Improving the House Odds Allocating Risks on a Construction Project Moderator:Roy Cooper, P.E. Senior Vice President PinnacleOne Middletown, CT [email protected].

Improving the House OddsAllocating Risks on a Construction Project

Moderator: Roy Cooper, P.E.Senior Vice President

PinnacleOne

Middletown, CT

[email protected]

Panelists:

Edwin Levy Christopher J. PetriniSenior Counsel Petrini & Associates, P.C.

New York City Law Department Town Counsel to

Commercial & Real Estate Litigation Framingham, Massachusetts

New York, New York [email protected]

[email protected]

John P. Markovs John S. Rannestad, P.E.Associate County Attorney Senior Analyst

Office of the County Attorney PinnacleOne

Montgomery County, Maryland Middletown, Connecticut

[email protected] [email protected]

Roadmap of “Lucky 7”

• “Roadmap” of seven key issues to be discussed via hypothetical, namely:• Scheduling• Contractor Performance • Regulatory Impacts on Construction• Subsurface Conditions• Environmental Issues and Hazards• Delay• A/E Performance Errors and Omissions

The Project: River Works Recapture

• New 250,000 sq/ft steel and masonry DPW office and maintenance garage

• New harbor patrol docks• Site of old, no longer used, City ferry terminal• Initial City study / cost estimate found project feasible but

difficult, with a wide range of cost: $60 - $80M• City council approval by slim margin, contentious

approval process• $60M appropriated• 20% Federal funding• Additional construction funds politically and financially

difficult to obtain

Project

Schedule

Bonds/Insurance

Reg. Impacts

Site Conditions

Environmental

Delay

A/E Performance

The Project: Special Considerations

• Site groundwater and soils are contaminated with hydrocarbons from old, previously existing leaking marine fuel tanks.

• The City has a Phase I and Phase II EPA study of the site which confirms the existence of the hydrocarbons. Remediation efforts have not yet occurred and the City needs to remove the contaminated soil before construction.

• The City is presently a defendant in lawsuit filed by downstream property owners affected by the leaking fuel tanks

• City under DEP consent order: clean up site by June 1, 2010

• US ACOE permit required for dock work in river• No work in waterway during spring breeding season of

Shortnose Sturgeon

Project

Schedule

Bonds/Insurance

Reg. Impacts

Site Conditions

Environmental

Delay

A/E Performance

The Project: Special Considerations

• Adjacent property owner, Steel Export Services

– Used the abandoned ferry terminal to load scrap steel on to barges for export since the City ceased operation of its ferry 30 years ago

– Claims it owns a right of way for use of the docking area, but there is no record of such ownership.

– Wants access during and after construction

• Adjacent retirement community - excessive construction noise

• Preliminary subsurface investigations related to evaluating the contamination revealed that there is 10-20’ of unsuitable urban fill, over 10’-15’ of unstable silts, over 40’ of glacial outwash over bedrock covering a vast majority of the site, suggesting that deep foundations such as pile supported footings will be required over any heavy structural load.

• The City hired an A/E firm to work with the City’s geotechnical contractor to address the geotechnical issues and design suitable footings for the building.

Project

Schedule

Bonds/Insurance

Reg. Impacts

Site Conditions

Environmental

Delay

A/E Performance

The Project: Your Job and The Bid

• Mayor and City Council asks you, the City Attorney, to draft contract documents to assure on time, on budget project completion

• Three bids received: $60, $75 and $81 M• U-Gotta-Believe Construction is lowest bidder• This is first major public or private project for UGB• City DPW project management personnel express

reservations about using UGB and its lack of experience• Mayor & City Council are under pressure to get project

finished, they want to proceed and “roll the dice”• Is the “house” adequately protected with your contract?

Project

Schedule

Bonds/Insurance

Reg. Impacts

Site Conditions

Environmental

Delay

A/E Performance

Allocating Risk – 1. Schedule

• Bidder selection issues—Selection of lowest responsible bidder. Scheduling impacts of poor bidder choice

• Specify project completion date and cleanup completion date

• Specify timeframe/duration of special restrictions and other activities Specific days / specific activities prohibited during

sturgeon breeding season Hours of work for noise issue Steel Export Services access Owner submittal / re-submittal review time

• Reallocate risk in event of early completion schedule

• Specify float use is shared

Project

Schedule

Bonds/Insurance

Reg. Impacts

Site Conditions

Environmental

Delay

A/E Performance

Allocating Risk – 1. Schedule

• Manage risk with CPM schedule specs that compel contractor to provide quality scheduling service• Compel timely schedule submissions• Minimum schedule qualification & experience• Specify expected minimum level of detail• Require detailed narrative with schedules

• Consider retaining scheduling consultant with expertise to evaluate sufficiency of contractor scheduling submissions.

