In the absence of a new transportation policy, investment in infrastructure is largely left to alternative sources of funding, such as Public Private Partnerships (PPPs). With all the buzz about PPPs, contractors should first learn the "basics" about alternative financing and then appreciate the risks.

If you watched the State of the Union Address a few weeks ago, you know that President Obama’s speech was largely silent on the details behind any support for infrastructure investment.  According to The Transport Politic, "Mr. Obama’s address, whatever its merits from a populist perspective, nonetheless failed to propose dramatic reforms to encourage new spending on transportation projects, in contrast to previous years." 

With little encouragement from the Administration, what should contractors know about infrastructure investment? In an earlier post, I talked about whether PPPs could help revive the highway and bridge industry.  Looking at the same issue one year later, here are some thoughts:

  1. Contractors need to understand the PPP enabling legislation in their state.  As states explore utilizing PPPs for roads, bridges and other infrastructure, they need to approve enabling legislation. A  state legislature has to consider a number of issues that will be important to contractors, who should be engaged in the debate.
  2. Contractors need to understand that PPPs don’t create new money.  Instead, the arrangement relies on the private sector and other resources to help develop the infrastructure. Public funds will eventually be a part of the equation to pay back the private investment.
  3. Contractors need to understand the different risks involved with PPPs. If you are going to participate in a project involving alternative financing, you need to understand the new risks and opportunities that you will encounter.  The AGC of American published a White Paper on Public Private Partnerships (pdf), which gives a good overview of the history of PPPs, the legislative hurdles encountered by states, and the legal issues to consider by contractors.

If you are a contractor that is going to participate in a PPP project, you should consider some of the following risks that may be new to your traditional understanding:

As shown in the above chart, many of the obligations traditionally borne by the public agency are now shifted to the PPP.  The contractor should be directly involved in the contract negotiations since risks are being allocated differently.

Source: AGC of America

As the kids were making Valentine’s cards this week, a smaller one disappeared from the pack. Then came silence.  You see, in my house, silence is a bad thing.  This particular silence turned out to be too funny:

The hand writing on the wall is a sign of doom or misfortune. Now, the phrase has become a popular idiom for something bad is about to happen.  When something goes bad on a construction project, you have many choices.  Best practices tells us to find a solution first and point the finger later.  

What happens when there is a contaminated spill on site?  What if a busted piece of heavy machinery or equipment is delaying the schedule?  Or perhaps the most common … what happens when you discover unsuitable soils? 

Although the parties must work to find a common solution to any of these problems so that the contractor can complete its work, legal responsibility for the delays still needed to be determined. Ultimately, when disputes like this arise, a court or arbitrator will have to resolve many legal questions, including:

  • Were there any subsurface reports performed prior to the start of the work?
  • Did the owner have any contractual responsibility for unanticipated conditions?
  • Is the vendor or supplier have an obligation to timely service, repair or replace leased equipment? 
  • Did the owner/architect have any ongoing supervisory or inspection duties during performance of the work?
  • Were the machines properly mobilized and operated during construction or were they defective in any way?
  • Were there any other concurrent delays affecting the work?

For all players in construction industry, unexpected events on a construction project require a multi-phased approach to the problem. Your situation may dictate that you quickly assess the extent of the damage, determine a workable and cost effective solution and fix the problem first … and leave leave the finger-pointing to later. So long as the parties reserve their rights in accordance with the notice provisions of the contract, the project completion will be better served in this approach.

Contractors should pay particular attention to the contract provisions relating to time, changes, force majeure and differing site conditions. When your work is delayed for reasons beyond your reasonable control, there may be contractual and legal defenses to an owner’s assessment of liquidated damages. Of course, the immediate goal will be to get the project back on schedule—but remember the best approach is to take steps during construction to avoid the writing on the wall.

 

When contractors seek additional compensation for changes, differing site conditions or other delays, they must convince the DOT or court of the amount they are entitled to be paid.  Whenever these types of events occur on larger highway or infrastructure construction projects, there is usually a substantial loss of productivity. Yet, contractors are frequently unable to prove the appropriate amount.

The Measured Mile. One way to determine lost productivity on a project is by determining what is known as the measured mile—comparing the cost of “impacted” work with the cost incurred to perform the same or similar “unimpacted” work.  Because the measured-mile calculation is based on comparing the impacted productivity and unimpacted productivity on the same project, it tends to be a more accepted approach.

Steps that Contractors Need to Take.   Applying the measured-mile method is straightforward if the contractor has kept productivity records by location, type of work and crews.

