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CONSTRUCTION CLAIMS and DISPUTES – (Part 9) Why Scope of Work?

July 3, 2014 By

Why Scope of Work?

This McLaughlin and McLaughlin (M&M) post is the ninth in a Subject Series  Construction Claims and Disputes.

Scope of Work is (or should be) the basis for most claims and disputes.  As we previously discussed, claims and disputes regarding scope of work are a widespread problem and represent the most common issue.  Perhaps 75 to 90% of all engineering and construction claims and disputes involve contract scope of work.  But the issue goes further.  Scope of work influences and is a foundation for delay, acceleration, disruption, payment and many other types of disputes.  Consequently, virtually all claims (should) start with scope of work.

Scope of work is a huge factor in capital investments.  In the engineering and construction market, investments total in the hundreds of billions of dollars (USD).  These investments are increasing, particularly in areas such as the US Gulf Coast.  Typical budgets for changed work are targeted for 10% which makes this market of tens of billions of dollars (USD).  However, this is merely the budget, not the reality.

Most of these investments involve contracting for goods and services.  Each of these transactions must consider scope of work (services, facilities, supply) as primary to the transaction.  Consequently, each transaction has risk of claims and disputes regarding the related scope of work.  Stakeholders include: owners, prime contractors, subcontractors, engineers, architects, lawyers, consultants, investors, lenders, sureties, governments and others.

Recognition, entitlement, pricing and proving (if necessary) claims for additional compensation related to scope of work is a huge challenge with large amounts of money at risk.  Largely, this is not legal work.  However, it requires expertise.  If the project team lacks this expertise, a subject matter expert (SME) is needed.  The SME must possess the expertise in recognition, entitlement, pricing, evidence and related impacts to the project’s performance (time, cost, and other considerations).

[Read more…]

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CONSTRUCTION CLAIMS and DISPUTES – (Part 8)

January 27, 2014 By

Scope of Work – Impacts

This McLaughlin and McLaughlin (M&M) Project Professionals post is the eighth in a Subject Series Construction Claims and Disputes.

Recent posts (Parts 6, 7) address scope of work within the overall subject of Construction Claims and Disputes.  Claims and disputes regarding scope of work are a widespread problem and represent the most common issue.  Perhaps 75 to 90% of all engineering and construction claims and disputes involve contract scope of work.  However, this is not confined to engineering and construction.

Direct compensation for a scope of work change may merely be the proverbial “tip of the iceberg.”  What about the rest of the story?  Is the contractor missing many other costs or schedule impacts?  Often, this is the case.  This issue may be broader that an added piece of equipment, redesign to avoid a conflict or similar events.

Scope of work disputes are building blocks to other claim elements in the dispute.

  • Delay – Changes can add work to the project critical path.  If so, this would cause the forecasted project completion date to be extended (potentially later than planned).
  • Progress – Changed work adds to the overall project work content, thereby changing the progress measurement and reporting (Earned Value).
  • Disruption / Productivity – Changed work impacts field labor productivity, a major risk to contractors.
  • Overheads / Indirects – Changed work may add requirements for additional construction support, supervision, insurance and other indirects.
  • Terms and Conditions – The cost of bonding, insurance, warranties, guarantees, and many others can be impacted by changed work.
  • Profit / Fee – proper compensation in this area can be challenging.

The majority of the discussion will address entitlement to recovery (rather than pricing or quantum).  For pricing (or quantum), please see McLaughlin & McLaughlin’s Project Professionals Construction Claims and Disputes Part 4  and Part 5.  [Read more…]

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CONSTRUCTION CLAIMS and DISPUTES – (Part 7)

August 6, 2013 By

Scope of Work – Plans and Specifications

This McLaughlin and McLaughlin (M&M) post is the seventh in a Subject Series  Construction Claims and Disputes.  This Subject Series  contains discussions regarding construction claims and disputes.

Recent and subsequent posts (Parts 6, 7 and the next few) (will) address scope of work within the overall subject of Construction Claims and Disputes.  Disputes and claims regarding scope of work are a highly pervasive problem and represent the most common type of claim or dispute.  Perhaps 75 to 90% of all engineering and construction claims and disputes involve contract scope of work.

Virtually all disputes and claims arise as a result of departures from the baseline.  These variances (cost, time or other) create the dispute.  Therefore, understanding the baseline is essential.  In construction claims and disputes, the baseline is (almost) always the contract.  The contract is the “deal” or the agreement between the parties.  While it must meet several legal tests, the contract is the baseline that will be the focus of this discussion.  You must have, know and understand the contract, or at least all portions and provisions that relate to scope of work.

In this discussion, the plans and specifications are the scope of work baseline.  Typically, the plans and specifications are augmented by other contract documents (such as terms and conditions, site services, execution plan documents and others).  Using the term “design specifications,” let us view these documents as “…the specific requirements for constructing, testing, inspecting, and the materials provided for the project” (Brams and Lerner).

The majority of the discussion will address entitlement to recovery (rather than pricing or quantum). [Read more…]

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CONSTRUCTION CLAIMS and DISPUTES – (Part 6)

June 25, 2013 By

Scope of Work – Baseline

This McLaughlin and McLaughlin (M&M) post is the sixth in a Subject Series  Construction Claims and Disputes.  This Subject Series contains discussions regarding potential and actual construction claims and disputes situations.

