NAvVIGANT.. Construction Foruny Building on the lessons learned in construction dispute avoidance and resolucion’ Construction Claims from A to Z1 John Livengood, Esq., AIA, PSP, CFCC* ABSTRACT: Construction Claims are the two strong words that strike fear and loathing in the hearts of employers and construction managers alike. These words that have spawned an entire industry dedicated to preventing, asserting and resolving difficulties that occur on a construction. project. Claims have grown around the world in the past 50 years and are now a major construction management issue, often overshadowing on-time or on-budget performance. As a ns has been paralleled by the advent of stricter contracts, an explosion of dispute resolution alternatives, and in many locations, a result, throughout the world the rise of construction clai hardening of employer attitudes towards contractors’ pleas for relief from perceived changes in the work. No member of the project team, from designers to managers to contractors to ‘employers, has been left untouched by th outline the basics of why and how claims develop, what it takes to make a claim, what it takes to defend against a claim, and some rules to help avoid, minimize and resolve claims. rise of these claims, This short presentation will 1 The opinions and information provided herein are provided with the understanding that the opinions and information are general in nature, do not relate to any specific project or matter and do not necessarily reflect the official policy or position of Navigant Consulting, Inc. Because each project and matter is unique and professionals may differ in their opinions, the information presented herein should not be construed as being relevant or true for any individual project or matter. Navigant Consulting, Inc. makes no representations or warranties, expressed or implied, and is not responsible for the reader's use of, or reliance upon, this paper, nor any decisions made based on this paper. 2 Managing Director, Navigant Consulting, Inc, San Francisco, CA. ‘©Navigant Consulting, Inc. - 2014 Page 1NAvVIGANT.. Construction Foruny Building on the lessons learned in construction dispute avoidance and resolucion’ INTRODUCTION Construction Claims are the two strong words that strike fear and particularly loathing in the hearts of employers and construction managers alike. These two words have created an entire industry dedicated to preve ing, asserting and resolving difficulties that occur on a construction project Construction claims are a by-product of our world’s expanding global economy with its fast pace and hyper competitiveness. The number of construction claims has grown in much of the world in the past 50 years and are now a major management issue, often overshadowing, project execution focus beyond on-time or on-budget performance. As a result, the rise of construction claims has been paralleled by the advent of stricter contracts, an explosion of dispute resolution alternative methods, and in many locations, a hardening of employer attitudes towards contractors’ pleas for relief from perceived changes in the work. No member of the project team, from designers to managers to contractors to employers, has been left untouched by the rise of these claims. While construction claims is a vast and complicated subject, this short presentation will outline the basics of why and how claims develop, what it takes to make a persuasive claim, what it takes to defend against a claim successfully, and proposes some rules to help avoid, minimize and resolve construction claims. PART 1-START AT THE END The Employer Start with what you want at the end of the process, which means figuring out what you want from the project. If you are the employer, your probable list of desired results, roughly in the conventional order of importance, are: 1) A project that meets your needs; 2) A project delivered within your budget; 3) A project delivered on-time; 4) A project that was delivered ‘©Navigant Consulting, Inc. - 2014 Page 2NAvVIGANT.. Construction Foruny Building on the lessons learned in construction dispute avoidance and resolucion’ safely; 5) A project that meets its community or stakeholders needs; and 6) a project that was completed with minimal conflicts and disputes. 1) A project that meets your needs: Start by researching and defining your needs. It is faster, easier and cheaper if you identify the detailed programme requirements prior to construction commencement. Hire planners, architects and engineers to perform a complete and integrated design. If it is a Design-Build (DB) project, hire a developer that will develop a detailed program and design from the materials you developed that accommodate all major programme issues. If it is not in the initial project requirements of a DB project, then it should be assumed that the contractor has discretion concerning that particular element. 2) A project delivered within your budget: Employers should be willing to invest in their project. While cost control is essential, it is ultimately cheaper to build well once that have to re-build repeatedly. It is cheaper to pay the designers sufficiently so they complete the design than to have emergencies requiring hasty design decisions. It is cheaper to have fair contract documents that allocate risk to the party that can best avoid the risk. And it is better to plan for a sufficient contingency so that when the unknowable happens, you can still complete the project appropriately. 3) A project delivered on-time: A late project may be almost worthless, or it may be of the same value regardless of the delivery date. As employer, you should allow sufficient time for the work because a rushed job will likely be poorer in quality and more prone to disputes. However, a project with too generous a time schedule may not retain the contractors’ attention. 4) A project that was delivered safely: Poor safety has both ethical and economic consequences. Everyone is better served by a safely executed project and the supervision necessary to make that likely. 5) A project that meets its community or stakeholders needs: A project that does not meet or is perceived to not meet the community or stakeholders needs, will fail or have difficulty through direct action or inaction. These needs include those meant to be served by the project as well as those who are affected by the project. Including the ‘©Navigant Consulting, Inc. - 2014 Page 3NAvVIGANT.. Construction Foruny Building on the lessons learned in construction dispute avoidance and resolucion’ concerns voiced in community meetings and offered in reviews with historic review boards, for instance, may seem to complicate programme development, but the final design will be more likely to reflect both community values, and activity and market participation for the duration of the project, 6) A project that was completed with minimal conflicts and disputes: An employer that starts by planning for all target goals - what is needed at the end - will more likely avoid many of the worst kinds of problems that result in construction claims. ‘The Contractor If you are the contractor, your list is only a little different: 1) A project that fulfills your client’s needs; 2) A project that meets its contractual design requirements; 3) A project delivered within your contracted cost; 4) A project delivered on-time; 5) A project delivered safely; and 6) A project that was completed with minimal conflicts and disputes. 7) A project that fulfills your client’s needs: Just meeting the design specifications does the contractor little good if the needs of the client are not met. While the contractor usually has little to no input in the project planning and design, the contractor can influence how a project is implemented in order to maximize satisfying the client needs. 8) A project that meets its contractual design requirements: Perhaps this is obvious, but it is often difficult if the design documents are incomplete or contain errors and omissions. A contractor's best protection in any legal action is to have performed according to his contract and followed all the requirements, but timely notification of potential problems to the parties who can offer remedies may avoid disputes even if they are not caused by the contractor; 9) A project delivered within your estimate: A project that goes over budget damages the contractor AND the employer since such an occurrence often generates claims when the contractor tries to recoup lost costs. Reasonable estimates are therefore essential. Underbidding to get the job almost guarantees claims; over bidding does occur, butNAvVIGANT.. Construction Foruny Building on the lessons learned in construction dispute avoidance and resolucion’ 10) A project delivered on-time: Good planning on the part of the contractor can assure at the outset that the project has sufficient time for the construction, and on-going programming and frequently up-dated planning can assist in compensating for the likely unexpended events. 