Proving Up Claims - The Proof Is in the Paper: Record Keeping for Effect... http://www.americanbar.org/publications/under_construction/2013/augus...

Proving Up Claims - The Proof Is in the Paper: Record Keeping for Effective Construction Claims Vol. 15 No. 3

By

Division 3 / Design: Timothy R. Overman, P.E., of The Kenrich Group LLC,

Dallas Texas; Scott J. Smith of Much Shelist, P.C., Chicago, Illinois; Michael T. Kamprath of Thresher & Thresher, P.A., Tampa, Florida; and James Cohen, P.E., of Arup, Edison, New Jersey

Introduction An inherent risk in a construction project is finding the right balance between documenting every detail that may be necessary for various claims and the efficiencies necessary to be cost effective. Because many successful construction cases rely heavily on contemporaneous project documentation, accurate record keeping, which requires diligent personnel management every day on the job, can be essential to support or refute claims. Oftentimes, however, a party may not know which details need to be tracked until after the project is finished and a claim arises, at which point it may be too late or too expensive to capture the right information. This article provides proactive guidance on record keeping and document management processes for proving up or refuting claims by contractors and subcontractors, in the event the data is needed. The following summary of claim documentation items, which items are italicized throughout this article, is not exhaustive; and many of the identified documents may not be necessary on your project and, therefore, may not exist.

Current Economic Environment

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Under Construction Under Construction is published three times per year by the ABA Forum on the Construction Industry. The publication offers practical information on the latest developments in the practice of construction law. Under Construction is published by the American Bar Association Forum on the Construction Industry, 321 N. Clark Street, Chicago, IL 60654. Manuscripts submitted for consideration should be sent to the attention of the Editor, Jayne Czik. Email address corrections should be sent to the ABA Service Center. Requests for permission to reprint should be sent to the ABA's Department of Copyrights and Contracts at www.americanbar.org/ utility/reprint. The opinions expressed

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Proving Up Claims - The Proof Is in the Paper: Record Keeping for Effect... http://www.americanbar.org/publications/under_construction/2013/augus...

The current economic environment is challenging for designers and contractors with reduced government and commercial spending and increased competition. With fewer construction projects and more competition, the resulting lower bid margins leave little room for mistakes and increase the need to adequately document directed and constructive changes. It has been our experience that the potential for recovery of claimed costs increases when appropriate contemporaneous documentation of issues and related cost, productivity, and schedule impacts are maintained. The purpose of documentation is to support one or more of the three requirements for claims: liability, reasonable damages, and causation that links liability to specific impacts and the resulting damages.

Preparing for the Claim What Does the Contract Say? A good starting point for preparing or rebutting claims is to review the contract and any modifications or change orders to determine the planned and modified scope of work. The contract typically identifies project duration and notice requirements, provides the definitions of

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terms such as “substantial completion” and “final completion,” and sets forth restrictions on work hours and site access. Construction

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milestones also may be included. Change orders are intended to

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memorialize and explain agreed-upon modifications to the contract. Those modifications could include one or more additions or deletions to the scope of work and/or the period of performance of the work. Change orders also may identify consideration for the changes, define release of claims parameters, and indicate any agreement on responsibility for a change and the associated consideration. If the parties cannot agree on a change, the owner may issue a unilateral change order. Such unilateral change orders, or change orders that provide scheduled relief without consideration, or change orders with weak or no release language often form the basis for a claim.

Contracts also may specify requirements for the contemporaneous submission to the owner or general contractor of documentation backing up or supporting the claim. The failure to comply with the terms of the contract regarding claims submission may bar recovery for some claims. Similarly, proper release language included in a change order may bar recovery of some claims.

