Design Documents and Design-Related Claims
As experts in construction claims, Interface Consulting evaluates and analyzes a wide array of engineering and construction related disputes. Many of these disputes center around increased costs, project delays, and productivity impacts. This paper discusses the most common problems and claims related to design documents based on our experience dealing with hundreds of projects and thousands of claim issues. Awareness of the most common engineering document-related problems is the first step in planning and preventing these potential issues.
As consultants and experts, we are often in the position to review and analyze the project records, (i.e., bids, budgets, contracts, schedules, correspondence, meeting minutes, progress reports, and cost information). These documents tell the “story” of the project and provide information about the root cause of the disputes, (i.e., delays and cost overruns, the responsibility for these problems, the extent of the impact on the project cost and schedule, and the related damages). This evaluation is often performed to evaluate change orders, prepare claims, and provide arbitration and litigation support as experts. The following diagram illustrates the general process whereby defective design documents can lead to claims and even potential litigation.
Impact of Defective Design Documents
One of the most common issues impacting construction projects is inadequate or incomplete design documents. Deficient engineering/design documents are inherent in today’s engineering and construction industry for a couple of reasons: fast track or accelerated project schedules and the separation between the engineering and construction teams. Additionally, in the early to mid 1980s, while the energy industry was undergoing an economic slowdown, many of the large oil companies downsized their engineering resources in an effort to save money. This meant that many of the younger engineers and project supervisors who would have moved into significant roles as managers and project directors were laid off and did not continue their career development in this area. Therefore, the industrial engineering and construction industry tends to have a gap of middle managers (i.e., experienced project anagers/supervisors, senior engineers, etc.) that would traditionally oversee the engineering and construction process on these large energy construction contracts. Even today, the magnitude of these layoffs and downsizing impact the owner’s abilities to effectively provide engineering and project management for its projects, and many of these projects are overseen by younger, less experienced project managers and engineers.
As projects become more expensive, owners are choosing to accelerate completion to realize income earlier than under the traditional engineering and construction process. Accelerating the overall project schedule requires that the engineering/design process is performed earlier, and it is often not fully complete prior to being let for bid. Because of the uncertainty in the engineering design early in the bid and construction process, the actual construction of the project is often hindered due to this incomplete engineering.
It is also important to acknowledge that the engineering design team on traditional projects has different objectives than the construction contractor. In many cases, the architect/engineer acts as the owner’s representative, while the construction contractor is an independent contractor from both the owner and the engineer. Although many owners and contractors are attempting to integrate the engineering and design process through design-build, this does not alleviate the responsibilities of the parties to effectively coordinate the engineering and construction processes to meet the cost and schedule requirements. Disputes can still arise due to inefficient and deficient engineering design documents. Therefore, it is important for all parties associated with the project to fundamentally understand what these potential conflicts are and how they can be avoided.
I.A. Common Design Related Construction Claims
There are numerous ways that engineering and design documents can negatively impact the timely and cost efficient completion of construction projects. This section will address the most common problems that owners, engineers, and contractors encounter on construction projects:
1. Incomplete/inadequate bid documents
2. Late and incomplete engineering/design drawings
3. Errors/omissions on drawings
4. Inconsistent design documents (drawings vs. specifications)
5. Excessive change requests for information (RFIs)
6. Excessive change orders
7. Timing of RFIs and changes to design
Subsequent sections will address how parties can prevent these problems on future projects.
I.A.1. Incomplete/Inadequate Bid Documents
One of the most common problem areas associated with design and engineering documents is in the bid documents provided by the owner/engineer to the prospective bidders. Owners are often under time constraints to begin construction of the project, and in an attempt to accelerate the overall project schedule, the engineer/architect is required to issue initial, or preliminary, drawings to be put out for bid. It is important for the parties to realize that the lack of complete, or nearly complete, drawings prevents the contractor from providing an accurate bid. Often, in an effort to reduce expenditures early in the project before the project is put out for bid, the early engineering design phase is under funded.
Additionally, incomplete project specifications, technical/performance requirements, coordination of work activities, division of responsibility, etc. can lead to confusion among the various parties. This, in turn, may then lead to problems on the project that can escalate into serious disputes during later phases of the project.
I.A.2. Late and Incomplete Engineering/Design Drawings
As discussed, the detailed engineering/design for the project may not be complete during the early stages of the project, (i.e., invitation to bid and project award). In some cases, such as in fast-track construction, this incomplete engineering is by design as the design-build contractor will be responsible for providing the detailed engineering for the project.
However, in many cases, in an effort to accelerate the work and allow the contractor to begin construction, the engineer provides early drawing revisions that may not have been approved for construction. This can lead to changes in the field as new and updated engineering drawings become available. As illustrated below, late changes to engineering drawings can significantly impact the construction process.
