More about me…

[Audio] Hi, I'm Craig Relyea. This is the one of several short presentations about the things we need to consider as we perform project controls on our projects. It's based on my many years of experiences in roles as both an owner and a contractor, in industries ranging from shipbuilding to petrochemical to life sciences. Hopefully, there will be a nugget or two that you can apply in your work to help make your projects more successful. As we take a few minutes to enjoy our dinner tonight and before we dive into a round table discussion about claims, let me take a few minutes to share some things about claims that I've discovered during my many years of work in the construction industry. CLICK.

[Audio] Tim going to share with you some things I've learned mostly the hard way back when I started my career in Shipbuilding! CLICK.

[Audio] I can share with you that my first claim occurred quite early on in my career, when I was responsible for the planning of the structural hull modules fabrication and erection work for supertankers. Our fab shops could not support the construction program for both ships in our drydocks, so the shipyard contracted out the more complex modules to American Bridge, who were based down in Orange, Texas. CLICK.

[Audio] A ship must be erected in a sequence, so they need to be fabricated in a particular order, from the hulls bottom up to the top decks. Our fabrication schedule with American Bridge followed the sequence to support the erection of the modules. We would send a barge with pre-cut material pieces for the priority modules down to Orange TX. That was a 13-day trip in good weather by tugboat. American Bridge would unload that material, then load the completed modules onto that barge, another 2-week effort, then the return trip up to Brooklyn NY. Then the cycle would start again. CLICK.

[Audio] However, about 9 months into the contract, American Bridge was failing to follow our module fabrication priority. Barges would arrive with modules that were not supposed to be delivered until a few months later. We were missing the key pieces of the ship, and with the deliveries so out of sequence we began looking at ways to modify our execution strategies trying to keep dry dock construction progressing. All the while we had a "Drop Dead" delivery date for a ship looming n the future, with big Liquated Damage's at play. Obviously, this resulted in some big productivity issues, so we filed a claim for millions of dollars. CLICK.

[Audio] I had made the shipyard shop fabrication and hull erection schedules, as well as maintained progress charts. I was volunteered to spend over a week with Seatrains lawyers, going over documents that were submitted by Seatrains management, getting them organized for the claim prior to depositions. I spent a full day being deposed. We went through each box of documents, reviewing the various schedules and progress data. They were smart enough to identify the failures of our own fab shops to meet the schedules too. At the very end they asked me to describe what was in the last box, number 43. Well, box 43 was full of coffee-stained napkins, candy wrappers and other detritus that someone sent as part of the discovery. It wasn't funny for me, as the opposing lawyers spent a good 20-30 minutes grilling me about box the various components of box 43. Thankfully, shorty after I was deposed, the claim was settled out of court for about 60 cents on the dollar. It was an ugly experience and an early lesson for me to do my best too avoid claims and avoid lawyers. I also realized the power of discovery lawyers have when it comes to documents and how things are interpreted, so I always took care as to what I put in writing! CLICK..

[Audio] Oh, and this is me on the deck of the icebreaking barge we were building for Crowley Maritime. An OSHA trip hazard and lack of fall prevention nightmare! That noted, I must admit that building ships was the most fun, as when your project is over, it leaves, and you stay! CLICK.

[Audio] In 2013, the PMI College of Scheduling did a survey among their forensic claims' specialists, and they determined that 80% of all claims are a result of three primary causes. Scope and Late Changes or release of holds on a drawing, Design Errors and Omissions and finally Differing Site Conditions. CLICK.

[Audio] In my opinion, once the design is released, it should only change because we discover that the design is not safe, won't work, or there is a substantially better and less expensive option to make a change to the design. Scope Changes have the biggest impact to contracts, and it's almost entirely in the control of the owner on most projects. But I've learned from my own experiences that owners have a hard time not tweaking the design. So, scope creep occurs quite frequently. Scope change to a contractor can occur when the owner partially releases design as well, or with poor design packages with a lot of design holds. On many petrochemical and life sciences projects I have been associated with, I've observed that an owner's operating team fails to make themselves available early in the project. When they do finally engage, they start making changes to the initial design, or worse, start with a wish list of extras as early requirements to operate the facility were not fully understood or communicated well to the design team These late revisions and changes to existing released design cause rework, delay bid packages being prepared to award construction contracts or material orders from being released. All which are quite disruptive to a project schedule. CLICK.

