Building a Favorable Project Record During Construction Disputes

Ben Pollock and Craig Ledet | King & Spalding | February 2017

The value and importance of the written record in a dispute arising from a major construction project cannot be overstated. Even when project personnel are available to provide first-hand accounts—which often is challenging after construction is complete—the contemporaneous evidence concerning the information available to the parties while the work was ongoing is always powerful. Accordingly, owners and contractors alike should take care to ensure the project record chronicles the facts, preserves rights, and lays the foundation in real time for their position regarding how unforeseen costs and delays should be borne. Moreover, parties should not shy away from important dialogue in the fear that they will be seen as making excuses or threatening litigation. Recording key project facts and presenting reasonable interpretations of entitlement are steps beneficial to problem-solving, good contract management, and risk evaluation … as well as litigation should a dispute become intractable. This article discusses the value of ensuring your ongoing project generates a robust and accurate written record.

The Project Record Should Record the Project

A major construction project should create a voluminous amount of material of its own account. Diligent contractors will generate a number of reports and analyses as a matter of course, and prudent owners will require certain deliverables as well as place a representative at the site to observe and report. While lawyers usually are not significantly involved in the drafting of such records, legal teams and contract administrators may play a role in ensuring that standardized documents are generated and circulated in a timely and accurate manner. To that end, an important service can be rendered to the project by requesting to review such documents, asking about their status, or otherwise emphasizing the importance of such contemporaneous evidence to the project team.

Once a potential change or claim arises, the legal team can help ensure arguments are based in the contract and facilitate consistency among the various types of documents.  Involving the legal team in the review and editing of formal letters and reports can create a uniform message that pervades all types of project records. It is not helpful if a claims manager drafts letters alleging entitlement to additional time and money because of an impact event, but the management team fails to mention the event in the monthly deliverables. Creating “parallel” tracks of documents—one set prepared to advance the project and another seemingly for potential litigation—negatively impacts credibility and can be avoided with oversight.

The record itself may have a role to play in litigation, sometimes becoming a proxy for how and why a project suffered an impact. A contractor might tout well-organized and crisply-executed procedures to show its control over the project, thereby demonstrating the impact of an event could not have been avoided or mitigated. Yet in another case, an owner may point to poor contractor processes, seeking to establish that delays and increased costs are attributable not to excusable events but to ineffective project management. While also serving as a fundamental part of the strategic and planning process, a stout project record—or lack thereof—can prove to be important should a dispute escalate.

He Said What?

The legal team can also add value to the project team by ensuring that important meetings, conversations, and first-hand perceptions are recorded in written format. Drafting and publishing meeting minutes is not often pursued with urgency, but maintaining a record of the issues discussed is important. Ideal practice is to get the minutes agreed and signed:  while the parties may disagree on the impact of the meeting, there should be no dispute about what was actually discussed.

Internal note-taking and record-keeping also is important. Project personnel who use diaries or scribble observations in notebooks should be reminded to preserve these materials. The project team should be encouraged to take notes following informal meetings or phone calls with your contract partner in which something important is discussed or disclosed. Whether such notes become part of the project record or are employed merely to refresh recollection, contemporaneous evidence generally is more accurate and compelling than a witness’ attempt to recall a conversation from months or years before. And an attorney or paralegal should take good (and privileged) notes when project personnel are interviewed. The usual concerns about a witness’ memory and availability are often exacerbated in disputes arising in major construction projects, as personnel may work at another company and/or sit halfway around the world shortly after the project ends.

Build Your Case Through the Project Record

Owners and contractors alike should be diligent in creating documents that chronicle important facts and assert positions regarding their impact, generally in formal correspondence and change management documents. As an initial point, all parties should be mindful of notice requirements in the contract and ensure that all obligations are met.

