contract claims–analysis and avoidance sudhir damle principal – dhs consulting, inc. and john...
TRANSCRIPT
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Contract Claims–Analysis and Avoidance
Sudhir DamlePrincipal – DHS Consulting, Inc.
and
John UnbewustDirector – Trauner Consulting Services
Tuesday, April 28, 2015
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Meet Your Instructors – Sudhir Damle
Sudhir Damle• Civil Engineer, P.E.• 35 years of construction industry
experience, claims avoidance and resolution
• President of DHS Consulting, Inc.• DHS Consulting Program and Construction
Management firm
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Meet Your Instructors – John Unbewust
John Unbewust, P.E.• Director, Trauner Consulting Services• 40 years of construction experience• Former DOT Chief Engineer• Expert in forensic analysis of construction
phase contract claims• Significant experience revising/rewriting
DOT Standard Specifications• Significant experience implementing
alternative delivery methods• Significant experience creating and
implementing management controls
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Introduction
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The typical successful construction project benefits from two key components:• Quality contract documents, and• Quality construction management.
Seminar goal:• How to avoid/mitigate claims on projects;• Review project development processes;• Review construction phase management;• Resolve disputes fairly and timely; and• Identify tools for managing claims.
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Introduction
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ORIGIN OF CLAIMS
• Claims are generated by actions taken from Project Conception, Planning, Design and Construction• Seeds that Owners/AE Design firms plant that
germinate and become potential disputes/claims
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Project Pre Bid
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POTENTIAL DISPUTES / CLAIMS
KEY AREAS TO ADDRESS IN CONTRACT DOCUMENTS• Scope Definition & Realistic Timeline• Existing Site conditions• Design Errors and Omissions• Specifications • Drawings• Contract Language • Bid Documents & Q/A
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POTENTIAL DISPUTES / CLAIMS
SCOPE DEFINITION & REALISTIC TIMELINE• Completeness of Scope Definition • Adjoining work added after NTP• Additional work added during the job• Developing Realistic Timeline/durations
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POTENTIAL DISPUTES / CLAIMS
EXISTING SITE CONDITIONS• Reluctance by owners to identify all unknown
site conditions• Verifying As-Built Conditions• Inconsistent/Generic Geotechnical Reports• Incomplete Site Surveys
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Example of Claim Dispute – DUCTBANK LOCATION
• Duct Bank Location conflicting with Existing Building Foundation• “Blame Game”• Six Weeks Lost in Schedule• Claim - $150 ThousandSOLUTION: 1) Agency to provide As-Builts to GC Pre-Bid; and
2) Designer to job walk before routing the duct bank.
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Example of Claim Dispute – SEWER LINE CONVEYANCE
• Bore Hole Data showed No Rock Conflict• Generic Comment stated “Expect Rock in Area”• 80% rock found along route • Major Claim - $4 Million SOLUTION: Add Bid Item for Rock with a Cost/CY and a reasonable quantity.
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POTENTIAL DISPUTES / CLAIMS
DESIGN ERRORS & OMISSIONS• Completion of Design• Design criteria in conflict with Local agencies• Deferred Approvals – Fire Sprinkler • Over-Design versus Under-Design• Omissions• Delegated Design
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Example of Claim Dispute – PIPE SUPPORTS
• Specifications outline Spacing Requirements for Pipe Supports• Drawings only show a few Pipe Supports • Drawing Note specifies that “No Attempt Made to Show All Pipe
Supports”• Major Claim - $10 Million SOLUTION: 1) Drawing Note should have been on
the same page where pipe supportswere shown.
2) Additional note that contractor shallcalculate the loading and determinenumber of supports required.
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POTENTIAL DISPUTES / CLAIMS
SPECIFICATIONS• Conflicting Standards/sections• Unclear Hierarchy • Specifications referenced to drawings • Specifications in conflict with local codes• Specifications not updated• Specifications that state “and or equal” material,
equipment etc.
