The Best Defense is a Good Offense: Keys to Effective Risk Mitigation, Contract Management and Dispute Resolution

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1 The Best Defense is a Good Offense: Keys to Effective Risk Mitigation, Contract Management and Dispute Resolution Dr.Anamaria Popescu,PE,PM P, PSP Denver,Colorado April 14, 2017

Dr. Anamaria Popescu, PE, PMP, PSP About Director, Construction Practice Denver, CO apopescu@thinkbrg.

2 Dr. Anamaria Popescu, PE, PMP, PSP About Director, Construction Practice Denver, CO Expertise in Forensic Schedule Analysis-PhD in Delay Analysis Methodologies 22 years of experience in project management, construction claims, schedule delay analysis, project controls, and contract management. Projects: power plants, natural gas drilling, pipelines, industrial plants, oil and gas production platforms, mining, water treatment plants, airports, telecom Worked in Australia, North & South America, and China. Youngest Project Scheduler Started with P6 DOS Loves to Ski, Hike, Sail and Travel Representative Projects PEMEX-14 Production Platforms Gulf of Campeche, Mexico Eastman Chemical-PET Plants,Argentina and The Netherlands Maple-Ethanol Plant, Peru Shaw-CFB Power Plant, Louisiana Desalination Plant, Australia Shell-Coal Seam Gas and LNG Upstream Production, Queensland, Australia BP- San Juan Coal bed Methane Gas Drilling Program, Durango, CO Paper Mill, Brazil Education Ph.D., Civil Engineering, UT at Austin M.S., Civil Engineering, UT at Austin B.S., Civil Engineering, UT at Austin Certifications Professional Engineer (PE), Texas Project Scheduling Professional (PSP) Project Management Professional (PMP) AAA Construction Arbitrator Services Construction Consulting Services - Proactive -Preconstruction -Project Implementation -Project Closeout Construction Consulting Services Dispute -Pre-Litigation Assistance -Litigation Support Services -Expert Witness Testimony 2

3 Objectives Perspectives from where I sit Project Challenges Today Contractual Awareness Change Order Management Records and Documentation Issue Database Schedule Management & Analysis Q&A 3

4 Perspectives from Project Manager turned Claims Consultant 4

Ineffective Project Management Poor Contract Management Human Capital Deficit External Factors

5 Mega Project Challenges* Planning and Procurement Inadequate Planning Poor Selection of Contractors and Suppliers Aggressive Estimates Over-Optimistic Assumptions Project Execution Ineffective Project Management Poor Contract Management Human Capital Deficit External Factors Regulatory Changes Commodity Escalation Disputes do not appear out of nowhere *Source: 2014 Ernst & Young Report 5

6 Claims Detection: Early Warning Signs Onerous contract language Poor Scope Definition (e.g. mix of performance vs. design specs) Owner Proclamations: No CO s on the job we ll take care of this at end Multiple prime contractors on site Lack of site access and permits No response to notices given Requests for recovery schedule Late and incomplete delivery of OFM Roles not clearly defined in JV partnerships Multiple holds on drawings Refusal to negotiate time & impact costs of CO s Turnover in owner s PM staff Delayed submittal reviews and late RFI responses Correction of design defects by means of a RFI Unreasonable withholding of certificate of substantial completion 6

7 Contractual Awareness

8 Contractual Awareness Contract is given little consideration or virtually ignored until a problem arises Suddenly, a heated exchange broke out between the king and the moat contractor

9 Contractual Awareness Notice Provisions Recovery for Time and $$$ Excusable Compensable Delays-Time and Money Excusable Delays-Time (or No LD s) Concurrent Delays Scope Changes Disruption Costs: Recoverable? Schedule Analysis Requirements Each Contract is Different Boilerplate Language Can Change A contractual amendment is easier to make early on Understand Your Limitations Under the Contract Before You Prepare Your Claim/CO 9

