The Seven Deadly Sins of a Construction Project that Regularly Lead to Claims
(And How to Avoid Them)
From a project’s inception, an owner will typically have a vision of how they imagine their project will end. A ribbon cutting on a bright sunny day, surrounded by contractors, architects, and engineers alike all happy with the project’s outcome, on time and under budget, with motivation to continue on to additional shining successes in the future. Typically, this vision begins to fade as reality sets in, perhaps delays occur and cost issues come rolling in. In actuality, as long as the project closes out with no lingering disputes or potential claims, most parties will feel they succeeded and come out of the project in one piece.
In order to strive for the former and end with the latter, there are a few pitfalls that must be avoided along the way. The project team should make every effort to circumvent these 7 deadly sins of a construction project which commonly lead to disputes and possibly claims.
1. Excessive Requesting or Denial of Change Orders (Greed)
Any project, even the seeming perfectly designed ones, will have change orders. It is an inevitable fact of construction. How the parties handle the change orders will affect whether or not the project will end with unresolved disputes leading to claims. If an owner rejects all change order requests outright, the contractor will respond with more requests, incomplete work, and, at the end of the project, claims. If a contractor is “nickel and diming” the owner for every little thing, the owner will be more resistant to approve large ticket legitimate changes leading to claims at the end of the job.
To curb greed of excessive change orders from both sides, the owner should first ensure that there is some contingency in the contract for scope changes, design errors & omissions, and unforeseen conditions. Change orders submitted by the contractor should be reviewed on a regular basis and any approvals needed should be made prior to the affected work being complete. Agreements should be made whether they are fixed price or T&M. The owner should recognize that there will be a need for change orders and should reasonably approve those necessary. Conversely, the contractor should also have a built-in contingency in their own budget for minor items they may have missed at bid time, but legitimately own so that they are not overwhelming the owner with petty things; therefore making it more likely to get their valid change orders approved with little or no fuss.
2. Owner – Induced Scope Creep (Gluttony)
You find some extra money in the budget as you begin to let your contracts. Enthused by this discovery, you realize you’ll now be able to upgrade to the state-of-the-art ornate elevators that you previously value-engineered out. To go with that, you add to the building’s structure in order to fit the new elevator cabs and adjust the power requirements as well. Pretty soon, you’re dipping into the contingency to upgrade the millwork in the elevator lobbies so that they coordinate with the cabs. Over time, this scope creep will lead to delays, budget problems, and ultimately claims.
To avoid the pitfalls of gluttony, one must keep a strong will. Stick to the plan that was agreed upon at the onset of the project. If the need for additional scope does arise, examine the potential change from every angle in order to know how many aspects of the project will be affected by this one decision. Establish sign-off limits on change orders so there is a series of checks when scope is added, so that any impulse to broaden the contract and cost of the project is meticulously thought through before the go-ahead is given.
3. Owner Dictation of Contractor Means & Methods (Pride)
The population of the engineering and construction industry is full of highly educated, intelligent, and greatly skilled people with various ideas on how to accomplish a common goal. Often times at the start, an owner will find themselves needing to be in complete control of all aspects of the design, construction, and implementation. If the owner attempts to control all of the contracts too closely, there is no room for a shift in liability to the other parties. This can lead to disputes over coordination, delays in schedule, and excess costs because the more specific details of the project the owner dictates, the more liability he or she holds onto.
Owners should swallow their pride and trust the parties that they have hired to take responsibility for the work they’re hired to do. The contract should be written so that the means and methods for the contractor to install the work are the responsibility of the contractor. In other words, the onus is on the contractor to install the work according to the drawings (and code of course), provided the drawings are accurate and buildable. While it is understandable and necessary that all parties discuss complex construction issues at regular meetings, the contract should not dictate exactly how the contractor is to come to a completed scope, because if there is any flaw in this dictation, responsibility is then extended back to the owner (or the writer of the contract).
