How to Avoid Project Claims

Proper expertise and a solid contingency plan can thwart legal battles.

By Joseph Seibold

Complex design and construction projects too often result in equally complex disputes over responsibilities and liabilities. Perspectives get distorted, relations crumble and the only winners are the attorneys who sort it all out.

While it is difficult to plan for every situation that might lead to a dispute, legal claims can be minimized with thorough planning and sound leadership. The more time spent up front ensuring that everything is in proper order, the less likely it is that claims will result.

Stay out of the fight The first question of a project owner in the claims phase is: How can I win?

My response is always the same: You win by not being in the fight. That's the key, because litigation doesn't result in any winners.

The next question is usually whether it would have been possible to avoid claims through contract provisions that shift risk from owner to contractor.

That solution simply isn't viable. If a provision is patently unfair, the courts won't uphold it anyway, and it creates the appearance of an unbalanced arrangement. It also communicates a message that an owner is not going to be fair. Therefore, you want a claims management strategy that avoids claims altogether.

Claims avoidance Some basic questions must be addressed to begin a strategy of claims avoidance in a project's planning and design phase: Do the plans and designs address the owner's needs? Are those needs accurately conveyed and covered in the contract documents?

Proper planning also includes making certain there are enough funds to support the project. While an owner and contractor are often on the same page, the scope and budget are not. That often triggers unpopular scoping adjustments.

Another planning element is the development of a realistic program schedule. If a project must be brought in sooner than the budget or schedule allows, creative solutions and/or more funds are needed.

Failing to acknowledge that and believing that time can be saved simply by using an eraser and changing tape is not realistic.

Claims mitigation Mitigating claims is all about properly managing work and keeping small problems small.

If ignored, the most minor issue can mushroom. Claims mitigation ensures that problems are properly addressed and promptly resolved.

Contractors need to know that as the owner, you deal with problems responsibly. When you properly manage a project, you resolve problems as you go. Even if you can't make them all go away, you better prepare yourself for future disputes by creating a detailed record of what transpires.

Claims reduction Successful post-construction dispute resolution adheres to a basic premise: the sooner a dispute is resolved, the lower the cost of the resolution.

Alternative dispute resolution has become extremely popular primarily because it helps avoid costly litigation. Avoiding litigation saves not only money but also time and professional relationships. Through ADR the owner can avoid adversarial relationships with contractors, which is important to long-term success.

Victory in disputes should never be a win-lose situation. It should always be win-win. Owners who develop a reputation for hammering their contractors pay in the long run. Once you get that reputation, it's hard to shed.

Still not the trend As logical as a strong claims management program may seem, the process still is not common within some client sectors.

Many owners don't see the value — they don't like to spend money up front. But it's proven to be very cost effective. Anything that keeps lawyers' fees to a minimum is money well spent.

The effective execution of a comprehensive, proactive claims management plan can produce a claims-free project and a project record that will effectively serve in the defense of future unjustified claims.

Seibold is vice president and national claims manager in the Los Angeles office of Carter & Burgess, a consulting firm specializing in engineering, architecture, construction management and related services.