In many cases, drawings that have already been approved for construction can be impacted as further drawings are completed that impact the original approved for construction drawings. The timing of these changes and subsequent impacts is often determined more by the timing of the changes than the nature of the changes themselves. Early design changes may only require that other engineering drawings be completed; however, as the construction begins and continues, updates to the engineering and design can have significant impact on the cost and schedule. Often, late revisions and updates to the design require rework to construction work that has already been completed, which can be much more damaging to the project cost and schedule than simply revising drawings.
I.A.3. Errors/Omissions on Drawings
Errors and omissions in the engineering design are very similar to late or deficient engineering. In many cases, although the engineering design has been completed, there are errors, conflicts, interferences, or omissions in the drawings that require additional information or changes in order for the contractor to perform the construction.
Through the engineering review process, many of these errors and omissions are caught early in the design process; however, this is not always the case. In some cases, these errors/omissions are discovered after construction has begun and require significant severe design and construction rework to resolve the problems, which can disrupt the engineering and construction process.
I.A.4. Inconsistent design documents (drawings vs. specifications)
In addition to specific design problems, as previously discussed above, there are often discrepancies between the design drawings and the project specifications. Inconsistencies between the drawings and specifications can occur for several reasons:
1) Failure by the owner/engineer to reconcile specific aspects of the project drawings with the written technical specifications
2) Inconsistencies or incompatibility between certain equipment and materials originally specified in the drawings and specifications
3) Owner and engineer changes to specific equipment and material requirements which conflict with either the drawings or specifications
4) Constructability issues preventing the use of items specified in the drawings and specifications
5) Revisions to industry codes and standards, as well as changes to governmental regulations requiring adaptation to meet the new requirements
6) Failure to specify the order of preference of documents, including the contract, attachments, project specifications, and drawings
Although some of these issues are directly influenced by the performance and decisions of the owner/architect/engineer, there are some situations, such as a change in governmental regulations, which are out of the parties’ control. The timing of these inconsistencies, whether controllable or not, can impact the project. Depending on whether these inconsistencies are the fault of the owner/engineer or if they are uncontrollable changes out, the remedies may or may not be compensable to the contractor.
I.A.5. Excessive Requests for Information (RFIs)
RFIs are often issued to the engineer/architect by the contractor to answer questions, clarify design requirements, or to request information concerning conflicts or interferences. On projects that encounter incomplete or deficient engineering, the contractor often issue many RFIs to clarify outstanding issues and determine a path forward. Reviewing these requests can provide valuable information concerning the nature of the engineering and design problems.
One of the primary results of late or deficient engineering documents is excessive RFIs. Not only can an excessive amount of RFIs indicate that the engineering was deficient on the project, but it can also isolate particular engineering and construction issues and problems that impacted or delayed the project.
First, on most projects, as the engineering is completed and construction begins, the number of RFIs is highest. There may be minor questions or problems later in the project that require clarification, but the number of RFIs should decrease as the project continues. The following graphic illustrates a normal progression of RFIs on a project with that of a troubled project.
Progression of RFIs on a Troubled Project vs. a Typical Project
As highlighted in the previous graphic, a traditional project that does not experience incomplete or deficient engineering should experience less RFIs as well as fewer and fewer RFIs as the project continues. However, projects that experience problems with the engineering and design will raise questions and encounter problems throughout the project. As the contractor continues to experience issues with the engineering, the contractor will often continue to issue RFIs to the architect/engineer throughout the project. As the project progresses, the impact of RFIs can continue to significantly impact the construction process.
In addition to the timing of the RFIs submitted by the construction contractor, it is also important to review the cause of the RFIs and the architect/engineer’s response time to the RFIs. In many cases, RFIs are issued by the contractor to respond to simple construction issues, to request general information, or to request guidance with respect to preferential design and construction techniques. These types of RFIs do not, in many cases, impact the overall construction progress and productivity; however, RFIs dealing with specific engineering and design issues or questions can considerably impact the construction process.
In situations where the construction contractor requires important information concerning the project design, these issues can impact the overall project. Therefore, many contracts provide that any RFIs issued by the contractor should be addressed and answered by the architect/engineer in a reasonable amount of time. The dictated response time for RFIs varies from contract to contract based on a variety of factors. However, the overriding dynamic in the RFI process is an efficient process to answer information requests from the contractor to enhance the overall construction process and prevent disruption or delays.
