Highlights: Last month, we wrote about the dangers of failing to effectively manage risk on a construction project. We briefly discussed the importance of selecting qualified and experienced people to work on a project. This month, attorney Mike Holman provides specific examples of what to ask design professional and construction manager candidates during the interview process. Suggested contract provisions are provided that, if used, can shift the risk to the parties who are most qualified to manage the risk.

At Bricker Construction, we represent many owners that have problem projects. These problem projects can cost the owners millions of dollars and disrupt their operations - in some cases virtually shutting them down. We see projects where:

  • New roofs leak badly and need to be torn off and replaced (The Roof Leak Example and how to avoid or minimize this risk is discussed below);
  • The contractors are delayed for months because plans were not coordinated;
  • One contractor with a history of poor performance delays other contractors and all the contractors sue the owner;
  • The plans were based on the wrong plumbing code;
  • Water pours through a new concrete deck;
  • A contractor goes bankrupt at the start of the job, virtually stopping work on the project;
  • The surety lets the contractor defend the owner’s claims against the contractor without conducting an independent investigation;
  • Part of the newly constructed building starts to sink into the ground because of an inadequate geotechnical investigation; and,
  • The owner obtains a judgment against the design professional and cannot collect because the design professional’s errors and omission insurance coverage was inadequate.

How does an owner avoid or at least greatly minimize the possibly that these types of problems will occur on its project? As the title to this article says, “It’s All About Understanding and Minimizing Risk.” That, basically, is Rule No. 1 of Bricker & Eckler’s Rules for Public Owners’ Contracting Success.

If an owner understands the risks on its project, it can avoid or minimize these types of problems by ensuring that the right people take responsibility for seeing that the design and the work are done right the first time. Owners can learn how to do that by reading “The Roof Leak Example” discussed below. Owners can use an approach similar to the approach for minimizing and avoiding roof problems to avoid and minimize other risks on their projects.

Several basic principles must be outlined before we discuss “The Roof Leak Example.” The following principles demonstrate who is most qualified to manage the risk, when risks should be identified, and how the identified risks are assigned:

  • The Principle of Least Knowledge. Of all the parties to the construction process, the owner is generally the least knowledgeable about the construction process and must rely on other persons to protect its interests.
  • The Principle of Early and Clear Identification of the Risks. The owner must understand and identify the risks before hiring the design professional and, when applicable, the construction manager. Early identification permits the owner to seek candidates with specific knowledge and experience in handling those risks. Early identification also clearly focuses the owner’s team on where they need to put their resources to have a successful project, i.e., the project should be resource loaded to avoid and minimize the greatest risks.
  • The Principle of Assigned and Accepted Responsibility. Once a risk is identified, the responsibility for avoiding or minimizing the risk must be clearly assigned and accepted as part of the contracting process, and the owner must follow through to see that the responsible party lives up to its obligations.

Avoiding or Minimizing Risk – The Roof Leak Example

We see many roofing systems that are littered with problems. We see many roofing systems that literally have hundreds of leaks and make life miserable for the people that use these buildings. Roofing systems and through wall flashings, as pointed out by Bricker Rule No. 8, are high risk areas that require special attention.

Most owners will not know whether the design of a roofing system works or whether the contractor’s work is defective or conforms to the contract documents. Most owners will need to rely on others to see that the roofing system is designed to work and is installed correctly.

When should an owner begin to avoid and minimize roofing system problems? The owner should begin planning to avoid and minimize roofing problems before interviewing the design professional and, when applicable, construction manager candidates.

From the inception of the idea for the project, the owner should apply “The Principle of Early and Clear Identification of the Risks” and “The Principle of Assigned and Accepted Responsibility” to the roofing design and construction. Here is how to do so:

  • From the Beginning. The owner must have a clear understanding of the risks inherent in its project, including the major risk of roofing problems, and how to avoid or minimize them.
  • When Evaluating Design Professional Candidates. The owner wants a design professional that understands the design of roofing systems, has had experience in designing the roofing systems that will be used on its project, and understands how the roofing systems are to be installed. The owner, therefore, in its request for design services and in the following interviews, should ask each candidate to explain:
    • The roofing system or systems that the candidate would recommend;
    • Its prior experience in the design and installation of such roofing system or systems;
    • Who on its staff has that experience;
    • Whether it has had any roofing problems on the projects it designed; and
    • If yes, what were the problems and how it would avoid them in the future?
  • When Evaluating Construction Manager Candidates. The owner wants a construction manager who will understand the design of the roofing systems on its project, who understands how the roofing systems are required to be installed, and who will be on site each day during the installation of the roofing systems. The owner wants a construction manager to inspect the installation to determine if the roofing systems are being installed in accordance with the contract documents and free from defects.

