Construction Without Consternation

The Top 10 List for minimizing problems and disputes during large building projects

• By John P. Bachner
• Jul 01, 2006

Construction is risky. Few projects move from start to finish without problems, and -- more often than not -- problems leads to unanticipated costs, unacceptable delays, finger-pointing, disputes, frustration, aggravation, and -- nightmare of nightmares -- litigation.

As it so happens, construction risk flows uphill, ultimately landing at the feet of the owner. While owners can apply various techniques to offset the impact of risk -- i.e., to reduce their unanticipated costs -- full cost recovery seldom occurs. In fact, when owners add the value of their wasted time to the direct cost of litigation, full cost recovery is the exception, not the rule. That being the case, you would think that owners would use some of the time-honored methods readily available to better manage risk and make problems less likely. Consider these 10 simple techniques.

1. Accept as gospel, "There's no such thing as a free lunch." Efforts to cut costs by relying on cheap anything are the number-one cause of construction problems. There are right ways to do things and wrong ways. The wrong ways almost always save money in the short term (sometimes, the very short term) and cost more in the long term; i.e., "Pay me now or pay me later." Owners that don't have the budget required to do something right need to wait. It's patently dumb to plow ahead in the belief that "we can cut here and shave there, and, everything can still come out alright." Everything won't come out all right, and owners that believe otherwise often attract bottom-feeder "professionals" who are far more adept at preparing proposals and presentations than plans and specifications, along with general contractors that are flat-out incapable of building what they propose for the price they've agreed to accept, either because they are devious or just plain incompetent.

2. Rely on top-flight professionals who are encouraged to put forth a best effort. Instead of urging engineers, environmental professionals, et al. to cut costs to the bone (which cannot help but encourage them to cut corners), owners need to urge them to focus on quality. That's best done when the owner's representatives meet with designers to mutually define what "quality" means. Nor should the quality focus be limited to prime design professionals. It's an embarrassing fact that some "primes" -- i.e., civil engineers and architects -- talk to owners about the value of quality-based selection (QBS), only to turn around and select their subconsultants based on fee, a process akin to buying bad apples for what could have been a fine barrel. Designers do not put forth a best effort when they are told, "Quality costs too much," no matter who tells them so. As such, owners need to get involved in the subconsultant selection process.

And here's a radical thought: Owners should consider using QBS for contractor selection; especially because the bid a general contractor submits to win an award will likely bear no resemblance to the amount that's actually paid for the work.

Owners need to face facts: When what's delivered is variable, bidding is not an effective way of selecting the provider. "But we have no choice. That's the law," some public officials might say. While that may be true, it's also true that laws can be changed. How much effort would it take to explain the situation to the citizenry, and underscore the problem by preparing a list of the last 25 substantial projects let to bid and, for each, the price bid and the price actually paid?

Another excuse for not using QBS procurement techniques is not having the knowledge or experience needed to make a selection. That concept is laughable: An owner that lacks that knowledge has no business making any selection, be it on a QBS basis or otherwise. And as for the concept that negotiated procurement is not as "open" as bidding -- poppycock: Negotiated processes can be absolutely transparent and, in fact, should be, especially when the owner is the public.

3. Do something about the disproportionate number of claims that seem to emanate from engineered construction beneath the ground's surface. For many of those claims -- probably most -- problems could have been avoided, or at least significantly ameliorated, had the owner insisted on better geotechnical engineering. Applying the second strategy -- having an effective scope in place -- better geotechnical engineering would mean that the geoetechnical engineer of record's (GER's) field representatives would be on site to help ensure that conditions assumed to exist (based on the results of sampling and testing) exist in fact, and to help ensure that various construction specifications and recommendations are implemented as called for. Having geotechnical field services performed by a firm other than the GER radically increases risk, if only because no one at Firm B can have as much knowledge of geotechnical aspects of the project as those employed by the GER. Making matters worse, the field representatives of Firm B seldom contact the GER's engineers no matter what issues Firm B's field representatives find in the field, because the GER competes with Firm B and, as such, is "the enemy." Owners also need to note that, when geotechnical field services are performed by a party other than the GER, responsibility for any of the problems that (are more likely to) arise can be the owner's as opposed to the GER's or whatever entity the owner selects to serve as Firm B.

4. Understand that insurance is a weak safety net, not a trampoline. Insurance companies are in business to make money, not to make damaged parties whole. Thus, while owners have every right to insist that those they retain have effective insurance protection, owners that achieve the best results commonly proceed as though insurance coverage is unavailable. Which, by the way, it just might be.

5. Disallow adversarial dispute resolution procedures; i.e., litigation and arbitration. Both -- and litigation in particular -- permit gamesmanship and delays that make disputes more likely when one party or another believes, "I can win at this game." Wrong: Only lawyers and experts win at that game. Everyone else suffers, with the project itself suffering most. Owners need to require that all project participants resolve their disputes through an accommodative alternative dispute resolution (A2DR) method, such as mediation, resolution by experts, or dispute review boards (DRBs).