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POTENTIAL DISPUTES / CLAIMS
DRAWINGS• Not to Scale – Misleading• Lacking Specification Notations• Incorrect Revision• Conflict with Specs• Scope omitted• Detailing errors
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POTENTIAL DISPUTES / CLAIMS
CONTRACT LANGUAGE• Lacking clarity• Conflicting sections• Overly onerous specs• Vague conflict resolution
language
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POTENTIAL DISPUTES / CLAIMS
BID DOCUMENTS & Q/A• No involvement by third party stakeholders
(private companies, public utilities, city planners)• Schedule of values to reflect the entire scope in
the drawings• Escrow of Bid Documents
Proposed manpower Was the complete scope bid?
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POTENTIAL DISPUTES / CLAIMS – Conclusion
WHAT CAN THE OWNER DO TO AVOID/MITIGATE CLAIMS?1. Third Party Constructability Reviews2. Clarity and Completeness of Contract Docs3. Develop a Risk Mitigation Register4. Comprehensive Sign Off by Stakeholders5. Have a Risk Mitigation Manager in place early
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RISK MITIGATION
RISK MITIGATION MANAGER ROLE• Pro active risk management before and after bid• Front line in recognizing potential
disputes/claims• Assist in mitigating and resolving disputes during
the job• Responsible for all contemporaneous
documentation on all disputed issues and claims
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Project Pre Bid
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Contract Claims–Analysis and Avoidance
BREAK
BREAK
BREAK
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Quality Construction Management
Quality construction management; attributes that help avoid/mitigate construction claims:• Understanding the role of the Construction Manager;• Understanding of the contract/owner’s intent;• Industry experience (technical);• Working knowledge of the general provisions;• Close coordination/working relationship with the contractor;• Good documentation practices;• Proactive issue identification, analysis, and resolution;• Responsiveness to requests; and• Open communication.
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Construction Contracts – Construction Manager
Understanding the role of the Construction Manager:• Scope of services in CM Agreement• Role of the Construction Manager• Relationship with the owner• Role of the architect• Relationship with the architect• Duration of services• Location of services• Agreement budget (time and cost)
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Construction Contracts – Contract Documents
Understanding the Contract Documents:• Bid document;
Including GCs, GPs, and Specs Including Drawing list and dates Including the Estimated Quantities and Prices
• Bid Addenda;• Notice of Award;• Executed Contract;• Notice to Proceed;• Notice, Submission, and Response times;
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Construction Contracts – General Provisions
Understanding the General Provisions/General Conditions:• General Information, Definitions, and Terms
Definitions are very important• Bidding Requirements and Conditions• Contract Award and Execution• Scope of Work• Controlling Work• Controlling Material• Legal Relations and Responsibility to the Public• Prosecution and Progress• Measurement and Payment
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Construction Contracts – Owner’s Intent
Understanding the project scope of work and the owner’s intent:• Project Scope of Work• Project Budget• Project Schedule• Owner’s expectations
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Construction Contracts – Industry Experience
Recognizing issues that may create impacts as early as possible:• Focus on minor issues that may lead to bigger problems;• Categorize types of issues;• Collect data on recurring issues;• Start documenting the consequences in the field of issues that
cause impacts;• Review issues regularly with the contractor;• Identify and implement mitigation measures as appropriate.
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Construction Contracts – General Provisions
A working knowledge of the general provisions includes understanding the changes clause and related clauses:• Changes Clause• Spearin Doctrine• Coordination Clause (Order of Precedence)• Latent changes• Patent changes
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Construction Contracts – Changes
Construction contracts are the only contracts that allow for the possibility of changes and address how to modify the contract to implement contract changes.
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Construction Contracts – Changes Clause
Attributes of a Changes Clause:• Right to modify the contract• Functional system to implement changes• Provides for the continuation of work
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Construction Contracts – Changes Clause
Example of a changes clause from AIA, Article 7.1.1:• Changes in the Work may be accomplished after execution of the
Contract, and without invalidating the Contract, by Change Order, Construction Change Directive, or order for a minor change in the Work, subject to the limitations stated in . . . .the Contract Documents.
