The Best Defense is a Good Offense: Keys to Effective Risk Mitigation,

Contract Management and Dispute Resolution

Dr.Anamaria Popescu,PE,PMP, PSP Denver,Colorado April 14, 2017

Dr. Anamaria Popescu, PE, PMP, PSP

Director, Construction Practice

Denver, COapopescu@thinkbrg.com

2

Education• Ph.D., Civil Engineering,

UT at Austin

• M.S., Civil Engineering, UT at Austin

• B.S., Civil Engineering, UT at

Austin

Certifications• Professional Engineer (PE),

Texas

• Project Scheduling Professional (PSP)

• Project Management

Professional (PMP)• AAA Construction Arbitrator

Services

• Construction Consulting

Services - Proactive-Preconstruction

-Project Implementation

-Project Closeout• Construction Consulting

Services – Dispute

-Pre-Litigation Assistance-Litigation Support

Services

-Expert Witness Testimony

About

• Expertise in Forensic Schedule Analysis-PhD in Delay Analysis Methodologies

• 22 years of experience in project management, construction claims, schedule

delay analysis, project controls, and contract management.

• Projects: power plants, natural gas drilling, pipelines, industrial plants, oil and gas

production platforms, mining, water treatment plants, airports, telecom

• Worked in Australia, North & South America, and China.

• Youngest Project Scheduler…Started with P6 DOS

• Loves to Ski, Hike, Sail and Travel

Representative Projects

• PEMEX-14 Production Platforms Gulf of Campeche, Mexico

• Eastman Chemical-PET Plants,Argentina and The Netherlands

• Maple-Ethanol Plant, Peru

• Shaw-CFB Power Plant, Louisiana

• Desalination Plant, Australia

• Shell-Coal Seam Gas and LNG Upstream Production, Queensland, Australia

• BP- San Juan Coal bed Methane Gas Drilling Program, Durango, CO

• Paper Mill, Brazil

Objectives

• Perspectives from where I sit

• Project Challenges Today

• Contractual Awareness

• Change Order Management

• Records and Documentation

• Issue Database

• Schedule Management & Analysis

• Q&A

3

Perspectives from Project Manager turned

Claims Consultant

4

5

Planning and Procurement

– Inadequate Planning

– Poor Selection of Contractors and

Suppliers

– Aggressive Estimates

– Over-Optimistic Assumptions

Project Execution

– Ineffective Project Management

– Poor Contract Management

– Human Capital Deficit

External Factors

– Regulatory Changes

– Commodity Escalation *Source: 2014 Ernst & Young Report

Mega Project Challenges*

Disputes do not

appear out of

nowhere

Claims Detection: Early Warning Signs

• Onerous contract language

• Poor Scope Definition (e.g. mix

of performance vs. design

specs)

• Owner Proclamations:

– “No CO’s on the job”

– “we’ll take care of this at end”

• Multiple prime contractors on site

• Lack of site access and permits

• No response to notices given

• Requests for recovery schedule

• Late and incomplete delivery of

OFM

• Roles not clearly defined in JV

partnerships

• Multiple “holds” on drawings

• Refusal to negotiate time &

impact costs of CO’s

• Turnover in owner’s PM staff

• Delayed submittal reviews and

late RFI responses

• Correction of design defects by

means of a RFI

• Unreasonable withholding of

certificate of substantial

completion

6

Contractual Awareness

Contractual Awareness

Contract is given little consideration or virtually

ignored until a problem arises

“Suddenly, a heated exchange

broke out between the king and

the moat contractor”

Contractual Awareness

• Notice Provisions

• Recovery for Time and $$$

– Excusable Compensable Delays-Time and Money

– Excusable Delays-Time (or No LD’s)

– Concurrent Delays

– Scope Changes

• Disruption Costs: Recoverable?

• Schedule Analysis Requirements

• Each Contract is Different…Boilerplate Language Can

Change

• A contractual amendment is easier to make early on

9

Understand Your Limitations Under the Contract

Before You Prepare Your Claim/CO

Contractual Awareness: The Contract Matrix

10

• Customize

• Laminate

• No Excuses!!!