Notice of Claims Notice requirements with respect to claims vary, depending on contract terms. It has been our experience that early, often, and detailed notice is advantageous. However, the need to issue notice should be real. Excessive notice of claims may be viewed by the owner, contractor or designer as obstructive. Notice is often documented in formal letters, e-mails, RFIs (Requests For Information), and meeting minutes. The type, form and delivery

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Proving Up Claims - The Proof Is in the Paper: Record Keeping for Effect... http://www.americanbar.org/publications/under_construction/2013/augus...

method of the notice required are often stated in the contract documents. Whichever method is required, it should be consistent throughout the project. While the immediate notice of a claim may be impractical in some situations, a clamant should endeavor to provide timely notice as soon as reasonably possible. Without timely notice, other parties to the contract might assume the work is in-scope, impacts are nominal, or the affected party will absorb the increased costs to maintain a relationship or other reasons. In many jurisdictions, the failure to provide notice as required by the contract may result in a party waiving its right to the claim. (Note: The legal ramifications of the notice requirement can differ based upon the jurisdiction and may even depend upon the parties involved. Consequently, a legal discussion of the notice requirement is beyond the scope of this article.) An example of a contractual notice requirement can be found in ® ™ AIA Document A201 - 2007 - General Conditions of the Contract for Construction. Article 15 of the A201, titled “Claims and Disputes,” specifies that the contractor provide notice of claims within 21 days after “occurrence of the event giving rise to such Claim or within 21 days after the claimant first recognizes the condition giving rise to the Claim.” (§15.1.2 Notice of Claims) The A201 also states that “[i]f the Contractor wishes to make a claim for an increase in the Contract Sum, written notice…shall be given before proceeding to execute the Work.” (§15.1.4 Claims for Additional Costs) Timely notice is also required “[i]f the Contractor wishes to make a Claim for an increase in the Contract Time.” (§15.1.5 Claims for Additional Time; §15.1.5.1) ™ Another example is ConsensusDOCS - 200, Section 8.4, which

states “for any Claim for an increase in the Contract Price or the Contract Time, the Contractor shall give the Owner written notice of the claim within fourteen (14) Days after the occurrence or within fourteen (14) Days after the Contractor first recognizes the condition giving rise to the claim, whichever is later.” (Claims for Additional Cost or Time §8.4) Federal Acquisition Regulations (FAR) include a number of clauses related to notice of changes. Most clauses state that written notice must be asserted within 30 days from the date of receipt of a written order. (See FAR 52.243-1 Changes–FixedPrice (c); 52.243-2 Changes–Cost-Reimbursement (c); 52.243-3 Changes–Time and Materials or Labor Hours (c); and 52.243-4 Changes (e))

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Contact Us Editor Jayne Czik Citnalta Construction Corporation 1601 Locust Ave Bohemia, NY 11716 631-563-1110 email: [email protected]

Associate Editor Ridgely J. Jackson DLA Piper LLP (US) 203 North LaSalle Street, Suite 1900 Chicago, IL 60601 312-3682198 email: ridgely.jackson@dlapip er.com

Ideally, changes to work scope and the associated cost and schedule impacts can be agreed upon before work begins. Documentation of changes and impacts becomes a critical issue when agreement cannot be reached before the contractor is required to perform out-of-scope work. In such a case, as

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Proving Up Claims - The Proof Is in the Paper: Record Keeping for Effect... http://www.americanbar.org/publications/under_construction/2013/augus...

impacts to cost and schedule are estimated and incurred, additional notice is often beneficial to memorialize claims.

Need to Contemporaneously Document Changes and Acquire Information. In anticipation of preparing or rebutting a claim, contemporaneous creation and retention of detailed documentation is invaluable. Contemporaneous documentation is often more convincing than an after-the-fact statement of claims. Sometimes contemporaneous documentation is required as a condition precedent to making a claim. In addition, the absence of contemporaneous documentation of impacts can raise a flag when rebutting a claim if a contractor encountered changed work or delays, recognized the resulting impacts, but did not track or in some way document the impacts. At the end of a project, it can be difficult or impossible to accumulate the information needed to adequately prepare or rebut a claim because the information was not recorded, personnel and their computers have been redeployed to other projects, documents have been inadvertently destroyed, and/or schedules have been updated and overwritten.

