Claims Avoidance & Documentation

For many years Mr. Walstad has offered suggestions in seminars and in-house training programs regarding ways for companies to avoid claims.

Whether a contractor is profitable on any given project depends on numerous factors. Hard work and fairness is no longer a panacea to a contractor’s earnings.  In a troubled economy, the contractor is forced to remove most of the money usually held in reserve for unknowns and bid mistakes and to bid very tight, sometimes even facing the likelihood of a loss on the project.  Claims generated on a particular project can often make the difference between a profitable job or a debacle.

From the owner’s standpoint, it has the right to rely upon the bids of the contractors during the selection process.  A private owner in particular isn’t bound to take the low bid and may consider many factors in making its award selection, and price is usually only one factor. Others include the track record of the contractor for on-time completion and staying with budget, whether the contractor has a history of generating many claims and asking for change orders and time extensions, whether justified or not, and whether a litigation history follows the contractor wherever he goes.

There are 12 items that are crucial to claims avoidance for both contractor and owner.  Documentation, which is perhaps the most critical of the list, will be addressed in detail with further consultation.

CLAIMS AVOIDANCE CHECKLIST

1. Develop A Strong TQM Program Within The Company
2. Develop And Maintain A Commitment To Teamwork On The Project
3. Have Meaningful Meetings--Record Results/ Distribute & Follow Up Action Items
4. Make And Keep Commitments
5. Don’t Overdo- Keep Paperwork Manageable/ Simplify
6. Listen- Don’t Assume
7. Be Fair But Firm
8. Be Organized
9. Define And Follow Lines Of Authority
10. Define Contract Requirements Clearly
11. Documents Events  (see our detailed discussion below)
12. Keep Channels Of Communication Open No Matter What The Difficulties Faced Or The Attitude Of Your Adversary.

Know your Contract

Your contract is the foundation upon which rests all work and payment understandings as well as the myriad of conditions and clauses which comprise your total agreement. It is the language which will be used for the specific project; therefore, it is highly important that you become well versed in your contact. Here are some suggestions:

1. Determine the extent of the authority (in terms of spending authorization and dollar limits) of the owner’s employees or authorization and dollar limits) of the owner’s employees or representatives with whom you deal.
2. Make a checklist of all notice requirements in the contract and post in conspicuously for your project manager to follow.
3. Always respond as quickly as possible to correspondence from the owner or contractor. Make certain you respond to every complaint, question or allegation. Do not concede issues unless you have no choice.
4. Utilize standard form purchase orders and subcontracts for your own suppliers and subcontractors which pass all appropriate risks relating to their work along to them rather that leaving you with independent responsibility for items over which you with independent responsibility for items over which you have no control. Likewise, limit your liability to them for owner caused delays and changes to the amount which you recover. Be sure these documents incorporate the term of the contract by reference and that all required clauses are included.

Monitoring Job Progress

In order to keep good records, to know your contract and not waive possible claims, you must monitor the job progress. Being actively informed reduces surprises, informs you of potential future problems and gives you a firm handle on what has been accomplished. Here are a few practical guidelines:

1. Analyze your job progress in detail prior to any job site progress meeting which are held, and use such meetings as a forum for discussing and protesting problems such as delays and extra work.
2. Requires further time extensions whenever significant events occur which may entitle you to extensions
3. Record all conflicts and discrepancies. Inform the owner as they arise so that you will be properly coordinated and not incur responsibility due to lack of information.
4. Forward any significant information received from or sent to the owner to your legal counsel to keep current with the project and determine if further specific action is required.
5. Obtain written confirmation of all oral directives. If they will not confirm in writing, you should write a confirmation letter to them before you proceed on the oral directives.
6. Maintain a log of all drawings, submittals, change orders and proposals, and pertinent correspondence for ease of reference and also to indicate changes.
7. Review employee’s time cards or the foreman’s daily reports in detail and revise their format as necessary to better reflect potential claim areas such as extra work performed and delays. In many cases this can be done without too much extra expense or undue inconvenience so that these records clearly indicate not only the hours worked, but also the amount of work accomplished (such as the number of feet of conduit installed). Such records are often a good basis for providing a loss of efficiency. Along the same line, if you should get into significant claim situations you might consider making some time studies to indicate efficiency of work accomplished either using your own methods or an outside expert. This can become quite complex, but if such a study is made during a good production period and then another study made during a poor production period, the difference can be quite startling and serve as good proof of loss of efficiency factors. Categorize your cost records (for example, segregate your excess installation costs by areas and type of work, such as grills and registers) in such a manner that all claim aspects will be as discernible as possible, participating with regard to loss of efficiency or impact costs. Try to analyze them at this time to determine of what they primarily consist. Then maintain as many of your records as possible with those categories in mind so that they will be provable at a later date.

Documentation - Be Event Oriented

One of the most important things to remember is to be event oriented and keep records which fully and accurately document progress and significant problems. Thos protective record- keeping may prevent claims from ever arising. In a very real sense, documentation is an "ounce of prevention".