10 Contractual Awareness: The Contract Matrix Customize Laminate No Excuses!!! 10

11 Notice, Notice, Notice and Notice Comply with Contract Provisions-take it seriously Set Precedence Early Create a Notice Template Form No such thing as excessive notice Give Notice For: Force Majeure Event Potential Change 3 rd Party Interferences Differing or Unforeseen Conditions Anything that potentially could cause delay or disruption to the project 11

12 Change Order Management 12

13 What is a Change? Any deviation to the Contract Basis Could affect any section of the Contract: Exhibits Attachments May or May Not Affect CP Trends-positive or negative variances that signal a potential change 13

Error/Omission Change Categories Location/Facility Equipment

14 Common Change Categories Value Engineering Scope Specifications Means and Methods Execution Strategy HSSE Error/Omission Change Categories Location/Facility Equipment Unforeseen Conditions Resource Pool Regulatory Delay Acceleration Supplier 14

15 Root Cause Identification Identify the Birth of a Change: Meeting Minute Response to a RFI Site Instruction , etc.. Keep asking Why? until root cause reached Entitlement Lies in Articulating the Root Cause 15

16 ROOT CAUSE IDENTIFICATION EXAMPLE Change Order Request: Additional Building Ventilation? 3 rd Party Vendor Requirement? Equipment Specifications? Post Contract Root Cause: Equipment Specified Late? Therefore Contractor Entitled to Change 16

17 EFFECTS OF CHANGES Cost Increase: Direct and Indirect Costs Cash Flow Limitations Schedule Delays Productivity Loss Constructive Acceleration Safety and Quality Compromised Cumulative Impacts 17

18 CHANGE CONTROL: KEY CRITICAL ELEMENTS Implement a Change Management Team Clearly Define Roles and Responsibilities of Each CM Team Member At the end of the day..pm is ultimately accountable 18

19 IMPLEMENT A CHANGE MANAGEMENT PROCESS Start 01 PEP Monitor project performance Identify potential changes or receive change requests Originator prepare "draft" MoCJN and submit to MoC Coordinator MoC Coordinator issue reference ID. Add MoCJN to Register Screen MoCJN Justifiable? Project Performance N Scope Changes Potential Changes Quantify change impact on all project attribute areas and updatepcn Y Attributes Impacted? Determine if change decision impacts multiple project attributes Prepare support documentation (HSSE, Cost, Schedule, Engineering etc.) Y Notify change originator of change rejection Market Factors Technical/ Site Queries N N 09 Reject Design Growth Integrity Issues Review with Team(s) Agreed? Y MoCJN Review Committee Approval? Y Input change information into project reports Construction Factors Organization/ Operational Changes N Revise N End Make Sure Trend Identification is Included 19

20 Ascertaining the Cost of Change Direct labor Direct materials Direct plant/equipment Subcontractors Indirect Labor: Management, Supervision General and Job Site Overhead Contingencies Create 2 all in rates in contract to price change orders : 1)Resource Type/Skill Level 2) Unit Quantities Profit 20

21 Reservation of Rights Contractors (typically) do not have psychic abilities Ongoing impact events impossible to fully quantify Cumulative Impact and Productivity/Disruption Claims will be VOID without Reservation Language in CO Form Example: This change proposal covers only the direct costs associated with the change order work described above. We reserve the right to assess the impact of this change order at a later date and to submit these costs and time impacts as they become known.- MCAA 21

22 Change Order Management Suggestions No more than 30 days between submittal and final decision Fish or Cut Bait Create separate WBS code, cost code & schedule activity Use contract management software to organize & manage e.g. Pro-Con, Oracle Contracts Manager Audit on a periodic basis to ensure THIS does not happen: Incorrect CO linked to CO Name Supporting documentation not included Excessive, duplicative and irrelevant documentation Incorrect Dates and Ball In Court (BIC) Assignment Incorrect Birth Document Linked 22

