The Legal File

Managing Contract Risk

BY VANESSA WERDEN

Whether a small residential development or a complex infrastructure upgrade, many factors contribute to the overall success of a construction project: relationships, weather, site conditions, labour productivity, availability of materials, and cost escalation — to name a few. One of the most challenging factors can be communicating and managing contractual risk allocation. Consider the following strategies to put your project teams in the best position possible to anticipate and manage challenges as they arise.

PROACTIVELY NEGOTIATE THE CONTRACT Generally speaking, design documents such as architectural drawings and specifications form part of a construction contract, whether by implied terms or specific inclusion in a defined group of contract documents. Some of the most common disputes, regardless of whether the project is a multi-residential housing development or a complex infrastructure project, are disputes arising from interpretation of the drawings and specifications: inconsistent terms, incorrect or inconsistent notations, poor coordination between the parties’ obligations, the scopes of work and the drawings. These types of issues often given rise to disputes over field instructions, change orders and delays.

Disputes are often protracted as a result of inconsistencies and gaps between the intentions of one or more project participants. A project team can be well positioned for the successful management and execution of a project when the contract documents have been carefully reviewed and thoughtfully negotiated prior to entering into the contract. While it may be tempting to accept a contract as presented, contract documents should be reviewed for clear and consistent language, as well as completeness. A well-drafted contract can go a long way to early resolution of disputes, or prevent disputes altogether.

TRAINING AND LEGAL EDUCATION Many industry associations offer courses, and conferences often have a legal education component. Take advantage of these continuing education opportunities. Having an understanding of fundamentals such as key terms of a contract, how to read supplementary conditions, and the nuances of how change order processes and dispute resolution procedures can make your team more confident, prepared, and effective when issues inevitably arise.

READ THE CONTRACT — AND KEEP IT HANDY Do not let the contract collect dust. On projects of lengthy duration, the project management team should review the contract at regular intervals. The contract should serve as the primary resource to determine rights, obligations, and process concerning payment, changes, extras, schedule, and disputes.

While the contract often holds the answers in terms of legal liability and primary obligations, consider internal policies or protocols for specific situations so that the project team understands the precise steps to follow to preserve contractual entitlements and comply with obligations.

IMPLEMENT DOCUMENT MANAGEMENT POLICIES AND FOLLOW THEM Construction disputes are inherently documentintensive. Project records are necessary to establish time and cost-related claims. Baseline and updated schedules, weekly look-ahead and other planning documents are critical to delay claims. Timesheets, labour and equipment invoices, and other cost records are critical to cost overruns, extras and change order disputes. Project management documents may include meeting minutes, daily reports, emails, and diaries. At the outset of each project — and as the project evolves — ask the following questions: • What documents do we need to generate on this project? • Who is responsible for generating, tracking, organizing, and preserving the documents? • What systems or software will the responsible personnel use for document management?

Comprehensive and consistent document management practices can sometimes expedite dispute resolution processes, and most importantly, place a party in the best position possible to advance or defend a claim. If it becomes necessary to engage a lawyer, these practices will also help limit legal fees to locate and reorganize tens of thousands to millions of project records. It is far more cost effective to create and maintain contemporaneous documentation.

Develop policies and protocols for individuals to manage and retain the documents they create. Do not be the client who tells its lawyer that the project manager’s site diary is in his grandmother’s basement in Tucson.

Finally, be ready to adapt as the project and disputes evolve. Do you need to establish a different coding system to track an ongoing impact? Do you need daily photographs to document a geotechnical site condition? Do the superintendents need to create a separate daily report specific to a disputed change? Should you update a particular item at weekly site meetings?

BE MINDFUL OF THE DISPUTE RESOLUTION PROVISIONS IN THE CONTRACT Construction contracts often require strict compliance with dispute resolution steps in accordance with short timelines, including notice in writing within a fixed period of time. While some dispute resolution steps may be permissive based on the parties’ agreement to proceed with the process, construction contracts often contain mandatory steps — in other words, non-compliance may be a bar to recovery.

Read notice provisions carefully to determine if the contract contains specific requirements to the timing, contents and delivery requirements of a notice of a claim or dispute, including mandated ongoing notice requirements where a claim has not crystalized or continues to evolve. Strict adherence to contractual notice provisions means you can avoid adding the unnecessary layer of compliance to a dispute. Consider diarizing deadlines and creating checklists to make the procedures more intuitive for the project team.

WHEN IN DOUBT, SEND A LETTER Regardless of the project records generated and the relationship between the parties, never assume that the parties have agreed to waive a contractual requirement for formal notice. Protect your interest and preserve claims by committing the details to contemporaneous correspondence that complies with the contractual requirements.

Vanessa Werden is a partner at Jenkins Marzban Logan LLP. With almost a decade of experience serving the industry, she advises various sectors during all phases of construction. She is past president of Canadian Construction Women, the current chair of the Canadian Bar Association BC branch Construction Law Section, and a director of the BC Roadbuilders & Heavy Construction Association.