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Construction Claim Management + Project
Documentation Seminar
Mike MadiganFebruary 16, 2017
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Introduction
Construction Law Attorney11+ Years Practicing
Former Project Manager5+ Years at Whiting Turner
Civil Engineering Degree From the University of Dayton
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Agenda+Steps to Make a Claim
+Key Project Documentation To Consider
+Dealing with a Claim+ From the Owner, CM, and Subcontractor
perspectives
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Two Key Steps To Make a ClaimStep 1 – Provide Initial Written Notice After Realizing There is a Problem
Step 2 – Substantiate the Claim
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Claim’s Value+Your Claim Is Better the Earlier You Provide:
+Written Notice Your Work Is Being Delayed/Affected
+State Your Damages
+Back It Up With Project Documentation
The value of the claim decreases the longer you wait to provide notice and quantify the claim.
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Why Do I Say This?
Stanley Miller Constr. Co. v. Ohio Sch. Facilities Comm’n Ct. of Cla. No 2006-04351, 2012-Ohio-3995
Tritonservices, Inc. v. Univ. of Cincinnati, Ct. of Cl. No. 2009-02324, 2011-Ohio-7010
Courts Enforce The Notice Provisions
Tenth District Court of Appeals held that “a contractor's failure to complywith the procedural dispute resolution provisions of Article 8, as to anyclaim arising under the contract, results in an irrevocable waiver of theclaim.” IPS Elec. Servs., LLC v. Univ. Toledo, 10th Dist. Franklin No. 15AP-207,2016-Ohio-361
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Most Recently
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the “occurrence”
rejection/reduction of a change order proposal or field work order
receiving an RFI response
10 days after:
Differing Site Condition determination
Step 1 – Initial Notice
10-Day Requirement To Provide Written Notice on Public Projects
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If You Expect to Be Paid Extra
You Need to Let the Other Side Know Before Proceeding
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Avoid Sticker Shock
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Don’t Turn A Blind Eye To The Notice Requirements
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On Private Projects AIA Notice Requirements
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ODOT’s Notice Provisions
ODOT 108.02 (F) 1. - Initial OralNotice
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ODOT’s Notice Provisions
ODOT 108.02 (F) 2 - Written Notice Two Days Later
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What Information Should the Written Notice Include?
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Address It To Everyone•School District/University•DAS/OSFC/ODOT•CM•Architect
Sample Notice Letter
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Other Components of the Notice and Request for Extension of Time Letter
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Acceleration Will Occur If Extension Is Not Granted
Not Responsible for Liquidated Damages
In Most Cases Request An Extension of Time
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Embarking on the Claim ProcessShould Be a Company Decision
+Ask The Question – Do We Need To Provide Written Notice For This?
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Be Professional
+Call the Other Side Before You Fire Off A Notice Letter or Claim
+State Your Commitment To Getting the Job Done
+Agree to Disagree for the Moment
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Be Professional – Maintain Civility
+ Nobody Likes The Heavy Hand+ Is Your Conduct Reasonable?+ Think About the Other Side’s Perspective+ Agree to Disagree – Get the job done while paying for the undisputed
work.
+ E-mails – Think About How It Would Look On The Front Page of the Paper+ What Would Your Mother Say?
+ Recording of Meetings/Conversations+ Is It Permissible ?+ We Live in a Time Where More Is Being Recorded and Captured On
Video.
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Certified Language & Notarized
Certified Claim Example
Step 2 – Substantiate the Claim
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Notarized Certification
Income Statement/Ledger
Failure to Comply = Waiver of Claim
30 Days After Notice Was Submitted
Vertical Building Public Projects RequireCertified Claim Submission
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»Direct Costs for Disputed Scope of Work Items
»Extended General Conditions
»Labor Productivity
»Home Office Overhead
Basic Components of a Claim
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General ConditionsField Project Mgt.
