form contract, like the AIA [American Institute of Architects] contracts, it's already going to give you a lot of the run-of-the-mill risks that come up over and over and over again that have made their way into the form. So that's why using the forms are really helpful because you're already seeing somebody's idea -- at least the AIA's idea -- of how you want to allocate risks among the various parties.

 

"Think about it, you could be allocating risk to your insurance carrier, to a bonding company, [etc.]. You could also be allocating risks to the contractor, the architect, the subcontractors, the owner. A lot of this ends up being a dollars-and-cents allocation."

During the webinar, entitled "Implied Obligations in Design and Construction Contracts," Cathcart and Jackson addressed specific contract language and potential risks associated with good faith and fair dealing, warranties of plans and specifications, the sharing of material information, duties not to interfere, standard of care, workmanship, and other areas.

 

Early Planning, Communication Key in Controlling Costs
When controlling costs in major construction projects, early planning and communication are key, Joyce Hackenbrach, a partner in Pepper Hamilton LLP, told participants in another recent webinar sponsored by WPL Publishing.

"The single most important thing that you can do to control project cost is to engage in early, meaningful planning followed by clear agreements on all of the key business terms and good continuing communication among the project team members throughout execution so that you can catch any developing problems early, when you have more degrees of freedom in dealing with them," Hackenbrach said. "That's really the critical point: catching problems early and dealing with them early gives you more freedom and allows you to achieve better results. The further along you go before discovering a problem, the fewer degrees of freedom you have and the less likely it is that you'll be able to deal with that problem without incurring additional cost."

Hackenbrach emphasized that one of the most important principles is to engage in more in-depth and meaningful project planning before construction begins and not while it is in progress.

 

"There are some specific measures that you can take to try to better control your cost," Hackenbrach said. "Develop a clear and complete owner's program with all of your functional requirements, your schedule limitations, and your budget constraints. Get your designer, constructor or your CM advisor, and other teams members to realistically confirm with you that the goals are consistent with one another and feasible. Use iterative estimating if the program is adjusted so you can see what effects making changes in the program will have on your cost.

 

"Be realistic about the schedule. Just saying that somebody shall finish by a particular date doesn't mean that he will. You should talk to your team members and get them to tell you realistically whether -- given the lead times, given the time that it will actually take to carry out the construction, given the other project specifics -- your schedule is a realistic one. If you enter into one that's not realistic, you may end up with a lot of acceleration costs, you may still miss your target deadline, and you may induce defects, all of which tend to increase your cost.

 

"Preconstruction is the time for effective value engineering. It's not a good idea to wait until all of the prices are in or until you're in trouble and running out of money because then you're not doing value engineering. What you're doing is acting like a captain in a heavy sea, throwing overboard his cargo. Value engineering must be done early, like planning. Once a realistic program is developed, reduce it to writing and make it a contract document in all of the relevant contracts so that everybody is operating from the same baseline, and you have something that you can enforce."

 

The webinar, entitled "Practical Steps and New Tools for Design and Construction," also addressed common design problems, principles of integrated project delivery that address budget-busting problems, and using building information modeling to reduce cost overruns.

 

Carson Examines the Advantages, Disadvantages of Weather Planning Methods
There are several advantages and disadvantages to the methods that schedulers have used to model the impact of adverse weather conditions in construction projects, Chris Carson, Alpha Corp.'s corporate director of project controls, told participants in a another recent webinar focusing on this topic.

 

Carson discussed several such methods, including the following: use of weekend non-work days to make up for lost weather days; use of an activity immediately prior to milestones or project completion to house time in a bank; increasing durations for activities that are weather-dependent; and use of weather calendars.

 

The use of weekend non-work days to make up for lost weather days is an easy method and does not require any effort beyond using a five-day work week, Carson said. Also, this method does not extend the project when applied.  Nevertheless, there are several disadvantages to this method, including the following:

• The owner could take the position that the contractor planned for two days of adverse weather each week.
• Weekends may not allow adequate time or time at appropriate periods. There could be too little planning in bad seasons and too much planning in good seasons.
• Subcontractors may expect overtime for weekend work.
• Contractor supervision will have to work weekends.
• Municipalities may not provide inspectors on weekends.

 

Use of an activity immediately prior to a milestone or project completion to house time in a bank seems to make sense at first sight, Carson said. The method allows the owner to monitor and control use of banked time. Also, the completion date, or any milestone date with a predecessor weather activity, includes planning for adverse weather, and the method can be used in Monte Carlo simulations.
However, Carson argued that there are several drawbacks to this method, including the following:

• It applies weather planning to non-weather-dependent work.
• It reduces usefulness and accuracy of float values.
• Early dates of activities do not have any weather planning included, so only the completion dates after the weather activity include weather planning; activity dates cannot be counted upon.
• It provides an inappropriate feeling of "contingency" in the project.
• It requires additional effort and time to monitor and adjust.

 

The method of increasing durations for activities that are weather-dependent can be done easily with global tools and does not require monitoring, Carson said. However, such a method provides reduced transparency of planning and reduces review benefits because durations no longer are calculated by production rates and quantities. He also pointed out that planning is based on the static baseline schedule, so when a schedule shifts, weather is planned inappropriately for seasons. Furthermore, contractors using the schedule will not know if durations represent actual labor predictions because they may have weather planning built in.

The use of a weather calendar for historical weather data has the following advantages, according to Carson:

• No maintenance is required except for actualizing weather calendar, which should be done for historical accuracy.
• Planning is seasonal.
• The critical path method network automatically keeps weather planning at appropriate seasons; when activities slip into or out of periods of adverse weather, dates are adjusted.
• The method accommodates accurate delay analysis. If a delay will cause a later activity to slip into a period of non-work, the analysis shows the increased delay.

 

However, with such a method float values are affected by calendars, and the zero float path may have holes due to calendar changes. Also, if non-work days are distributed over a five-day week, planning may be overdone (historical data is kept on a seven-day week).

Bruce Jervis, Editor
Construction Claims Advisor