CHAPTER 15A
Studies in Procurement Management: Managing to Avoid Claims

IRVING M. FOGEL, P.ENG, FOGEL & ASSOCIATES, INC.

Design professionals are spending more of their time and money—and their insurance carriers’ money—defending themselves against claims being made by owners, contractors, casual passersby, and third-party users, such as passengers in elevators and tenant employees. Usually, the design professional’s exposure to losing when defending against these claims results from something other than technical failure. It results instead from the failure to manage properly. The design professionals fail to manage or administer their efforts properly during the predesign and design process, they fail to manage and administer their work properly during the bidding process, they fail to manage and administer their responsibilities properly during the construction phase, and/or they fail to manage and administer properly the postconstruction or closeout phase of the project.

Design professionals think of themselves as professionals skilled in the application of aesthetic, functional, and scientific principles to achieve pleasing and practical results. They often lose sight of the fact that in the process, they must manage contracts to try to avoid claims and be prepared to defend themselves if and when claims are made against them. A claim or lawsuit resulting from the failure to manage or administer properly is no less grievous than one resulting from a design error. The design professionals must never forget that they are also contract managers—managers of contracts with clients, consultants, and others. The management and administration of the contracts is no less important than the management and administration of and performance of the design and, where they act as construction administrators, the management and administration of the construction process to ensure the successful completion of the project.

The design professionals’ contracts usually define the phases of a project as the study and report phase, the preliminary design phase, the bidding or negotiating phase, and the construction phase. For administrative and management purposes, there is also a preprofessional service contract phase.

THE PHASES OF PROJECT CONTRACTING

The Preprofessional Service Contract Phase

Although no services are being performed as yet, the foundation for many disputes is often laid during the preprofessional service contract phase of the project because of poor communication and the lack of proper documentation. The contract usually includes language outlining and limiting the scope of services and responsibilities. It also contains provisions for the arbitration of claims and disputes that arise from differences in the interpretation of the language. We must try to eliminate the need for activating the provisions on dispute resolution.

To avoid the costs that result from arguing over what is meant by the contract, the professionals must try to communicate as clearly as possible during the negotiation phase what they intend to do and what they intend not to do. In addition to communicating, they must also document their understanding of their scope of services document with the same care that they devote to their design calculations. Too often, people honestly believe they hear what they would like to hear, when in truth something else is promised. The contract cannot cover everything, and professionals have certain responsibilities that are never covered or eliminated by contract.

The Study and Design Phases

Again, during the study and design phases, “consultation with the owner” is a major consideration. To avoid disputes, we must consult, communicate, and document.

Agreements with consultants must detail, in writing, the duties and responsibilities of the parties. The work performed by consultants must be reviewed for conformance with the agreements. Lines of communication must be established so that all concerned are kept informed of changes and/or other facts that may affect their work.

During these phases, as a result of the development of the design, factors affecting the cost of the project must be communicated to the owners to allow them the privilege of determining, in advance, if and how their money will be spent. Letting the owners decide in advance whether they want to pay for something and properly documenting the decisions or agreements reached can help prevent the often-heard argument, “If I would’ve known, I wouldn’t have gone ahead with it or I would’ve done something different.”

Design professionals regularly rely on representations made by others who are “supposed” to know. The design professional has a responsibility to document the representations and at least check whether the oral representations made are in conformance with the published literature. Many disputes result from the acceptance of oral representations that are contrary to the literature published by the organization being represented.

The professionals responsible to the client for the total package have the responsibility for coordinating their work and that of all consultants. This responsibility must be diligently managed and administered. “My consultant made a mistake” may be a valid defense. You don’t, however, want to get to the point where you have to defend yourself. The cost of a defense and vindication may ultimately be greater than paying without defending.

Standard specifications are truly standard. They are, however, neither all-inclusive nor valid for all projects. They must be checked and conformed to the particular project for which they are intended, and the drawings and specifications must be conformed to eliminate conflicts.

The design professional usually has the responsibility to advise the client of any changes in the original cost estimate for the project. A procedure must be established to track the estimated cost of construction as it relates to the originally established construction budget. This tracking process can also help determine conformance with the original concept: overdesign or, possibly, underdesign. In either case or in neither case, the relationship between the current estimated cost of construction and the preliminary estimate will be known.

The Bidding or Negotiating Phase

Many design professionals believe they can relax once the bid package is complete and that there really is not much to do until construction starts. This is not true. They have many responsibilities during this phase of the project, most of which are basically managerial or administrative.

