Pinnell/Busch: Project Management Consultants for the Design & Construction Industry

Daily Journal of Commerce
Design & Construction - Monday, July 26, 1993
By John H. Baker and Steven Pinnell

On virtually every construction project, each participant comes into the relationship intending to fulfill his or her promises and expecting the same from the other participants. In spite of the best intentions and most able planning, circumstances change in unexpected ways. The work is impacted, plans are strained and disputes evolve.

The first shock often occurs with excavation. Hidden site conditions can steal the economic margins from a project before it is even off the ground. Bad weather can complicate and delay the work, driving up its costs. Mix these risks with the likelihood that the owner and architect will change their minds, while the contractors and their subs will misjudge costs and schedules and it is a wonder that the projects are completed at all.

Construction contracting is about accommodating change profitably. Even a small construction project is a complex undertaking that is bound to go through changes – and change represents both an opportunity for profit and a risk for loss. The distribution of gains and losses associated with change creates fertile ground for disputes.

Dispute resolution is costly. Construction disputes absorb available resources and exacerbate losses. Successful contractors manage their work to avoid disputes and resolve unavoidable disputes efficiently. A Dispute Management Program is a formalized strategy for accomplishing these ends.

A Dispute Management Program is the coordinated plan by which a contractor sets out to identify and resolve the problems that might come up during the course of a project. Implementation of a Dispute Management Program enhances the likelihood that a contractor will be compensated fully for changes, delays and impacts to the work. Anticipating difficulty and addressing it while it is manageable reduces stress and increases satisfaction for the contractor and the client alike.

Dispute Management begins when the prospect walks in the door. Cost estimators and sales personnel begin evaluating the project and its potential pitfalls in the first review. Many potential problems can be eliminated with a call to the owner or designer. On other projects the contractor adjusts the schedule or fee in response to a special risk of problems and delays. Sometimes, the prudent contractor leaves a project with unmanageable risks for others.

In the time between contract award and project mobilization, the contractor conducts a thorough review of the contract documents and of the site conditions to identify any ambiguities, design errors or other potential problems that might impact the work. Discussions with the owner or designer at this stage will often resolve the problems. Even if there is some cost, project owners are more willing to pay to solve problems before they get out of hand.

Training is the key to a Dispute Management Program. The contractor's staff must learn how and when to communicate effectively. Each person should understand the lines of authority within the contractor's organization and at the project. The lowest levels of staff should be trained and encouraged to watch and report internally. Supervisory personnel must know how and when to communicate with others under operative contracts and subcontracts.

Good record keeping is essential to an effective Dispute Management Program. Of all the reporting systems the contractor maintains, the project accounting system is the most important. The inability to accurately determine impact costs will discourage payment and can defeat a claim. Cost accounting must be current; labor cost should be reported weekly. The accounting system should allow the contractor to compare budgeted costs with the actual costs for the work accomplished at any point in the progress of the work. This requires that each line item (cost code) include measurable work quantities so that the progress of the work can be accurately measured and documented. Extra work and impacted bid work are assigned their own accounts to which the contractor's personnel must accurately and consistently record their time.

The daily job report, kept by the project manager or superintendent, is the second and most important record keeping element. The "dailies" are a reliable and comprehensive record of changing conditions at the project. The daily record must be maintained consistently and accurately. Notations should be limited to factual observations - what happened and how it happened - without opinion. Other useful documents include a complete correspondence file, photographs or videotapes (still photographs are often more useful than videotapes), subcontractor reports, document logs, meeting minutes, telephone; conversation notes and memoranda to the file. In some cases, a contractor may find it desirable to keep special productivity studies, time-lapse photographs or videotape reports.

A Dispute Resolution Program requires adoption of a strategy for resolving the unavoidable disputes that arise from time to time. Frontline personnel should be trained in communication and negotiation techniques and should be empowered to settle matters before they escalate. A skilled dispute mediator can often help disputing parties reach a negotiated resolution quickly when direct negotiations are bogged down by the complexity of the issues, the size of the economic stake or the number of parties involved.

A Dispute Management Program also will include a strategy for moving through and resolving more developed disputes. This includes knowing when and how to use legal and technical consultants effectively and to the best advantage. If a dispute should move into litigation or arbitration, the contractor who has implemented a comprehensive Dispute Management Program will be in the best position to obtain a favorable result.

Partnering is a relatively new concept by which all participants in a construction project participate in a single Dispute Management Program. So far, partnering has been tremendously effective at reducing and eliminating disputes among project participants. The key to successful partnering is full commitment from all the participants and their personnel at every level. Each contributes his or her efforts to achieve stated mutual objectives for the project. At the same time, the participants recognize and respect the legitimate differing interests of the participants. A contractor's Dispute Management Program easily accommodates participation in a "partnered” project.

A Dispute Management Program should be developed jointly among the contractor's management staff, an experienced construction attorney and a management consultant with construction claims experience. The Dispute Management Program is designed around the contractor's organizational needs. The program should recognize the type and scale of work done by the contractor, the character of the contractor's clients or customers, the contractor's particular goals and objectives in the marketplace, and, of course, the contractor's own unique history and culture.

By instituting and executing a Dispute Management Program, construction contractors can effectively avoid much of the heartaches and costs associated with the changes and impacts that occur on most any construction project. By anticipating and managing these problems efficiently; a contractor increases profits and client satisfaction simultaneously, all of which reduce the risk of economic failure in this riskiest of industries.