Project

Schedule

Bonds/Insurance

Reg Impacts

Site Conditions

Environmental

Delay

A/E Performance

Allocating Risk – 2. Bonds & Insurance

• Risk of contractor non-performance – Performance bonds– Termination for default– Notice of default and cure

• Risk of subcontractor non-payment – Mechanics’ liens

– Payment bonds – Handling claims

• Builders risk • General liability insurance• Certificate holder v. named additional insured status

confer different bundles of rights—Prefer named additional insured status

Project

Schedule

Bonds/Insurance

Reg Impacts

Site Conditions

Environmental

Delay

A/E Performance

Allocating Risk – 3. Regulatory Impacts

• Design and planning approvals• Permits• Other approvals• Audits• Multiple state, federal and local funding• Source of supply and materials

requirements• Investigations

Project

Schedule

Bonds/Insurance

Reg. Impacts

Site Conditions

Environmental

Delay

A/E Performance

Allocating Risk – 4. Subsurface Conditions

• Differing site condition clause– Type 1– Type 2

• Impact of shifting risk to owner • Impact of shifting risk to contractor• Classified or unclassified site• Superior knowledge, withholding or disclosing

information• Owner’s responsibility for site investigation• Responsibility for site investigation by

contractor▪ Greater risk of financial hardship for contractor

Project

Schedule

Bonds/Insurance

Reg. Impacts

Site Conditions

Environmental

Delay

A/E Performance

Allocating Risk – 4. Subsurface Conditions

• Strategies to deal with risk and subsurface conditions– Scope and quality of pre-bid investigations– Consider allowing bidders to conduct their own pre-

bid site inspections/investigations– Disclose everything– Disclaim superior knowledge– Give access to geo-tech reports– Consider pre-bid investigation– Save and secure samples and reports– Pay attention to bidder’s questions and issue written

addenda when appropriate for benefit of all bidders– Prompt review when given notice of a DSC– Eliminate conflicting contract language

Project

Schedule

Bonds/Insurance

Reg. Impacts

Site Conditions

Environmental

Delay

A/E Performance

Allocating Risk – 5. Environmental Issues & Hazards

• Site contamination and remediation• Compliance with state and federal laws• Risk of site pollution or adjacent property pollution• Hazardous material removal and disposal• Delay of project and contractor requests for additional

compensation• Risk of improper / illegal disposal of waste material from

project site• Risk of contamination by on site fuel and lubricant

storage• Risk of noise pollution• Risk of erosion – silt migration• Risks of unforeseen hazardous material,• Worker protection and environmental controls• Indemnification of owner against claims for injury or

damage

Project

Schedule

Bonds/Insurance

Reg. Impacts

Site Conditions

Environmental

Delay

A/E Performance

Allocating Risk – 6. Delay

• Deal with risk of contractor delays via liquidated damage clause– LDs for project completion and cleanup– Require Owner’s Project Manager or Designer to

perform due diligence calculations at outset of project to justify liquidated damages amount included in contract documents

• Deal with risk of needing to accelerate project to overcome delays– Give owner authority to request recovery schedule

and implementation

• Allocate risk from possible bad weather

• Allocate risks from possible delay due to operations of Steel Export Services

Project

Schedule

Bonds/Insurance

Reg. Impacts

Site Conditions

Environmental

Delay

A/E Performance

Allocating Risk – 6. Delay

• Manage risk of cost increases due to delay- No damage for delay clause

▪ Not always enforceable▪ Some states may not allow its use▪ Some states require the owner to grant

reasonable time extensions in order to claim benefit of no damages for delay clause.

▪ Some states may require the public owner to exercise good faith before claiming benefits of clause; contractor may not be “whipsawed.”

- Limits to allowable claimed damages▪ Home office overhead▪ Loss of anticipated profits▪ Loss of bidding opportunities / capacity

Project

Schedule

Bonds/Insurance

Reg. Impacts

Site Conditions

Environmental

Delay

A/E Performance

Allocating Risk – 7. A/E Performance – E&Os

• Insurance coverage– Type of coverage– Invoking coverage– Indemnity provisions in Owner-A/E Contracts

• A/E Liability Issues: Negligence v. Breach of Warranties

• Statute of Limitations v. Statutes of Repose• Effect of the Spearin Doctrine

– Owner ultimately responsible– Design defect or failure to construct according to

specifications?• Delay from errors and omissions

– Effect on CPM– Recovery schedule

• Curing design defects– Notice to cure– Remedies

Project

Schedule

Bonds/Insurance

Reg. Impacts

Site Conditions

Environmental

Delay

A/E Performance

Improving the House OddsAllocating Risks on a Construction Project

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