As stated, some RFIs do not address critical design and engineering issues vital to the efficient and timely construction of the project. On the other hand, RFIs can represent critical concerns to the project that should be addressed in a clear and timely manner to reduce the potential impact to the construction process. Incomplete and deficient engineering can lead to not only an increased number of RFIs, but also to an increased number of RFIs that have a potential impact on the critical path of the project. It is important to realize the impact that delays in answering RFIs can have on the overall project cost and schedule.
I.A.6. Excessive Change Orders
Incomplete and deficient engineering can have a significant impact on the project. As design-build projects become more prevalent, it is even more critical to understand that owner/engineer required changes to the project can have significant impacts to not only the engineering/design process, but, more importantly, to the actual construction. In many cases, issues concerning the engineering design process, such as errors, omissions, conflicts, etc., occur due to indirect sources. However, one of the major sources of project disruption, additional costs, and delays is owner/engineer changes.
Changes to the design, preferential changes, and changes to material and equipment requirements are some of the most significant impacts to project costs and schedule that can occur. These are also the most important factors that owners/engineers can control. This is why it is extremely important for the owner and engineer to fully contemplate the facility design, performance requirements, and other important preferential requirements prior to commencing construction. Obviously there are circumstances that require changes to the design and construction that are unavoidable; however, in many cases the change requests are preferential or, at the very least, could have been foreseen earlier in the engineering/design process.
Up-front planning and design reviews between the owner, architect, and engineer can recognize potential areas that may require future changes. Changes to the design have significantly less impact on the overall project cost and planned completion if they are made during the engineering phase. Once construction begins, changes can delay the contractor; require rework, workarounds, and reallocation of resources; and require the contractor to accelerate its work in order to meet the project schedule. All of these impacts can be costly, and there is no guarantee that the contractor will be able to overcome them and complete the project on time. Therefore, changes should be carefully considered and measured against the potential impact on cost and schedule.
I.A.7. Timing of RFIs and Changes to Design
The timing of RFIs and change orders is almost as important as the actual changes since it has significant impact on the contractor’s ability to complete the work in a timely and cost efficient manner. As discussed above, the impact of design changes increases significantly after construction begins. However, throughout the construction process, RFIs and change orders have an increasing impact on the contractor’s ability to perform the work.
Due to the nature of the engineering and design process, the numbers of RFIs and change orders are traditionally higher at the beginning of construction and decrease throughout the project. Inevitably, there are going to be questions, concerns, conflicts, and issues as the construction progresses. This is typical of all construction projects; however, as the project continues, these questions and problems normally become less frequent. Projects suffering from deficient engineering and design documents often encounter excessive RFIs and change orders late into the project. Early in the project, the contractor, in many cases, has the opportunity to overcome these issues and changes without significantly impacting the construction. However, as the project continues, the contractor has less time to overcome these changes, which often requires acceleration or other measures to mitigate the impact of the change.
II. Impacts, Delays, and Disruptions
In the previous section we identified the issues and problems that may arise from design documents. Issues relating to the design documents can manifest themselves in delays and disruptions during subsequent phases of the construction project. Each of the problems and issues described in the previous section can have a significant impact on the cost and schedule of a construction project. In this section, we will discuss the design document and engineering issues that may cause delays and disruptions to the construction project. We will also address the linkage and quantification of the design document issues and the additional costs and extension of the schedule.
II.A Design Document/Engineering Impacts
The following impacts related to design documents and engineering may cause delays and disruptions to a construction project.
- Late delivery of design documents
- Late engineering response to construction issues
- Engineering changes to approved for construction (AFC) drawings
In the following sections, we will link the types of additional costs and delays in the schedule that can result from these types of delays and disruptions.
II.A.1. Late Delivery of Design Documents
The timely issuance of design and engineering documents to the construction contractor is critical to maintaining the project’s schedule. If the design documents are not transmitted to the contractor in a timely fashion, the contractor may be delayed in its work. A contractor’s construction schedule is dependent on the design team’s issuance of the construction drawings. Design team delays will cause delays in the construction schedule unless the delays are mitigated in some fashion such as working overtime and/or multiple shifts.
The initial issuance of bid documents by the scheduled date is important so that the contractors can submit their proposals in a timely manner. If the issuance of the bid documentation is not prepared in accordance with the schedule, it may cause the remainder of the project schedule to be pushed back unless the delay can be mitigated. This type of bid package preparation delay may not cause significant additional costs, because the contractor has not yet begun its work and its bid would be based on a revised project schedule.
If the design team is unable to produce the approved for construction AFC drawings to meet the construction schedule, this may cause significant project delays. Not only is the initial issuance of the AFC drawings critical, but any revisions could also cause significant additional delays in the construction process. The following graphic provides an example of the planned versus actual engineering schedule with the engineering progress curves overlaid.