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Construction Contracts – Changes Clause
Right to modify language in the contract from AIA, Article 7.1.1:• Changes in the Work may be accomplished after execution of the
Contract, and without invalidating the Contract, by Change Order, Construction Change Directive, or order for a minor change in the Work, subject to the limitations stated in . . . .the Contract Documents.
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Construction Contracts – Changes Clause
Change implementation language in the contract from AIA, Article 7.1.1:• Changes in the Work may be accomplished after execution of the
Contract, and without invalidating the Contract, by Change Order, Construction Change Directive, or order for a minor change in the Work, subject to the limitations stated in . . . .the Contract Documents.
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Construction Contracts – Changes Clause
Continuation of work language in the contract from the Engineers Joint Contract Documents Committee (EJCDC), Article 10.01.A:• . . . .Owner may, at any time or from time to time, order
additions, deletions, or revisions in the Work by a Change Order, or a Work Change Directive.
• Upon receipt of any such document, Contractor shall promptly proceed with the Work involved which will be performed under the applicable conditions of the Contract Documents.
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Construction Contracts – Spearin Doctrine
The Spearin Doctrine:• In every construction contract, the owner impliedly warrants that
the plans and specifications are accurate and sufficient to build the project.
• The contractor can recover the cost of delays, disruption, and additional work associated with defective plans and specifications from the party who provides the inadequate plans and specifications.
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Construction Contracts – Coordination Clause
Understanding the coordination clause and order of precedence:• Special Provisions• Technical specifications• Plan notes• Plans• Standard Plans• Supplemental Specifications• Standard Specifications• General Provisions
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Construction Contracts – Latent Conditions
Understanding latent physical conditions:• Latent conditions are those that cannot be identified during site
inspection and reasonable investigation.• How a latent condition will be addressed will depend on the
terms of the contract.• Allocation of the risk for latent conditions on a project depends
on which party is best able to address that risk.• Consideration of physical site conditions, available information,
technical investigations and results, and expertise of investigator.
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Construction Contracts – Patent Conditions
Understanding patent conditions:• Patent defect is anything that renders the work unfit for the use
it was intended for, when used in a reasonable way and with reasonable care.
• In the context of a construction contract, work may be defective if it is not carried out in accordance with the contract.
• A patent defect could be discovered by competent professional inspection.
• A patent defect is obvious, observable, but may not be observed.• A defect is patent if it is reasonably discoverable with the benefit
of skilled third party advice, such as from an architect or engineer.
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Construction Contracts – Types of Changes
Types of changes include:• Significant Changes in Character of Work• Differing Site Conditions • Suspension of Work• Extra Work• Eliminated Work
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Construction Contracts – Significant Changes
Significant Changes in the Character of the Work:• If alterations or changes in quantities significantly change the
character of the work under the contract, an adjustment will be made to the contract.
• The owner will adjust a contract price based on the difference between the cost to perform the work as planned and the cost to perform the work as changed.
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Construction Contracts – Significant Changes
Example of a Significant Changes in the Character of the Work Clause from Caltrans, Section 4-1.05B:• An ordered plan or specification change materially changes the
character of a work item from that on which the bid price was based;
• The unit cost of the changed item differs when compared to the unit cost of that item under the original plans and specifications; or
• No approved Change Order addresses the payment.
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Construction Contracts – Differing Site Conditions
Differing Site Conditions:• Type 1: Subsurface or latent physical conditions at the site which
differ materially from those indicated in this contract.• Type 2: Unknown physical conditions at the site of an unusual
and unpredictable nature.• CA Type 3: Unanticipated hazardous waste at the site, unless the
hazardous material is material brought on site by the contractor.
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Construction Contracts – Suspension of Work
Example of a Suspension of Work clause from Engineers Joint Contract Documents Committee (EJCDC), Article 15.01:• At any time and without cause, Owner may suspend the Work or
any portion thereof for a period of not more than 90 consecutive days and fix the date on which Work will be resumed.
• Contractor shall resume the Work on the date so fixed.• Contractor shall be granted an adjustment in the Contract Price
or an extension of the Contract Times, or both.
