How to Reduce Contract Claims on Construction Projects
Over the past 25 years, construction projects have grown in size and complexity, as have the challenges in delivering these projects on time and within budget. So, it comes as no surprise that the frequency and size of contractor claims submissions has also grown.
Claims between the parties to a construction contract can result from problems like delays, project changes, insufficient or incorrect information, and other unforeseen circumstances. Claims might request compensation for loss and expense, time extensions, or liquidated damages. Obviously claims threaten a project’s budget and schedule, and your clients want to avoid them.
The growing trend in contract claims can be mitigated if the owner is willing to take the time to apply good, practical construction management practices before the contract is advertised. Below, I offer my lessons learned over many years of delivering construction projects, focusing on two important areas early in the process: biddability and constructability reviews and contract document development.
From my firsthand experience, most claims filed stem from issues contained in the contract plans and specifications, rather than conditions encountered in the field during construction. Moreover, a large part of the monetary impact of a claim comes from the delay caused while mitigating these issues.
The first commitment necessary is to not rush the design and advertisement of a project. All too often, projects are driven not by need, but rather by fiscal obligations or political commitments. However, proper reviews must be performed to avoid costly claims in the long-run.
Performing Effective Biddability and Constructability Reviews
Many projects are advertised with little to no biddability or constructability reviews of the contract documents. These two reviews are vastly different and focus on separate areas of the contract documents. As these reviews are critical to reducing contract claims, here are my tips for conducting biddability and constructability reviews:
- Insist that reviewers have construction management experience. Oftentimes, these reviews are completed by other design engineers. Claims experts agree that these reviews should be performed by an individual that has extensive construction management experience, not another designer.
- Give sufficient time to complete thorough reviews. Enough review time should be allotted to allow for correcting deficiencies before advertisement, and it should be done from the perspective of the contractor, not the owner. Far too often a Notice to Proceed is issued, followed by multiple redline revisions. When this happens, the owner quickly loses credibility, and it sets the stage for claims submissions.
- Use the biddability review to look for change risks. Most owners understand the scope of a constructability review, which focuses on quantities, work areas, materials, sequencing, etc. The biddability review, on the other hand, should look specifically for changes to specifications that prevent the contractor from effectively developing a competitive bid or unduly shift risk to the contractor.
One example is the use of incidental items to ease in the owner’s development of an engineer’s estimate and speed the design process. Also, in numerous cases, notes and restrictions have been added to the contract documents that conflict with mandatory construction clauses noted in regulations. A project engineer may believe that they are eliminating potential claims, when in reality, they are probably causing one or possibly a bid protest. Effective biddability reviews help mitigate these and other risks.
Identifying Project Constraints in the Contract Documents
Every attempt should be made to mitigate or eliminate potential issues that could lead to project delays prior to advertisement. If this is not possible, these issues should be clearly identified in the contract documents. Issues include coordinating with other ongoing projects, coordinating with outside agencies and municipalities, and maintaining existing systems during construction (e.g., signals, roadway lighting).
All design offices should have a standing operating procedure that no project be advertised without a guarantee that all environmental permits have been secured, all right-of-way has been acquired, and all necessary utility relocations have been completed or clearly noted in the contract documents.
Although these suggestions may seem obvious or simple, unfortunately, they are often ignored or bypassed in the name of swift project delivery. The sharp increases in the number and dollar amount of claims submitted prove this fact. Employing these sensible construction management practices before the contract is advertised can help avoid contract claims and protect your project’s bottom line.
Kevin Kreis, PE, CDT, DBIA, is the Senior Vice President and Director of the Construction Management and Inspection Department for EBA Engineering, Inc. He has more than 40 years of operations experience in construction and program management. He can be reached at 410.504.6094 or firstname.lastname@example.org.