Planned versus Actual Design Team Progress
Clearly, the design team was unable to meet its planned drawing schedule by at least four (4) months. Now that we have identified the issue, the design team’s failure to issue drawings in a timely manner, that caused the delay, we must now identify what impact this event had on the remaining project schedule. Typically, if the engineering construction drawings are not provided to the contractor in accordance with the construction schedule, the contractor’s progress may be impacted. The following graphic expands on the previous illustration and shows the construction delay resulting from the engineering delays in.
Engineering Delay Impact on Construction
As shown in the previous graphic, the design team’s failure to provide the construction drawings in accordance with the planned schedule resulted in delays to the construction schedule. The next section addresses the design team’s engineering commitments during construction.
II.A.2. Late Engineering Response to Construction Issues
During the construction phase, it is critical that the design team remain involved in the project. In most construction projects, issues arise during the construction phase that require input from the design team. These issues may be requests for information (hereafter RFIs) or requests for change orders because of additional work that the contractor believes is required. It is critical that the design team respond to RFIs or change orders in a timely manner. By not responding to these requests in a timely manner, the construction contractor may be delayed in its work. Many construction contracts contain language specifying the amount of time the design team has to respond to a contractor request. The following graphic illustrates the response time to RFIs by a design team on a project.
Design Team Response to Construction Issues – RFIs
Because of the fast track nature of the project depicted in the graphic above, the contractor requested responses to its requests in 48 hours. The graphic illustrates how late responses to a contractor’s request can potentially delay construction depending on the nature of the request. An adequate response time to a request by the contractor is dependent on the type and nature of the project. While each contractor request is unique, generalizations are helpful in determining the likelihood of delay caused by late response to RFIs. An analysis of the types of contractor’s requests is helpful in determining the impact the response time may have regarding the specific types of contractor’s requests. The types of contractor’s requests include information, interpretation, deviation, engineering, vendor errors, etc. The following graphic illustrates this type of analysis and the distribution of these types of requests that could occur on an offshore drilling rig project.
Analysis of Contractor’s Requests
It is crucial for the design team to provide timely responses to the contractor’s requests as it allows the contractor to continue with its work if uncertainties arise in the design or design documentation.
II.A.3. Deficient Engineering and/or Changes to the AFC Drawings
Typically, changes are expected in construction projects. Rework by the contractor due to errors or omissions in the design documents is also expected to a degree. The amount of change and the timing of the change are aspects that can cause significant impacts to a project. The more effort that can be placed into providing accurate and complete design documents will help prevent changes during the construction phase. An effort to identify changes or errors by the design team early in the project can also minimize the impact of these changes. Errors or omissions by the design team also can impact a contractor’s ability to meet the project budget and schedule. Errors and omissions in the construction drawings may require the contractor to rework certain areas may significantly impact the project costs and schedule.
It is a well known fact in the construction industry that multiple changes and/or errors and late timing of changes and/or errors can have a devastating impact on a project’s costs and schedule. What is generally not understood or identified is the impact caused by cumulative changes and/or errors. While contractors generally are able to price the direct costs of a change, they seldom realize the indirect costs of those changes or the cumulative cost and schedule impact of multiple changes. These issues will be addressed in the following section.
II.B. Quantification of Design-Related Impacts to the Cost and Schedule
Once the design document-related causes have been identified and linked to the project’s costs and schedule delays, the additional costs and delay to the schedule must be quantified. In this section, we will address the methods for quantifying the resulting additional cost and schedule impacts incurred on the project due to design-related issues. We will specifically address the issues in terms of 1) schedule impacts and 2) cost impacts.
II.B.1. Schedule Impacts
Now that certain delay and disruptions have been identified relative to the design team, the amount of delay must be quantified. There are two (2) methods, which we will discuss, to determine the amount of schedule delay associated with a certain issue: 1) Critical Path Method (hereafter CPM) and 2) Compressed As-Built Method.
The CPM requires a complete project schedule, with links and relationships, that has been fully updated. Programs such as Primavera can be used to determine the activities that make up the critical path, those activities with zero float. The following graphic represents a schedule indicating the critical path.
Project Schedule with Critical Path Shown
If one of the activities is delayed, then it impacts the critical path and causes delays to the entire project. Excessive delays to an activity not originally on the critical path could cause that activity to become critical path and thus delay the project.
If a critical path schedule does not exist, there are other methods to analyze a project schedule. One method we address is the compressed as-built schedule analysis. This schedule analysis method uses the as-built schedule with all associated delays. The party that is responsible for the distinct delays is then identified. To identify the total project delay due to one party, the delays associated with that party are deducted from the as-built schedule. Deducting a party’s delays from the as-built schedule is known as compressing the schedule. The difference between the as-built schedule and the compressed as-built schedule is the amount of delay a specific party is responsible for in relation to the total project. The following graphic is an example of an as-built schedule and the compressed as-built schedule after the delays are deducted.
