the best defense is a good offense: keys to effective risk...
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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, [email protected]
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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
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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
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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
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Understand Your Limitations Under the Contract
Before You Prepare Your Claim/CO
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
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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
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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
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Notify change
originator of change
rejection
070810
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12
14
1
Screen
MoCJN
Justifiable?
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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?
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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
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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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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
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
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Variance Analysis: Steps
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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
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)
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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