11) A project that was delivered safely; while ethically we understand the need for safety because a life is generally considered more important than money or time. But a safe project is also cheaper since insurance and contractor costs are reduced when the project has protocols in place making it safe for its workers, 12) A project that was completed with minimal conflicts and disputes: Disputes cost money and consume time, and frequently, the likely compromises means that both parties do not recover what they think they are entitled to. Both parties to a construction contract, regardless of the chosen delivery system of design/bid/build or design/build, have more in common than in competition; that is, they both have more to gain by a successful process. [o summarize, the best way to avoid claims is by good planning. Start early and allow ample time to prepare a comprehensive programme, be willing to spend sufficient money to hire competent and well-experienced designers who prepare complete documents, and make timely decisions throughout the entire project ~ these will reduce or eliminate claims if combined with proper construction phase management - to be discussed in the next section. PART 2 - CATEGORIES OF CLAIMS? ‘There are several categories of claims under many standard construction contracts, This section identifies and presents a brief discussion of each of the types of claims. Directed Changes Wilshusen, Fredrick, Berg, Eric, Brookie, Terry, Okizaki, Carrie, 2008 Construction Checklist pages 211-260; Forum on the Construction Industry, American Bar Association, ‘©Navigant Consulting, Inc. - 2014 Page 5NAvVIGANT.. Construction Foruny Building on the lessons learned in construction dispute avoidance and resolucion’ Changes to contract requirements are common during construction projects. Virtually all contracts have a changes clause — a contract provision allowing the employer to change the scope of the work during the project by directive. Typically, decisions to make changes to the work are evidenced by the issuance of a written directive (e.g,, change-order or contract modification). ‘Most contracts authorize the employer to issue variations bilaterally (with agreement on time, cost and scope between the parties) or unilaterally (where the employer directs the contractor to proceed with a change even in the absence of agreement on time and/or cost). ‘When variations are forward priced and bilaterally executed, there is joint agreement on the scope, time, and cost of the change before the work is performed. In such a case, there is little likelihood of a claim for damages arising from such an agreement. The risk of performing the changed work is assumed by the contractor. However, when work is performed before the employer and contractor can agree on the amount of additional time and cost, disagreements may arise concerning the fairness of the stipulated time and costs incurred. Such disagreements can turn into claims. Other disputes may arise from changes during construction. For example, the contractor may argue that certain costs were not covered by the terms of the variations. Or the contractor may submit a “cumulative impact” or “cardinal change” claim alleging that an overwhelming number of changes justify additional compensation above the variations and contract amount. Constructive Changes Generally, constructive changes are unintended changes. That is, some action or inaction of the employer or the employer's agents causes the contractor to perform work beyond that which is required by the terms of the contract documents. It should be noted that employers may be held liable for the actions of their representatives (e.g, architects, engineers, construction managers) even if they do not intend to be so bound. Examples of such unintended changes are: + Comments on shop drawing submittals that require the contractor to perform ‘work not required by the contract ‘©Navigant Consulting, Inc. - 2014 Page 6NAvVIGANT.. Construction Foruny Building on the lessons learned in construction dispute avoidance and resolucion’ * Directions communicated in documents such as Construction Change Directives or Bulletins that are issued by the employer's consultants that modify the performance in some manner not originally intended to create additional costs * Ambiguous contract requirements where the contractor is required to perform additional work in accordance with the employer's interpretation Constructive changes may also arise from situations such as the following: * Defective contract documents (eg, errors, omissions, ambiguities, impossible or impracticable requirements) * Inspection actions * Nondisclosure of relevant information + Constructive acceleration Typically, to recover for a constructive change, the contractor generally must show that: + The work performed was not required within the original scope of the contract, * Appropriate notice of change was given to the employer + The change was actually required by the employer (not volunteered by the contractor) * Additional costs and/or time were actually incurred in performing the changed work Cumulative Impact Changes Cumulative impact changes are a type of constructive change. They arise due to the aggregation of numerous events that in total create a quantifiable impact. The numerous events may have been subject to previous separate variations, but the interaction of events creates an impact greater than the sum of the individual events. The events need not be individually significant and are often relatively small. They produce a constructive change because the employer is not aware that the combination of events creates its own, separate impact. Examples of types of events leading to cumulative impacts include: © Variations ‘©Navigant Consulting, Inc. - 2014 Page 7NAvVIGANT.. Construction Foruny Building on the lessons learned in construction dispute avoidance and resolucion’ + RFls (Request for Information) * Bulletins * Access restrictions * Late approvals Differing Site of Changed Conditions‘ Many contracts have a clause that addresses unanticipated or hidden physical conditions at the site that differ from those represented in the contract. Such clauses are often required by law in public works contracts. The purpose of the differing site conditions clause is to transfer the risk of latent, pre-existing site conditions to the employer in an effort to minimize bid contingency costs. In the US, most differing site conditions clauses address two types of conditions: Type 1 —Subsurface or latent (hidden) physical conditions at the site differing materially from those indicated in the contract documents. Type 2 - Unknown phys cal conditions at the site, of an unusual nature, differing materially from those ordinarily encountered in work of the character provided for in the contract. Type 1 differing site conditions are physical conditions that differ significantly from those shown or indicated in the bid documents. The extent of the Type 1 conditions is measured by the difference between what the contract documents represent and what is actually encountered at the site. Examples include: * Rock where none is shown * Subsurface water where none is indicated * Buried pipes or utilities where none are depicted * Allen, Richard, Martin, Stanley, 2009 Construction Law Handbook Second Edition Section 27.04[3}; Wolters Kluwer, ago, IL. ‘©Navigant Consulting, Inc. - 2014 Page &NAvVIGANT.. Construction Foruny Building on the lessons learned in construction dispute avoidance and resolucion’ Type 2 differing site conditions are conditions that are so unpredictable that the contractor could not have reasonably foreseen their existence at the time of bidding. The extent of the Type 2 conditions is measured by the difference between what the contractor could have reasonably anticipated, based on its experience or what is generally known concerning this type of work in this area, and what is actually encountered in the field. Examples include: * Subsurface hazardous or toxic waste materials in a apparently undisturbed area * Soft ground beneath previously undisturbed dry soils * Buried construction debris in an area where no previous construction was known Differing site conditions may be either natural or man-made. They may be above or below ground level. The contractor must demonstrate that it encountered a material difference and that the condition encountered caused it to expend additional cost and/or time. The contractor must also establish that it actually and reasonably relied upon the representations in the contract documents concerning the existing site conditions. Although not common, employers may be entitled to a downward price adjustment if the site conditions encountered differ materially from those represented in the contract, with the result that the