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Managing Construction Risks

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Presentation on theme: "Managing Construction Risks"— Presentation transcript:

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

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