The baseline or starting point to measure impacts is often the planned scope of work and associated cost, productivity rates, and schedule to perform the work. The following sections identify the types of documents used to support or rebut typical construction claims including: estimated costs, estimated productivity, and planned schedule; actual costs; actual productivity; and actual or as-built schedules.

Types of Claims-Related Documentation Construction claims can include costs for discrete changes, disruption, delay, overhead, increased risk and profit. Delay damages are typically quantified by multiplying days of compensable delay by a daily rate (cost per day) for time-related costs. Depending on venue and circumstances, delay claim components may also include: material escalation, labor escalation, demobilization and mobilization costs, labor acceleration, home office overhead, legal and claim preparation costs, interest, and other items. Costs for discrete changes and disruption can be estimated or quantified using other methods including “Total Cost,” “Modified Total Cost” and “Measured Mile.”

Documents needed to support or rebut specific claim elements are a function of the claim. Planned and final (as-built) schedules and documentation of when work was performed are typically needed for delay and acceleration claims. Planned and actual site overhead (general conditions) and home office overhead costs support time-related and added costs used to quantify delay and acceleration damages, respectively. Planned and actual productivity information typically support disruption or loss of productivity claims. Planned and actual costs for labor and

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Proving Up Claims - The Proof Is in the Paper: Record Keeping for Effect... http://www.americanbar.org/publications/under_construction/2013/augus...

materials often support changed work claims. Daily reports, meeting minutes, e-mails, letters, inspection reports, site logs, progress and other photographs, and other contemporaneous documents assist in supporting liability and causation arguments.

Claims are typically quantified by comparing planned or contemporaneous (“pre-impact”) schedules, productivity, or cost estimates to actual (“impacted”) performance. The difference between the pre-impact and impacted performance is then analyzed to determine the claimable delay, productivity, or cost. Contemporaneous documents prepared before impacts, such as bid estimates and schedules, can be used as the starting point to identify a contractor’s planned means, methods, costs, productivity rates, and durations to perform the un-impacted work. The level of detail included in a contractor’s plans, whether at bid or other times before claimed impacts, can have a significant influence on recovery of compensable delay and reasonable damages.

Documentation of Claim Baseline - Planned Scope of Work and Associated Estimates of Cost, Productivity and Schedule Documentation of the planned scope of work can be found in the Request for Proposal (RFP), RFP addenda or amendments, pre-bid meeting minutes, pre-bid questions and answers, the contractor’s proposal, drawings and plans, specifications, the contract, and change orders. The planned cost to perform the baseline scope of work can be found in the contractor’s bid; line item estimates for the work; subcontractor bids; professional service contracts; quotes, purchase orders, and invoices from suppliers and vendors; invoices from construction equipment rental companies; labor agreements; and a contractor’s financial statements that identify home office, general, and administrative costs.

Documentation of Actual Scope of Work A project’s actual scope of work is documented in unilateral and bi-lateral change orders and contract modifications, final and interim construction drawings and specifications, as-built drawings, Computer Aided Design (CAD) files, Building Information Modeling (BIM) files, Requests for Information (RFIs), Architect’s Supplemental Instructions (ASIs), letters, emails, meeting minutes, daily logs, inspection reports, material requisition orders, and other sources.

Documentation of Actual Costs A contractor’s actual costs are typically summarized in its job cost report. The job cost report tracks actual costs and often compares actual and budgeted costs and hours in some level of detail. In the absence of a job cost report, or to confirm the reliability of a contractor’s job cost report, actual cost inputs include:

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Proving Up Claims - The Proof Is in the Paper: Record Keeping for Effect... http://www.americanbar.org/publications/under_construction/2013/augus...