Job Trailer Portable Toilets/Dumpster
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Additional Labor+It Took More Man Hours Than Estimated (or should have) +Measured Mile Approach
+ Industry Factors
+Total Cost Claim Method
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Measured Mile Example
Man-Hours From Job Cost Report% Complete From Pay Applications
Example: 5113 hrs/27% = 189 hrs/%
Measured Mile PeriodRepresents Project As-PlannedExample: 9/1/09 – 12/31/09
Impact PeriodExample: 12/31 – 6/25/11
Man-Hours From Job Cost Report% Complete From Pay Applications
Example: 20,631 hrs/73% = 283 hrs/%
Delta = Impact – Measured Mile= 94 hrs/%
94 hrs/% x 73% = 6,834 Additional Hours
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Home Office Overhead+ Consists of expenses involved in generally
running a business that are not attributable to any one project.+ Rent and Executive Pay
+ Think of it as a cancelled reservation.+ No additional costs but lost revenue
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ODOT HOOP CalculationTotal HOOP Payment = [(A x C)/B] x DA = Original Contract Amount B = Contract Duration in Calendar Days C = Factor from ODOT TableD = Sum of All Compensable Delays
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Job Cost Reports
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+ Labor and material should be separately tracked in the job cost report and schedule of values.
+ Labor costs were “dumped” into certain costs codes.
+ In the schedule of values, the general conditions costs are not broken out and instead are blended with the other schedule activities.
+ Front End Loading can skew labor productivity ratios.
+ In most cases, legal costs are not recoverable but are still included on the job cost report.
Common Job Cost Report Problems
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Aligning Your Bid With the Job Cost Report
Bid Entries Job Cost Report Budget Entries
Framing• Material $50k• Labor
$100k
Drywall• Material $75k• Labor $50k
Ceilings• Material $75k• Labor
$100k
1100 Framing• Material
$50k• Labor
$100k
1200 Drywall• Material
$75k• Labor
$50k
1300 Ceilings• Material
$75k• Labor
$100k
Change Orders1100 Framing• $10k• $5k
1200 Drywall• $5k• $10k
1300 Ceilings• $15k• $20k
Update With Change Orders
Your Bid and Job Cost Report Are Discoverable and Often Times Contractually Required To Be Provided If A Claim Is Asserted.
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+Activities bid as a subcontractor cost are now being self-performed+ Increases the material costs beyond that shown in the bid.
+ Intense focus as to the expected Profit on bid day+ Contractor entitled to buyout savings+ Hard to argue “we typically do better”
+What are the items included in the “overhead mark up”identified in the bid?+ Project Management Time+ Company Owned Equipment
Common Issues with the Transfer of the Information From the Bid to the Job Cost Report
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Graphic Timeline for Notice and Claim Submission under State’s Article 8 Process
Occurrence of event for possible claim • Missed Milestone• Revised schedule• RFI response• Rejected change order pricing
10 Days -submit written
Notice
30 Days-Submit Certified
Claim
120 Days-Obtain Final
Administrative Decision or Exhaust Jobsite Dispute
Resolution Process
2 Years –File Suit or State Will
Argue Claim Is Waived
Free To File Suit
14 Days – Must Appeal CM or A/E Decision or
RecommendationStep 1 Step 2Appeal Decision
Conservative Approach
Triggers on When Claim Accrues
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ORC 4113.62 and Owner Caused Delays
“Any provision of a construction contract * * * that waives or precludes liability for delay during the course of a construction contract when the cause of the delay is a proximate result of the owner's act or failure to act, or that waives any other remedy for a construction contract when the cause of the delay is a proximate result of the owner's act or failure to act, is void and unenforceable as against public policy.”
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ORC 4113.62 versus Article 8An owner cannot cause a delay, and then avoid the natural consequences for causing the delay by using boilerplate contract language.
Cleveland Constr., Inc. v. Ohio Pub. Emps. Retirement Sys., 2008-Ohio-1630, ¶ 19 (10th Dist. Franklin)
Article 8 does not, however, bar or limit any claim on the basis of the substance of the claim.