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Construction Contracts – Extra Work
Example of an Extra Work clause from the Colorado DOT, Subsection 104.03:• Contractor shall perform unforeseen work, for which there is no
price included in the Contract, whenever the extra work is necessary or desirable for contract completion;
• This work shall be performed in accordance with the Contract and as directed; and
• Work will be paid for as provided in Subsection 109.04, Compensation for Changes and Force Account Work.
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Construction Contracts – Eliminated Work
Example of an Eliminated Work clause from the Colorado DOT, Subsection 104.03:• Should any items contained in the Contract be found unnecessary
for the proper completion of the work, the Engineer will notify the Contractor in writing, to eliminate the item;
• Such action will not invalidate the Contract;• The Contractor will be reimbursed for actual work done and all
costs incurred . . . . . .
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Construction Contracts – Change
Definition of a Change:• A change is the difference between the contract requirements at
the time of bid and the actual requirements imposed during construction.
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Construction Contracts – Addressing Change
How to address Change:• Proactive issue identification, analysis, and resolution;• Good documentation practices;• Close coordination/working relationship with the contractor;• Responsiveness to requests; and• Open communication.
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Construction Contracts – Addressing Change
Proactive issue identification, analysis, and resolution:• During the design phase (constructability issues);• Between bid opening and Notice to Proceed (pricing issues);• During the initial construction phase (work plan); • Throughout the project duration (progress).
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Construction Contracts – Documentation
Documentation Practices – Tools for Analyzing Time and Cost Impacts:• Schedules (delays)• Job cost reports (labor hours)• Force account records (cost justification)• Daily diaries (issue description)• Pictures/video of impacted work (issue verification)• Schedule of values/monthly estimates (production)• Time count charges (project status)
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Construction Contracts – Documentation
The value of good documentation:• Consider as an insurance policy;• Contemporaneous analysis, not forensic;• Document while issue is fresh, recall is vivid, and staff is present;• Facilitates issue resolution;• Potential for reduced time and cost impacts after project
completion;
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Construction Contracts – Addressing Change
Close coordination/working relationship with the Contractor:• Reviewing baseline and monthly update schedules;• Facilitating weekly meetings;• Reviewing rolling look-ahead schedules;• Planning/scheduling reviews and inspections;• Responding timely to RFIs;• Coordinating/scheduling resources needed;• Resolving issues;• Executing contract change orders.
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Construction Contracts – Responding to Change
Responsiveness to requests:• Timely response to RFIs;• Timely review of contractor submissions;• Timely review of pay applications;• Planning/scheduling reviews and inspections;
Responsiveness to issues:• Proactive issue identification, analysis, and resolution;• Frequent coordination with contractor;• Timely consideration of options and decision-making;• Focus on mitigation of impacts (cost and time)
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Construction Contracts – Communication
Open communication:• Discussing work progress;• Discussing issues encountered or anticipated;• Sharing information, issue analyses, findings;• Discussing potential impacts and mitigation measures;
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Construction Contracts – Construction Management
What is the primary benefit of quality construction management?
“You can – pay me now, or pay me later”
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Construction Contracts – Construction Management
Why is Construction Management so important?• Addressing issues before they create impacts;• Identifying alternatives that mitigate impacts;• Minimizing the cost of change;• Timely bringing a project on line.
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Construction Contracts – Claims
What is a claim?• A claim is an unresolved change.
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Construction Contracts – Components of a Claim
What are the key components of a claim?• Entitlement or merit;• Impact and who was responsible for the impact; and• Costs or damages.
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Construction Contracts – Entitlement
Entitlement or Merit:• Contractual basis for the claim;• Specification references;• Interpretation of specifications; and• Reasonableness of references supporting the claim.
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Construction Contracts – Impacts
Impact and who was responsible for the impact:• Which party caused the impact;• What caused the impact?• How was project impacted?• Did impact delay the project; did it affect critical activities?• Could the impact been avoided or mitigated?• Did the Contractor perform mitigation measures?