contractor spends less time or lower costs in performing the contracted work. Directed Suspension of Work A suspension of work clause usually allows the employer to order all or part of the work stopped during the project Accordingly, the clause allows the contractor to recover time and costs associated with such orders to cease work. Typically, suspension clauses preclude the recovery of profit on the suspension costs. Directives to suspend or cease work by the employer must be provided in writing. The contractor is required to comply with the terms of the directive, so the employer should make certain that the directive is specific. Sometimes, when an employer suspends all or part of the work, the contractor files a claim for associated time and costs, if the impacts and costs of impacts are disputed by the employer. However, if the employer stops work because the contractor is perfort the work in an obviously unsafe manner, for exampl ‘©Navigant Consulting, Inc. - 2014 Page 9NAvVIGANT.. Construction Foruny Building on the lessons learned in construction dispute avoidance and resolucion’ then the suspension order was caused by the contractor's actions and extra cost claims are typically invalid. A contractor is not entitled to an adjustment resulting from its own fault or negligence. Constructive Suspension of Work Constructive suspension of work may be caused by employer's acts or omissions that have the effect of unreasonably delaying the contractor's work. These are typically unintended acts that result in an unanticipated delay. Examples include: * Delayed approval of shop drawings * Delayed issuance of variations * Site or right-of-way unavailability * Delayed delivery of employer-furnished items To recover for a constructive suspension of work, the contractor generally must demonstrate * A delay to the work occurred * The cause was an action or inaction of the employer or its agents * The delay could not have been foreseen by the contractor + Proper notice was given to the employer + The contractor incurred additional time and/or costs as a direct result of the delay or suspension Note: ‘The contract may contain some variation of a no-damages-for-delay clause. Such clauses may still be found in many contracts and are enforceable in some states in certain situations. Prudent employers review the contract to determine whether it contains such a clause. Check with legal counsel to determine whether the clause is enforceable in your state, or whether an ‘exception may apply in your case ‘©Navigant Consulting, Inc. - 2014 Page 10NAvVIGANT.. Construction Foruny Building on the lessons learned in construction dispute avoidance and resolucion’ Delay* Project delay is a common problem in construction. Delay, in many contracts, is generally defined as an impact to the contractually-specified completion date. There are generally four types of delays. They are: + Excusable, non-compensable delay: Delay caused by third parties or incidents beyond the control of both the employer and the contractor. Examples typically include acts of God, unusual weather, strikes, fires, floods, acts of government in its sovereign capacity, and so forth, In such situations, the contractor is normally entitled to a time-extension and relief from liquidated damages, but no compensation for delay costs. + Excusable, compensable delay: Delay caused by the employer or the employer's agents. One example is the issuance of variations that delay the project's end date. ‘The contractor is generally entitled to a time extension and compensation for delay. + Inexcusable delay: Delay caused solely by the contractor, its subcontractors, or its suppliers. Examples include lack of workers or late delivery of contractor-furnished equipment or materials. The contractor is generally not entitled to relief for such a delay, and must either make up the lost time, or be contractually liable to the employer for late completion or liquidated damages. © Concurrent delay: This is a situation where two or more delays occur within the same time frame, each of which would independently impact the project's critical path. This is sometimes referred to as overlapping delays. The delays may be employer-caused, contractor-caused, caused by others, or caused by one another. If the concurrent delays are caused by both the employer and the contractor, and to hat is, the contractor receives a non- compensable time extension but no delay damages; the extent that they actually overlap, neither party is entitled to damages. 5 Wickwire, Jon, Driscoll, Thomas, Hurlbut, Stephen, Groff, Mark, 2010 Construction Schedul Liability and Claims Third Edition Section 7; West Thompson Reuters, New York. 1g: Preparation, ‘©Navigant Consulting, Inc. - 2014 Page 11NAvVIGANT.. Construction Foruny Building on the lessons learned in construction dispute avoidance and resolucion’ the employer will not recover liquidated damages or late completion damages, and does not have to pay delay damages to the contractor. Directed Acceleration Acceleration refers to actions taken by the contractor to complete the work earlier than programmed or required by the employer in order to maintain a completion date despite an acknowledged delay. The employer may give the contractor a directive to speed up work and shorten the time of performance, or to overcome employer-caused delays already experienced (ie, to “buy back” delay time). Typically, such a directive is issued in the form of a variation. So long as the contractor is not mitigating its own delays, the net increase in the contractor's costs incurred in complying with this directive (e.g., added equipment or labor, overtime pay, etc.) is usually recoverable by the contractor. A claim closely related to acceleration is deceleration, where the employer directs the contractor to slow down or partially suspend the work. Constructive Acceleration Constructive acceleration is the unintended shortening of the time of performance for the project. To recover on a claim of constructive acceleration, the contractor must generally show that: * A delay occurred for which a time extension should have been granted * Anotice of delay and time extension request was properly submitted * No time extension was granted or part of the time extension owed under the contract was denied * Contractor was required or directed to complete “on time” or threatened with the imposition of late completion damages * Contractor filed a separate notice of constructive acceleration * Contractor actually accelerated its operation and incurred additional costs as a result of the acceleration ‘©Navigant Consulting, Inc. - 2014 Page 12NAvVIGANT.. Construction Foruny Building on the lessons learned in construction dispute avoidance and resolucion’ Termination for Convenience Many contracts have a clause allowing the employer to delete all or portions of the project work for the convenience of the employer. If the employer determines not to complete all or portions of the work, a written termination directive is normally issued to the contractor. Such clauses also typically provide for the contractor's entitlement to compensation in the event such a decision is reached. ‘Termination for Default or Cause In the event that the contractor fails to perform in accordance with the contract in a substantial manner, the employer may, under certain circumstances, terminate the contractor's right to continue the work. Consistently failing to provide sufficient labor, materials, or equipment, consistently failing to maintain required qu y, or consistently refusing to comply with laws and building codes, are situations that may give rise to a termination for default. In such circumstances, it is advisable for the employer to provide the contractor with a “cure notice” setting forth specifically what conditions must be remedied within a stipulated time period. Should the contractor fail to cure its performance, the employer may elect to terminate the contract for default and call upon the contractor's surety to fulfill its obligations under the performance bond. The surety often has the option of completing the remaining work itself through a contractor of its choice, pay the employer a negotiated settlement up to the full value of the bond, or do nothing if it believes that the employer's termination action was wrongful. Default terminations have serious consequences for the contractor and their sureties, and frequently lead to disputes and legal actions. False Claims ‘©Navigant Consulting, Inc. - 2014 Page 13NAvVIGANT.. Construction Foruny Building on the lessons learned in construction dispute avoidance and resolucion’ ‘The federal government and some states have statutes to protect themselves against false claims (eg,, claims based upon “knowing” misrepresentations or falsified records).If a claim can be proven to be “false” as defined in the false daims act, the recovery may include restitution, civil