Compressed As-Built Pipeline Testing Schedule
II.B.2. Cost Impacts
Deficiencies in design documents and engineering can significantly impact project costs. This section addresses the calculation of additional costs. The additional costs that can be incurred due to deficient design documents or engineering are as follows:
- Direct Project Costs: These costs are direct costs of additional labor and/or equipment to complete work that was additional to the contract due to design document or engineering deficiencies. Generally, contractors will capture these types of costs through a cost recording system.
- Indirect Project Costs (Extended Project Costs): These types of costs are generally the result of delays to the project, (e.g. time-related costs the contractor incurs during the project such as trailers, project management, home office management, etc). The following graphic illustrates the evaluation of the planned project schedule compared to the actual project schedule and the amount of delay incurred on this sample project.
Planned versus Actual Schedule Analysis
This particular project was delayed almost three months. There are different methods for calculating the damages associated with total project delays, depending on which party is responsible for the delay. A familiar method for calculating a contractor’s additional home office overhead costs is the Eichleay formula, a recognized method for calculating additional home office overhead relative to project schedule delays.
Productivity Impacts: Determining and computing the productivity impact on construction projects is an activity not readily understood or calculated by the construction industry. To assist the construction industry, many entities have provided reports and statistics on productivity in the construction industry. These reports by such entities as Business Roundtable, the Mechanical Contractor’s Association (MCAA), and Construction Industry Institute (CII) provide guidance to contractors pricing productivity claims.
The following graphic illustrates some of the more well-known productivity studies.
Standard Productivity Studies
Each of these studies compares different types of productivity loss. Types of productivity loss discussed in these publications include excessive overtime, stacked trades, overcrowding, work arounds, changes to schedule/resources/work methodology, loss of momentum, etc.
There are also other methods to evaluate productivity such as the measured mile approach. This method is a well-known and accepted method of determining a contractor’s productivity. The measured mile approach compares an impacted time period on the project to an unimpacted time period on the same project or a similar project. In this manner, the contractor does not have to prove its planned rate of production. The measured mile is especially conducive to roadway projects as shown in the following graphic. The graphic illustrates the portion of the contractor’s work that was unimpacted and for which the contractor was able to progress at a much faster pace than the period in which its work was impacted by the design team’s deficient design documents, late design documents, and changes.
Measured Mile Evaluation
Clearly, as illustrated in the previous graphic, the contractor’s progress during the measured mile period was far greater than during the period when the design team’s deficiencies were impacting the contractor’s progress.
In the next section, we will discuss ways in which the design team can prevent such issues and problems from arising on construction projects.
III. Effective Methods to Avoid Construction Claims from Design
This section will address the potential problems discussed in the previous sections and the most effective techniques that owners, engineers, and contractors can employ to avoid these problems. The following suggestions for avoiding construction claims will be discussed below:
1. Clear project definition
2. Appropriate project delivery method
3. Contract Payment Structure
4. Architect involvement in shop drawings/submittals
5. Limit/control changes and preference engineering
6. Clarify owner review and approval process
III.A. Clear Project Definition
One of the most important aspects of a successful project is for the owner and architect/engineer to understand the project requirements. Although this sounds simple, there are too many instances of projects subverted because the architect/engineer does not fully understand the owner’s requirements. This is not the fault of the owner or the architect/engineer; however, it is the responsibility of all parties to ensure that these requirements are understood.
The owner should have a complete understanding of the project’s requirements. Additionally, it is imperative that the owner assigns an individual who is familiar with these requirements to oversee the project and act as its representative. If there are certain project requirements that are unknown at the time the engineering design begins, the owner must recognize these as potential problem areas and plan to address them effectively to avoid interfering with the design and construction. The owner must also realize that early resolution of these problem areas can be beneficial to the overall completion of the project and should resolve these issues as early as possible.
III.A.1. Establish Design Guidelines and Project Requirements Early
Establishing the design guidelines and project requirements early allows the engineer to incorporate these requirements early in the design, reducing potential problems later in the project. If the design guidelines and requirements are unclear during the engineering/design phase, there will be engineering changes, which can negatively impact the construction. Late engineering changes can be much more costly and damaging to the schedule. If it is impossible for these requirements to be defined during the engineering phase, the owner should provide the engineer with information concerning the options it is considering so that the engineer can incorporate these potential options into its engineering and design. Although this may be a somewhat more expensive alternative, it can help prevent much more expensive problems from arising during the construction.