  • Identify and define impacted work, including the unit of measurement for the work. For example, certain aggregates designated by the agency as suitable for use in the concrete may not be suitable if the soils contain large lumps of clay.  Under this first step, you need to identify and define the impacted work.
  • Identify the impacted and unimpacted time periods and project locations for the analysis. Selecting the unimpacted (measured-mile) period and location for the project is crucial. Most common tasks on projects are constructed in different phases, at different times of the year and in different locations. In the above example, the contractor may be able to achieve a higher production after identifying and approving a different aggregate source.
  • Carefully evaluate the difference between the two periods and select a representative unimpacted period. Remember that a potential challenge to this approach is the argument that the unimpacted selection is not representative of the project. This is because the measured-mile method assumes all work on the project would have been performed at the same rate as the unimpacted segment.
  • Locate and assemble job-cost records, identifying man-hours, equipment and material used. Record keeping is critical to calculate and support any lost productivity claim. On highway construction projects, contractors must break the work down by location, activity and event. Review records for all unimpacted work periods. Field personnel need to maintain the records in generally the same manner for the impacted and unimpacted sections.
  • Determine whether you will base the analysis on hours or dollars. Then develop an unimpacted benchmark productivity measurement. An hourly approach is based on the total crew hours required to complete a work task, such as yards of concrete paved. A dollar approach is based on the total cost to complete a task, including labor costs, equipment rental, operating costs and consumables that vary with time. Once you have developed the productivity factors and crew costs, simply apply these to the impacted work quantities.

A measured mile analysis is generally acceptable if based on reasonably similar work to the impacted work. The impacted and unimpacted work activities should draw on labor from the same labor pool, and both activities should involve similar skill level and effort. Identify and evaluate possible other causes for the claimed impact. Be prepared to explain why these do not apply.

As highway contractors, you will face lost productivity when there are changes, differing site conditions or delays. How well are you prepared to show the DOT or court the amount of your lost productivity?

Image: rsgreen89

If you regularly read this blog or follow me on Twitter, then you know I am member of the American Bar Association’s Forum on the Construction Industry.  Over the past year, the Forum has been building an online tool for construction consultant’s.  Well, it’s here!

What is the Consultant Directory? – An online database of construction professionals and litigation support professionals specializing in construction industry litigation and consulting.
Why should you be listed in the Consultant Directory? The Consultant Directory was designed by Forum members, all experienced construction litigators and industry experts, to quickly connect lawyers and their construction clients with experts who have special qualifications and experience in construction claims, disputes and project consulting. Using this database allows a focused search, not possible with simple online searches of resumes and websites, for specific specialties, licenses, project experience, and other important criteria.

Who will have access to the information in the Directory? Although the Forum is creating and hosting the Consultant Directory, it is available for public use – thereby maximizing exposure to anyone looking for a consultant for construction claims, disputes, litigation, or simply consulting assistance on a project.

What does it cost? To defray the Forum’s expenses of creating and maintaining the Directory, an annual fee of $100 for ABA members, and $150 for non-members is charged. Volume discounts are available for organizations registering multiple consultants. However, if you sign up before March 31, 2012, consultants will receive a 50% discount for the first year of registration in the Directory.

You’re sold!  Where do you sign up? 

The Directory is in its infancy (…less than two weeks old…). The key to its success and usefulness will be to increase the number of experts listed in the Directory. When that happens, it has the potential to be a great resource for starting your search for an expert.

The Forum needs your help to increase the number of consultants in the Directory. If you could send an email to consultants that you know and suggest that they participate or send me the consultant’s name and I will ask them.

You probably thought you would never see the finish line to this series of posts on the Top 20 contract issues for contractors and subcontractors.  Well, here we are, at the finish line.

In this final part of the four-part series, I share the last few areas of concern for contractors and subcontractors when reviewing a construction contract.  These include:

  • Assignment: Make sure that the Owner does not have the unilateral right to assign the contract without the prior written consent of Contractor.  Also, try to negotiate your right to assign the contract if necessary.
  • Lien Waivers and Indemnification: Make sure that any obligation to indemnify, defend or otherwise protect the Owner from liens is expressly conditional upon the Owner’s timely payment of sums when due. Also, make sure that you are not prospectively waiving your rights to file a lien in the first place. In many states, these types of lien waivers are invalid and unenforeceable as a matter of law. These laws provide you protection and should be cited when negotiating with the other side.
  • Indemnification: Ensure that you are not indemnifying the Owner for its own negligence, and that the indemnification clause covers only "personal injury" or "damage to property other than the work itself” that is caused by you or your employees.
  • Liquidated Damages and Time: When liquidated damages are included in the contract, make sure that there are no unreasonable restrictions on Contractor’s ability to obtain a time extension.
  • Governing Law and Forum Selection Clause:  Finally, make sure you double-check these provisions.  In most cases, the Owner-Contractor agreement calls for the governing law to be the place of the project and that litigation/arbitration will occur in that same locale.  While this is the general rule, there may be an advantage to agreeing to another jurisdiction.

