Speaking of Risk
Those who don't learn the lessons of history are condemned to repeat
mistakes of the past. You'd think everyone would know that by now; but, in
truth, the ranks of the condemned continue to swell. Regrettably, many of them
are environmental project managers who all wind up in the same dreadful spot:
snared in the barbs of litigation.
A number of their stories are revealed in the new CD ROM Derailed by
Dispute: Project Management Lessons Learned the Hard Way, published
by ASFE/The Best People on Earth (a not-for-profit trade association originally
-- but no longer -- known as the Association of Soil and Foundation Engineers,
which now consists of geoprofessional, environmental and civil engineering
firms). Derailed by Dispute comprises 76 project histories that show,
with the clarity of 20/20 hindsight, that almost every
owner/consultant/contractor dispute could have been avoided. While the cases
individually convey any number of important specifics, the general lessons
should be particularly meaningful to environmental project managers.
The Selection Process
Of all the lessons taught, the most important is this: Effective procurement
of the consultant is essential. Don't retain your consultant using a bidding
approach, because bidding is an invitation to misunderstanding. In order to
submit a bid, environmental consultants must establish a fixed scope of service
and, to submit as low a fee as possible, that scope will be the skimpiest the
consultant can live with. When it comes to your analyzing submissions, each
proposed total fee you look at represents a different scope, making an
apples-to-apples selection impossible. The best approach to choosing a
consultant, by far, is qualifications-based selection (QBS), a technique that
all branches of the federal government and almost 40 state governments use to
select architects and engineers.
Advertise the project. Evaluate the statements of qualification you will
receive and highlight those of firms that seem to have the most experience with
similar projects and similar clients. Speak with some of those clients to
determine how satisfied they are. Then meet with representatives of three or
four firms, being sure to ask each to bring along the individual who will
probably be their project manager. Rank as "most qualified" the firm
represented by the team that you feel most comfortable with. Then meet with the
firm's representatives again to develop a scope of service that is unique to
your needs and preferences. (Standard scopes of service presuppose you are the
standard representative of a standard owner of a standard site with standard
needs and standard risk management preferences and there's no such thing.) Once
you and the consultant establish the scope, the consultant can set the price
(fee and expenses).
Some owners say, "I don't have the expertise to know if I'm being
ripped off on the price," and then use that deficit as a reason for
bidding. But bidding does not create knowledge! In fact, the lowest price
offered could be unrealistically low, with the consultant omitting certain
services or otherwise proposing to perform in a manner that is sure to cause
problems later on. Or, as is often the case, the best available firms may
decide not to participate in what some refer to as a "talent
auction," thus leaving your field open to those who may be far more adept
at bidding than environmental engineering. In short, those who do not have the
expertise needed to achieve a realistic comfort level have no business
selecting a consultant (by any means) without expert assistance.
If the cost is a lot more than you budgeted for, don't go looking for
someone who can do it for less. If you've selected a firm that has a reputation
to uphold, it will help you get what you need for what you have budgeted. But
note: Your budget may be unrealistically low, meaning you'll either have to
come up with more money or delay the project until you can. Any number of
failed project histories show that inadequate budgets led to cutting corners (almost
always a shortcut to Hell), inadequate plans and specs (leading to myriad
problems once remediation gets under way), frequent unanticipated conditions
and delays, etc.
Insist on a high-quality service. A high-quality service means a
comprehensive scope of service, including an appropriate level of study, to
keep the number of unknowns (i.e., risk) to a level you're comfortable with.
Recognize that better instruments (of professional service, such as reports,
plans and specifications) permit more accurate pricing by contractors. Have the
consultant who conducts your study observe the work of the contractors you
retain to do the work. Observation by the consultant of record is the best way
to help ensure that the contractors involved do what they are supposed to, and
that any unanticipated conditions can be dealt with promptly.
Don't rely on insurance as a substitute for a top-quality consultant,
because it's never a substitute. Insurance is there in case of a disaster that
the consultant is responsible for, in whole or in part. It is a safety net, not
a trampoline. Besides, many insurers would far rather fight than pay. Recognize
that the cost of litigation, in terms of direct outlays and time values, often
exceeds the amount at issue.
Tips for Contract Negotiations
Enter into a reasonable agreement. Don't make the mistake of insisting on
contract conditions that are designed to get you something for nothing. An
intermediate-form indemnity is typical of these. It can force a consultant to
assume responsibility for others' errors and omissions. Exposures like that are
uninsurable, denying the consultant the deep pocket payment requires. Worse:
Some insurers can use such indemnities as an excuse to try to pay nothing at
all. The same applies to provisions seeking to make you a "named
insured" on the consultant's professional liability policy (it cannot be
done) or to require the consultant to perform in compliance with "the
highest professional standards," a requirement that adds no protection at
all, and can also result in insurance problems.
Anticipate the unanticipated and establish a means for dealing with it. It's
usually best to establish a contingency allowance up front, with the
consultant, and spell out the precise steps needed to tap into it. Failing to
do that can result in delays or the performance of services that should not
have been performed.
Rely on nonadversarial dispute resolution, like mediation, resolution by
experts or dispute resview boards, among many others. Some of the stepped
procedures encourage the disputants to settle the dispute among themselves and,
if that doesn't work, to proceed to mediation and, if that doesn't work, to
proceed to binding arbitration or litigation. One example is "med/arb2,
"a procedure through which, if one of the parties disputants requests the
mediator to serve as an arbitrator to decide the unresolved claims, and all the
parties concur, then the mediator changes hats and arbitrates. Accommodative
dispute resolution is often far faster and far less costly than litigation.
Select contractors the same way you should select consultants or, at the
very least, rely only on those contractors who are experienced and have earned
good reputations. Most consultants can help you prequalify contractors. Select
on the basis of best value, not lowest price. (When was the last time the bid
price was actually the price paid?)
Stay involved. When the owner is part of the team, participants usually do
much better at communication, coordination and cooperation. Meet frequently with
project principals. Encourage them to inform you of any problems as soon as
they are recognized. It's far easier to deal with molehills than mountains.
This article originally appeared in the 03/01/2004 issue of Environmental Protection.