penalties, costs, punitive damages, and attomey’s fees. While such laws have been on the books for many years, some public employers are only now beginning to assert false claims lawsuits as a means for affirmative recovery. Design Deficiency Claims fhe basis for many contractor claims against employers lies in the deficient performance of the architect/engineer (A/E). In turn, some employers will seek recovery from the A/E for the damages the contractor may recover from the employer. Many aspects of the A/E’s work may be called into question, such as design defects, tardy shop drawing review, untimely response to Requests for Information (REIs), or inadequate site reports. To recover against the A/E, the employer must typically show that the A/E failed to meet the standard of care in the performance of its duties as a design professional. In most jurisdictions, the standard of care is defined as that degree of skill and care ordinarily exercised by other similarly qualified professionals, practicing at the same time and location, and under similar circumstances, In essence, it is a comparison with the A/E’s peers. The specific technical elements comprising “standard of care” are not typically defined by statute; rather, they are adjudicated on a case- by-case basis. in court or_—_ alternative dispute resolution forum. PART 3- TYPES OF DAMAGES* “Damages” are the costs incurred by a party as a result of one or more of the claims previously discussed. Monetary damages must be proven with some degree of specificity. © Bruner, Patrick and O'Connor, James, 2007, 2012, Bruner & O*Connor Construction Law Section 19; West ‘Thompson Reuters, New York. ‘©Navigant Consulting, Inc. - 2014 Page 14NAvVIGANT.. Construction Foruny Building on the lessons learned in construction dispute avoidance and resolucion’ Many contracts allow the employer to audit the contractor's books and records to verify the claimed costs. Damages associated with construction claims generally fall into these categories: Direct Costs Direct costs are those costs incurred as a direct result of the claim situation. They may be described as “hard dollar costs” or costs incurred in performing “extra work.” Examples may include: * Labor costs, including fringe benef & payroll taxes + Materials * Equipment + Subcontractor direct costs * Mobilization/demobilization costs + Storage costs Indirect Costs Indirect costs are costs not allocable to any specific item of direct work. Such indirect costs may also be time-related costs; that is, they continue or increase as the project performance per home office overhead dis extended. There are generally two basic types of indirect costs: field overhead and * Field Overhead Examples of costs in this category include: © Project management staff Superintendents Project office Temporary uti sand security ‘Maintenance and clean-up Communications eo coc 0 Office equipment ‘©Navigant Consulting, Inc. - 2014 Page 18NAvVIGANT.. Construction Foruny Building on the lessons learned in construction dispute avoidance and resolucion’ + Home-Office Overhead Examples of costs in this category include: Corporate management Accounting and payroll staff Other personnel costs Engineering Estimating eco 00 © Computers and office equipment Insurance ° Home-office space rent Central equipment yard Home-office overhead is often a controversial topic in the claims arena. Court and alternative dispute resolution forum decisions vary widely as to its allowability. In some circumstances, formulas have been used to calculate home-office overhead; however, special legal rules and conditions may apply. This is an area of damages where you should consult with an attorney and a claims consultant. Over the years, some contractors have recovered additional home-office overhead costs, either on the theory that extended home-office overhead is incurred when a project is delayed, or that unabsorbed home-office overhead has occurred when employer-caused delay has impacted the revenue stream of the contract. Extended home-office overhead is the concept that the employer owes home-office overhead costs for every day of employer- caused delay. Unabsorbed home-office overhead is the concept that the employer owes home-office overhead only if an employer-caused delay results in a substantial decrease in the project's cash flow for an unknown duration, and there is no other contract work the contractor can pursue to absorb that overhead cost. ‘©Navigant Consulting, Inc. - 2014 Page 16NAvVIGANT.. Construction Foruny Building on the lessons learned in construction dispute avoidance and resolucion’ As most contracts do not specifically address home-office overhead, contractor claims for these types of damages can differ greatly. Delay Costs Delay costs are a category of costs that may be incurred by both contractors and employers when a project is delayed. Examples of contractor delay costs include: * Idle equipment * Idle personnel * Additional or extended storage costs * Escalation costs of labor, materials, and equipment Employer delay costs may be either liquidated or actual. Liquidated damages are provided for in the contract and specify the amount to be charged to the contractor for each day of contractor- caused delay. Liquidated damages should be a reasonable forecast of costs that the employer may incur for late completion. If the daily amount is so high that it is disproportionate to the employer’s probable costs, it may be judged by a trier of fact as an unenforceable penalty. Employer actual damages may include lost use of the facility, lost rental income, lost profits, delayed proceeds of the sale of the facility, increased or extended financing costs, extended general conditions and/or personnel costs, storage costs, holdover penalties and extended professional fees. A no-damage-for-delay clause or a waiver of consequential damages clause may complicate the recovery of delay costs by either party. Special legal rules often apply, so it is best to consult with an attomey and claims consultant. Impact Costs One of the fastest growing areas of claimed costs is associated with impacts. These are often costs associated with non-critical path delays, which manifest themselves as productivity ‘©Navigant Consulting, Inc. - 2014 Page 17NAvVIGANT.. Construction Foruny Building on the lessons learned in construction dispute avoidance and resolucion’ losses. Usually, the contractor asserts that it experienced higher than anticipated costs performing a specific set of activities as a result of some non-contractor action or event. The productivity loss might be daimed using: * Activity total costs (planned vs. actual) © A measured mile analysis (unimpacted productivity vs. impacted productivity) ‘© Industry standard (actual vs. industry standard) Impacts that are associated with activities on the critical path may also be part of a related delay claim. If the impact causes a critical path delay and the delay is both excusable and compensable, it is possible that the contractor would be entitled to delay damages as well as the direct cost claims related to the impacts Other Contractor Damages ‘There are other contractor costs that may arise in claims. These costs are not always recoverable. Examples are: * Bond and insurance costs * Loss of bonus * Lost profits due to restricted bonding capacity * Interest cost * Legal fees * Claim preparation costs Other Employer Damages Employers may incur other costs due to the improper performance by contractors. These may include: Defective work — repair or replacement costs Costs to complete the project + Re-procurement costs Warranty costs ‘©Navigant Consulting, Inc. - 2014 Page 18NAvVIGANT.. Construction Foruny Building on the lessons learned in construction dispute avoidance and resolucion’ + Third-party claims ‘The recovery of these employer losses is often governed by the terms of the contract documents. It is important that you read the contract for these points. If appropriate, modify future contracts to protect your interests as appropriate. Claims & Project Delivery Methods’ Construction claims occur in all types of project delivery methods. While several project delivery methods purport to reduce the probability of claims - and this is very important - claims are possible when the allocation of risk as stated in the contract is inconsistent with the parties’ abilities to control and manage that risk. Some currently used alternative project delivery methods include: * Unit Price: Under this delivery method, the engineer provides a detailed estimate of materials and material types as part of the contract documents. Under this system, all bidders know the quantities, and it is only the cost per for the various units that vary. These contracts often become lump-sum contracts, and changes are priced based on the variation in units, Claims also arise when the performance of the work becomes more difficult, making the original pricing of the