IPS Elec, Servs., L.L.C. v. Univ. of Toledo, 2016-Ohio-361, ¶ 22 (10th Dist. Franklin)
Pro-Contractor
Pro-Article 8
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Project Documentation
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+Daily Reports Are Helpful To Support A Claim When They Consistently Include the Following Information:
+Workforce (Example – 6 carpenters, 3 laborers)
+Equipment (both rental and company owned)
+Description of the events of the day
+Areas where crews are being delayed
Daily Reports
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Identify Labor Force and Equipment On-Site
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Common Problems with Daily Reports
No Delays or Problems Are Identified
Nothing Listed For Equipment
What Was Previously Agreed Upon In Meetings
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» Create A Check The Box Daily Report» Delays Encountered
» Waiting on other Trades» Waiting on RFI Response
» Inefficiencies Encountered» Loss of power» Lack of building enclosure» Stacking of Trades
» Have Your Superintendent/Foreman Take Pictures That Can Be Later Identified By Date
Writing Daily Reports Takes Time Away From Running the Work
Possible Solutions
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Daily Reports Should Be Just the Facts
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The Date and Area Can Easily Be Identified.
» Needs to be authenticated to be admitted in Court.
In Many Cases, Points Are Easier/Quicker To Make With Pictures Rather Than Videos.
Apps like MENTAL NOTE help
Pictures Are Great When
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Example of Helpful Pictures –Mental Note App
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Compare Schedule/Contract Milestones
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With What Actually Happened4/29/10
Original Temporary Enclosure Milestone = 4/30/10
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Progress Meeting Minutes
Often Times Progress Meeting Minutes Do Not ReflectThe Discussions That Took Place
Two Pages of Progress Meeting Minutes
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Provide Written Notice That Minutes Are Not Accurate
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Schedule = Black Box
Understanding the Project Schedule Is Key
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Important to Provide Input When Schedules Are Being Prepared
+Your Silence Will Later Be Construed to = Acceptance
• Speak Up or Forever Hold Your Peace
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+ Show the Live Schedule On A Projector
+ Include the Input of the Subcontractors+ CM/GC Is the Orchestra Director –
+ What Is In the Best Interest of the Project?
+ Not Everyone Will Get What They Want – Get What You Need.
+ As Changes Are Being Made - Everyone Should See the Impact+ Sunlight Is the Best Disinfectant
+ After Meeting, Distribute Schedule In Native Format+ Speak Now or Forever Hold Your Peace
Mike’s Thoughts On Schedule Creation and Update Meetings
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Flawed Scheduling Can Lead To Claims That The Notice Provisions Were Waived
OSFC waived its right to strict compliance with the notice requirements of Articles 6 and 8 due to its own failure to comply with Article 8.
J & H Reinforcing & Structural Erectors, Inc. v. Ohio School Facilities Comm., 2013-Ohio-3827, ¶ 87 (10th Dist. Franklin)
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Prevention of Performance Argument To Counter Insufficient Notice
OSFC prevented TA’s strict compliance with Article 8 by not issuing revised drawings to TA in a timely manner.
OSFC, by and through its agents LL and SHP, prevented TA from complying with the conditions precedent under Article 8 of the General Conditions.
TransAmerica Building Company v. Ohio School Facilities Comm., Ohio Court Claims Case No. 2013-00349
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How To Handle Those Projects Where Claims Are Being Made
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Claims – From Different Perspectives
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From the Subcontractor’s View+ Important To Finish
+ Walking Off Rarely Ends Well
+ Make Sure Everyone Knows You Will Be Seeking Extra Dollars
+ Be Careful About Signing Change Orders, Progress Payment Waivers, and Schedules
+ Respond to the Letters
+ Take Pictures and Document+ Think about bringing in clerical support
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If You Sign a Change Order
Be Sure Everyone Understands If This Is Your One “Bite at the Apple”
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Be careful when signing change orders, schedule sign-offs, andpartial payment releases.
» Change Orders should just include costs for that respective change rather than all possible extra costs through the date of the change order.
» Partial Payment Releases should be based on the payment received rather than releasing all claims up to a certain period of time.
» Same applies to any updated Schedules required to be signed.
Don’t Get Burned By Signing a Change Order, Schedule Sign-Off, or Progress Payment Release
That Waives Your Claim
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Typical Change Order Includes All Costs Associated With That Change
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LETTER
We have only priced the direct costs, so Change Order Number___ is returned to you as executed with one exception anddeletion. We have deleted and initialed the portion ofthe change order that would waive claims for anydelays, inefficiencies, disruption or suspension,extended overhead, acceleration, and the cumulativeimpact of this and other change orders issued to thisdate. Please return an executed and initialed copy to us. Noadditional time or costs are sought as of this date based uponwhat is reasonably foreseeable now; however, we are notwaiving claims for additional time or costs shouldcircumstances change.