The reason it is very important to maintain accurate and well organized records is that in a construction law suit proof of liability and damages is largely based upon records.  The accuracy and the organization of records will often directly relate to the success of failure of a given position in a lawsuit. Letters, agreements, reports and records produced for business purposes at the time the event occurs by a person with knowledge will not only give weight and credence to your position at trial, but they will also enhance your position and your leverage for successful negotiation and settlement.

In our humble view, keeping records is not enough. One must maintain the records and documents in some kind of order or system.  Information is of little use if it cannot be accessed. Maintaining records and documents properly now will also save time and money if the matter is ever later arbitrated or litigated- periods when time and money are at a premium. One who meticulously maintains documents will be able to substantiate testimony with a physical document, will be treated as credible and reliable, and retain that often needed edge in any dispute. These important reasons underlie the admonition, "put it in writing".

With the technological advances available to the project team today, a nearly "paperless" environment is a reality.  Even if hard copies of paperwork are required, these can be easily turned into Word or PDF documents and stored on a hard drive for reference or searching as needed.  WLG has consulted with many clients regarding the implementation of such record-keeping and retrieval systems.

The absence of proper documentation and records will not automatically invalidate a claim, but your chances of success are greatly diminished without proper documentation.

We hope the following checklist will assist your company in recognizing what records are important and what action might be taken to protect your interests. By implementing the following guides there is no guarantee you will never be involved in a claim or that you will never have to retain a lawyer, but your company’s interest – and hopefully your profitability on a project- will be enhanced.

Documentation You Need to Utilize and Maintain

WLG consults with companies regarding their record- keeping systems and document databases.  Your plan should be tailored to your needs and the types of projects on which you work.  Whether those with whom you work are friends or strangers, we recommend that you maintain the records you may need to protect your interests.

Here are some basic recommendations for project databases:

1. Progress payment requisitions and all data submitted to support such requests.
2. Inspection reports.
3. Daily logs kept by on-site personnel or project representatives.
4. Daily time records indicating the areas in which work was performed and what work was actually done (this information might be indicated on the foreman’s daily report).
5. Memoranda to the file relating to conversations, inspections, directions and observations.
6. All correspondence.
7. Photographs and videos taken on a periodic basis to show construction progress and whenever necessary to document a particular problem arising in the field which delays that work, disrupts or interferes with the progress of work or which may result in change or claim for extra work.
8. Minutes of weekly jobs meetings or other meetings with the contractors or personnel.
9. All cost reports maintained on the project.
10. Copies of approved or rejected shop drawings and shop drawing logs as well as all other submittals.
11. Interoffice correspondence.
12. Notes of telephone conversations.
13. Journals maintained by any field personnel (note: be careful what your personnel write in their journals).
14. Any analyses made during performance with regards of labor productivity of other related subjects.
15. The preliminary (thirty-or sixty- day) schedule if required or prepared.
16. Records of input provided by consultants, subcontractors or other prime contractors relating to the duration or sequencing.
17. Copies of initial schedules submitted to the owner or subcontractors for review or comment.
18. The initially approved schedule.
19. Any marked up schedules used in the field in the updating process.
20. Approved updates of the schedule.
21. Report copies of any CPM or other scheduling consultant on the project.
22. Any supplementary schedules used on the project, such as poor schedules, finished schedules or detailed daily or weekly schedules.
23. Any in- house schedules prepared for trades, subcontractors or suppliers.
24. Any hand-dawn schedules used by personnel for information in the field to explain how work is to be done constructed or within what time frames or sequence the work is to be accomplished.
25. All databases, including those on the hard drive of your network as well as the hard drives of any computers, including personal notebooks, utilized on or for the project – and your backup drives!  This would include all emails which are related in any way to the project or may have within them discoverable information should litigation result. E-discovery is something that cannot be ignored or neglected, as we will discuss in detail during this seminar.  We could cite many cases which have arisen relating to e-discovery, but other speakers will be covering this at length.  One case among the many is Static Control Components, Inc. v. Lexmark Int’l, Inc., 2006 WL 897218 (E.D. Ky. Apr. 5, 2006).  This was a patent infringement case.  The plaintiff sought production of a copy of a database and offered to bear the burden of extracting relevant data.  The defendant claimed it had already produced relevant data from after November of 2004 and had given the plaintiff an opportunity to inspect the database for relevant information pre-dating November 2004.  Additionally, the defendant explained it could not produce relevant records prior to November 2004 as that information was not text searchable and it required software that was no longer available. The Magistrate ordered the defendant to produce the pre-November 2004 database to the plaintiff in a "reasonably usable form" stating, "The Federal Rules do not permit [the defendant] to hide behind its peculiar computer system as an excuse for not producing this information...."  The amendments to the Federal Rules regarding retention and disclosure of databases and records, including email, are now binding upon all counsel litigation in the Federal Courts.  Many of the states have already implemented the same requirements.

 

Walstad Law Group stands ready to assist you as you may need. We offer a whole range of Services [LINK TO SERVICES] that may be help to your company.