unit wrong. © Design — Bid — Build: Most of the claims experienced on construction projects arise in the context of traditional design-bid-build method projects where there is a separate design agreement between the designer and employer. Upon completion of the design, competitive bids are received, and a construction contract is then awarded. This traditional system, often called lump sum/low-bid contracting, and has been the primary delivery system in the public sector for more than a century, and therefore has the longest history of claims and legal precedents. However, if properly designed, * Wilshusen, Fredrick, Berg, Eric, Brookie, Terry, Okizaki, Carrie, 2008 Construction Checklist Pages 3-63; Forum on the Construction Industry, American Bar Association, Chicago, IL. ‘©Navigant Consulting, Inc. - 2014 Page 19NAvVIGANT.. Construction Foruny Building on the lessons learned in construction dispute avoidance and resolucion’ ‘managed and administered, this system will have few claims. * Design-Build contracts require the Design-Build (D-B) contractor to complete the design based upon the employers’ programme, and then to construct it. Some employers perceive that they are free from any contractual risk of claims using design- build. While the design-build project delivery system can be an appropriate vehicle for shifting design and programme-related risk from the employer to the design-builder, and can be a faster method of project delivery, it is no guarantee of a claims-free contracting method. Ambiguities in contract language can and do arise under design- build, leading to claims. The employer using the design-build method is well advised to retain experienced counsel in drafting the contract terms, and to favor tried and tested risk mitigation strategies over novel approaches. If that is done, design-build projects can provide greater certainty with respect to cost and programme. ‘+ Fast-Track Construction: This delivery system anticipates construction starting on early portions of the project prior to design completion of later parts of the project. Employers using this system believe that the costs associated with an earlier overall completion outweigh the risks associated with starting construction with an incomplete design. Risks include the need to coordinate the interfaces between the multiple contracts and this can lead to claims or disputes. If properly designed, managed and administered, claims can be minimized or avoided. ‘+ Multi-prime Construction: This system is usually mandated by state law on public contracts. It requires that the project be broken up into several prime contracts, (usually a general, mechanical, electrical and plumbing), each with a separate contract with the employer. This system requires the employer or his agent, typically a construction manager, to provide overall coordination among the prime contractors. While potentially saving the employer the profit markups typically contained in a single contract, this method also has considerable risk for the employer as there is no direct contractual relationship between the contractors. ‘©Navigant Consulting, Inc. - 2014 Page 20NAvVIGANT.. Construction Foruny Building on the lessons learned in construction dispute avoidance and resolucion’ + Construction Management at Risk (CM@R): In this system, the CM@R is initially engaged by the employer to perform pre-construction services including estimating, scheduling and constructability reviews. As the design nears completion, the CM@R executes a construction contract for a specific scope and specific price. This method tends to generate fewer claims since the CMR is more informed as to the scope and risks of the project. * Alliance Contracting (aka. Integrated Project Delivery - IPD): This relatively new delivery method requires a three-way contract between the employer, contractor and designer, which establishes the risks and responsibilities of each party. In exchange for greater certainty of cost and liability, each party gives up some of its ability to claim for changes in the project. This method is very specialized and needs unique insurance coverages. It is generally restricted to teams that have worked together frequently. ‘© Public-Private Partnership: This is another relatively new delivery system. In this system, a developer works with an employer and provides a wide range of services that could include site selection, programmatic development, and financing, in addition to the traditional design and construction activ ies. Public entities, especially in cities and historic districts, can stipulate general programme parameters and then shop for the developer who will deliver them. The advantage to the employer is that it can develop needed buildings or infrastructure with minimum up-front cost. In exchange, it often relinquishes detailed project control to the developer. Each of these systems has their advantages and disadvantages, and the hoped for successful project outcome will depend upon the selection of the appropriate method, and the culture and ability of the employer and other parties to perform in accordance with the risks as allocated. No system is free from the possibility of claims; however, an appropriate delivery method that is executed properly can reduce claims. Regardless of the method selected, an employer should consider the engagement of an Agency Construction Manager (CMa). The CMa will enable the employer to evaluate the alternative project delivery methods and represent the employer throughout the design and construction process. The professional ‘©Navigant Consulting, Inc. - 2014 Page 21NAvVIGANT.. Construction Foruny Building on the lessons learned in construction dispute avoidance and resolucion’ CMa service is delivery method neutral and solely represents the employer interes throughout the project as the employer endeavors to achieve timely completion, within budget and without claims. PART 4- CLAIMS A TO Z: GLOSSARY* Construction claims, like many other aspects of moder business, has its own unique set of terms. This glossary sets forth definitions of the more common terms used in construction claims. Acceleration: The employment of methods of completing work in a shorter duration than planned or required by the contract. Such methods can include overtime work, additional ‘equipment, weekend work, additional crews, or double shift work. Also refers to conduct by the employer requiring a contractor to complete work earlier than programmed. Directed acceleration occurs when the employer formally requires early completion, generally through issuance of a variation. Constructive acceleration arises only when all of the following occur: + Anexcusable delay was experienced ‘* Proper notice and time extension requests were filed «The employer granted less time than owed ‘+ The contractor was actually or impliedly directed to complete work on time + Notice of acceleration was given to the employer + The contractor actually accelerated its activities © The contractor incurred increased costs AACE International, Inc. 2014 Cost Engincering Terminology, RP 10 International, Morgantown WV. ‘©Navigant Consulting, Inc. - 2014 Page 22NAvVIGANT.. Construction Foruny Building on the lessons learned in construction dispute avoidance and resolucion’ Act of God: An extraordinary naturally occurring event, such as a flood, tornado, earthquake, or tsunami, Also referred to as force majeure. Alternative Project Delivery (APD): APD refers to any contractual method intended to deliver completed construction projects other than by using the traditional design-bid-build method. Ambiguous Specification: The meaning of the provisions of a contract requirement, document, or specification is susceptible to multiple reasonable interpretations. Mere disagreement about the meaning of a provision does not prove that an ambiguity exists. There needs to be genuine uncertainty of meaning based on the existence of more than one logical and reasonable interpretation of the language used. The entire contract must be taken into consideration in determining the meaning of any specific provision. Beneficial Occupancy: Use of a facility or project, in whole or in part, by the employer for its intended purpose. This may occur even though some of the contract work remains undone or incomplete. Bond, Bid: A bond that is included with the submission of a bid that guarantees that the bidder will execute the contract if awarded the contract. Bond, Payment: A bond that guarantees the payment of the contractor's subcontractors and suppliers on the project. Bond, Performance: A bond that guarantees the performance of the work of the contract under the circumstances described in the bond. Breach of Contract: Failure by either the employer or the contractor, without legal excuse, to perform any work, obligations, or duty owed to the other. Burden of Proof: The requirement to prove facts in dispute and/or