III.A.2. Provide a List of Pre-Approved Vendors/Suppliers
It is also important that, based on the performance criteria for the project, the owner/engineer provide a list of pre-approved vendors and suppliers. Often, the owner has utilized these products/materials in the past and is comfortable that the vendor is able to provide equipment/material that meets its requirements for the project. In many cases, the owner has established a previous relationship with the vendor/supplier whereby they are able to benefit from reduced costs or cost credits.
Although providing specific vendors and suppliers can reduce the overall project cost, the primary benefit is that the design team is able to incorporate specific information and specifications into its design, and the contractor is aware of the exact equipment/materials required for the project. Additionally, because the engineer is certain of the specific equipment and materials that will be utilized, it can incorporate this information directly into the project drawings and specifications, reducing the possibility of conflicts and problems later in the project. This can reduce the overall cost of the project, but most importantly, it reduces the potential for conflicts and interference during construction that can lead to problems and claims.
III.A.3. Clarify the Bid Documents and Provide Supplemental Information
The more information the owner can provide to the engineer, the more precise nd accurate the engineering documents will be. However, it is also up to the engineer to ensure the design drawings and bid documents are clear and accurate for the potential construction contractor. The engineer should allow for pre-bid clarification meetings to avoid potential confusion and answer any questions. It is also advisable to allow the bidding contractors to visit the site to acquaint themselves with the site conditions. There should also be a review process which includes all of the interested parties to ensure that everyone is familiar with the project requirements.
The owner/engineer should also provide, to the extent possible, any site evaluations or soil testing that has been performed. Although this can increase liability for the owner, the owner is also in the best position to provide accurate information relative to the project site. Without providing this information, the owner should expect that the proposals will include additional contingencies for site conditions or additional monies to provide soil testing, thus increasing the overall project costs.
Another way for the owner to protect its interests, as well as allow the contractor to provide an accurate proposal, is to ask each bidder to provide their material takeoff with their bids, especially if there are bulk material and/or equipment requirements. This allows the owner to review and assess whether or not each bidder has fully understood the scope of work and ensure that each bidder is bidding on the same scope of work basis.
The owner should require each bidder to identify in its bid any and all clarifications/qualifications they have to the bid package and advise each bidder that its bid will be deemed as fully compliant with the bid package unless exceptions are clearly identified in one specific, easy to locate, bid section. This will prevent the owner from having to locate potential hidden qualifications throughout the bid, as well as ensure that the contractors have an opportunity to specify any remaining issues or questions that are not specifically outlined in the request for proposal. It can also assist the owner in evaluating each of the proposals and ensure the bidders are providing their proposals along the same technical basis.
All of the above information is dependent on the owners sufficiently investing in the upfront design/engineering to properly develop and finalize the bid documents. It is important to remember that the amount of money saved during the design and engineering phase will more than likely cost magnitudes more during the construction process. Approximately 80% of the project’s cost is determined during the design phase, so shortchanging the design process to save money will more than likely cost more money in the end.
III.A.4. Issue Complete or Near-Complete Drawings
As discussed, it is important to invest adequate time in the design phase. This includes devoting the time and resources necessary to develop complete, or near-complete, drawings. It is important that the owner/engineer not issue drawings until they are as complete as possible. Drawings with sections on “hold” or areas labeled “to be confirmed” are ripe for claims. Taking additional time to finalize the design prior to releasing areas of work for construction can save time and money later in the project. Unless the project is schedule driven to meet important income-related milestones, the more cost effective construction solution is to resist the temptation to commence construction early. It is best to wait until at least 40-50% of construction drawings are approved for construction before mobilizing, most of these in the early site civil and structural disciplines. This will allow sufficient work to continue in the critical early construction areas, while the design of later construction areas such as the mechanical and electrical design can be completed prior to their construction and installation.
III.A.5. Involve the Construction Contractor in the Design Process
One of the most effective ways for owners to ensure that their design requirements are effectively implemented and installed is to involve the construction contractor during the design process. This can have many benefits, including:
- Ensuring the design can be built in a safe and cost effective manner
- Helping to identify design errors and potential conflicts early in the engineering process, thereby reducing rework
- Helping to identify design requirements that will cause problems with construction
- Enabling the construction contractor to get more acquainted with the engineering and design requirements earlier in the process
- Allowing the contractor to better plan/utilize labor and equipment
III.B. Appropriate Project Delivery Method
One of the most important factors in the success of a construction project is for the owner to choose an effective project delivery method, (i.e., design-build, design-bid-build, etc). It is also vital that all parties understand the type of project, the project constraints, and their roles in performing the work depending on the type of project that is being constructed. Both of these aforementioned project delivery methods has pros and cons that should be evaluated carefully before determining the most effective method for the owner’s particular project.
