The construction industry is inherently a risky industry by nature. The goal of any professional in a construction project, whether they are a construction company’s owner, project owner, design professional, general or specialist contractor, engineer, architect, labor, foreman, fabricator, or any other relevant professional, proper risk assessment and allocation is key.
That’s right! Properly assessing the risk and allocating it to the person or team who are much better equipped and have the expertise to deal with that very kind of risk. A lot of people have probably heard about it earlier. However, implementing this is actually routine practice in terms of risk management and construction claims management.
Let us now read more about it.
Preventing construction claims and reduction of risk – what to understand?
There is an expression, which is ‘an ounce of prevention is worth a pound of cure.’ This can be held quite true when it comes to negotiating the construction contract. Here are some factors to watch out for in the contract. They can help reduce construction claims to an optimum margin.
Understanding the scope of work
This is one of the first things requiring wholesome consideration. If the scope of the work is well written (meaning no ambiguities are present) then it is good. Also, does the contract clearly encompass the scope of the work the price is predicated on? If not, then it should be at all costs.
Time needs to be spent in making a well-written scope of work. It includes time taken to identify qualifications and assumptions of the price and factors the scope of work is based on. It also needs to clearly mention any and all allowances and exclusions as part of the contract sum.
Understanding the contract’s documents
What constitutes the contract’s documents also needs a proper understanding and observation. A lot of construction contracts utilize this term but the key is understanding the specific agreements, plans, specifications, addenda and other documents making up the contract’s documents. This can have an impact on the qualifications and assumptions the contract sum is based on.
Each professional involved in construction desires understanding the documents’ priorities in case a conflict arises in the contract documents. As this priority will govern how conflicts are translated, they need to be handled properly.
Such a priority might warrant professionals conducting another review of both the scope of work, drawings, specifications and other relevant documents. This can help ensure the contract sum either catches or reconciles any existing or prospective conflicts.
Moreover, Each professional also wishes to understand general conditions of the contract so they can be completely aware of the following factors:
- BNotice Provisions.
- Change order provisions.
- Provisions for suspension and termination.
- Force majeure provisions (Important for today).
- Provisions of differing site conditions.
- Insurance needs.
- Scope of indemnification.
- Payment terms.
- Dispute resolution terms.
- Standard of care language (required for design professionals).
Understanding the payment rights
In the end, professionals need to know whether or not they have construction lien rights or payment bond claim rights regarding the construction projects. Also, whether or not they reserve those rights from the project’s onset is also required for knowledge.
This helps improve payment rights in case a payment dispute rises down the road. Payment collection is important for everyone.
Once these provisions are understood, they can help in negotiating contracts. Even the assumed risks will be appreciated nicely. A way a legal counsel can help in this process (including a quantum expert) is pointing out the assumed risks inside a contract and making suggestions to the general conditions needed for consideration in the negotiation process.
Understanding common kinds of construction claims
Construction claims differ as per their nature. Here are some kinds of them which require due consideration.
Claims for payments
When a contractor or engineering company is owed money, in line with factors mentioned previously, the affected party will want absolutely perfect justice in terms of construction lien or payment bond rights.
It is important to understand which rights the affected party has so that they are properly preserved from the beginning, and they are later polished in case the affected party is owed money.
Failure to comply in this manner will result in an error. A lot of jurisdictions have varying requirements to preserve and perfect both construction lien and payment bond rights. It is also imperative that the aggrieved parties know their rights in this regard.
Claims for safety and injury
Safety is crucial in construction. Injuries happen due to the risks involved. The main objective of professionals and teams involved in reducing injuries and complying with all safety protocols. In case of non-compliance, action needs to be taken.
Knowledge of all the rules and OSHA regulations governing the work’s scope. Any additional safety protocols that may be needed for the project (including that of the company) are worth applying if the need arises.
The COVID-19 pandemic reformulated and reconstituted all safety protocols at most construction sites. It not only required distancing and sanitization, but also even the slightest sign of an illness meant something was off. Moreover, more safety protocols were implemented not just to comply with COVID-19 safety requirements but also to add more to workplace safety.
At all costs, construction companies must ensure that all safety protocols are being followed on construction sites. Workers’ injuries add up to a large insurance costs bill which also attracts media attention and scrutiny of all authorities involved. The COVID-19 not only delayed projects but also put a heavy toll when it came to claims for injury, illness and safety.
In case of an injury happening, all those who need to be timely and properly notified need to be notified (workers compensation carriers, OSHA etc.). Afterwards a safety incident report needs to be filled out and steps need to be taken to prevent the accident from happening again.
Differing site conditions
A lot of contracts often have a clause for differing site conditions (aka a changed conditions clause). Dispute avoidance experts say this is helpful as it covers latent physical conditions of construction sites which differ in various aspects from those mentioned in the contract documents.
This kind of claim is also referred to as Type 1 differing site conditions claim (alternatively unknown physical conditions of site) which are different from what is mentioned in the papers. Meaning, if the contract says the site is a grass field and the site in reality is a rocky terrain, then in reality that is a big problem.
If professionals encounter what is known to be a differing site condition, they must ensure they have properly served the notice which documents the condition. Any and all additional costs forecasted based on those conditions should also be mentioned. They will also need to demonstrate in what ways is the condition in reality different from that mentioned.
It is worth noting that a construction contract will generally include the account of the site’s conditions, testing conducted which is in line with the appropriate rules and regulations, with the work’s scope, and can warrant that the site is suitable for construction work.
However, if there are differences then they need to be described properly. The appropriate testing and other methods should prove so. Also, the language to be used in the report needs due consideration.