When There Are Concerns A Change Order Will Not Provide Sufficient Compensation for
Delays and Other Indirect Costs
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Broader and More Aggressive Language(All Cost and Time Impacts To This Point In Time)
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Be Careful When Signing Waivers For Progress Payments
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Same Applies with Schedule Acceptance
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With its signature, Contractor does not verify the accuracy of the schedule nor does it waive any claim with respect to additional costs it will incur as a result of changes to previous schedules, additional costs for unresolved issues it has previously provided notice of, additional costs if the work does not proceed in accordance with this schedule because of others, or costs related to other matters beyond Contractor’s control.
Language to Insert
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From The CM’s View
+ Continue To Pay For Undisputed Amount
+ Holding Contract Balance Ransom Is Not Helpful
+ Find Ways To Shrink The Claim Amount
+ Respond To The Letters
+ Think About Whether To Pass The Claim Upstream To The Owner+ Is there a Pay-if-Paid Provision?
+ Will it be enforced if the CM prevents the non-payment by withholding the Subcontractor’s claim?
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If The Claim Is Not Passed On Upstream, a CM Could Face A Prevention of Performance Argument
Contractor's conduct in hindering fulfillment of [pay-if-paid] conditionprecedent in subcontracts waived performance, pursuant to preventiondoctrine, with respect to additional work done by subcontractors;
Moore Bros. Co. v. Brown & Root, Inc., 207 F.3d 717 (4th Cir.2000)
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From The Owner’s View
+ Continue To Pay For Undisputed Amount
+ Holding Contract Balance Ransom Is Not Helpful
+ Find Ways To Shrink The Claim Amount
+ Respond To The Letters
+ Involve the Surety
+ Joint Checks To Pay the “Innocent By-Standers”+ Subcontractors+ Suppliers
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Understand The Surety RelationshipOwner
Contractor
Surety
Indemnity Agreement Between Surety and Contractor
Personal Liability
Performance & Payment Bond
Contract
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Tips for Dealing With Surety Coverage
+Understand and Negotiate A Proper Bond Form+ AIA/ConsensusDOCS Form
+ Time limits for claims
+ Public 153 Bond Form
+Keep the Surety Informed+ Follow Steps in Bond Before Supplementing or Terminating
+Trouble is Brewing if Surety Hires Own Counsel
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The Legal Process and Construction Claims
Jumping Off the Deep End
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Litigation versus ArbitrationLitigation Arbitration
Courthouse Setting• Decided By a Judge or Jury
Extensive Discovery
Appeal Process• Extends The Time For
Resolution
Conference Room Setting• Decided By a Panel of
Industry Experts/Attorneys
Semi-Extensive Discovery
No Appeal Process
Less Formal Than Litigation
When it Comes to Construction Claims, Both Litigation and Arbitration Are Incredibly Expensive
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The Various Project Agreements Should Be Consistent As To Whether Disputes
Are Resolved By Arbitration or Litigation
Owner
Arch CM/GC
Subcontractor
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Discovery
Project Viewed Under A Micro-Scope
• Project Schedule• Bid• Job Cost Report• E-mails - Including Internal E-mails• WIP Reports• Correspondence with Surety• Daily Reports• Meeting Minutes• Tickets
80/20 Rule
Figure Out 80% of the Case With 20% of the Legal Costs
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Legal Process To Prosecute/Defend a Claim+18-24 months from the time a lawsuit is filed to when a trial or arbitration hearing is conducted.
Diversion from your core business –Will feel like you are playing short-handed
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Legal Cost Thermometer
Hot - $1 million+Medium - $500k+Mild - $250k+
Generally, legal costs are not recoverableNotable exception is if permitted by contract
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A Final Word About Mediation+Mediation –
+May Be Contractually Required+But Any Resolution/Settlement is Voluntary+Use An Experienced Construction Attorney
Both Parties Need To Be Ready To Make Significant Concessions While Recognizing The Benefits of Avoiding Future Legal Costs and Diversion of Resources
What Happens In Mediation Stays in Mediation
Under Evid. Rule 408Settlement Offers Can’t Be Used Against You