Some attorneys scoff at A2DR methods, and no wonder: A2DR does not reward the advocacy and adversarial methods in which attorneys are trained. And, truth be told, one can, at times, be forced to abandon what seem to be strong legal positions to participate in A2DR. But it's a trier of fact, usually a jury, that determines who's strongest, and no one can know for sure what the assessment will be. But this much is known: Litigation will take a long time -- years, typically -- and a great deal of money to reach an outcome. A2DR methods achieve outcomes quickly, at relatively little cost. Some methods, like DRBs, can actually discourage less-than-the-best firms from getting involved in the first place and encourage firms to resolve issues on their own, without having to air their dirty linen in front of some of the best-known experts in the business.

6. Owners (as well as other parties to a construction project, such as prime design professionals) should rely on lawyers for legal advice, not business advice. What's the difference? Attorneys will advise owners to use contract provisions which, while legal, significantly alter relationships. An intermediate-form indemnity is typical: It requires a design professional to hold the owner harmless from any losses caused solely by the design professional or "by the design professional, in concert with others." In other words, if the owner experiences a $1 million loss caused 99 percent by the owner and 1 percent by the design professional, the design professional would have to pony up $1 million, $10,000 of which would be covered (maybe) by the design professional's professional liability insurance (PLI) policy. Suppose you were the design professional and realized that you faced ruin as a consequence of just about any other party's foolishness. How would you react on site? Would you proceed vigorously on behalf of the owner? Or would you keep your eyes on just about all other parties 24/7, and apply the most conservative procedures you can, to help prevent the worst from happening, the owner be damned? The only parties that would proceed vigorously would have to have nothing to lose, given that the only defense against liability is poverty. Any owner that would want outfits like that in its corner would deserve them. Accordingly, before succumbing to the lure of an indemnity or other "there-is-such-a-thing-as-a-free-lunch" provision, owners need to ask what the impact might be. Will it help the project or hurt it? Indemnities don't help.

Am I lawyer-bashing? No. Lawyers are part of the justice process. Their job is to serve as advocates. But a construction project is not (or shouldn't be) a trial. It should be a cooperative, win-win process through which all parties are rewarded for good performance. When an attorney advocates for a client's position during contact formation, the lawyer's outlook typically is win-lose; i.e., my client wins at others' expense. Remember, contracts don't build things; people do. An owner wins when all parties communicate, coordinate, and cooperate. One-sided contracts prevent that from happening.

7. Owner's representatives need to have realistic expectations. Some don't, and that can lead to trouble, particularly when the owner is a nonprofit entity of some sort -- e.g., a church or country club -- that is represented by a committee. In those cases, it should be up to the prime design professional's representatives to explain the facts of life to the successful-in-their-own-right individuals who compose the committee, but fail to understand that budgets and schedules are aspirational; that exceeding either or both is likely and, when that occurs, they have not been damaged.

8. Owner's representatives need to enlist as partners in the risk management process. In the case of committees, for example, it's not enough that members sprinkle cynicism on their breakfast cereal each morning. They also need to understand what they can do to make problems less likely, an understanding the prime design professional needs to create. Committee members need to realize that strong, successful people have shortcomings when they have to deal with situations they do not deal with every day. As such, the prime design professional has to tell them, tactfully, that they have to keep their egos at home. Committee members also need to realize that, if the committee comprises 10 people, eight to nine will show up at any given meeting, and seldom do the exact same people appear at each meeting; i.e., the client representative changes brains between meetings. Solution: Take thorough minutes or record sessions, or use teleconference techniques so that all committee members are on the same page at each meeting. And, because committees can take a long time to make a decision, an empowered executive committee is needed when a decision is required fast.

Does the committee expect the design professional to work at below-market rates, given the owner's worthwhile mission and given that the design professional is a member of the owner group? That's a dangerous expectation. The design professional assigns a team that derives financial benefit (bonuses, profit sharing, etc.) from successful performance. No one approaches no-profit assignments with gusto. Solution: Have the design firm perform services at regular rates, and, when it's all done, donate most of the profit to the owner organization.

9. The people who comprise the various project entities are a team. If the owner's representatives are involved only marginally, however, the team will be dysfunctional. By contrast, if owner's representatives engage in team-building activity, require and participate in frequent meetings, stay actively involved, and encourage communication, coordination, and cooperation, the team will be a good one and should be able to get things done with relatively few bad surprises and even fewer disputes.

10. Only a top-quality construction materials engineering and testing (CoMET) firm can genuinely help ensure that construction meets specifications. Why some owners look at a CoMET firm as a necessary evil is beyond me. Good CoMET services help catch mistakes that could otherwise lead to serious problems for one and all. To proceed without CoMET services is, in my judgment, lunacy. Only slightly less foolish is relying on a less-than-high-quality firm, a firm with too limited a scope, or a firm that's retained by the contractor but is supposed to treat the owner as the client, even though the contractor does the scheduling. Owners should develop a scope with the CoMET firm just as they would with a design firm, because both types of firms are professional. As such, CoMET firms' services are optimized when delivered within a professional context.

Fact: Just about every type of mistake than can be made has been made, often more than once. Owners need to take advantage of the lessons learned. They need to avoid known risks by using known preventives.

This article originally appeared in the July/August 2006 issue of Water & Wastewater Products, Vol. 6, No. 4.

This article originally appeared in the 07/01/2006 issue of Environmental Protection.