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Risk Mitigation in the AEC Industry – Project Risk

April 09, 2021

By Kyla Natali

Excerpts from the first of two webinars featuring Kate Strauss, Founder, and Partner of Galvanize Law

In a recent webinar, Attorney Kate Strauss and Newforma Solutions Engineer, Brian Guidotti, discuss risk management and areas where project risk exposure often occurs.

Projects are becoming more complex in nature. And as the staggering amount of data aggregated over a project’s lifecycle increases, the likelihood of errors occurring increases project risk. Unfortunately, claims and disputes related to project information in the AEC industry are common.

According to the Navigant Construction Forum, the value of construction disputes can range from $112M in the Middle East, to $10M in Great Britain and the United States. Regardless of its size or resources, no firm wants to be involved in an expensive, lengthy dispute.

Attorney Kate Strauss provides her expertise in construction litigation and insight into the risk mitigation steps firms can take...

What is risk management?

Most people equate construction project risk with job site safety, code compliance, and schedule compliance. But that’s only one piece of the broader risk umbrella.

Risk management is a consideration of all existing factors on a project including risk within your company.

Specifically:

  • What are the financial and strategic risks of these projects?
  • What is your exposure should contractual obligations fall through?
  • Are you addressing the risks? (i.e., OSHA training, QA/QC, and ongoing personnel training)
  • Does your company have the appropriate insurance?
  • Should a claim arise, is there a document management system in place to be able to handle that claim?

Unfortunately, many companies fail to identify areas of exposure and address them proactively, or do not consistently review when audit claims arise.

Here are a few common risk management themes:

Project correspondence is not readily available to all project team members.

Project correspondence can mean many different things -- a chat with an external team member, a text message, an email, or collaboration through Microsoft Teams. These exchanges often contain critical information. Many firms do not have an established system for logging or maintaining records or audit trails on these types of informal communication.

Case Study: How lack of documenting correspondence increased risk for an architect working on a ski resort project.

In a design defect case against a project architect, a multi-family ski property project in a Colorado mountain community experienced ice damming, water infiltration, and vapor problems due to insufficient ventilation. The contract between the owner and the architect required the architect to perform contract administration during construction, on a cost-per-visit basis, at the request of owner.

The architect was required to visit the site and use reasonable efforts to determine if the project was completed per the plans and specifications. However, the owner wanted to save costs and never called the architect to complete any contract administration. Consequently the soffit vents depicted in the design were omitted from construction. There was an allegation that even if the soffit vents were installed, they would have been insufficient. And another allegation was made that the as-designed vents were omitted because they violated building code due to the location near party walls.

Although the architect knew that the location of the vents was discussed with the building department and was approved under a certain interpretation of the building code, there was no documentation of that conversation. The building owner claimed that the architect was responsible for the as-constructed condition due to the contract administration requirement. However, the architect was never on site and did not know why the vents were omitted during construction.

Information falling through the cracks.

Information falling through the cracks in another major risk management theme. This can occur when an employee leaves the project and construction administration documentation is not logged or communicated properly.

Case Study: Litigation is filed after Project Manager leaves custom home project.

In a construction defect action case, homeowners of $5M custom home alleged defective construction including deficient in-floor heating systems and components. Different trades contributed to the existing configuration including the floor, heating system, and slab.

The project manager for the general contractor was no longer with the company when the suit was filed. Therefore, the general contractor did not have access to the email exchanges with the homeowners confirming changes in the configuration.

As a result, the general contractor had to hire the project manager on an hourly basis to organize the existing physical materials and recreate the electronic record by looking for emails that others would have been copied on.

The lack of documentation and audit trails of requested changes and approvals left the general contractor in a vulnerable position.

What Can You Do to Prevent Post-Project Litigation?

There are some critical things firms can do:

Create a document management protocol that includes:

  • Where to store your project information.
  • Who is responsible for maintaining and managing project information.
  • How it will be tracked.

Also establish a protocol for how long documentation will be maintained, based on the statutes of limitation or statute of repose for your state.

Memorialize and archive the conversations.

Communication that is happening in the field is important to the overall project. Teams need to find ways to memorialize these conversations. Consider having a process in your document management protocol that is dedicated to memorializing project communication.

Review and understand your contractual obligations from the beginning stage of the project.

Identify any contract requirements that specify the need to fulfill something with a certain time period. For example, If you are required to respond to submittals or RFIs within a specified time period, consider how scheduling and task management may help meet these obligations.

If you’re obligated to provide or receive written notice or authorization for any actions, such as design revisions, costs, overhead, etc., create a way to track and identify those requirements. And finally, ensure that all team members have this information as well.

Stay tuned for Part 2 of our Risk Management Blog "Risk Management in the Covid-19 Era".

To view the original webinar from this post please visit: Ask the Experts - Strategies to Avoid Post-Project Litigation.

For more information on Galvanize Law please visit: www.galvanize.law.

For more information on Newforma's Document Management solutions please visit: Newforma Document Management.