23 Change Order Management Suggestions-Continued Do capture both the Cost and Schedule Impact or indicate unknown at this time and reserve your rights Do state clearly the origin (root cause) of the change Do attach the Appropriate Supporting Documentation Do Not mix pricing structure in the same CO Do Not group multiple change order requests into 1 CO: COR s are not related Difficult to track issues, approvals, supporting documents Duplication of COR s is highly probable Length of time of approval of CO takes longer Change Order Value gets diluted and Bartered Down 23

24 Records and Documentation

Record Keeping and Documentation Difference between Records and Documentation Records include ALL Contractual Requirements Documentation is a

25 Record Keeping and Documentation Difference between Records and Documentation Records include ALL Contractual Requirements Documentation is a Subset and Proof of Causation Records also include the Effect Portion: e.g. Schedules Need to Create the Cause and Effect Nexus for a Successful Claim 25

Documentation: The Cause and Effect Nexus The

Demonstrate Effect (Schedule and/or Cost

26 Documentation: The Cause and Effect Nexus The Need for Evidence: He who Asserts Must Prove 1 st : Demonstrate Cause 2 nd : Demonstrate Entitlement (excusable delay) 3 rd : Demonstrate Effect (Schedule and/or Cost Analysis) July 2006 July Day Delay to CP Rain Days 26

27 Examples: Typical Project Records Schedules Change Orders Cost Reports Daily Reports RFI s, Site Queries, Site Instructions Logs: Procurement, Drawing, etc. Weekly Reports Monthly Reports Progress Data Productivity Data Certificates of Completion Inspection Reports Meeting Minutes Formal Correspondence Informal Correspondence 27

28 Documentation of Causation: Record Content Is Key Instructions given & received Conflicts in plans/specifications Weather conditions: Not Just Rain! Work Stoppage: Time Stopped and Why Number of Workers by Trade, Crew and Area Subcontractor Activities Equipment Type Utilized and Count Hours Worked per Day by Worker Location (e.g. Station Number, Sub-Area, System, Building) Delays Encountered (Correlate to Activity or WBS Element ) Create a Standardised Daily Report Form 28

The Issue Database Concept Single repository for all

of a problem Don t have a crystal ball Death of 1000

for cumulative impact claims Powerful lessons learned

29 The Issue Database Concept Single repository for all issues Maintained for life of project Record any hint of a problem Don t have a crystal ball Death of 1000 cuts Concept Strengthens negotiation position Proof for cumulative impact claims Powerful lessons learned tool Saves $$$ and time if an expert is needed later on 29

30 Typical Issue Categories Acceleration Construction Equipment Problems Deficient Drawings Errors in Design Differing Site Conditions Drawing Revisions Labor Issues Lack of Manpower Unskilled labor Lack of Material Lack of Notice Late Client Responses Late Delivery of Equipment Late issuance of Engineering Late Mobilization Material Substitution Mis-Management Out of Scope Work Out of Sequence Work Trade Stacking Productivity Issues Quality Problems Regulatory Non-Compliance Rework Site Maintenance/Safety Issues Standby Time Strikes Subcontractor Issues Weather Zoning Changes 30

31 Example of Issue Database Output Count of Issues Issue Category Apr Aug Sep Oct Nov Dec Jan Feb Mar Grand Total Acceleration Deficient Drawings/Design/Plans/Errors Drawing or Layout Revisions/Changes Labor Issues 1 1 Lack of Manpower/Skilled labor 1 1 Lack of Material Late Client Responses/Approvals/Info Late issuance of Engineering Management Productivity Issues 1 1 Regulatory Non-Compliance 4 4 Site Maintenance/Safety Issues Strikes Subcontractor Issues 1 1 Weather Grand Total Contractor Issue Owner Issue 31

32 Bottom Line Si vis pacem, para bellum

33 Schedule Management & Analysis

34 Schedule Integrity Schedule Characteristics for Credible Analysis: No Open Ends Limited Constraints (FNLT on Contractual Dates Only) Majority of Tie Types: FS No Large Lags: Float Hoarding or Missing Activity No Negative Lags: Muddies the Water Critical Path Continuous and Makes Sense Longest Path Filter Confirmation Diligence Must not Stop after Baseline is Accepted Schedule Updates Are Contractual Too! Obligation of BOTH the Owner and Contractor Schedule is the Key Mechanism in Time Recovery Claims: Don t Ignore It!!!