alleged damages. In a claim, the burden of proof is on the party making the claim. ‘©Navigant Consulting, Inc. - 2014 Page 23NAvVIGANT.. Construction Foruny Building on the lessons learned in construction dispute avoidance and resolucion’ Causation: The facts and circumstances that produce a result for which a party claims entitlement to compensation. The “linkage” is between claimed events and claimed damages. Change: Additions, deletions, or other revisions to the work as defined within the general scope of the contract. A change may be authorized by written directive from the employer to the contractor, or arise informally by a constructive change. In either situation, a change should be formalized through issuance of a variation that appropriately modifies the contract. Change, Bilateral: An agreement executed by the employer and the contractor for a change to the contract requirements. Agreement subjects include the scope of the change, the cost, and the time impact (if any). Change, Cardinal: A change or combination of changes to the work that is beyond the general scope of the contract. The basic legal test for a cardinal change is whether the type of work is within the contemplation of the parties when they entered into the contract, and whether the project as modified is fundamentally different from the project that was bid. Change, Constructive: An act or failure to act by the employer or its agents that is not a directed change, but that has the effect of requiring the contractor to perform work beyond that required under the terms of the contract. Change, Unilateral: A change to the contract issued by the employer without the agreement of the contractor as to the scope, cost and/or time impact. Change in Sequence: A change in the order of the work as initially programmed or planned. Claim: Written statement requesting, additional time and/or money for acts or omissions during the performance of the contract, and for which there is some dispute between the employer and the contractor over entitlement, time or cost requested. ‘©Navigant Consulting, Inc. - 2014 Page 24NAvVIGANT.. Construction Foruny Building on the lessons learned in construction dispute avoidance and resolucion’ Conflict in the Plans and Specifications: Statements in the contract documents, including drawings and specifications that cannot be reconciled by reasonable interpretation. Contract Completion Date: The date established in the contract documents for completion of the work or specified portions of the work. This date may be expressed as a calendar date or a number of calendar or work days after issuance of the Notice to Proceed, or other defined point in time, When time extensions are issued by the employer, the revised contract completion date is sometimes referred to as the Adjusted Contract Completion Date. Cost, Direct: The cost of labor, materials, supplies, equipment and any other costs related specifically to items of work being performed. Cost, Impact: Added costs directly resulting from acceleration, delay, or disruption that are a consequence of a change, directive, design error, or other unanticipated event. Examples include loss of efficiency, idle equipment and extended overhead. Cost, Indirect: Expenses indirectly incurred as a result of delays or other impacts, but not directly allocable to a specific work item. Indirect claim costs may include field and home-office overhead. Critical Path Method (CPM): CPM scheduling is a mathematical-based scheduling technique ‘that establishes the significant work activities and the relationships between these activities for the purpose of creating a network of activities used in planning, scheduling and controlling the work. The path of the longest duration of continuous and dependent work activities through the programme network is identified as the Critical Path, and is the minimum amount of time required to build the project as depicted by that programme. Cumulative Impact: A type of constructive change arising due to the aggregation of many numerous events that in total creates a quantifiable impact. The numerous events may have been subject to previous separate variations, but the interaction of the many events creates an impact that is not sufficiently captured as part of each individual event. ‘©Navigant Consulting, Inc. - 2014 Page 25NAvVIGANT.. Construction Foruny Building on the lessons learned in construction dispute avoidance and resolucion’ Damages, Actual: The actual increased cost to one party caused by another party's acts or failure to act. Damages, Liquidated: An amount of money set forth in the contract as being the financial liability of the contractor for failure to complete the work by the contract completion date or adjusted contract completion date. It is a reasonable forecast of the costs the employer is likely to incur in the event of late completion by the contractor. Liquidated damages are typically expressed as a daily rate. Deceleration: A direction, either expressed or implied, to slow down the progress of the work. Defect, Latent: A defect in the work that cannot be observed by reasonable inspection. Defect, Patent: A defect in the work that can be observed by reasonable inspection. Defective Specifications, Defective Contract Documents: Specifications or drawings that contain errors, omissions, ambiguities, conflicts, or impossible or impracticable requirements, and that prevent the contractor's performance of portions of the work as contemplated by a reasonable contractor at the time of bidding, Delay: An unanticipated event or interference with the progress of a critical path work activity being performed at the time that causes the end date of the project to be extended. Delays may be caused by the employer, the contractor, third parties or force majeure events. Delays can be excusable, compensable, non-excusable or concurrent. Delay, Compensable: Delay that result from the employer's actions or inactions that entitle the contractor to both a time extension and delay damages. Delay, Concurrent: Two or more delays within the same timeframe, both of which would independently impact the project's critical path. If one delay is caused by the employer and the ‘©Navigant Consulting, Inc. - 2014 Page 26NAvVIGANT.. Construction Foruny Building on the lessons learned in construction dispute avoidance and resolucion’ other by the contractor, the contractor is generally entitled to an excusable, non-compensable time extension to the degree the delays “overlap.” Delay, Excusable: An unforeseeable delay caused by an event beyond the control and without the fault or negligence of the contractor (including their suppliers or subcontractors). Excusable delays may be compensable or non-compensable, depending upon whether the terms of the contract or law allows recovery of delay costs. Delay, Non-Excusable: Delay within the control of the contractor, its subcontractors or suppliers, or a delay resulting from a risk allocated to the contractor under the terms of the contract. The contractor is not due any time extension or delay damages, and may be responsible for actual or liquidated damages for the delay. Differing Site Conditions: Generally refers to either a subsurface or latent physical condition at the site that differs materially from the conditions represented in the contract documents. It may also include an unknown physical condition at the site of an unusual nature that differs materially from conditions generally encountered and recognized as inherent in work of the nature provided for in the contract. Disruption: An event that hinders a party from proceeding with construction as it was planned. Examples include labor inefficiencies as a result of frequent work stoppages, work performed out of sequence, or work performed concurrently with other activities causing a crowded work site. Entitlement: A legal term referring to the legitimacy of contractual and factual bases [basis?] of claims by employers, contractors and other parties to construction contracts. Errors or Omissions: Generally refers to design deficiencies in the plans or specifications that must be corrected in order for the project to function or be built as intended. Errors are typically things shown incorrectly. Omissions are things not shown. Also referred to as Defective Specifications or Defective Contract Documents. ‘©Navigant Consulting, Inc. - 2014 Page 27NAvVIGANT.. Construction Foruny Building on the lessons learned in construction dispute avoidance and resolucion’ Exculpatory Language: Clauses and phrases in the contract that are intended to release or limit the liability of one party for certain actions that may occur during the performance of the work. Certain exculpatory language may be unenforceable or prohibited by law. False Claim: A request or demand for payment, property, or services made to a public employer while “knowing” that it is based upon a false statement or falsified