In the realm of construction claims and disputes, claims regarding scope of work are the largest or highest single category.  The George Washington University publication Construction Contracting states that “Not surprisingly, specifications and plans are the focal point of most construction contract performance disputes and requests for price adjustments.”  While this source pertains to US Federal government contracting, the same pattern can be seen in the private sector on a worldwide basis.  Even more general, scope of work disputes extend beyond construction contracting, into engineering and procurement in the Engineering, Procurement and Construction (EPC) industry.

This series of posts will address scope of work within the overall subject of Construction Claims and Disputes.  Since disputes and claims regarding scope of work are such a pervasive problem, some degree of detail will be presented.  Further, the majority of the discussion will address entitlement to recovery (rather than pricing or quantum).

The source of all disputes and claims is departures from the baseline.  These variances (cost, time or other) create the dispute.  Therefore, understanding the baseline is essential.

In construction claims and disputes, the baseline is (almost always) the contract.  The contract is the “deal” or the agreement between the parties.  While it must meet several legal tests, the contract is the baseline that will be the focus of this discussion.  You must have, know and understand the contract, or at least all portions and provisions that relate to scope of work.

Success in this area of claims and disputes depends almost exclusively on how well you know the contract.  More specifically, how well you know and understand the scope of work.

Later in this post, the formulation of a Claims Management Plan (CMP) is discussed and related to contract scope of work. [Read more…]

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CONSTRUCTION CLAIMS and DISPUTES – (Part 5)

April 1, 2013 By

Pricing Construction Claims – (continued)

McLaughlin and McLaughlin’s Project Professional post is the fifth in a Subject Series Construction Claims and Disputes.  This Subject Series contains discussions regarding potential and actual construction claims and disputes situations.  In this series, we focus on the key aspects of construction claims and disputes management (rather than mechanics).  This discussion is a continuation of Part 4 regarding the pricing of claims and disputes.  The compulsion or question is – “How much is a potential claim worth?”  In virtually all disputes, the central issue is the money.  Since it is a win-lose situation, the outcome may be that someone (one party) will pay another party.  Hence, the money is the ultimate issue (sometimes time is at issue, generally presenting itself in money or damages related to the time).

There is an old saying “win the battle, lose the war” which applies to damages in construction claims and disputes.  With facts, logic and analyses on their side, one party (Party A) can prepare and present a very compelling argument regarding the claim (against Party B).  However, winning the argument on the cause (or as it is called, entitlement) is relatively useless without winning the argument on the money related to the effect (or sometimes called damages, quantum, compensation, pricing).

Even more compelling, the decision to proceed with a claim (and potentially spend millions of dollars on expenses such as legal and expert fees) should be heavily driven by the potential recovery (the money).  Consequently, parties must have a reasonable assessment of the true value of the dispute and the ability to successfully demonstrate or prove these damages in the resolution process.  Without the ability to prevail on a suitable and acceptable level of damages, pursuing a construction claim through a costly dispute resolution process could be an unwise managerial decision.

McLaughlin and McLaughlin  has extensive experience and expertise in the strategy and pricing of major construction claims and disputes.  This experience includes work for both owners and contractors.  Further, the experience includes testimony on this topic.

In this discussion, we are guided by another highly useful and well written book.  This reference is Calculating Construction Damages, Second Edition, by William Schwartzkopf and John J. McNamara. [Read more…]

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CONSTRUCTION CLAIMS and DISPUTES – (Part 3)

March 4, 2013 By

Current Project Professionals Posts

McLaughlin & McLaughlin’s Project Professionals post is the third in a Subject Series.  Construction Claims and Disputes which are (will be) discussions regarding managerial challenges in potential and actual construction claims situations.  In this series, we focus on the managerial aspects of construction claims and disputes management.  This summary discussion addresses the many posts that have been presented in the past and are at the Subject Series tab of Project Professionals.

In the engineering and construction industry, claims and disputes take many forms and focus on many topics.  For simplicity of discussion, we will use the follow the following categories:

  • Scope of Work, Changed Work or Variations
  • Delay and Acceleration, Time-Related
  • Disruption / Productivity (usually labor/labour)
  • Terms and Conditions (and other subjects).

McLaughlin & McLaughlin’s Project Professionals has posted (or published) greater than 60 posts regarding one or more aspects of Construction Claims and Disputes.

The balance of this post identifies the Subject Series and posts that are at Project Professionals and are relevant to construction claims and disputes. [Read more…]

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CONSTRUCTION CLAIMS and DISPUTES – (Part 2)

February 6, 2013 By

Construction Claims Management Planning

This post is the second in a Subject Series  Construction Claims and Disputes which are (will be) discussions regarding managerial challenges in potential and actual construction claims situations.  In this series, we focus on the managerial aspects of construction claims and disputes management.  This post addresses the planning, a key managerial requirement in all project work.  First plan it, and then do (execute) the work.  The notion is consistent with the old adage “An ounce of prevention [in this case management] is worth a pound of cure.”  In that regard, litigation on a large and complex project can cost millions USD in expenses to pursue and may have tens of millions USD at issue.

Yes, construction claims and disputes can and should be managed.  This is particularly true of large and complex projects.

Prospective Construction Claims Management refers to the managerial approach and planning for managing the risks (and options, opportunities, etc.) during project execution through project close-out related to claims.

Retrospective Construction Claims Management (development, presentation and defending) will be addressed in another post.

Claims Avoidance – There is a myth that construction claims can be avoided.  Experience shows that this is just a myth, since it relies on controlling the activities of others.  These others may be in an adversarial posture or position.  Hence, control cannot be readily achieved. [Read more…]

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