Bidding Errors and Change Orders – Avoiding a Nightmare: Part Two

On November 8, 2007 by

Bidding Errors and Change Orders – Avoiding a Nightmare: Part Two

Every construction project will undergo change during its evolution from conception to completion. Without respect for this inevitability, disputes understandably arise between owners, architects, and contractors. Fights over who is responsible for project changes, as well as who bears the burden of any increased expenditure of time or money, can effectively stop a project. The filing of lawsuits may follow — something everyone is better off avoiding if at all possible.

Over time, the construction industry has seen the evolution of several methods for avoiding litigation and encouraging a smooth change process. < — more — >

At the Beginning of the Project

1. Build Good Communication at the Get-Go

Stopping the problems before they start is the optimal solution. Owners, architects, and contractors that view themselves as a team will overcome project hurdles much better than those who view the work as another project on their hands.

During the bidding process, working together to form and build professional relationships and establishing an ease of communication between Owner, Architect, and Contractor needs to begin. There should be mutual respect for what each party brings to the table: all are necessary for the construction project to get done. Everyone starts out wanting a smooth process and a good result.

2. Take Time With Your Contract Documents

Don’t trust the talk, get good working documents in place. Once you’ve signed, you’re committed.

  • Review the bid documents, the plans and the specifications, and the contracts. Even in a time crunch, nothing is more important in the long run than a thorough understanding and agreement on the fairness and clarity of the contract documents. The expense of a lawyer now is much cheaper than a trial attorney later.
  • Bid accurately.
  • Don’t sign a contract until you are comfortable with its language. You’ll be held to this document later — or you’ll have to negotiate around parts that you don’t like, that become unworkable, or that simply don’t exist, and that can get expensive and burdensome.
  • Check the other project contracts for consistency. Do the general contractor and sub-contractor agreements jive? Does the owner’s duties in his contract with the architect dovetail with his responsibilities in his agreement with the contractor?
  • Check the scheduling. Is it realistic — for the Owner? The Architect? The Contractor? The subs?
  • Check for delay damage clauses: who is bearing the burden of construction delays?
  • Where quantity may vary, think about incorporating unit prices for items of work into the contract documents.
  • Discuss how the project will be administered on a daily basis, and make sure that process is efficient and that it is described in the contract documents.
  • Make sure that the contract includes a clear discussion of how Requests for Information are to be processed, as well as Change Orders. Who will sign the change orders? Should change orders less than or equal to a certain amount be treated differently than those involving larger sums? Will oral change orders be respected?
  • Change Order forms should require exact descriptions of the requested change; the time impact of the change; the money impact of the change; signatures for those impacted by the change; and a specific time for approval (a deadline).
  • Know which state law controls the documents. Know what your duties and responsibilities are under that state law.
  • Consider adding alternative dispute resolution options in the contract documents in advance of any disputes. Will you agree to a binding mediation? Will you agree in advance on a mediator? What about arbitration?

During Construction

1. Keeping Good Communication

Once the contracts are signed, work begins. Keeping up the relationships between Owner, Architect, and Contractor can be difficult, but it’s extremely important for a smooth job. Yes, this can be exasperating: owners can be ignorant of construction realities; architects can be immovable on design; and contractors can be insistent in their demands.

However, once that feeling of cooperation is gone, it’s almost impossible to get back. And projects that are working at loggerheads are vulnerable to conflicts that can suddenly explode into arbitrations and trials.

2. Procedures For Minimizing Conflict

Knowing that there will come a time when Owners, Architects, and Contractors are going to disagree, how can you keep the lid on and the work smoothly moving forward?

  • Discuss the change order process and the request for information process in advance, so everyone knows what’s expected and to expect to see Change Orders and RFIs during the construction process.
  • Make sure your field and office people understand the construction management process for the job.
  • Set up your internal procedures to catch problems as fast as you can. The faster you know about a problem, the faster you can solve it.
  • Make sure those involved in the Change Order process know how it works. Where’s the form? Who signs? When do you need one?
  • Implement a process of daily reporting. This helps to identity things that may cause problems in the future, and it helps keep up good communication between everyone involved. You’re a team, not adversaries.
  • Remember to consider the other guy: Owners should consider the perspectives of Architects and Contractors; Architects should reflect on Contractors and Owners viewpoints; and Contractors should understand the concerns of Owners and Architects. For example, an owner wanting to change the doors and windows might do better to consider the architect and contractor before unilaterally requesting the change. Having the other players in mind when writing an RFI or requesting a Change Order can be a big help in keeping the change process as painless as possible.

When Construction Conflicts Do Occur

No matter how cooperative and congenial everyone may be, circumstances may arise when serious conflicts cannot be avoided. Perhaps a serious bidding error has resulted in extremely high and unexpected costs. Maybe there’s been an unexpectedly heavy rainy season, and construction delays must be borne by someone. Then again, maybe there’s a fight on the site because of an impasse: is the problem because of a design flaw or because a sub installed something wrong?

Even now, there are things which can help to avoid a project melt-down. Before emotions escalate, each party should do the following:

  • Review the contract documents carefully. Is there any language that applies to this situation?
  • Organize all the documents that pertain to the situation. Put them in chronological order.
  • Gather information from your people on the situation. There may be important facts that haven’t been put on paper, despite your protocols.
  • Check with your attorney. Your lawyer should be experienced in construction law, which keeps your costs down. Perhaps a quick phone call or a short office visit can answer your questions on legal issues like what the governmental codes provide for the situation, what the state law holds, and what the contract documents mandate. Don’t procrastinate on seeking legal advice.
  • Reserve your rights if you want to proceed while resolving the dispute. Do this in writing. Get legal counsel here, waiver and estoppel are legal doctrines that can impact this situation to your detriment.
  • Checking with your lawyer should not be a last resort. Knowing your legal position
    is part of gathering all the facts to hopefully help in resolving the conflict.

After these steps have been undertaken, each party should be forthright in what the contract documents provide. If the contract states that the Owner bears the construction delay, then the Owner should bear it. If there’s disagreement on what the contracts provide, then an agreement to disagree in order to finish the project usually makes sense. Attorneys should be involved here to make sure rights are not waived by this process, however.

Why Everyone Should Want to Avoid Litigation

A cold reality that should throw a damper on the most inflamed construction conflict is the possibility of litigation. Should the conflict escalate into a formal dispute:

  • Owners, Architects, Engineers, Surveyors, Suppliers, Sureties, Contractors, and Subcontractors can all be involved in the lawsuit;
  • The legal process is slow: the process of getting to trial can take 1-2 years, and appeals can add years before a final determination is reached;
  • Results can be unpredictable;
  • Time can fade witness memories and documents can be unclear; and
  • The realities of litigation can be devastating to those involved, not only to the ultimate loser in any trial but also to those businesses who cannot weather the impact, direct and indirect, of a long term and protracted litigation process.

The Bottom Line

Make sure that you keep communication as open as possible: a conflict was predicted at the get-go, and now that it’s here, it can still be resolved before it grows into a formal dispute. Good communication and good contract documents can keep the biggest construction projects on a smooth course to completion with the minimum of crisis.

On Nov 08, 2007

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