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Construction Contracts – Damages
Costs or Damages:• Quantification of the impact (dollars and time);• Basis for calculating cost;• Verification of costs;• Analysis of delay;• Determination of time (delay) caused by claim;
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Construction Contracts – Critical Path
Only delays to the project’s critical path can delay the project completion date.The Critical Path:• Determines the project’s completion date;• Is the longest continuous sequence of work;• Exists on every project; and• Is dynamic and can change throughout the course of the project.
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Construction Contracts – Critical Delays
Critical delays include the following categories:
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Excusable Delays Non-Excusable Delays
Compensable Non-Compensable
Time & money Time, no money No time, no money
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Construction Contracts – Inefficiency
Efficiency measurements determine if there is a difference in productivity – efficiency is relative to the base you are measuring against.• Productivity is a rate that equals:
Work PerformedResources Expended
• Efficiency is a rate that equals: Actual ProductivityExpected Productivity
• Inefficiency is based on a comparison of productivities.
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Construction Contracts – Measuring Inefficiency
Methods of measuring inefficiency include the following:• Measured mile;• Comparison with other projects;• Comparison with bid, estimate, or plan;• Use of experts; and• Use of published standards.
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Construction Contracts – Acceleration
Acceleration includes the following circumstances:• Action taken to improve completion date; and• Entails a change in sequence, a change in resources, or both.
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Construction Contracts – Avoiding Acceleration Claims
How to avoid acceleration claims:• Consider side effects of acceleration;• Change orders should address cost and time, when applicable;• Accelerate critical work only;• Determine cost-effective solution;• Give time extensions when due;
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Construction Contracts – Claims Avoidance/Mitigation
Contract Claims – Analysis and Avoidance• The importance of clear contract documents;
Including a specification for the management of claims.• Tools to support resolving disputes;• Timely resolving disputes and preventing claims;• Effectively managing claims; • Identifying the latest theory and practice in handling claims;
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Construction Contracts – Claims Specification
Example Claims Specification from the Engineers Joint Contract Documents Committee (EJCDC), Article 10.05:• Engineer’s Decision Required: A decision by Engineer shall be
required as a condition precedent to exercise of any rights or remedies.
• Notice: Written notice stating the general nature of each Claim shall be delivered by the claimant to Engineer and the other party to the Contract.
• Engineer’s Action: Engineer will review each Claim and deny, approve, or determine unable to resolve. If no action on a Claim within 30 days, the Claim shall be deemed denied.
• Engineer’s written action will be final and binding.
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Construction Contracts – Claims Specification
Claims Specification Attributes:• Request for Equitable Adjustment;• Notice;• Dedicated time limits for each step;• Identified presence of decision makers; and• Sequential issue escalation.
Optional Specification Requirements:• Escrowed bid documents; and• CPM schedules.
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Construction Contracts – Tools
Tools for Resolving Disputes/Claims:• General Provisions
Changes Claims Schedules (initial, baseline, update, rolling look ahead)
• Contemporaneous Project Records Schedules Job cost reports Force account records Daily diaries Pictures/videos Schedule of values/monthly estimates Time count charges
• Good documentation practices
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Construction Contracts – Timely Claim Resolution
Timely Resolution of Disputes/Claims:• Proactive issue identification, analysis, and resolution;• Close coordination with the contractor;• Decision makers at the table;• Adherence to the issue escalation process.
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Construction Contracts – Claims Management
Effective Claims Management Techniques:• Communication;• Transparent document production;• Sharing information;• Joint issue discussion and resolution; and • Timely decision making.
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Construction Contracts – Alternative Dispute Resolution
Alternative Dispute Resolution• Dispute Resolution Boards• Mediation• Arbitration
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Construction Contracts – The Best Alternative
Quality Construction Management – the Best Alternative: • Contemporary issue resolution;
CM and Contractor know project best; Issues and memories are current; Contemporary project records; Issues resolved as work progresses;
• Mitigation of costs; Alternative solutions may be available at the time; Alternative solutions implemented timely;
• Costs associated with ADR not necessary; Cost of claim preparation by CM and others; Time away from new work; Experts needed to support claim positions;
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Questions and Answers
For more information, please contact:• Sudhir Damle• [email protected]• 213-400-8430
• John Unbewust• [email protected]• 619-640-8500
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