5 priority questions to help you mitigate construction project risk
1) Has your construction company established a risk-averse bid/contract execution protocol?
Every agency/owner incorporates contract language that obligates or penalizes parties if the project were to be impacted in some way. Often times these clauses are passed-over with little forethought or concern. If concerns do arise, they may not be dealt with effectively and with enough regard for risk.
Typical justification:
- “It’s boiler-plate language anyway, and I have to sign the contract if we want the job”
- “I was low bidder and my company needs the work”
- “We’re a good contractor, we’ll make it work”
Money and time still win the day, especially considering the continuing, robust US construction marketplace. If the project goes well and your company continues to be “a good contractor”, then not much will go sideways and these clauses remain inactive and not a concern. Yet they become paramount when the project unforeseeably has issues. These issues can abruptly thrust your company into a claims environment. So, the rhetorical question becomes “Is this the appropriate time to pay closer attention to these clauses?”
At the point when a project is demonstrably impacted by time and money folks are upset, the team has negative history and sides are being taken. When the project is impacted to this degree many crucial, time-sensitive contract elements may have already been missed.
From the initiation of a project, a company must have a clear understanding of contract-impact implications, know what the projects boundaries of time and money are and develop a project specific—risk-adverse— plan to mitigate issues effectively as they arise.
It’s crucial to have an experienced project executive that both develops project-specific contract claim notification and remediation procedures, as well as the more important distribution of these programs within their project team. Continual fostering of these procedures, from contract execution and continuing throughout the life of the project will greatly reduce and mitigate the project impacts.
2) Has your management team allocated enough contingency funds for project cost over-runs?
With the increasingly competitive marketplace, it’s challenging to be forthright when project budgets are tight and project schedules have little float. “Manage for the known risks and budget for the unknowns” is more prudent yet more perplexing to provide this type of risk-adverse foresight.
Yet it’s far more difficult and expensive to manage an issue when the project is in a claims environment and the project team is not financially prepared. Each project benefits from a risk profile that has been measured, calculated, and fostered through the duration of the project.
Most project budgets cannot afford to have a contingency fund for every risk category. Yet every project must develop a plan that will bring transparency to those risks and an established set of preliminary actions as required to mitigate and reduce those risks.
3) Are your project managers and superintendents creating “look-ahead schedules” congruent with the Baseline Schedule?
The field superintendent typically is more engaged with the day-to-day construction progress and typically develops a majority of the field-communicated project coordination. The project manager typically is focused on change orders, invoicing and progress payments and contract waiver protocol. These two critical—yet distinct management entities may only check-in with each other on a weekly or bi-monthly basis, making this Baseline Schedule analysis crucial to the success of the project.
A three-week look-ahead is typically developed by the superintendent and distributed to the field crews on a weekly basis. This superintendent-developed schedule, usually in spreadsheet form, provides a snapshot of the project and the anticipated progress of each trade in a certain area.
If the superintendent is not made aware of potential critical path impacts, these updates may not indicate how one or more activities could be near-critical, critical, or even have negative float. Furthermore, it will not indicate the appropriate sense of urgency that an issue may cause if the critical path is not reviewed.
Many times only a few notes in the meeting minutes are all that is mentioned regarding time delays and impacts. These notes are not an effective and viable contract notification procedure.
Conversely, it does not allow a subcontractor to manage their own resources that may have at their discretion. And most importantly, in a forensic analysis of a project, these look-ahead schedules may even be construed by a subcontractor as an excusable delay. Factually, these look-ahead schedules are one of primary importance in a claims analysis, possibly giving a subcontractor an excuse when schedule causation and delay impacts are imposed.
The project team needs have a rigorous and risk-averse program in place to ensure the field conditions are equitably and comparatively measured with the Baseline Schedule. Once done correctly, these weekly updates and look-ahead schedules will be utilizing accurate dates and durations.
4) Who has control over the master schedule and who owns the float?
A contract will usually stipulate which project entity develops the original contract project schedule; typically it’s the general contractor. And, typically the contract further obligates the general contractor to memorialize this by producing the contract Baseline Schedule. And we know most certainly that it is the general contractor who is obligated to conform to the Baseline Schedule.
Yet, typically there’s ambiguity regarding who maintains the master schedule, who owns the float, and to what extent the schedule is updated and reported to the stakeholders.
Best Practices for project scheduling is a book in and of itself, but the following protocols are most important:
- Contractors must take control of their own project schedule, even if the contract indicates otherwise. If the project budget cannot mandate a dedicated project scheduler, then in the least the project manager and superintendent must ensure accuracy and consistency in their updating.
- All significant change orders, procurement and subcontractor delays, and any other significant scope changes must be inserted into the Baseline Schedule. Even if a change order does not add or delete time to the contract, these activities may tell a time-sensitive and important story later in the project.
- With these inclusions are accurately demonstrated and linked, this allows the general contractor to accurately monitor the critical path, evaluate the project float, and anticipate unforeseen and seemly benign changes.
- With this information a general contractor can effectively allocate money and resources accordingly in order to maintain an adequate amount of float and therefore provide a low-risk project profile.
- Risk and project impact are best managed contemporaneously, where critical project team decisions can be made. It is imperative that the ownership team be made aware of time impact challenges and their potential project risk. Project schedules are complicated, and if the ownership team does not have the aptitude to interpret a schedule update effectively, then they will not be correctly interpreted, and therefore may not be aware of an impact.
- A written narrative may need to include these changes when updating. Submitted pursuant to the contract notification protocol, these updates become manifest and may protect the general contractor from a “lack of notification” issue later.
- Maintain not only a transmittal of the schedule update, but request written acknowledgement from the project owner. Take time to mentor and ensure a clear understanding of the current conditions. Silence is not “golden” when a project enters into a claim and the owner indicates they were not informed.
5) Do your project managers establish contract specific notification procedures for each of their projects?
Each contract addresses several communication procedures that have varying degrees of importance. In the context of a project that is in duress, following the notification process will significantly reduce a contractor’s risk.
Each claim notification procedure has specific timeframes for communicating the issue. When these notifications are disregarded, or do not contain definite contract language then:
- The lack notification immediately places the contractor in a default posture placing them in an increased risk position.
- The owner and their consultants will not have the ability to collectively respond and remedy. This may place the contractor in a default position and transfer the accountability and remedies to the contractor.
- Additional scrutiny and blame may unjustly implicate the contractor, even when it may not be their fault.
- Once adversarial team dynamics are in place, it is far more difficult to equitably address the real issue.
- Owner contracts have discretionary penalties that may be applied, specific to contractor performance. If a lack of notification causes further impacts and delays, then the owner will certainly take these issues into consideration.
Project managers and their superintendents need to understand the triggers that establish notification timeframes.
Our next blog topic will be discussing project manager and superintendent dynamics, strategy and ego. We welcome your thoughts on the priority questions to ask when managing construction risk. Leave your thoughts below.