Contractors should send to the owner prompt notification of any event that threatens to impact time or costs, even if the extent of the impact is not yet known. While it may be tempting to wait until an analysis can be completed, delays should be avoided. Even a brief correspondence that provides a preliminary account is far better than no communication at all, and certainly is preferable to arguing whether a delay created prejudice or waived rights. Indeed, a letter promising to investigate can bolster a later correspondence disclosing the results of such a study. Yet it cannot be forgotten that the real purpose of notice requirements is to ensure owners are informed of a potential problem and have the opportunity to participate in the solution. Prompt notice is therefore beneficial on many fronts: the project team can fully engage; the parties jointly may attempt to mitigate the impact; and the litigator later can demonstrate either that the parties were or were not timely aware of the pertinent facts.

Owners should take an active and diligent approach to project oversight as well, and it would be a mistake for an owner to allow the contractor to solely control the written record. Notice letters should be sent to contractors promptly when milestones are missed or achieved. Recovery schedules and mitigation efforts should be formally demanded whenever necessary, along with appropriate support including resource allocation and work plans. And a contractor’s attempt to create a record concerning the causes and effects of an impact event should not be met with silence. While a prompt analysis and determination concerning a contractor’s alleged entitlement is ideal, prudent owners will draft and send letters at least recording key facts (especially those not cited by the contractor’s documents), acknowledging the claim and promising to investigate … as well as setting clear expectations that work will continue and impacts will be mitigated as practicable.

Regarding format: formal letters should be used for all important communications. Emails are wonderful vehicles for person-to-person interactions and information gathering, but they carry an informal air and do not bear the same weight as official project correspondence. Additionally, emails can be more difficult to track down than formal letters which are numbered, catalogued, and signed. When appropriate, use the formalities of the project to your advantage and document what is important.

A Potential Claim Is a Long Way From Litigation

Not infrequently, an owner or contractor will be reluctant to send a formal letter, concerned it will make them look litigious or difficult, and will decide to remain silent or try to “make it work” for the good of the project. The myth that this is helping the project should be exposed for what it is!  The truth is that changes and claims should be expected on major projects, and there is a big difference between being litigious and enforcing the contract. Building a fair and accurate project record ensures timely communication between the parties and chronicles facts while they are fresh.  Engaging with one’s contract partner and offering interpretations allows all sides to evaluate their positions and make informed and timely decisions. In these ways, active project management actually helps mitigate the impact of an event, allows the parties to evaluate risks in near-real time, and facilitates early resolution of many potential disputes. Perish the thought that a party should act one way if it desires to be a good contract partner and another way if it wants to preserve rights with an eye toward litigation. Prudent owners and contractors will investigate, take positions, and enforce or preserve their rights through project documents.

To combat any perceived negative repercussion, consider how the message is delivered and remember that tone and style matter. Take reasonable, supportable positions that bolster your credibility and implicitly appeal to fairness. In other words, don’t create bad documents by making unreasonable arguments. Notice letters are productive when they focus on communicating the objective facts, and can be especially effective when they include action plans, promises to problem-solve, or requests for assistance. At minimum, ensure the key issues and evidence are flagged promptly and all contractual requirements are met. Sophisticated parties should understand both the need to preserve rights and the value of contract compliance. By documenting a consistent and reasonable position, you can better facilitate a solution but also begin to persuade the fact-finder should litigation indeed result.

Let It Go

In the process of establishing your company’s position and building the record, an important consideration is when to stop. Once you have cited the important facts and reserved your rights, consider whether you really need to draft another letter. At some point, an exchange of writings may do little more than entrench each side in its position and escalate the situation—ill will and a careful review of the dispute resolution provisions may follow. Accordingly, once you have committed in writing what you need to preserve your rights and position, consider the best way to move forward, resolve (or work around) the potential dispute, and get on with the business of advancing the project. Meetings and personal conversations may be better suited to move the ball forward:  strive to recognize when the written record has done its job.

Conclusion

It is easy to perceive a tension between getting the project built, preserving the relationship between the parties, and preparing the record for potential litigation, but this is really a fallacy. Owners and contractors alike are best served by ensuring there is a robust and well-organized project record. Having accurate information readily available provides the ability to promptly investigate and evaluate impact events, which not only reduces the likelihood of a dispute but will better position your company should resolution prove impossible. Moreover, quick engagement may mitigate the impact itself, thereby allowing work to progress and the consequences to be reduced. In these ways, maintaining a detailed and thorough record serves both project progress and business interests for all.

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