1. Managing Construction Risks
Presented by:
Robert C. Epstein  Greenberg Traurig, LLP
Co-Chair, National Construction Group 

2. Successful Construction Projects
On time
On budget
Without defects in design or construction
With minimum conflict among the project parties

3. Construction Project Relationships
Owner
• Government Entity
• Developer
• Public/Private Company
Investor
Govt Agencies
Fed/State/Local
Lender
E.&O. Insurance Co.
1st Party Insurance Co.
• Architect
• Engineer
• Consultants
General
Contractor
(Or Multiple Primes)
E.&O. Insurance Co.
Surety
Subconsultants
CGL Insurance Co.
Construction Manager
• At Risk
• Not At Risk
CGL Insurance Co.
Subcontractors
Suppliers
E.&O. Ins Co.
CGL Ins Co.

4. Principal Construction Risks
Risk No. 1: The project as designed costs too much

6. Risk No. 1: The project as designed costs too much
[N]either the Architect nor the Owner has control over the cost of labor, materials, or equipment, over the Contractor’s methods of determining bid prices, or over competitive bidding market or negotiation conditions. Accordingly, the Architect cannot and does not warrant or represent that bids or negotiated prices will not vary from the Owner’s Project budget or from any estimate of Construction Cost or evaluation prepared or agreed to by the Architect.
AIA Form B141 (1987) Standard Form Agreement Between Owner and Architect

7. Risk No. 1: The project as designed costs too much
Addressing the Risk
Owner involved in design process
Establish a budget
Define the project
Independent cost estimates as design progresses
Add and delete alternatives
Redesign at no cost
Peer review of design
Preconstruction services
BIM

8. Principal Construction Risks
Risk No.2: Defects, Failures And Non- Conformities

9. What Are Construction Defects?
Deviations from plans and specifications
Functional defects
Failure to meet performance criteria
Any element of project does not work properly, or at all
Sudden failures
Code violations
Diminished useful life
Unreasonably high risk of failure
Unreasonably high expense to operate
Aesthetics

10. Typical Causes Of Construction Defects
Design does not work
Poor detailing and drafting
Defective materials
Substitution of inferior materials
Poor workmanship
Deficient inspections

11. Owner Recourse Against Designer for Construction Defects
Professional negligence or breach of contract
Liability limitations in professional services contract
Sufficient funds or insurance

12. Professional Liability Insurance
Claims made policies
Defense costs reduce coverage

13. Owner Recourse Against Contractor For Construction Defects
Commercial General Liability Insurance
Covers claims arising from “bodily injury” or “property damage” caused by an “occurrence” during the policy period, if not excluded from coverage
Business risk exclusion
CGL Insurance “…does not cover an accident of faulty workmanship but rather faulty workmanship which causes an accident”

14. Builders Risk Insurance
Covers risk of loss/damage to construction work during the construction process

15. Principal Construction Risks
Risk No. 3: The Project Site Makes The Project More Difficult
Conditions of site, soils or subsurface that the Owner did not disclose and which the contractor could not reasonably have discovered or anticipated itself
Addressing the Risk
Specific disclaimer
Risk sharing
No damages for delay clause

16. Principal Construction Risks
Risk No. 4: Project Completion Is Delayed
Causes of project delay
Incomplete, inaccurate or poorly coordinated designs
Unforeseen site conditions
Design revisions
Force majeur
Other causes

17. Injury To Owner From Delay
Lost product revenues
Lost rentals
Lost use of facility
Liability to contractor for delay damages

18. Contractor Delay Damages
Extended equipment rental
Standing by with idle employees
Labor rate escalation
Materials cost escalation
Forced work in winter
Acceleration costs
Inefficiency costs
Additional overhead

19. Project Completion is Delayed
Addressing the Risk
Owner’s pre-construction planning
Assure permits are in place
Review design for errors/constructability
Geotechnical studies
No damages for delay clause
Close project supervision
BIM

20. Primary Considerations for all Construction Projects:
Project delivery format
Project management/oversight
Pricing/cost methodology
Programming and design
Development of a project budget and cost estimation
Scheduling
Trade procurement
Payment disputes and liens
Project team coordination
Insurance and bonding
Completion assurances and remedies
Project close-out

21. Typical Construction Contract Provisions Allocating Risks
Indemnity
Insurance and bonding
Waiver of Consequential Damages
Scheduling commitments
Liquidated Damages
Pricing Commitments
Design standards
Hazardous conditions
Unforeseen conditions
Defects
Changes
Constructability
Project team coordination and cooperation
Warranty provisions
Performance defaults
Budget contingencies
Intellectual Property Rights