The owner, therefore, in its request for construction management services and in the following interviews, should ask each candidate:

    • To identify the people on its staff who will be assigned to the project and demonstrate that they understand the design of systems and how the systems are required to be installed;
    • To describe the education, training, and experience of those staff members in the proper installation of roofing systems;
    • To describe whether it has had any roofing problems on the projects on which it was the construction manager; and
    • If yes, what were the problems and how it would avoid them in the future?
  • Obtain Commitments During Each Interview. The owner should get specific commitments from the candidates during each interview:
    • Experience Commitment. The owner should obtain the commitment from both the design professional and the construction manager candidates that they will have one or more of the identified staff members, who are knowledgeable and experienced in roofing, assigned to the owner’s project.
    • Observation Commitment. The owner should obtain the commitment from the design professional candidate that it will have one or more of its staff members who are knowledgeable and experienced in the installation of the roofing systems on site periodically during the installation of the roofing work. These staff members will be required to observe the roofing work for conformance with the contract documents, to detect any defects, and to specifically record the observations of the roofing installation in field observation reports.
    • Inspection Commitment. The owner should obtain the commitment from the construction manager candidate that it will have one or more staff members, who are knowledgeable and experienced in the installation of the roofing systems, on site each day during the installation of the roofing work. These staff members will be required to inspect the roofing work for conformance with the contract documents, to detect any defects, and to initiate action under the contract documents if the work is not being installed correctly.
  • Contracting With the Design Professional and, When Applicable, the Construction Manager. The owner should ensure that the commitments it obtains from the candidates are clearly set forth in their respective contracts. The contracts should allocate risk to them consistent with their commitments and their respective standards of care. The following contract provisions, some of which are new, are good examples of how an owner can allocate risk.
    • Staff Experience and On-Site Observations and Inspections. The respective contracts should set forth the design professional’s and construction manager’s obligations, consistent with their commitments, to have trained and experienced staff assigned to the owner’s project, to observe or inspect the roofing work, and for the design professional to design the roofing systems.

For example, the construction manager’s contract could provide that

“The Construction Manager shall have a person, who based on his or her education, training and experience understands the design of the roofing systems and how they are required to be installed, on site each day that roofing Work will be performed. Additionally, such person or persons will inspect the roofing Work each day it is being installed to determine if it is being installed in accordance with the Contract Documents and free from defects. If the roofing Work is not being installed in accordance with the Contract Documents and free from defects, the Construction Manager shall notify the Owner in writing and initiate the remedies available under the Contract Documents necessary to get a roofing system that is installed correctly.”

    • Design Professional’s Warranty. The owner wants roofing systems that, if built right, will work and be weather tight. It should be reasonable for a design professional that is confident about its roofing expertise to give the owner the following warranty:

“Consistent with its standard of care and subject to events beyond its control, the Design Professional warrants that the roofing systems, if installed in accordance with the Contract Documents, will be weather tight.”

    • Construction Manager’s Warranty. The owner wants a roofing system that not only is designed to work but is built right. It should be reasonable for the construction manager that is confident about its roofing expertise to give the owner the following warranty:

“Consistent with its standard of care and subject to events beyond its control, the Construction Manager warrants that the roofing systems will be installed in accordance with the Contract Documents.”

    • Are these Warranties Fair? It is reasonable to ask the design professional to know how to design a weather tight roofing system and to ask the construction manager to inspect the roofing work and know whether the work is being installed correctly. In both cases it is a matter of assuming risk. A company should be able to assume risks when it has the expertise to manage those risks.

If forty-three years ago someone had asked me to warrant that I could land an S2E aboard an aircraft carrier day or night or land the S2E in rain or snow with at least ¼ mile visibility, I would have done so. I would have done so because I was a well trained, experienced, and competent Naval Aviator.

The same principle is true for the design professional and construction manager. If they have a well-trained and experienced staff, they can manage these risks. Additionally, those design professionals and construction managers who have the experience and expertise will be able to market their proficiency and have a competitive advantage over others that lack such expertise.

Conclusion

Success is based on planning, anticipating, and avoiding or minimizing risk. For the owner, it is difficult to anticipate and avoid or minimize risk, because most owners do not have the necessary knowledge.