[Audio] Design Errors and Omissions are generally the result of poor design quality assurance checks, by both the A/E or owners' team. Design errors have significant impacts on both construction cost and schedule as they generally result in a work stoppage, disrupting the crew, changing the plan of work, creating re-work, and impacting the contractor's productivity. On one project I worked on, the stress relief calculations on piping design were delayed, which caused the final design and purchase of pipe supports to be delayed. Onsite, we had piles of SFP spools and random pipe ready to be installed to maintain progress and our craft staffing levels. We erected the pipe, and where there was a missing pipe support the crew had to use wire rope slings, scrap angle iron supports and even 4x4 bits of timber to provide temporary pipe supports so work could proceed. We also had the odd missing valve or pipe spool piece, so we had to fabricate spacers to make sure the pipe was set in the right positions. When the spools, valves and supports finally were fabricated and delivered, we had to send a crew back to replace the temporary supports and spacers, sometimes having to re-scaffold an area, so it was very inefficient work. These design and delivery delays caused us to submit a claim for lost productivity due to out of sequence work, the rework, plus recovery for extra indirect costs such as the extra scaffolding. CLICK.

[Audio] On a project we had down in Augusta, GA, our A/E firm, who had a LS contract and was rapidly running out of money was required to provide LOD 350 design documents. The bid package was released with holds, the bids cam in and a Mechanical contactor was awarded the scope. At no time did the SC identify that the LOD was not too the level they expected. Later, as design continued evolve due to released holds and worse, many design changes due to errors n the AE side, for work in many cases already fabricated and installed. We also realized that a claim was going to be submitted to us from the SC. Amazingly, the AE finally advised they had run out of money and were no longer going to respond to RFI's, etc. This created tremendous push back from us, and we immediate halted any further payments to the AE. The SC advised that their expectation for LOD350 was different that what was delivered, increasing their internal piping spool fabrication design efforts and was impacting the fabrication of piping by several weeks, which turned into months, delaying the project schedule significantly. .And II can share that at that period in time, there was no LOD standard. (One CII Rt tram did eventually develop a standard set of deliverables by LOD that is used by the CII members, however I don't know if anything has been set internationally as yet..

[Audio] Differing Site Conditions tends to occur during underground work efforts, where an underground pipeline or duct bank is not where it belongs. Possibly some abandoned foundation, unsuitable soils, etc. is discovered during the excavation work. And during revamp or retrofit construction, it is not uncommon to find the existing site condition may be different than that shown on the contract drawings as the owner fails to keep these drawings up to date. These issues all cause schedule delays and result in changes too the contractor. CLICK.

[Audio] One project I had with FW was up in Hudson Falls, NY. We were starting site prep and excavation for a resource recovery facility for Washington County. On our second or third day of excavation, we discovered bones, human remains, so work stopped immediately. We contacted the police, and in a few days, it transitioned from a crime scene to an archeological dig once it was discovered to be an old Mohican burial ground. In most cases, the requirement is to re-design and leave the remains as is, however due to the size of the facility and plot of land, which was not possible. We entered a 9-month litigation to allow us to relocate the remains elsewhere on the property and a memorial marker would be setup. Contractually, FW was required to accept X number of tons of refuse to burn on a specific date. This caused a change order to be placed with the county, and a day for day extension was granted, with a minor cost escalation. Not knowing how long this would take, but anticipating 6-7 months to resolve, we could have reallocated the staff to other projects, however this team was already well versed in the intricacies of the project. We decided to use that down time to take our typical level of scheduling down to a shutdown level of scheduling and look for as many opportunities to do preassembly work in our laydown yard up the road, not impacted by the archeological dig. So, we scheduled the erection like one would a shutdown/ outage, converting the schedule down into specific work packages. FW did a mostly self-perform craft work outside of painting and insulation, we had a lot of flexibility to achieve this new strategy. We recovered 6 months of the delay due to this change in execution strategy and increased level of detail in our schedule. CLICK.

[Audio] Once, while working a shutdown for a refinery in Lemont IL, where we were responsible for 3 of the process units. We mobilized a small crew of craft supts and schedulers onsite about a year before the shutdown to work with the plants maintenance team to organize al the work order. Each WO described the work to be performed, had PO data for warehouse locations for material and an OEM for the labor costs. Our team did in-depth planning to estimate actual effort hours, materials, and support trades, and organized the work with the schedulers to optimize crafts and crews. Many WO were "open and inspect" which meant we wouldn't know the work until we looked inside the vessel. Well, on the needle Coker unit we found a large, deep crack on the interior shell of a column. This fix would require 3 additional weeks of work that was not anticipated. We needed to bring in special heat-treating equipment, and specialized welders to work the repair. While we continued to work the other 2 units around the clock, the Coker shutdown were rescheduled one shift to minimize cost. This was a cost-plus contract with the client, so we were reimbursed fully for our costs, but this was a LS scope for the mechanical contractor, so he claimed for an extra 3 weeks of indirect costs. Stuff happens so we need to be flexible and respond as best as we can! CLICK.