document. Specific definitions are found in the various False Claims Acts. Field Overhead: Expenses incurred by a contractor at the job site in support of a project that cannot be directly associated with a specific work item. Examples include project management staff, job site office, yard crane and temporary utilities. Also referred to as General Conditions Costs or Jobsite Overhead. Float: A term used in CPM scheduling, which is the measurement of time indicating how late any activity or group of activities in a programme can be completed without impacting the critical path and the programmed end date of the project. Float provides flexibility to the contractor in managing its resources and programme contingency to accommodate employer changes without affecting the project completion date. Float is normally calculated as the time difference between the early start and late start, or the early finish and late finish dates of an activity based the status of completion of the CPM programme work activities as of a given point in time. For this reason, float values of uncompleted work activities generally change during the life of the project. Force Majeure: An extraordinary naturally occurring event, such as a flood, tornado, earthquake, or tsunami, Also referred to as an Act of God. Home-Office Overhead: Expenses incurred by a contractor in support of all projects that cannot be directly allocated to any specific project. Examples include executive salaries, home office rent and utilities, general business insurance, home office accounting and personnel costs. ‘©Navigant Consulting, Inc. - 2014 Page 28NAvVIGANT.. Construction Foruny Building on the lessons learned in construction dispute avoidance and resolucion’ Idle Equipment Costs: The cost of equipment that remains on-site ready for use, but on a stand-by basis. Impact Claim: A term used to describe a variety of claims that affect the time and cost of contract performance, including delay, disruption, suspension, directed acceleration and constructive acceleration. Implied Duties and Obligatio: even if not stated in the contract. Examples include the duties of non-interference and cooperation that exist between the parties to the contract. Principles of general contract law imposed upon both parties Implied Warranty: The legal theory that states when an employer requires a contractor to build the project in accordance with plans and specifications, the employer is responsible for the design and any losses to the contractor for design defects in the plans and specifications. The employer, therefore, impliedly warrants that the plans and specifications furnished are adequate to accomplish the work. Impossibility: A contract requirement that is physically impossible to perform. To be impossible, it generally must be shown that no contractor could perform the work required, not that just a particular contractor cannot perform it. Impracticability: Inability to perform work called for under a contract due to unforeseeable extreme and unreasonable cost. This is considered to be an economic impossibility even though the work requirement may be physically possible to perform. Inefficiency: A level of production that is less than that accomplished under normal working condition, which typically results in a work activity costing more, The calculation of inefficiencies resulting from entitlement issues is one of the most contentious areas in construction claims. ‘©Navigant Consulting, Inc. - 2014 Page 29NAvVIGANT.. Construction Foruny Building on the lessons learned in construction dispute avoidance and resolucion’ Interference: Conduct that unreasonably interrupts normal operations and hinders performance of the work. See Disruption. Latent Condition: A concealed or hidden condition that cannot be determined by a reasonable inspection. Loss of Productivity: See Inefficiency. Manpower Analysis: A comparison of planned versus actual labor provided to the project to evaluate progress of the work. Material Difference: A change of condition that will have a significant impact on the performance of the work in terms of means and methods, time and/or cost. Misrepresentation: Factual information that is false or misleading, even if unintentional, and would have made a difference in the performance of the work if known at the time of contract formation. May also refer to information known or available to one party but not identified to the other party (either intentionally or unintentionally) before the submission of the bid or entering into the contract. Mitigation of Damages: The responsibility of both parties to a contract to minimize costs or time when encountering a potential or actual claim situation. Owned Equipment Costs: Expenses incurred through owning and maintaining equipment. These include: such as depreciation, replacement cost, repairs, maintenance, taxes, insurance and storage. Pricing, Forward: Estimation and agreement of the cost of work or changes prior to the work being performed. ‘©Navigant Consulting, Inc. - 2014 Page 30NAvVIGANT.. Construction Foruny Building on the lessons learned in construction dispute avoidance and resolucion’ Pricing, Retrospective: Pricing of work or changes after some or all of the work has been performed. The actual costs of the work performed may be used to arrive at the price. Also referred to as Force Account, or Time and Materials (T&M) Pricing. Rented Equipment Costs: The amount that the employer of the equipment (the lessor) charges toa renter (the lessee) for use of the equipment. Such charges may be on an hourly, daily, weekly or monthly basis, and are generally supported by rental invoices. Programme Compression: Delays forcing more work to be done in a given duration of time, which can result in the utilization of more personnel than originally planned or can be effectively managed. Programme compression also usually reduces float in the programme, making it more likely that future delays will delay the completion of the project. Stop Work Order: See Suspension of Work, Directed. Substantial Completion: When the project or a portion of the work is sufficiently complete in accordance with the contract documents so that the employer can use the project for its intended purpose. Superior Knowledge: See Misrepresentation, Surety: A bonding company licensed to conduct business in the state where the project is located and authorized by appropriate government agencies to issue bonds. Sureties issue bonds that, under certain circumstances, obligates the surety to complete a contractor's work if the contractor fails in that regard (performance bond), and that subcontractors and suppliers will be paid by the contractor (payment bond). Suspension of Work, Constructive: An act or failure to act by the employer that is not a directed suspension of work, but that has the effect of suspending or interrupting all or a portion of the work. ‘©Navigant Consulting, Inc. - 2014 Page 31NAvVIGANT.. Construction Foruny Building on the lessons learned in construction dispute avoidance and resolucion’ Suspension of Work, Directed: An order or directive from the employer to the contractor to stop all or a portion of the work. Termination: Action by the employer under the terms of the contract to end, in whole or in part, the work by the contractor on the project. This may be either for the convenience of the employer or for default by the contractor. Third-Party Clai contract; for example, an adjacent property employer claiming damage to their property as a “laim against either the employer or contractor by persons not party to the result of construction activities. Time Extension: An increase in the contract time of performance, generally through a variation, Unusually Severe Weather: Adverse weather that is unusual for the time of year and the area. If the contract does not define this term, then the actual weather may be measured against ten- year or 20-year average weather for the time of year and the location of the project. Regardless of how severe the weather, if it is not unusual for the area and time of year, the contractor is typically not entitled to relief. PART 5 - ANALYSIS OF A CLAIM? The following is a multi-phased approach to analyzing a claim: Phase 1: Preliminary Analysis * Identify each issue * Identify and evaluate contract language + Establish issue files ° Pickavance, Keith; 2005, Chapter 14 Delay and Disrupti London. LLP Publishing ‘©Navigant Consulting, Inc. - 2014 Page 32NAvVIGANT.. Construction Foruny Building on the lessons learned in construction dispute avoidance and resolucion’ * Analyze each issue * Determine potential for contractual entitlement. * Allocate costs to specific issues if possible to prioritize further analysis * Request additional information, if necessary Phase 2: Programme Analysis * Obtain baseline and updated project programmes, in electronic format if possible + Compare as-planned, programme updates