The design-build process reduces, but does not eliminate the potential for claims resulting from defective and/or insufficient design-documents. In design-build, the owner contracts with one entity that has total engineering design and construction responsibility with minimal owner input/involvement. The design-build process lends itself to schedule driven projects where the performance requirements are more important than the aesthetic and/or preferential requirements for the project. The owner does have input during the early design phase to ensure the facility is constructed within the its general guidelines. However, the detailed engineering and construction are almost solely the responsibility of the design-build contractor. Although the combined engineering and construction responsibilities reduce owner input and increase overall risk for the contractor, the major benefit is that the typical problems with design documents and coordination (Spearin Doctrine issues) between the engineering and construction teams are largely mitigated. Because the engineering and construction is performed by a single design-build entity, the coordination between these disciplines is much more efficient and effective. For design-build to be effective, the owner must understand its role in the overall project, including the limited input and less review and approval.
Design-build; however, is not a panacea. It is not an effective project delivery method for projects where schedule is not a priority factor. In addition, because the owner’s input is limited, complex projects or projects requiring significant owner input are not ideally suited to the design-build process. In these cases, owners may consider the more typical design-bid-build process. Design-bid-build involves the owner first contracting with a design/engineering firm to develop and complete the design. The owner then bids out and awards the construction phase of the project based on the complete or nearly completed design drawings. Design-bid-build projects can reduce construction costs if the design/construction drawings are nearly complete and there are few changes once construction begins. However, design errors and omissions on the drawings may expose the owner to claims from the contractor based on the defective plans and specifications provided by the owner.
The overriding factor to a successful design-bid-build project and avoiding potential engineering/design document problems is for the owner to ensure that the original project design and bid documents are as complete as possible prior to putting the project out for bid. This will minimize RFIs and changes to the project that are typically the basis of construction related claims.
III.C. Contract Payment Structures
Another important factor for the owner to consider is the payment structure for the contract, (i.e., lump sum, time and materials [T&M], unit price, and other factors such as guaranteed maximum price [GMP] and not to exceed clauses). Factors such as the bid documents’ level of completion, expected level of owner input (preferential engineering), project specific requirements, and schedule concerns should be considered by all parties when executing a particular contract agreement.
Lump sum agreements can be successful if the design/bid documents are at an appropriate level of completion for the contractor to provide an accurate estimate for performing the work. In a lump sum contract, the contractor assumes the risk of performing the work within the lump sum price provided; therefore, clear and accurate bid documents are necessary for the contractor to assume that risk. If the bid documents are insufficient to provide an accurate bid, the bidders will include a contingency to cover potential costs above what the contractor has included in the bid, making the overall project cost higher.
If the bid documents are less developed, the owner may decide that, in the interest of progressing the project, either a cost-plus or unit rate arrangement would be appropriate. Each of these contract payment arrangements shifts part of the risk of increased project costs to the owner. The contractor will either be paid for its costs plus overhead and profit or paid at unit rates for all time and materials. In this arrangement, it becomes more important for the owner/architect to review and inspect the contractor’s work, not only to make sure it meets the specification requirements, but also to ensure that the work is being done in a cost efficient manner. Administering a contract under such a reimbursable basis would permit more flexibility to appropriately deal with changes and their resulting impact on construction, thus reducing the likelihood of claims.
In order to distribute the risk between the parties, it may be beneficial to perform the work under a guaranteed maximum price (GMP) contract agreement. GMP is a payment structure where the contractor performs the work on a time and materials (T&M) basis and is compensated for all labor, equipment, and material costs, including markup. In addition, the contract includes a maximum value for the contractor to perform the work. Most GMP arrangements provide for contractor incentives to perform the work for less than the guaranteed maximum price (e.g., bonuses for performing the work under budget or finishing the work early, or receiving a percentage of the savings, etc.).
In the end, it is important for the parties to understand the status of the bid documents, specifically the design documents, as it relates to the risk assumed under various contract payment arrangements. This will allow the parties to structure an agreement that is fair and maximizes the potential benefits to the parties involved.
III.D. Architect Involvement in Shop Drawings/Submittals
Timely response on the part of the architect to contractor shop drawings and submittals is critical to the timely and efficient completion of the project. It is the architect’s responsibility to not only ensure that the shop drawings meet the owner’s requirements, but also that that the shop drawings are consistent with the overall design of the project. Approving shop drawings for equipment and materials that are not completely consistent with the overall design and potentially conflict with other engineering drawings and specifications is a recipe for disaster. The architect/engineer, because they are most familiar with the overall project requirements, must ensure that the specific material and equipment information provided in the shop drawings not only meets these requirements, but are also compatible with other equipment and material on the project.
