Project Success Through Contractual Strategies

Conflict and dispute between a contractor and an owner's design team will inevitably have a negative effect on a construction project.

The nature of construction project conflicts can vary, based on the complexities of any potential dispute as well as personalities involved, contractual strategies of the owner and contractor, the owner’s procurement method, and/or design stage at which the project was bid.

Several scenarios at the bidding stage may lead to conflict:

  • A contractor may underbid the project in order to be selected - potentially resulting in costly change orders.
  • Once work has commenced a contractor may realize that the bid was too low, perhaps from misunderstanding the scope.
  • If the design has been bid before it was complete, changes in the design will result in a change of scope. A shift in risk from the contractor to the owner may occur; alternatively, the contractor may simply seek to cap the risk.

Some contractors may seek to increase their fee, perhaps by criticizing the design, issuing RFIs and submitting change orders which the owner may question. This risk can be reduced by setting a time limit for the contractor to advise the owner and the design team of any perceived defects in the design. This helps surface any design deficiency-related claims and change orders at the start of the construction period.

Problems can also arise if the contractor submits incomplete shop drawings or submittals as a foothold for a time extension, or cost increase. Clearly defining contractor requirements to certify that submittals are complete and compliant with all contract terms and conditions mitigates cost escalation.

When a contractor is responsible for submitting shop drawings, a careful review to ensure all submittals are complete in respect of quantities, dimensions, specified performance and applicable design criteria is an effective requirement. Equally important is the requirement to provide submittals in the sequence required by the contract schedule. It should be clearly stated that the owner will not review incomplete shop drawings, grant time extensions or approve additional fees related to the associated work.

Clearly defining contractor requirements to certify that submittals are complete and compliant with all contract terms and conditions mitigates cost escalation.

The start of construction can also be delayed if the contractor does not address all comments made in the review process, generating additional ‘review cycles’. This can be avoided by specifying in the contract documents that incorrect submittals will be returned within a specified time period. One additional review may be allowed, but the owner will deduct costs of re-reviews from the contractor’s next progress payment.

The same approach can be applied where the contractor asks questions that are answered in the contract documents. A large number of RFIs awaiting response may lead to the contractor requesting an extension of time, claiming they were delayed by the lack of a decision - and thus impacting field work. A simple solution may be to hold RFI meetings so the owner’s team can respond in a timely manner. Obviously it can help the process if the contractor is encouraged to be very specific in the RFI submittal and provides marked-up drawings or photographs.

It should be clearly stated that the owner will not review incomplete shop drawings, grant time extensions or approve additional fees related to the associated work.

A contractor may bid a project knowing that product substitutions could be made for a component of the construction, saving costs without impacting project quality. While these changes may be allowed under the contract, and the owner’s team may want to review them, an engineering change to the original design may be required. In this case, the original design engineer will want to conduct a review of the change and determine any potential impact. This review time can be reduced by requiring the contractor to engage an independent engineer to assess the impact of the design substitution, including the provision of any required calculations. The contractor should be required to reimburse the cost of any product substitution reviews.

I have suggested that the contractor might be financially responsible for their requested changes; of course the contractor may also make legitimate claims, including damages from construction delays, lost efficiency from out-of-sequence work or inaccurate design documents. In these cases the owner should make a timely, fair and impartial review of the claim and expect the contractor to provide supporting documentation for incurred costs and time loss.

A positive working relationship between owner and contractor will be mutually beneficial and in the best interests of a satisfactory project...

Where the owner, in turn, relies on their design professionals to assess change orders, the owner also needs to ensure that these design professionals employ the efficiency standards that are expected from the contractor. Contract changes and claims are best dealt with proactively as leaving these issues to the end of the project is rarely a good strategy. Also, contractors are generally closer to the everyday detail of construction in the field and often have more detailed records that prove invaluable in the event of a claim. The owner’s best defense is simply to keep comprehensive and current records, supplemented by progress photographs.

A positive working relationship between owner and contractor will be mutually beneficial and in the best interests of a satisfactory project. Good communication and efficient working practices and record-keeping are very helpful in making the relationship work successfully.

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