35 Schedule Management:Variance Analysis A Schedule update by itself is only half of the picture. Need to Perform on a Monthly Basis Identifies Changes to the CP and the NCP Trends in float erosion identified Mitigate before everything becomes critical Manage by Exception: The Pareto Principle 35

36 Variance Analysis: Steps Layout in P6 Assign a Baseline to the Update Group by CP & NCP Issue Database Export to Excel CP and NCP Activities with Variances Filter Pre-Determined Variance Threshold on All Activities Causation Correlation Develop CO 36

37 Schedule Management:Variance Analysis 37

38 Causation Log Example 38

39 Time Impact Analysis First what is a TIA? How do you perform a TIA? 39

40 Time Impact Analysis (TIA) Definition: AACEI RP s 52R-06 & 29R-03 Insertion of impact activities into a baseline or update schedule Integrated into the network logic before, in-between, or after the activity it affected Creates the IAP schedule Additive model that simulates the possible effect of delay events to the schedule completion date Comparison of IAP schedule and succeeding update to determine possible acceleration or non-excusable delays Comparison of IAP schedule and planned schedule to determine time extension request 40

41 TIA: Graphical Depiction Planned 1/3/07 Schedule Baseline Data Date: 1/3/07 Milestone #2 Planned Completion: 3/31/08 Impacted 1/3/07 Schedule 53 Day EOT Impact #1:lack of power and permit (30 cds) Impact #2 :Qty overrun on Monolith 1 (12 cds) Impact #3:Quantity overrun in RCC Monolith 4 (11cds) Legend Milestone #2 Impacted Completion (IC) : 5/23/08 Original Activity. Excusable Impact Milestone 41

42 TIA Graphics (Pre-Impact) Contractual Date to Determine Delay on CP 42

43 TIA Graphics (Post-Impact) Delay Inserted Before Successor Affected PC Impact: 39 Calendar Days 43

44 What if You Don t Have A Variance Yet? Do a Time Impact Analysis But Why? Example: Change Order Request by Client Need to demonstrate potential impact in implementing Submit with Change Order Package But its hypothetical you say Revise EOT Claim amount after implementation How? Leave language in CO for time impact revisions But How do you know what the actual impact is? Perform a Variance Analysis. Its a Constant Cycle! Update Variance Analysis TIA 44

45 Concluding Remarks Read the Contract..All of It! Don t be afraid to give notice it is your contractual obligation Changes can be any deviation from the contract basis No Project was harmed by too many or too detailed records Red flag if team does not have time to document Control Trends & Changes: Need a Team and a Process Critical Path must be viable and understood by all parties Variance Analysis to determine delays and proactively manage Remember at the end of the day, if the project is not profitable you may not have another one to manage tomorrow 45

46 Open the Floor Questions? Comments? Concerns? Irrational Rants?

47 Thank You

LONG INTERNATIONAL. Richard J. Long, P.E., Andrew Avalon, P.E., PSP and Ronald J. Rider, MBA

LONG INTERNATIONAL. Richard J. Long, P.E., Andrew Avalon, P.E., PSP and Ronald J. Rider, MBA Richard J. Long, P.E., Andrew Avalon, P.E., PSP and Ronald J. Rider, MBA LONG INTERNATIONAL Long International, Inc. 5265 Skytrail Drive Littleton, Colorado 80123-1566 USA Telephone: (303) 972-2443 Fax: