RISK TIP: TEN STEPS (PLUS ONE) TO MINIMIZE YOUR RISK.

There are many practical ways a contractor or vendor can reduce its risk in the construction industry. In an earlier article, we revealed the first five in a series of eleven risk tips that are among our most recommended. Following are the other six.

6. Give prompt notice of extra work or increased costs.

Anytime you believe you are about to perform work or incur costs that are beyond the scope of your contract, prompt notice of your intent to make a claim for additional compensation should be given to the party you expect to pay you for the work or the increased costs. This is true whether the extra work or increased costs result from some direction you’ve received from such party or is due to some unanticipated condition experienced on the project. This is also true whether the precise nature or extent of the work or changed condition is known at the time notice is given, or the amount to be sought in additional compensation can at that time be determined. Don’t wait; give notice.

7. Agree to and sign a change order before doing extra work.

Construction contracts frequently include provisions to the effect that “no cost incurred beyond the contract amount will be paid without a signed change order issued before the cost is incurred.” Despite this language, contractors frequently perform work and incur costs not contemplated in their contracts before receiving a signed change order or change directive. It is recommended that before performing work or incurring costs beyond the terms of your contract, you should obtain a signed change order that accounts for all additional compensation due for extra work and increased costs resulting from unanticipated conditions.

8. Give prompt notice of and make timely claims for time extensions.

In a climate of tight schedules and liquidated damages, time really is money on a construction project. Failing to be alert to delays and failing to give prompt notice when delays occur can be devastating to a contractor. As soon as it becomes apparent that your work is being delayed by conditions beyond your control, notice of the delay should be given and a request for time extension should be made. You should then be vigilant in having the time extension included in a signed change order.

9. Take meeting minutes and formally correct those taken by others.

All construction projects involve meetings at which many important discussions occur and decisions are made. Sometimes others will prepare and distribute minutes of those meetings. Sometimes those minutes will include a request that any errors or omissions in the minutes be identified within a specific time period. Whether an invitation to correct the minutes is extended or not, if the minutes you receive contain errors or are susceptible of being taken out of context or distorted later, you should notify the person distributing the minutes, and in the proper case the entire distribution list, of the errors, omissions, or unclear entries in the minutes, accompanied by the correct information. To be effective in this effort – both in the short term and in the long term – the contractor will need to take and preserve its own minutes of the meetings it attends. Include in those personal minutes a list of all attendees (even if only there for a short time), the topics discussed, the discussion that occurred and the decisions made, especially as they pertain to the contractor’s work or presence on the project.

10. Set up separate cost codes to track claims for increased cost or extra work.

The economic impact suffered by contractors due to unanticipated conditions or extra work will frequently be lost or virtually impossible to track because contractors fail to take steps to segregate and track those costs on a contemporaneous basis. This not only makes it difficult for the contractor to substantiate those costs in the claims process, but also provides the party that should be paying them less likely to agree to do so. Contractors should develop and be prepared to implement as necessary a protocol that establishes and uses a separate set of costs codes to track increased costs due to unanticipated conditions and extra work that may occur on a project. In this way a contractor can substantially reduce uncertainty in identifying costs incurred as a result of a particular claim event and greatly increase its chances of recovering those costs in the claims process.

11. Follow the dispute resolution procedure.

Many construction contracts include dispute resolution provisions. These provisions typically include a roadmap that dictates the process for perfecting resolution of the dispute under the contract. Many times the roadmap includes mediation as a prerequisite to arbitration or litigation. Virtually always the roadmap also includes time limits for service of notice of a claim, appeal of a decision, and other related actions. In some cases the roadmap will also stipulate that the architect’s decision is binding upon the contractor unless a demand for mediation, arbitration or litigation is made within a specified time. These are but a few of the pitfalls that await contractors unfamiliar with the terms of their contract or who simply fail to abide by them. Strict adherence to the requirements set out in the dispute resolution roadmap is strongly recommended.

Steven K. Metcalf