Invoices and associated orders from subcontractors, vendors, and suppliers that support costs for materials, construction supplies, permanent equipment, and construction equipment;

Invoices and associated orders from consultants for any professional services; Daily reports or other sources that document the presence of specific construction equipment onsite; Invoices from equipment rental companies that indicate when equipment was delivered to and removed from the site; Equipment usage reports and records that indicate usage and, conversely, standby hours; Insurance and backcharge claims that show allocation of costs to other parties and potential recovery of costs; Delivery tickets and receiving reports that document type of material, location of delivery, day of delivery, and quantity of materials delivered; Daily reports, time cards, timesheets, certified payrolls, and other labor records that support recorded labor hours by individual, by craft, by task, and by building area; Labor agreements, certified payrolls, and payroll records to support labor rates; and A contractor’s financial statements that document annual home office general and administrative costs, and revenue.

Documentation of Actual Project Schedule A contractor’s periodic schedule updates typically document activities’ start and finish dates and provide the status of ongoing activities on dates the schedule is updated. Contracts sometimes specify the minimum frequency of schedule updates, often monthly. Schedules in their native format such as Primavera (P3 or P6) and Microsoft Project (MSP) are preferred because they often provide more detailed information than hardcopy reports. Some contractor’s manage day-to-day work with other more frequent schedules like weekly three-week look-ahead schedules. Actual or as-built information can be verified with daily reports, weather bureau data, foremen’s logs, superintendents’ logs, meeting minutes, monthly reports, photographs, videos, correspondence, e-mails, concrete and other material delivery tickets, inspection reports, labor records that show when and where specific work was performed, payment applications, RFIs and RFI logs, submittals and submittal logs, productivity reports, installation reports, material testing reports, deficiency reports, drilling logs, material haul records, equipment rental invoices, formwork rental invoices, inspection reports, and other records.

Documentation of Actual Productivity A contractor’s productivity records may document productivity by craft (i.e., electrical, mechanical, plumbing, etc.), type of work (i.e., feeder conduit, branch conduit, feeder wire, terminations, etc.), location (i.e., basement, first floor, site, etc.), quantity installed (i.e., linear feet, number of items, cubic yards, etc.), and other information (i.e., crew, shift, site, inside, etc.). Actual productivity and impacts to productivity can be verified with the following:

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Proving Up Claims - The Proof Is in the Paper: Record Keeping for Effect... http://www.americanbar.org/publications/under_construction/2013/augus...

Weather bureau data that documents precipitation, temperature, and humidity that can influence productivity; Project drawings and site plans that demonstrate a project’s physical size and layout; location of work (i.e., inside or outside); onsite material storage constraints; distances from laydown or material storage facilities to various work areas; number and access to construction elevators and cranes; floor height; number of floors; and other factors that influence horizontal and vertical material, equipment, and personnel moment distances and access, the need for additional material handling and management resources, and productivity. The contract and specifications that may document the following: type of project (i.e., new construction, remodel, or work while occupied), security, site access, safety, work hours, cleanliness, and special material handling requirements that influence productivity; Photographs, and video that show congested work space and trade stacking;

Installation records and labor hour records that document installed quantities, labor hours to install the quantities, and productivity rates; Project schedules that record material quantities and labor hours to install quantities in specific area of the project at different times; Project schedules that show the number of different trades working concurrently in specific areas of the project and sequence of work that can impact productivity; Labor records that document overtime, shift work, days worked per week, supervision ratios, absenteeism, turnover, and other factors that influence productivity; and Inspection reports showing acceptability of completed or in-process construction.

Conclusion The current challenging economic environment is one of fewer construction projects and more competition. The resulting lower bid margins leave little room for mistakes and increase the need to adequately document directed and constructive changes. A successful construction claim often relies on the quality of contemporaneously maintained project documentation and accurate record keeping, which requires diligent personnel management every day on the job. The types, quantity, and quality of documentation can vary significantly by project and party involved. All contractors do not maintain the same types of documents, and a contractor’s records can vary by size of project, parties involved, and project personnel. Maintaining all possible records for all possible contingencies can be a daunting and costly task, however having the right documentation makes claims more efficient to assemble and support and can lead to earlier and less costly dispute resolution.

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