Notice, Notice, Notice…and Notice

• Comply with Contract Provisions-take it seriously

• Set Precedence Early

• Create a “Notice Template Form”

• No such thing as “excessive notice”

• Give Notice For:

• Force Majeure Event

• Potential Change

• 3rd Party Interferences

• Differing or Unforeseen Conditions

• Anything that potentially could cause delay or

disruption to the project

11

Change Order Management

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What is a “Change”?

• Any deviation to the

Contract Basis

• Could affect any section of

the Contract:

– Exhibits

– Attachments

• May or May Not Affect CP

• Trends-positive or negative

variances that “signal” a

potential change

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Common Change Categories

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Change Categories

Scope

Specifications

Execution Strategy

Location/Facility

Equipment

Resource Pool

Supplier

Delay

Acceleration

Regulatory

Unforeseen Conditions

Error/Omission

HSSE

Means and Methods

Value Engineering

Root Cause Identification

• Identify the “Birth” of a

Change:

– Meeting Minute

– Response to a RFI

– Site Instruction

– Email, etc..

• Keep asking “Why?” until

root cause reached

Entitlement Lies in Articulating

the Root Cause

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ROOT CAUSE IDENTIFICATION

EXAMPLE

Therefore… Contractor Entitled to Change16

Change Order Request:

“Additional Building Ventilation”

3rd Party Vendor Requirement

Equipment Specifications

Post Contract

Root Cause: Equipment Specified Late

?

?

?

?

EFFECTS OF CHANGES

• Cost Increase: Direct and Indirect Costs

• Cash Flow Limitations

• Schedule Delays

• Productivity Loss

• Constructive Acceleration

• Safety and Quality Compromised

• Cumulative Impacts

17

CHANGE CONTROL: KEY CRITICAL ELEMENTS

• Implement a Change Management Team

– Clearly Define Roles and Responsibilities of Each CM Team Member

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At the end of the day..PM is ultimately

accountable

IMPLEMENT A CHANGE MANAGEMENT

PROCESS

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Start

End

01

02 03 04 06

09

PEP

Originator prepare

"draft" MoCJN and

submit to MoC

Coordinator

05

Notify change

originator of change

rejection

070810

12

12

14

1

Screen

MoCJN

Justifiable?

15

15

Project

Performance

Monitor project

performance

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Identify potential

changes or receive

change requests

Prepare support

documentation (HSSE,

Cost, Schedule,

Engineering etc.)

Attributes

Impacted?

Quantify change impact

on all project attribute

areas and updatePCN

Input change

information into project

reports

Scope Changes

N

Agreed?

13

Y

MoC Coordinator issue

reference ID. Add

MoCJN to Register

Determine if change

decision impacts

multiple project

attributes

Review with Team(s)

Potential

Changes

N

Reject

Approval?MoCJN Review

Committee

N

Y

Revise

N N

Y

11

1

17

Market Factors

Technical/ Site

Queries

Design Growth

Integrity Issues

Construction

Factors

Organization/

Operational

Changes

Y

Make Sure Trend Identification is Included

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▪ Direct labor

▪ Direct materials

▪ Direct plant/equipment

▪ Subcontractors

▪ Indirect Labor: Management,

Supervision

▪ General and Job Site Overhead

▪ Contingencies

▪ Profit

Ascertaining the Cost of Change

Create 2 “all in” rates in

contract to price

change orders :

1)Resource Type/Skill Level

2) Unit Quantities

Reservation of Rights

• Contractors (typically) do not have psychic abilities…

• Ongoing impact events impossible to fully quantify

• Cumulative Impact and Productivity/Disruption Claims will be VOID

without Reservation Language in CO Form

• Example:

– “This change proposal covers only the direct costs associated

with the change order work described above. We reserve the right

to assess the impact of this change order at a later date and to

submit these costs and time impacts as they become known”.-MCAA

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Change Order Management Suggestions

• No more than 30 days between submittal and final

decision

– “Fish or Cut Bait”

• Create separate WBS code, cost code & schedule activity

• Use contract management software to organize & manage

– e.g. Pro-Con, Oracle Contracts Manager

• Audit on a periodic basis to ensure THIS does not happen:

– Incorrect CO linked to CO Name

– Supporting documentation not included

– Excessive, duplicative and irrelevant documentation

– Incorrect Dates and Ball In Court (BIC) Assignment

– Incorrect “Birth” Document Linked

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Change Order Management

Suggestions-Continued

• Do capture both the Cost and Schedule Impact

– or indicate “unknown” at this time and reserve your rights

• Do state clearly the origin (root cause) of the change

• Do attach the Appropriate Supporting Documentation

• Do Not mix pricing structure in the same CO

• Do Not group multiple change order requests into 1 CO:

– COR’s are not related

– Difficult to track issues, approvals, supporting documents

– Duplication of COR’s is highly probable

– Length of time of approval of CO takes longer

– Change Order Value gets diluted and “Bartered Down”

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Records and Documentation

Record Keeping and Documentation

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• Difference between Records and

Documentation

• Records include ALL Contractual

Requirements

• Documentation is a Subset and

Proof of Causation

• Records also include the “Effect”

Portion: e.g. Schedules

Need to Create the “Cause and Effect”

Nexus for a Successful Claim

Documentation: The Cause and Effect Nexus

• The Need for Evidence: “He who Asserts Must Prove”

• 1st: Demonstrate Cause

• 2nd: Demonstrate Entitlement (excusable delay)

• 3rd: Demonstrate Effect (Schedule and/or Cost Analysis)

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July 2006

Rain Days

3 Day Delay

to CP

July 2006

Examples: Typical Project Records

• Schedules

• Change Orders

• Cost Reports

• Daily Reports

• RFI’s, Site Queries,

Site Instructions

• Logs: Procurement,

Drawing, etc.

• Weekly Reports

• Monthly Reports

• Progress Data

• Productivity Data

• Certificates of

Completion

• Inspection Reports

• Meeting Minutes

• Formal Correspondence

• Informal

Correspondence

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Documentation of Causation:

Record Content Is Key

• Instructions given & received

• Conflicts in plans/specifications

• Weather conditions: Not Just Rain!

• Work Stoppage: Time Stopped and Why

• Number of Workers by Trade, Crew and Area

• Subcontractor Activities

• Equipment Type Utilized and Count

• Hours Worked per Day by Worker

• Location (e.g. Station Number, Sub-Area, System, Building)

• Delays Encountered (Correlate to Activity or WBS Element )

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Create a Standardised Daily Report Form

The Issue Database Concept

• Single repository for all issues

• Maintained for life of project

• Record any “hint” of a problem

• Don’t have a crystal ball

• “Death of 1000 cuts” Concept

• Strengthens negotiation position

• Proof for cumulative impact

claims

• Powerful “lessons learned” tool

• Saves $$$ and time if an expert

is needed later on

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Typical Issue Categories

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•Acceleration

•Construction Equipment Problems

•Deficient Drawings

•Errors in Design

•Differing Site Conditions

•Drawing Revisions

•Labor Issues

•Lack of Manpower

•Unskilled labor

•Lack of Material

•Lack of Notice

•Late Client Responses

•Late Delivery of Equipment

•Late issuance of Engineering

•Late Mobilization

•Material Substitution

•Mis-Management

•Out of Scope Work

•Out of Sequence Work

•Trade Stacking

•Productivity Issues

•Quality Problems

•Regulatory Non-Compliance

•Rework

•Site Maintenance/Safety Issues

•Standby Time

•Strikes

•Subcontractor Issues

•Weather

•Zoning Changes

Example of Issue Database Output

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Count of Issues

Issue Category Apr. - 15 Aug. - 14 Sep. - 14 Oct. - 14 Nov. - 14 Dec. - 14 Jan. - 15 Feb. - 15 Mar. - 15 Grand Total

Acceleration 1 1 2

Deficient Drawings/Design/Plans/Errors 1 2 2 3 1 9

Drawing or Layout Revisions/Changes 2 8 4 3 17

Labor Issues 1 1

Lack of Manpower/Skilled labor 1 1

Lack of Material 3 1 3 3 4 3 17

Late Client Responses/Approvals/Info 6 3 1 2 12

Late issuance of Engineering 1 2 4 10 4 1 8 4 1 35

Management 2 1 4 2 9

Productivity Issues 1 1

Regulatory Non-Compliance 4 4

Site Maintenance/Safety Issues 1 1 2

Strikes 2 2 4

Subcontractor Issues 1 1

Weather 1 1 2

Grand Total 7 14 9 22 12 9 18 17 9 117

Owner IssueContractor Issue

“Si vis pacem, para bellum”