There are differences between contracts that are let by competitive bidding and those awarded as a result of negotiation. It is not true, however, that the services during the bidding phase of a publicly bid contract that nominally will be awarded to the lowest responsible responsive bidder are strictly of a pro-forma nature. At a later date, many things can either come back to haunt or protect us: conducting prebid meetings, conducting prebid site conferences, answering questions, provisionally approving substitutions, and recording what is done and what is said by the proper issuance of addenda, or the lack thereof.

The design professionals are usually required to assist the owner in evaluating bids or proposals. When analyzing a bid, the professionals must verify that all the conditions are met and that all the documents required to be submitted have been submitted. Before certifying that a contractor is “capable” or “competent,” you as the professional must verify that the contractor is, in fact, whatever it is you are certifying, and you must document what you did to satisfy yourself. When you certify that a bid is “reasonable,” you may be taking on a lot more responsibility than you wish. Remember that a bid is based on an estimate, and an estimate, by definition, is an estimate. There is at least one instance where in support of the validity of his “excess” costs or damages, one of the contractor’s major arguments was based on the fact that the engineer had “verified” the estimate as valid and all-inclusive.

The Construction Phase

The professional’s responsibilities during the construction phase of a project are more subject to interpretation than his or her duties and responsibilities during any other phase of the project. This is truly the phase during which the perceived responsibilities may be greater than the actual. Also, paraphrasing an attorney discussing the subject, “if you have the right, you have the duty.” (Note that “construction,” depending on the industry or application area, may also be characterized as implementation or performance—the same principles apply.)

During this phase of the project, in addition to the responsibility for coordinating with his or her own consultants and client, the design professional may have the responsibility of dealing with the constructor. Additional managerial and administrative responsibilities may relate to other consultants, to inspecting organizations, and to testing laboratories that have been contracted with directly by the client.

In addition to the engineering competence required to judge technical compliance with the contract, to review shop drawings, to review schedules, and to review proposals for substitutions and/or modifications, the design professional may have both technical and administrative responsibilities relating to the contractors’ applications for payment and change orders. In addition, depending on contract and/or perception, the design professional may have many other rights, responsibilities, and duties that require management.

The Closeout Phase

Although contracts do not usually identify a closeout phase, per se, it is in fact a distinct phase requiring its own management. Before certifying completion—by whatever title—in addition to the “punch list” efforts that may be required, the professional must assure that all the administrative aspects of finalizing the contract are met. This includes, but is not limited to, filing certificates with governmental agencies; issuing certificates to the contractor or contractors; verifying “as-builts”; ensuring that all the operating manuals and warranties that are called for are in fact received; and documenting that all the contractual responsibilities have been complied with.

CLAIMS PREVENTION

Most management failures result from errors of omission and not errors of commission. One of the simplest and yet most efficient ways to minimize the probability of missing something is to prepare a checklist for each project, no matter how small. The checklist can be based on a generic list used by the engineer for all projects, but the list must be modified to include the requirements of that specific project.

Because most claims arise as a result of errors of omission on the part of the professional, a good place to start is to follow through on each of the following action items:

• Check drawings or plans for proper coordination between technical specialties.

• Check to see that the information in the drawings or plans conforms to the written word of the specifications/requirements.

• Read the boilerplate language to see that it conforms, specifically and uniquely, to the project under consideration.

• Enter into written agreement with consultants detailing exactly what their responsibilities are.

• Review the work performed by consultants for conformance with agreements.

• Check the finalized program against the estimate or budget to determine the current validity.

• Communicate properly with consultants so that a change wrought by one that affects the work of another is properly accounted for.

• Include owners in the communications process to permit them the privilege of determining, in advance, how their money will be spent.

• Establish a reasonable time frame for review.

• Establish reasonable durations for implementation.

• Specify scheduling using one of the many available network scheduling techniques.

• Review the specifications to determine whether items specified are still available (or, for that matter, whether they have been available for the past “X” number of years).

• Check whether the information given by a sales representative or sales engineer is valid or in conformance with the specifications sheet prepared by the very company he or she represents.

• Check the bids, quotations, or proposals for conformance with the contract documents.

• Review the insurance requirements of the contract documents to assure compliance.

• Review the schedule carefully, and react in a proper and timely manner.

• Establish and adhere to an orderly system of controlling or keeping track of the documentation.

• Retain the backup information or supporting data for the approval, modification, or rejection or payment requests.

• React in a timely manner to requests for clarification or interpretation of the project documents.

• Monitor the progress of the project and report objectively to the owner as required.

• Take responsibility for discrepancies and/or omissions in the project documents.

• Issue clarifications and instructions in a timely fashion.

Reacting to a Claim

If confronted with a claim, management reaction must be prompt and positive. Attorneys and insurance carriers must be notified and assisted, without reservation, in mounting a defense. Delay in mobilizing both information and resources for contesting the claim results in weakening the defendant’s position, even in relationship to unfounded claims.