[Audio] One of the easiest ways to do prevent claims is for the Owner and the contractor to agree to a baseline schedule with an achievable progress curve. It's essential that good communications and rapport with the contractor be maintained, as should communication breakdown, be sure to engage more senior management. We liked to have bi-monthly or quarterly Exec Status Meetings, where our Alliance Partners senior leadership came, along with their PM & PCM to discuss current status, any issues, and potential problems. Sharing metrics and the corresponding analysis from the schedule at these meetings is helpful in avoiding claims. CLICK.

[Audio] People disagree, and construction people seem to disagree far more frequently than most. That is because there is so much risk – known and unknown – in every construction project. Most all contracts contain some mechanism for "Claims" or "Dispute Resolution". These provisions were written by attorneys, so the conflict resolution system typically involves using attorneys: theirs and ours, pitted against each other. And the winner is always the attorneys. So, when change negotiation fails, before you bring in attorneys, I suggest that both sides work together to find out the truth by hiring one independent attorney and/or forensic claims consultant to advise the project participants on that one specific issue. Give them only a few weeks to do their analysis and split the cost. Once both sides see the unbiased facts of the dispute – and each one's chances of prevailing if it did go to court or arbitration – you have a factual, unemotional basis for reaching an informed decision WITHIN THE CHANGE ORDER SYSTEM. This can be done in almost any contract. From that very first claim, I learned to avoid getting lawyers engaged. They make their fee whether you get reimbursed for your claim. CLICK.

[Audio] How do we minimize and prevent claims? Prepare a baseline schedule that is tailored for the project, one that depicts all its requirements. Study the available drawings in detail, breakdown the activities and sequencing, consider the contractual requirements, site logistics, and weather conditions. Making the key stakeholders on the project team part of the schedule development and final review is essential, as schedule buy in needs to be agreed by one and all. Maintain good communication and amicable relationships with all project stakeholders. Make sure critical information is communicated to all stakeholders using metrics and other formats they can use. Changes are inevitable. One needs to be prepared to respond to any changes, understand the impact, and try to minimize the impact on the schedule as they occur. It's a good practice to perform a TIA on big changes to see impact to CP. Construction projects are dynamic and complex, and there will be a multitude of individuals involved in delivering a project. There will be issues that will come up at the last moment and will require swift resolution, and there might be a few things that slip through the cracks. You should expect to face unexpected challenges. But with teamwork and transparent communication, you will be able to overcome most challenges and minimize the chance of a claim. CLICK.

[Audio] Interestingly, after several years of declining average claim values, it is twice what it was pre-pandemic. CLICK.

[Audio] And yet it still takes over a year, on average, to resolve these claims. CLICK.

[Audio] In a recently published article by Arcadis, they determined that Errors and/or omissions in the contract document was the number one dispute issue, up from No 2 in 2021 Incomplete and underdeveloped design documents led to owner directed changes, primarily due too an owner's rush to start the project with insufficient design. Owner/Contractor/Subcontractor failing to understand and/or comply with its contractual obligations jumped to second place, up from number 5 Again, this leads back to the design document, and a clear understanding between the participants of what is required per the contract. And Poorly drafted or incomplete and unsubstantiated claims had dropped to third place form number 1 in 2021 And of course, failing to provide an effective basis of a claim will always disrupt the process CLICK.

[Audio] You need a Risk Management Plan – It is one of the most preferred technique for claims avoidance is risk management, understandably so. Risk management is specifically intended to identify and quantify the risks which have the potential to impact the project's schedule and cost. By identifying these risks in advance of final design and construction, mitigations and other solutions can be developed and implemented to limit or avoid altogether these potential impacts. Owners are willing to invest the "ounce of prevention" to avoid or minimize claims as a primary strategy. Perform good contract and spec reviews, get questions clarified, address any issues early in the project. Finally, construction is the costliest part of a project, so good constructability reviews EARLY in the design are essential. Even wen bidding, it's a great time to issues areas of concern during the bidding process to alert the owner of problems. CLICK.

[Audio] Thanks for letting me share some of this with all of you. The floor is open for discussion!.

[Audio] I'm going to share with you some things I've learned mostly the hard way!.

[Audio] Thanks for letting me share some of this with all of you. The floor is open for discussion!.

Most Important Factors for Mitigation of Claims. The Owner and Contractor have a willingness to COMPROMISE Accurate and Timely Schedules Contractor Transparency on cost data in support of damages.