While I could write this series for a couple more weeks, I am not going to let all the secrets out.  What recommendations did I miss?

Image: jayneandd

My friend Melissa Brumback of Construction Law in North Carolina said that my post yesterday on construction contract issues was SCARY (…although I think she only wanted a shout-out…).  In any event, I am glad that I am receiving good feedback on my list of Top 20 Contract Issues. 

In this third part of a four-part series, I will share some of the contract issues for contractors and subcontractors to review before signing a construction contract.  The next five include:

  • Warranty: Make sure to check out what warranties and representations are made in the contract.  What is the warranty duration, and does it start at substantial or final completion? The warranty period start at substantial completion, particularly if Owner intends to begin partial occupancy.
  • Force Majeure Risks (weather, war, strikes): This is a tricky one.  Make sure you identify who bears the risk of force majeure events in terms of time and cost?  If weather is the culprit, you may want to define what kind of weather impact will allow for recovery, whether "excessive weather" (which is what the Contractor may want) or "unusually severe weather" (which is what the Owner will probably push for).  
  • Substantial Completion: Does substantial completion contemplate occupancy of the building or structure? Are you required to have a local agency-issued certificate of occupancy, or temporary occupancy permit in order to achieve substantial completion? If not addressed in the contract, most states will have a statute or law on when substantial completion occurs.
  • Payment Terms: What are they, and is there a condition precedent to payment? Despite the common confusion between the terms, there is a big difference between "pay if paid" and "pay when paid" clauses.  Also, look to see if there is interest on late payments available?
  • Dispute Resolution Terms: Is mediation a condition precedent to other forms of dispute resolution? I recommend making mediation mandatory before proceeding further with other forms of dispute resolution. Also, make sure that the Owner doesn’t get to unilaterally select the dispute resolution method at the time of the dispute. Agree in advance to either litigation or arbitration. Most important, do you have the right to recover attorneys’ fees, or is it one-sided in favor of the Owner? If so, either delete it or make it mutual so that the "prevailing party" gets their attorneys’ fees.

Stayed tuned for the final post in this series, covering liens, indemnification and assignments. What recommendations do you have regarding contract issues?
 

Image: Ashley Cross

After yesterday’s post, I received an email from a reader saying that the post was SWEET.  Thanks for the comment! (This picture is for you!)  To start a SOUR trend, today I am going to address terminations and changes.

In this second part of a four-part series, I will share some of the contract issues for contractors and subcontractors to review before signing a construction contract.  The next five include:

  • Suspension of Work and Termination for Default due to Owner’s Nonpayment:  Make sure that there is a provision that allows the Contractor to stop work for nonpayment, and ultimately to terminate the contract for nonpayment by Owner.
  • Termination for Default by Contractor: Make sure that the clause does not convert the Owner’s wrongful default termination of Contractor into a termination for convenience. If the Owner wrongfully default-terminates Contractor, you will want to want to recover more than the cost of the work in place.
  • Change Orders: Can Contractor refuse to perform a requested change order if the Owner will not authorize or acknowledge it as a change? How are changes priced? What happens if there is a change, but agreement on time and/or compensation is not achieved?  These are all issues that need to be addressed in the changes provision.
  • Who is the “Owner” listed on the Contract? Is the “Owner” (as listed on the d/b or construction contract) a property holding company or other potential “shell” company that is related to a larger company with whom you have negotiated the deal? If so, ensure that you have the financially solid company execute a guaranty agreement that guarantees the performance of the shell or holding company. Otherwise, the Contractor could end up contracting with a party without adequate resources.  Also, without a guaranty agreement, the Contractor cannot assert an action against the company with financial resources to get paid.
  • Environmental: Are there any known environmental hazards associated with the site that the contract needs to accommodate? The Owner should indemnify the Contractor for existing conditions at the site.

Stayed tuned for the next post, covering warranty, force majeure and payment. What recommendations do you have regarding contract issues?

Image: abakedcreation

I generally follow a "put it writing" rule, which means that if something is in writing it is more than likely to be achieved.  Whether you are a list-maker or a goal-setter, your efforts will be rewarded if you put those lists and goals in writing.

