Risk Allocation in Today’s Construction Industry

1. Risk Allocation in Today’s Construction Industry CSCE Dinner Meeting Blackfoot Inn January 17th, 2008 George F. Jergeas, PEng, PhD Department of Civil Engineering University of Calgary

2. Agenda • Introduction • Engineer’s responsibility • Disclaimer Clauses • Project Partnering • Conclusions

3. Introduction • Characteristics of the construction industry • Adversarial • Win-lose approach • Risk allocation • Fixed price and fast-tracking

4. Engineer’s Roles • Owner’s agent • Limited by the Contract • Engineers actions bind the Owner • Four roles • Drawings and specifications • Contract administration • Inspection and monitoring • Interpretation of the Contract

5. Engineer’s Performance • Not specified • The law sets the standard

6. Standard of Care • Apply reasonable degree of care and skills • Perform to the level of an average engineer • A reasonable engineer should have foreseen the harm and prevented it • Failure can be negligence

7. Caution • Standard of Care can be modified by contract • Impose a higher standard of care • Read your contract!!

8. Example • “The consultant acknowledges and represents that it and all employees it assigns to perform the consulting services hereunder possess the necessary qualifications, knowledge, skills, expertise and experience and the consultant agree to perform the consulting services to the standard of aspecialist in the area of the consulting services being provided under this agreement” Robert Simpson

9. Risk Allocation: Disclaimer Clauses • No damage for delay • Examination of the work

10. No Damage for Delay “.....,the contractor shall not have any claim for compensation for damages against the owner for any stoppage or delay from any cause whatsoever.”

11. Examination of Work “The bidder is required to investigate and satisfy himself of every thing and every condition affecting the work to be performed and the labour and material to be provided, and it is mutually agreed that submission of tender shall be conclusive evidence that the bidder has made such an investigation.”

12. Quality of Design • Edgeworth Construction v. N.D. Lea (1993) • Significant case • Resolved the confusion • Engineer is liable to contractor

13. Examination of Engineering Work “Any representations in the tender documents were furnished merely for the general information of bidders and were not in any way warranted or guaranteed by or on behalf of the Owner or the Owner’s consultants’ and its sub-consultants’ employees, and neither the Owner nor its consultants or its employees shall be liable for any representations, negligent or otherwise contained in the documents” The PEGG, 1993

14. Next Steps • Owners can help: • Cover Engineer in their Exclusion Clause or • Limit or eliminate liability, and • Partnering

15. Limitation of Liability • To the maximum extent permitted by law, the Client agrees to limit the Engineer’s liability for the Client’s damages to the sum of $. This limitation shall apply regardless of the cause of action or legal theory pled or asserted. DPIC

16. Project Partnering Partnering • Tries to instil co-operation amongst project participants • Focuses on teamwork, communication and alignment of goals • A partnering workshop is usually conducted at start of project with follow-ups • Partnering does work

17. Partnering A structured management approach for transforming contractual relationships into a cohesive, co-operative project team with common goals and established procedures for resolving issues or disputes in a timely manner.

18. Partnering Process Problem Resolution Teambuilding Workshop for Team players Completion Monitoring Success On going Support

19. The following goals and objectives were agreed and recorded as the Partnering Team Charter for the project. Produce a project that is safe in its design, construction, maintenance and use. Create a safe-working environment resulting in zero lost-time incidents. Minimize the inconvenience to the patients, visitors, care providers and protect the facility, community and the environment. Design and construct a project of optimum quality, which is functional, flexible, maintainable, sustainable and of which we are proud. Goal of project is to have zero claims. Provide a non-confrontational forum for the resolution of any disputes that arise. Encourage innovation and creativity. Understand each party's role within the project team and develop good relationships based upon trust, respect and honesty. Manage the project effectively, efficiently and manage stakeholder change requests. Incorporate and share lessons learned from other projects and gained from outside sources/experience. Maintain positive, cooperative relationships through; clear and open communication, no surprises, no hidden agendas, minimum delays of paperwork, and resolution of problems quickly at the lowest level. Prepare, update, and share common project schedule. Deliver project on schedule and within budget. Co-ordinate efficiently with other hospital projects as much as possible. Empowerment of all team members to allow decision making at all levels. Improve budget management by regular review and tracking of cost accounts and early communication of cost overruns and changes. Manage scope changes in a fair and timely manner. Acknowledge the requirements connected with infection, prevention and control. 19. Have fun and create an enjoyable work environment. Rockyview General Hospital We, the team of the Redevelopment Project, recognizing the unique nature of this project, commit to creating an environment of trust and open communication to deliver a quality project, which meets or exceeds each stakeholder group’s requirements. We commit to maintaining a seamless, positive, and optimistic work environment in which all partners' goals can be achieved. Capital Project - 2004

21. 1 5.0 12 2 4.0 3.0 11 3 2.0 1.0 10 0.0 4 5 9 8 6 7 Team Alignment Overall Team Self-Evaluation Results (Combined)04-Dec-09 • Communications • The flow of information • The timeliness of information • Cooperation • Problems, issues or concerns • Responses to problems • Disputes/problems • Problems are resolved • Construction safety performance • Design and construction quality • Value for money • Public Complaints

22. 1 5.0 12 2 4.0 3.0 11 3 2.0 1.0 cc 10 0.0 4 9 5 8 6 7 Team Alignment by Company Team Self-Evaluation Results (By Company) 04-Dec-09 • Communications • The flow of information • The timeliness of information • Cooperation • Problems, issues or concerns • Responses to problems • Disputes/problems • Problems are resolved • Construction safety performance • Design and construction quality • Value for money • Public Complaints

23. Issue Resolution Mechanism Stage One Within 2 days Names: 1. __________ 2. __________ Stage Two Within 3 days Names: 1. _________ 2. _________ Stage Three Within 5 days Names: 1. __________ 2. __________ Resources Available 1. 2. Problem Identified Problem becomes apparent Solution to problem offered by those who are directly involved with it If problem not resolved, go to stage two. If solution agreed, do not go to stage two. If changes affect other project parties, record them into a form for circulation. Problem discussed at progress meeting. Solution to problem offered by project team. If solution to problem cannot be agreed at progress meeting, go to stage three. If solution agreed, do not go to stage three. Solution to problem recorded in meeting minutes. A resolution committee comprising a representative from each of the project parties is formed. Problem resolution meeting called for committee. Mutual way forward for project greed by resolution committee. Statement of way forward recorded and issued. Fact Based Mediation Finish Finish Finish Alignment Workbook

24. Conclusions • Conduct business with • Honesty - Integrity - Fairness • Exercise a reasonable level of care, skill and judgement in managing projects • Provide reasonably accurate drawings, quantities, or • Transmit with exclusion of liability • Do not undertake the work if cannot succeed!

25. Conclusions • Partnering works • Focus on maintenance and communication • Nip problem in the bud • Early non-adversarial communication • Keep negotiating • Work with people