and as-built programmes to determine which activities were delayed and whether concurrent delays occurred * Identify periods of delay, disruption or acceleration # Associate claim issues with the identified periods + Perform a detailed programme analysis Depending on the size of the project, programme analys can be very complex and labor- intensive. There are a number of programme analysis methods, all with varying degrees of reliability and validity depending upon the actual circumstances of the delays and the documentation available. It is recommended that competent professional advice be sought before conducting complex delay analysis. Phase 3: Damage Analysis Determine direct costs associated with each claim issue that demonstrate entitlement ‘+ Determine potential indirect and impact costs, if any, associated with these issues * Determine overhead costs, either from the contract or project records for claim issues ‘Prepare damage calculations for each issue Phase 4: Settlement Negotiations ‘+ Complete the analysis of each issue before commencing negotiations ‘* Meet with the other parties to negotiate settlement of each issue ‘Use an independent mediator as appropriate to facilitate settlement © Once settlement is achieved, draft and execute the appropriate settlement documents, complete with a waiver of further claims concerning each issue settled ‘©Navigant Consulting, Inc. - 2014 Page 33NAvVIGANT.. Construction Foruny Building on the lessons learned in construction dispute avoidance and resolucion’ Phase 5: Formal Disputes Resolution” ‘+ If settlement cannot be achieved through negotiation, the parties may continue the dispute in accordance with the disputes resolution clause of the contract © Seek appropriate legal advice © Consider the potential use of alternative dispute resolution (ADR) techniques instead of litigation * Examples of Dispute Resolution Forums include: © Voluntary Settlement Conference Arbitration © Mediation Dispute Review Board Neutral Advisor Arbitration ar) ° Private Judge © Mini-Trial o Bench Trail o Jury Trial PART 6 - QUICK REFERENCE GUIDE General Action-All Claims In the event of a potential claim, or filing of an actual claim, the following actions should be taken: * Provide the claim notice in writing ‘© Obtain statements of the facts relating to the claim «Identify clauses of the contract that relate to the claim Identify what caused the claim + Identify how the claim has or will affect the remainder of the project and the project programme ‘+ Obtain an estimate or actual cost back-up for the cost and time that has resulted or will result from the issues contained in the claim © Bastianelli, Adrian, Sink, Charles. 2013, Chapter 9 Construction ADR, Forum on the Construction Industry, American Bar Associa cago, IL ‘©Navigant Consulting, Inc. - 2014 Page 34NAvVIGANT.. Construction Foruny Building on the lessons learned in construction dispute avoidance and resolucion’ ‘Investigate and document the claimant's allegations ‘+ Make a record of the claim or prepare issue files from the project record, assembling the relevant correspondence, meeting minutes, memos, programmes, RFls, and other documents ‘© Seek legal and professional claims assistance, as needed, to analyze and settle the claim + Determine whether any attempt was made to mitigate damages Specific Actions by Category of Claim The following are a series of basic checklists to be used if the following types of claims are submitted: Constructive Change Claims ‘© Obtain description of alleged change * Determine whether notice of change was filed + Require contractor to identify who directed the change, when, how, and what circumstance * Require contractor to demonstrate time and/or cost impact of change Differing Site/Changed Conditions ‘Identify and document the location of the alleged differing condition © Obtain description of conditions contractor anticipated and why © Obtain description of conditions actually encountered * Obtain description of difference between conditions ‘* Determine whether the difference between the conditions is material * Examine subsurface or site information provided * Examine conditions encountered © Ascertain the accuracy of conditions allegedly encountered * Perform independent assessment of conditions + Evaluate proper compliance with notice provisions ¢ Evaluate time and cost impact ‘©Navigant Consulting, Inc. - 2014 PageNAvVIGANT.. Construction Foruny Building on the lessons learned in construction dispute avoidance and resolucion’ Constructive Suspensions and Delays * Determine who or what caused alleged delay * Determine extent of delay Determine whether notice of delay was provided * Determine what activities were or will be impacted * Determine if the end date of project or contractual milestones have been or will be impacted + Review programme and determine if there was contractor-caused delay + Review programme and determine if there were any concurrent delays © Seek assistance to determine programme impact, Constructive Acceleration * Determine if delay occurred that should have resulted in a time extension ‘+ Determine if notice of delay was filed Determine if appropriate time extension was granted * Determine if employer directed contractor to complete work on time, to accelerate, or imposed late completion damages if the project was completed late * Determine if contractor gave notice of constructive acceleration * Determine if contractor's damages clearly relate to acceleration and are properly documented Termination Claims In anticipation of default termination: «Examine the contract to determine the grounds for default termination ‘© Determine if contractor has failed to make satisfactory progress ‘© Determine if contractor was delayed by excusable delay * Determine if contractor staffed the project in accordance with baseline programme ‘© Determine if necessary equipment and materials were delivered to the project in timely manner ‘©Navigant Consulting, Inc. - 2014 Page 36NAvVIGANT.. Construction Foruny Building on the lessons learned in construction dispute avoidance and resolucion’ © Verify that an actual default exists ‘+ Obtain legal advice before issuing a cure letter or terminating the contract + Issue “cure notice” to contractor with specific time period to cure default condition Follow all contractual requirements and procedures concerning termination ‘© Notify the contractor's bonding company in a timely manner after consulting legal counsel If contractor fails to cure default situation, issue formal termination for default letter in strict accordance with the contract After Termination for Default © Secure project site immediately since contractor is typically not entitled to remove materials, equipment, or records from the site * Document conditions on site with inspection records, photographs, videotape, etc. Ascertain what work was completed as of termination date ‘* Determine progress payments to date * Document work underway at the time of termination ‘Inventory equipment, materials and supplies on site not yet incorporated into project Analyze the situation and determine the most appropriate course of action to complete the project * Work with the bonding company as appropriate to protect your interests Design Deficiency Claims * Determine whether the notice or the formal claim from the contractor makes allegations of design errors, omissions or defective specifications «Identify the specific issues that the contractor alleges relate to design errors, omissions or defective specifications * Determine if other design deficiencies may affect the contractor, the time of performance or the cost to the employer Provide notice to the A/E and its insurance carrier (if appropriate) of the issues identified by the contractor and other known problems relating to design deficiencies ‘©Navigant Consulting, Inc. - 2014 Page 37NAvVIGANT.. Construction Foruny Building on the lessons learned in construction dispute avoidance and resolucion’ + Request assistance from the A/E to resolve the design-related issues ‘©Navigant Consulting, Inc. - 2014 Page 38NAVIGANT. Construction Foruny Building on the lessons learned in construction dispute avoidance and resolution’ CONCLUSION Claims are here to stay. There is no special contract vehicle that will eliminate claims, and there is no magic method that will assure there will be no daims. While intelligent and active prospective planning can reduce potential claims, it will not eliminate them. Good contracts also help, but overly restrictive, onerous or protective contract clauses can be counter-productive. The best defense to claims is to vigilant and fair contract management procedure, coupled with prompt attention to events and flexibility among, the leaders of the employers and contractors teams. In the event there are claims, the guide discussed above can help accelerate the resolution of the claims, ‘ONavigant Consulting, Inc. - 2014