 

In this first part of a four-part series, I will share some of the contract issues for contractors and subcontractors to review before signing a construction contract.  The top five include:

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  • Site Conditions Clause: Make sure that the Contractor is not taking responsibility for unforeseen or differing site conditions, and that costs for such site conditions are compensable.  You should also make sure that additional time is also a remedy.
  • Surveys and Geotechnical/Subsurface Conditions Reports: Whose responsibility is it to do the report? Does the contract provide that Contractor can rely on the report? If not, understand that the Contractor is assuming the risk. If Owner procured the report, do not permit the Owner to disclaim responsibility. If Contractor procured the report, make sure that site conditions reported serve as the baseline for what is a “foreseen condition” in relation to the site conditions clause.
  • No Damages for Delay Clause: This provision states that the Contractor is not entitled to recovery any damages for delays caused on the project.  It is in the Contractor’s best interest to delete this provision.  If the Owner won’t budge, suggest that Contractor be entitled to recover actual, documented costs for Owner-caused delays. Contractor should not have to absorb Owner-caused delays or delays caused by others.
  • Owner’s Other Contractors: Does the contract put the Contractor at the mercy of Owner’s other contractors in terms of schedule and compensation? Who is required to coordinate? Do not let the Owner disclaim responsibility for its other contractors.  Remember that in most states the Contractor has no recourse directly against the other contractors.
  • Ownership of Drawings: Make sure ownership of any drawings does not transfer to the Owner until payment by the Owner.

Stayed tuned for the next post, covering termination and change orders.  What recommendations do you have regarding contract issues?

Image:frank3.0

You have probably already seen quick response (QR) codes appearing in magazines, newspapers, posters, business cards and in various other print sources.  As smartphone technologies and uses become more prevalent, the use of QR codes is increasing … and expanding in scope.  The construction industry is seeing some new and innovative uses, including the following:

Marketing and Business Development.  This is perhaps the primary area where QR codes are being used.  A code can be generated and placed within your company’s marketing materials.  Just scan the code with a smartphone and it can be linked back to your company’s website, list of projects, contact information, or just about any other information that has a digital footprint. 

Access to Building Permit Information.  Last year, New York Mayor Bloomberg and Department of Buildings Commissioner Limandri introduced the use of QR codes on all future NYC construction permits. According to an Oreilly Rader article, "QR codes help us add context and dynamic info to NYC’s physical environment," wrote Rachel Sterne, New York City’s first chief digital officer on her Tumblr. In this instance, any individual can scan these codes to see a web view of what’s being built, who is doing the building, and what (if any) complaints have been filed against the permittee.  You can imagine what other information you will be able to store electronically on a construction project that can be accessed immediately in the field with a scan of a simple code.

Servicing Manuals and Product Specifications.  As noted in a post at Engineering New Record today, some vendors and equipment manufacturers like Air Burners, Inc. are using QR codes with operation and maintenance of their $150,000 air-curtain burners used in landfills, construction sites and military operational zones.  The company’s most recent equipment is "equipped" with two QR codes: one, for the operating manual and, another, for servicing information. The operator can quickly download the needed information.

Project Management and Version Control.  A highly innovative use of QR codes has emerged in the form of document controls when dealing with plans and drawings.  As shown in the video below, the solution called isOK featured on AECGuild.com can be used by scanning the QR code affixed to drawings to confirm whether it is the latest released drawing.  As this technology develops, this can have significant uses in the field to check status of drawings, changes, conflicts, etc. 

The usage of QR codes is growing.  Its success in the construction industry will depend largely on the level comfort of end users, as well as the interface with current technologies on the construction site.  However, based upon the uses so far, I look forward to what’s ahead.

Many delay, disruption, and loss of productivity claims are lost or substantially reduced in value because mistakes, errors and carelessness are reflected in the original schedule and plan of operations. The original schedule is often the first piece of documentation that the owner receives demonstrating the contractor’s professionalism in planning and management.

Contractors should pay great attention to the scheduling process and avoid many of the common mistakes that can lead to a loss of credibility on the project.  It is impossible to list all of the possible initial scheduling mistakes, but the following is a list of defects in the initial schedule that some courts and boards of contract appeals have noted:

  • No proof of the information used to prepare schedule
  • Errors in technical logic
  • Incomplete schedules
  • Overlooking procurement of critical materials
  • Failure to consider physical restraints
  • Failure to consider weather restraints
  • Failure to consider resources
  • Failure to consider the economics of the sequencing
  • Failure to consider uncertainty and risk in establishing durations
  • Schedule does not “tie in” to the anticipated means and methods and/or estimate
  • Logic intentionally deviates from the manner in which the contractor intends to build
  • Elimination of float by increasing durations
  • Unrealistic productivity or durations
  • The schedule submitted to the owner was not used to build the project

Again, the schedule can often set the tone for the job. In court, it is the document that establishes the benchmark of all time related claims. As such, it has a tremendous impact on the judge and jury and influences the credibility they will attach to the evidence that follows.

Image: USACE Europe