Tips For Minimizing Risk and Loss on a Project
As experienced contractors and subcontractors know, even the most carefully planned and skillfully bid projects can result in devastating losses and unanticipated overruns due to a large number of factors, many of which are not within their control. In such circumstances, the likelihood of disputes between the parties is high. When this occurs, the success of a contractor’s claim will depend upon key steps it took – or did not take – before, during and after execution of its contract and throughout construction. Below are some basic tips and reminders of simple steps that contractors can take to help prevent and minimize risk and loss on a project:
- DO your homework. Before submitting your bid, be sure to take the time to diligently review all available information, documents, plans and specifications to understand all conditions and obligations and obtain as much data as possible to inform your company’s bid. Failure to do so can doom your job and profit potential before you even execute the contract. If you notice ambiguities or inconsistencies in the bid documents, or if you have questions or concerns about any of the information provided, be sure to document and raise those questions or concerns before you submit a bid.
- DO try to negotiate your contract. If you are awarded a job, do not blindly accept and sign whatever contract is presented to you. Attempt to negotiate or, at a minimum, endeavor to identify unfavorable or restrictive contract terms before signing. Many contractors are under the mistaken belief that attempting to negotiate contract terms will result in the loss of a job; however, that scenario is highly unlikely. Consider having an attorney assist in the review and negotiation of the contract. Certain contractual provisions may be unenforceable or limited by operation of law and your attorney’s knowledge of the law can be used as a bargaining tool in negotiations. Even if the entity you are contracting with refuses to negotiate or alter its terms, make a point to identify and understand restrictive and unfavorable terms so that you can tailor your actions accordingly during the course of the project. Here are a few critical provisions to look out for in this exercise:
- Scope of work provisions – you should demand very specific scope of work provisions and be wary of broad language that may be susceptible to differing interpretations for inclusion of additional work as part of your base scope.
- Change order provisions – make sure there is a clear provision in the contract outlining the process by which change orders are issued and approved.
- Notice provisions – be wary of overly restrictive notice provisions and strict compliance requirements that could bar claims. Try to negotiate less restrictive terms and entitlement in situations where the other party is aware of conditions giving rise to a claim.
- No damages for delay clauses – check for such a clause. Try to negotiate limitations on enforcement such as in circumstances where delays are caused by the other party.
- Liquidated damages clauses – see if there is a provision providing for the assessment of liquidated damages and understand the circumstances when they could be imposed.
- Pay-if-paid clauses – subcontractors should be wary of clauses that condition their right to payment on the contractor’s receipt of payment from the owner. Try to negotiate the removal or modification of language shifting the risk of the owner’s nonpayment to subcontractors.
- DO be proactive and prolific. Make it routine practice to consistently and promptly notify parties “up the chain” in writing of any and all issues, conditions and problems that arise during construction – no matter how seemingly minor or insignificant. Do this even when there have been discussions or it seems clear that all parties are aware of a situation. In the event that litigation ultimately results, the party who has the best documentation generally prevails. Ensure that your staff is well-trained to maintain complete and well-documented project files in the event litigation ensues.
- DO NOT remain silent. Similarly, it is imperative to always respond and document an objection to any correspondence or records that contain information or statements which you contest or believe to be inaccurate. It is very important to document in writing any such objection or disagreement and memorialize your position for the project record. In this regard, it is crucial that you document your dispute of any assertion or implication by another party of your responsibility for a delay, problem or performance of deficient work.
- DO create a paper trail. In this same vein, with respect to any affirmative claims for additional compensation, it is critical that you document all work and costs giving rise to a claim, and create a comprehensive paper trail to support future claims. Pay close attention to any contract provisions regarding claims or force account work, and be sure to compile all necessary backup documentation to support costs and claims in accordance with any contractual requirements.
- DO NOT miss deadlines or neglect claims procedures. Be diligent about complying with all claim and dispute resolution procedures and deadlines to advance claims for additional work and costs – regardless of any ongoing settlement discussions or efforts to resolve claims or disputes between the parties.
- DO NOT be afraid to seek counsel. Do not hesitate to enlist the assistance and involvement of counsel when construction is ongoing. Oftentimes, disputes and issues can be successfully resolved or avoided if addressed early. Counsel can assist in handling such issues before they develop into larger problems or more adversarial situations.
An attorney can offer guidance and counsel from “behind the scenes” without the other side even being aware of counsel’s assistance or involvement.