Additionally, the architect must timely review and respond to the shop drawings, submittals, RFIs, and request for changes in a timely manner. This does not mean that the architect/engineer should haphazardly review and approve these submittals for the sake of doing so in a timely manner. First and foremost, the architect is responsible for the owner receiving a quality facility that meets the owner’s requirements. However, quick turnaround of these submittals ensures that the contractor’s questions, issues, and clarifications are addressed in a manner that mitigates the potential impact on the project schedule. Time is money, and late responses by architects to these contractor submittals can result in downtime, rework, reallocation of resources, and overall loss of productivity by the contractor, all factors that can lead to claims.
III.E. Limit/Control Changes and Preference Engineering
One of the most difficult tasks for an owner during the construction phase of the project is nothing. Owner’s invariably feel that they are spending their own money and they should get exactly what they want. The owner should get the facility that it envisions and for which it pays; however, the owner should realize that the most efficient and cost effective way to make certain that it receives the facility it requires is to spend additional time and money during the front-end engineering as opposed to the construction phase. This is when the owner has the most control over the specifics of the design while still minimizing the impacts of later changes.
The designers/contractors should, however, enjoy the right to the least costly execution method provided they are following their contractual requirements. All too often, the owner attempts to impose its “preference engineering” or “wish list” on the designer/contractor, which often increases the project costs. Such owner-directed changes are disruptive to the project, and changes that occur after construction begins are more disruptive and costly than if the changes were anticipated and incorporated during the engineering process. The best thing an owner can do is to be intimately involved during the initial and detailed engineering phase, ensure that the design and specifications are clear and understood by all parties, and then let the design documents dictate the job during the construction process. Assuming the design is relatively complete, clear, and meets the owner’s project requirements, there should be less chance of owner initiated changes during the construction process. This, in turn, may decrease the chance of claims from the contractor. This does not mean that the owner/architect should ignore its responsibility to oversee, review, and analyze the work. There will still be contractor questions and concerns that should be addressed in a timely manner and the owner’s representative should always review the construction process to make sure the owner gets a quality facility that meets the project requirements.
III.F. Clarify Owner Review and Approval Process
One of the most important factors in reducing claims associated with deficient design documents is the engineering review and approval process. This is an important opportunity for the owner/architect/engineer to review the detailed design prior to issuing the drawings for construction. On most projects, preliminary design drawings are issued to the contractor to provide information; however, these drawings often contain areas on hold and missing information, so the contractor cannot rely on these drawings for construction.
There is typically the final design review process to finalize the drawings, make sure the owner’s requirements are met, remove any holds or problem areas, and ensure that the drawings are compatible with each other. Therefore, it is vital that the parties understand how the review and approval process will proceed so that the owner is able to review the drawings to make sure they meet the its requirements, and so the contractor will have an understanding of when the drawings will be complete and approved for construction.
As discussed, changes are more costly when they occur late in the project or are unexpected. Regardless of whether the changes are owner directed or controlled by other regulations or events, it is important to remember the disruption that late changes can cause. The engineering and design review process provides the last chance for the owner and engineer to make changes without severe disruption to the construction process.
The contract should specify the number and timing of the owner design reviews to provide both the engineer and the contractor with a schedule for them to plan their work. This will also inform the parties of when the design is considered “frozen” and no further changes will be allowed, unless of course, they are required for safety or environmental reasons. Any additional changes after the design is frozen will be subject to the change order process, and as discussed above, numerous change orders can be disruptive to the construction contractor. Even small or minor changes to the project, if they are numerous can lead to a constructive change of the project requirements, in which there is no discrete change order, but the magnitude of the numerous smaller changes constructively alters the contractor’s means and methods to perform the work.
The relationship between engineering and construction is not a difficult concept in theory. However, it often seems that a majority of problems, claims, and issues that troubled projects encounter are caused by a failure to effectively implement the very measures discussed in this paper. Essentially, the more information provided at the beginning of the project, and the less changes later in the project; the better chance a project has to be successful.
Clearly there are going to be questions and issues that arise, and there is the potential for external factors to impact the work through no fault of any of the parties. However, in more cases than not, the parties have contractual provisions to deal with these issues (i.e., force majeure) or they are able to work out a solution. There is also the circumstance in which one or both of the parties feels that the other side is to blame, and they do not take responsibility for the problem. In such a case, personal feelings become involved and relatively minor conflicts can escalate into arbitration and litigation. Understanding the potential problems, the types of impacts they can have, and practicing the relatively simple ideas expressed in this paper can go a long way in avoiding these problems on future construction projects.
Source: Interface Consulting
Released: July 30th, 2007 11:00 AM
Phone: (713) 626-2525
Category: construction claims analysis