John J. Sylvanus | Barley Snyder | August 14, 2017
Major construction is full of risk and reward. Owners, architects, engineers, contractors and subcontractors – all are bound to each other by a web of agreements, common schedules and desired outcomes. Everyone on a project is dependent on everyone else and subject to events beyond their control. Your ability to complete work timely and on budget depends on others.
Controlling risk requires recognition of events with risk potential and taking appropriate steps to limit its potential impact. Risk events will occur, and when they do, you need to be prepared to act promptly and appropriately. It is critical to remember that the process of determining the appropriate response to such an event requires looking at it not only from your viewpoint and determining how best to respond based on your potential costs and losses, but also considering how others may react and the risk of that reaction to you. When foreseeable but unanticipated problems occur, you can incur losses by having your schedule disrupted or pushed back, your work interfered with or problems caused for others. Although delays and additional costs you may incur are easy to determine, the biggest risks might be those that don’t affect you directly. Follow these rules to minimize risk factors:
Rule 1: Know your Contract
Most owner/contractor agreements limit the owner’s liability for delays caused by others that lead to a time extension. Additional cost-change orders will be denied leaving you with the choice of accepting the additional costs or going through time-consuming and expensive litigation. Your agreement may also require you to warrant equipment you supply. Take seriously your responsibility to review submittals to make certain they are correct and don’t rely on the owner’s architect or engineer to do it. Make sure your purchase orders require suppliers to indemnify you in the event a claim is made against you.
Rule 2: Aggressively deal with potential risks
Don’t ignore potential risks under the assumption owners and design professionals know what has occurred, who is responsible and what you are doing to deal with the risk. Never assume a problem will be resolved without you handling it yourself.
Rule 3: Prepare for litigation
Avoid litigation at all costs — it seldom benefits anyone involved. Just as military preparedness is the best way to avoid war, handling every risk situation as if it were going to a lawsuit is the best way to avoid one. Be sure you have documented every step in the process of dealing with a risk event and be sure everyone knows what you have done to respond to it. The greater awareness everyone has of your preparedness and your ability to defend any claim against you, the less likelihood there is of your being dragged into litigation.
Rule 4: Consult experienced and knowledgeable counsel
Keep your attorney in the loop on problems arising during construction. Responding to them is far cheaper than having to defend or prosecute a lawsuit if that problem goes unresolved.