January 8, 2024
Tips to Contractors for Avoiding Construction Claims and Disputes
This is the second post in a two-part series that discusses best practices for avoiding claims and disputes on construction projects. This post provides recommendations for contractors, while the first post offers guidance for owners. Both posts are summarized from Why Construction Claims Occur and How to Prevent Them by Richard J. Long, P.E., P.Eng.1
While a construction project should ideally be viewed as a partnership between the owner and the contractor and treated as a mutually beneficial endeavor based on trust and the desire of both parties to execute a successful project, adversarial relationships often develop that can lead to disputes and ultimately culminate in construction claims.2 The best way for the parties involved to handle a dispute (other than avoiding it altogether) is to equitably settle a claim or change order request in a timely manner when it arises.
The following tips are recommendations to contractors for avoiding disputes.
1. Thoroughly understand the scope of work in the owner’s bid package by assigning the appropriate engineering and construction disciplines to review the bid package and submitting written questions where there is ambiguity.
2. Determine the level of completeness of the owner’s design for each component of the facility and, if necessary, take the design to a further level of detail to facilitate reliable quantity take-offs, equipment sizing and specification, plot plan layout, utility requirements, etc.
3. Apply the appropriate design development allowances (based on the level of completeness of the design) and contingencies (for labor rates, material and equipment costs, labor productivity factors, schedule allowances, etc.) to the bid estimate calculations.
4. Instead of planning on making the job profitable only from change orders that will be needed based on problems with the bid package, resolve these problems prior to contract award or include a “provisional allowance” if that is the most practical way to deal with uncertainties.
5. Ensure all “flowdown” clauses are included in all subcontracts and ensure that the subcontractors are following the same procedures for change order requests, time extension requests, notices, and other contractual requirements that may result in additional time and costs.
6. Properly evaluate all subcontractor change order and time extension requests rather than passing these on to the owner if the owner is not responsible for such requests.
7. Carefully prepare the as-planned or baseline schedule, including ensuring that all scope and activities are accounted for (including owner approvals, permitting requirements, labor camp construction, soils investigations, punch list activities, startup, and commissioning), ensuring that the manpower loading is consistent with labor availability and camp sizing, establishing the basis for any included weather delays, and ensuring subcontractor buy-in to the schedule.
8. If subcontractors are responsible for Level-4 schedules, ensure that they are properly prepared, are free from logic and improper constraint issues, include all the required scope, and are properly rolled up into the Level-3 schedule prepared by the contractor.
9. Perform schedule quality assurance on the baseline schedule to ensure that all logic is included and that constraints are not being inappropriately used to set the start or finish dates of activities without the proper activity sequence logic.
10. Provide written timely notice for all delays and impacts per the contract requirements and do not assume that the owner is aware of all impacts that it may have caused, or impacts caused by force majeure events or other parties.
11. Update the project schedule for all delays and change order impacts, recording the basis for delays to the start of activities and extensions of activity duration, ensuring that any new activities added are not the cause of the delay unless the new activities are related to a changed scope of work, ensuring proper logic is used for all added activities, and performing quality assurance reviews of all schedule updates.
12. Use any agreed-upon time impact analysis procedures as stated in the contract for determining the basis for any time extension requests (or use accepted industry practices if the contract does not specify an agreed-upon procedure).
13. Properly consider time-related costs in change order requests, ensuring that the basis for requested overhead costs follows the contractual procedures and that the schedule analysis considers the contractor’s concurrent delays to critical path activities.
14. If legitimate time extension requests are denied, provide notice of constructive acceleration and the intent to recover acceleration costs and document all acceleration costs to preserve the record for the future claim.
15. Provide written notice to the owner for deliberate pacing delays if the contractor decides to pace its work due to excusable delays to other activities rather than “hurry up and wait.”
16. Implement procedures to obtain the data necessary to evaluate craft labor productivity, including tracking of installed quantities and associated labor by area and by craft.
17. Perform frequent productivity reviews, determine the reason for any productivity loss vs. as-planned productivity (including comparing actual job conditions to as-planned conditions in the bid basis), and implement productivity improvement plans as soon as possible.
18. Evaluate the cumulative impact of change orders on labor productivity by comparing change order labor hours to as-planned labor hours and include labor productivity impacts in the change order pricing if growth in labor hours is greater than 8–10% of the bid labor hours, or prepare separate notices of the intent to claim such costs at the end of the project to preserve contractor rights for such claims if the owner will not accept such costs in the change order pricing.
19. Communicate and do not create an adversarial environment, but instead promote a cooperative attitude and interpret the contract equitably, while providing all appropriate information with change order and time extension requests such that the requests can be adequately evaluated by the owner.
20. Document all problems contemporaneously, providing guidance to staff as to proper wording of any email communications to ensure the facts are properly stated.
21. Prepare and implement an effective document management system, include files in the database that document any problems and/or delays to the work, and agree with the owner that if PDF files are being used, they will be searchable, rather than images of communications that cannot be electronically searched, because access to and the ability to cost-effectively review all project information can facilitate the timely and equitable resolution of disputes.
A contractor who follows the above recommendations will hopefully not only avoid disputes but also facilitate a smoother project and improve cooperation between the parties, resulting in easier resolution of claims.
1 See Richard J. Long, Why Construction Claims Occur and How to Prevent Them (Virtualbookworm.com Publishing, Inc., 2021), Chapter 18: Owner and Contractor Guidelines, pp. 275–280 of 303.
2 See Richard J. Long, Why Construction Claims Occur and How to Prevent Them (Virtualbookworm.com Publishing, Inc., 2021), Preface, p. xvii of xxvii.
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