Speaking of Risk

• By Scott Vierke, John P. Bachner
• Mar 01, 2004

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?)

Be Proactive
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.