4. Desire for an Alluring but Perhaps Impractical Design (Lust)
One of the first rules of engineering and architecture is that form follows function. The most important aspect of a building, plant, or product is its functionality. If it looks beautiful but doesn’t work correctly then it is worthless. An owner or designer might fall into the trap of getting their name out there with a spectacular “crowning achievement”, thus prioritizing the look of the project in the budget and schedule, while leaving the actual quality of the systems on the second tier. If the lack of system functionality is found after construction has begun, delay and cost claims are inevitable. Ironically, the rework in order to get the system to function would likely mar the “look” that the designer was trying to achieve in the first place. This could potentially lead to claims by the owner against both the architect and contractor.
Despite lusting after the most dazzling design available, both the owner and design team should adhere to basic engineering principles. What is the main purpose of my building / product? Will it serve this purpose effectively and efficiently? Most importantly, the construction must be practical and achievable given the time and budget allotted.
5. Poor Schedule Management (Anger)
Even prior to design completion, an owner should have a preliminary schedule in place. After bid and award, it is imperative that all contractors submit their schedules and any conflicts be settled early on. The common failure of schedule management usually occurs after the project has ramped up and seems to be running quite smoothly. Two week look-aheads are discussed at meetings, but the overall integrated schedule sits dormant or haphazard updates are applied. This is when a domino effect of one person falling behind can impact another, eventually leading to finger pointing and disputes that arise long after the root of the problem occurred. Claims are made by all parties long after the project is complete and years of fighting can occur just trying to figure out exactly what event (or events) threw the schedule off.
So as to prevent the anger and finger pointing that can occur once a schedule goes awry, it is critical to make sure the schedules are truly updated on a regular basis by all parties. Updates should not only include actuals of work already complete, but reforecasts for every item that has changed since the prior schedule update. The schedules should be integrated and potential impacts discussed at regular meetings so there are no surprises or ripple-effect delays.
6. Productivity Problems (Sloth)
During the bid process, the contractors meticulously estimate the amount of resources they will need to complete a given task. Due to unforeseen impacts, delays from outside sources, or other unplanned events, the contractor’s planned productivity will decline, leading them to utilize more labor hours than planned various activities. This leads to increased costs via change orders, schedule delays, and ultimately claims by the contractor as they attempt to pinpoint the root occurrence that caused the inefficiency of their resources.
In order to prevent periods of slothful inactivity and resource wastefulness, the owner, design team, and contractors should regularly discuss impact events to document and quantify any potential events that have an impact on productivity. If the schedule slips, trade stacking and excessive overtime may seem appealing, but could actually have a negative effect on productivity, leading to squandered funds and a disconnect in team morale. The same goes for crew size increase. The best way to overcome the impact event is to have all parties work together to find the right synchronization of these solutions combined with a coordinated and accepted schedule slip, use of float, or manpower reassignment.
7. Lack of Communication and Documentation (Envy)
Most construction projects are fast-paced with ever evolving issues to resolve and updates to be communicated. Oftentimes during a time crunch, a decision will be made on the fly in the field to modify this duct or move this pipe. Without coordinating and communicating the modification to all trades in the affected area, the next party to work in that space will be left guessing, potentially leading to incorrect installation or unresolved questions. If everyone is not on the same page, the chance of a smooth-running project is weakened and there is an increased risk of claims for rework or delays.
Avoiding envy among parties due to withholding of information, whether it was intentional or not, can be mitigated by the simple acts of communication and documentation. Documenting and distributing each question, resolution, and revision proposed by every party will keep all stakeholders on the same page. Bringing up potential issues in meetings and keeping detailed minutes of the decisions made is an effective way of ensuring that all trades have a mutual understanding of goings on. Work should be coordinated in a manner so that no parties are left in the dark of one another’s actions, and minutes from every meeting that takes place should be distributed to all affected groups.
If an owner wishes to avoid the pitfalls of a project’s demise by way of contention and dispute, the first thing to do is steer clear of the seven deadly sins of a construction project. Though it may be tempting to fall into some effortless practices discussed above, these sins are just a short step away from enabling a project to plummet into a firestorm of claims.