Bottom Line…

Schedule Management & Analysis

Schedule Integrity

• Schedule Characteristics for Credible Analysis:– No Open Ends– Limited Constraints (FNLT on Contractual Dates Only)

– Majority of Tie Types: FS

– No Large Lags: “Float Hoarding” or “Missing Activity”– No Negative Lags: Muddies the Water

– Critical Path Continuous and Makes Sense

– “Longest Path” Filter Confirmation

• Diligence Must not Stop after Baseline is Accepted

• Schedule Updates Are Contractual Too!

• Obligation of BOTH the Owner and Contractor

Schedule is the Key Mechanism in Time Recovery

Claims: Don’t Ignore It!!!

Schedule Management:Variance Analysis

• A Schedule update by itself is only half of the picture….

• Need to Perform on a Monthly Basis

• Identifies Changes to the CP and the NCP

• Trends in “float erosion” identified

• Mitigate before everything becomes critical

• Manage by Exception: The Pareto Principle

35

Variance Analysis: Steps

36

Layout in P6Assign a Baseline

to the UpdateGroup by CP &

NCP

Filter

Pre-Determined Variance Threshold

on All Activities

Export to Excel CP and NCP Activities

with VariancesIssue Database

Causation Correlation

Develop CO

Schedule Management:Variance Analysis

37

Causation Log Example

38

Time Impact Analysis

• First…what is a “TIA”?

• How do you perform a TIA?

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Time Impact Analysis (TIA) Definition:

AACEI RP’s 52R-06 & 29R-03

• Insertion of impact activities into a

baseline or update schedule

• Integrated into the network logic before,

in-between, or after the activity it

affected

• Creates the IAP schedule

• Additive model that simulates the

possible effect of delay events to the

schedule completion date

• Comparison of IAP schedule and

succeeding update to determine

possible acceleration or non-excusable

delays

• Comparison of IAP schedule and

planned schedule to determine time

extension request40

TIA: Graphical Depiction

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Planned 1/3/07 Schedule

Milestone #2 Planned Completion: 3/31/08

Baseline Data Date: 1/3/07

53 Day

EOT

Legend

Original Activity.

Excusable Impact

Milestone

Impacted 1/3/07 Schedule

Milestone #2 Impacted Completion (IC) : 5/23/08

Impact #1:lack of power and permit (30 cds)

Impact #2 :Qty overrun on Monolith 1 (12 cds)

Impact #3:Quantity overrun in RCC Monolith 4 (11cds)

TIA Graphics (Pre-Impact)

42

Contractual Date to Determine Delay on CP

TIA Graphics (Post-Impact)

43

Delay Inserted Before

Successor Affected

PC Impact:

39 Calendar Days

What if You Don’t Have A Variance…Yet?

• Do a Time Impact Analysis

• But Why?

• Example:

– Change Order Request by Client

– Need to demonstrate potential impact in implementing

– Submit with Change Order Package

– But its “hypothetical” you say…

– Revise EOT Claim amount after implementation

– How? Leave language in CO for time impact revisions

– But…How do you know what the actual impact is?

Perform a Variance Analysis….

Its a Constant Cycle!

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Update

TIAVariance Analysis

Concluding Remarks

• Read the Contract..All of It!

• Don’t be afraid to give notice…it is your contractual obligation

• Changes can be any deviation from the contract basis

• No Project was harmed by “too many” or “too detailed” records

• Red flag if team does “not have time” to document

• Control Trends & Changes: Need a Team and a Process

• Critical Path must be viable and understood by all parties

• Variance Analysis to determine delays and proactively manage

Remember…at the end of the day, if the project is not

profitable you may not have another one to manage

tomorrow

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Open the Floor

• Questions?

• Comments?

• Concerns?

• Irrational Rants?

Thank You