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Experts Share Critical Risk Management Maxims to Avoid Costly Construction Disputes

The most significant construction cases include claims related to scope gaps, design changes, delay damages, lost productivity, cumulative impacts, and bad administration, according to John Sebastian of the law firm Watt Tieder who was one of three presenters on ConsensusDocs’ recently held a webinar on 10 Risk Management Maxims that Will Change your Approach to Project Delivery. Owner maladministration includes not responding to requests for information (RFIs) in a timely manner, and not responding to time extension requests. “The big cases always have indecision at their root cause. The worst decision is indecision,” Mr. Sebastian said, adding that “indecision in itself is a decision and ultimately becomes a big piece of what litigation disputes fight about.”  The ConsensusDocs risk management webinar shared many important lessons learned from the battlefield of construction projects gone wrong that wound up in litigation.

Drawing on their years of experience as litigators in the construction industry, the webinar panelists identified common risk management pitfalls through real-life examples, accompanied by actionable steps to address them (i.e., “maxims”).  One takeaway is that risk management is an excellent investment. Jeffrey Katz, Executive Vice-President of Vertex, a company specializing in expert construction claims and schedule delay analysis, shared information from studies showing up to a three-to-one return on investment (ROI) on safety matters. That positive ROI generally applies to safety and risk management in construction, according to Mr. Katz.

Another nugget of advice: Investing in a baseline geotechnical report has become industry practice. Christopher Brasco, a prominent construction attorney from Watt Tieder, learned from his father, a lifelong builder, that “when construction gets out of the ground, it becomes so much easier. The baseline geotech report creates a better way for knowing what conditions you are facing in your project which you can then discuss and plan for these conditions, rather than gamesmanship . . . .” ConsensusDocs publishes the ConsensusDocs 246 Geotechnical Standard Agreement, which establishes industry best practices for contracting for geotechnical services.

The expert panel also discussed why entering a dispute resolution protocol is helpful. First, parties should aim to resolve issues at the lowest level possible, typically in the field. Then, if disputes are not resolved, you should rapidly escalate issues instead of letting them fester.  Mr. Brasco advocated for using a tiered dispute mitigation and resolution approach. When asked how to do this appear in a contract, he commented, “If you want to look for a sound and meaningful approach to resolution, you should look to ConsensusDocs contracts [dispute resolution mitigation procedures]. There is a ton of work that reflects the risk management maxims that we have all been talking about today, and these documents put everyone in a fair place.”

The webinar presenters all agreed that narrowing the issue in a dispute and shrinking the problem is a significant step to resolve disputes sooner and more comprehensively. When you can agree on one portion of a dispute, it makes reaching an agreement on the next portion easier.  For instance, if you agree that it will take 500 hours to fix nonconforming work, agreeing on that piece may help you reach an agreement on apportioning responsibility for the nonconformance down the road.

In addition, the webinar presenters strongly advocated for utilizing a risk register. Spending the appropriate ­­amount of time to update and share information related to known risks is imperative. A risk register in an Excel spreadsheet works fine versus not taking the time and effort to document, predict, and manage your known risks. 

The experts’ ten risk maxims are:

  1. THERE IS NO SUCH THING AS RISK AVOIDANCE, ONLY RISK MANAGEMENT
  2. PROJECT SUCCESS IS EITHER SHARED OR FORFEITED
  3. BUILD A TEAM OF PROBLEM SOLVERS, NOT PROBLEM FINDERS
  4. THE WORST DECISION IS INDECISION
  5. TECHNOLOGY ALLOWS EASE OF COMMUNICATION AND EASIER MISCOMMUNICATION
  6. SHRINK A PROBLEM TO SOLVE A PROBLEM
  7. It is What is Proven
  8. You Can Either Build a Project or Build a Lawsuit
  9. YOU CAN’T STOP STUPID
  10. SET YOUR NEGOTIATION TABLE

Stay tuned for more ConsensusDocs’ webinars planned throughout 2023 – covering trending topics in construction law and contracts.  Learn more here (April 19 - How ConsensusDocs Makes Contracting Easier for Prefabricated and Modular Construction) and here (April 26 - Deep Dive Into Cost of Work Agreements & Things To Consider Surrounding GMPs). 

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