Eliminate risks in architectural, engineering and construction contracts
Phase 1 - The initial planning stage
Construction on anything is a major undertaking. Many parties are involved in carrying out different tasks and this means there are many contracts and complicated reporting lines. Good project management is essential to a successful venture. Forward planning to minimize risks is also important. James P. Bobotek, of law firm Pillsbury Winthrop Shaw Pittman, in his article published by LexisNexis entitled “Construction Risk Management: Ten Issues in Construction Contracts”, provides sound advice for how to legally structure a construction project to minimize risk. He gives tips for such things as structuring reporting lines and insurance through contracts. Mr. Bobotek’s article can be found here - http://ow.ly/100Z3B.
Law firm Pepper Hamilton have written a comprehensive white paper about risk in construction. In it they consider several case study examples of how risk has been managed in this industry and the outcomes. Some of the risk management strategies it considers include structuring teams in such a way so that members of design, engineering and other professions work together and collaborate early on in the process - in integrated teams, and using Building Information Modeling Software to reduce rework and increase profitability. You can find Pepper Hamilton’s white paper here: http://ow.ly/106Kr2
While Mr. Bobotek provides tips for how to legally structure contracts to minimize risk and Pepper Hamilton provides, among other things, tips for structuring teams and using building modeling software, this series of articles will now consider how contracting software can help eliminate risk in construction.
The initial planning phase
A customer will decide they want something constructed and will take requests for proposal and/or requests for information from various construction companies, engineering companies and/or architects. In some cases, they will engage or request information from one of these companies, and then that company will have corresponding firms in the other industries that they will choose to work with - having partner agreements with this other firm. Information will be provided to the customer giving a general idea about whether they can complete the proposed work, how much they will charge and how long they expect it to take. The requests for proposal and requests for information may involve a lot of internal collaboration within the companies writing them or between companies working together in a partnership agreement.
Once the customer has decided which company/companies they select to complete the work, they will contract them to commence work on the specific plan for the project. Plans will be drawn up by the architect and reviewed by an engineer. The construction provider could collaborate with the architects or engineers to write a plan for how the project will be executed. Sometimes more than one infrastructure building team (including engineers, architects and construction companies) will be asked to draw up a plans for the works before the customer decides on which group they will retain. If all parties decide to move forward with the project, a project initiation document is drawn up which outlines the business needs and business case for the project.
Other documents that may be drafted in the planning stage include:
- A project management plan - document to guide execution and control - includes details of scope, cost and schedule.
- Scope statement and documentation - defines the business need, benefits, objectives, deliverables, and key milestones.
- Work breakdown structure - a visual representation that breaks down the scope of the project into manageable chunks.
- Communication plan - this plan outlines the communication goals and objectives, communication roles, and communication tools and methods. Because everyone has a different way of communicating, the communication plan creates a basic framework to get everyone on the same page and avoid misunderstandings or conflict.
- Risk management plan - this plan helps project managers identify foreseeable risks, including unrealistic time and cost estimates, budget cuts, changing requirements, and lack of committed resources as well as ensuring appropriate insurance is purchased for the project.
Some of the risks in this initial stage include:
- those arising from miscommunications within the companies drafting proposals leading to their agreeing to provide a service which they are not capable of providing, i.e.:
- it won’t be possible for them to complete the project on time; and/or,
- It won’t be on budget - as companies make miscalculations on their price estimates.
Misunderstandings could lead to substantial delays or even injuries in the execution phase and even in and after the termination stage. Drawings and diagrams are featured heavily in this negotiation process, and it is important that the correct diagrams are attached to the matching correspondence to avoid confusion in the implementation phase and that plans can be easily referred to when necessary.
Sound contract management software can assist in reducing the main risks in this phase in the following ways:
- It can capture all internal and external written communications in the initial planning phase so these can be referred back to at time when necessary.
- It also allows for drawings and diagrams to be attached to relevant communications to further reduce the risk of miscommunications.
- Good contract management software can also assist you in calculating price and estimating time frames as it analyzes your past data and the data of others in the industry to see what you or others have charged or were charged for similar work, and how long the projects took from start time to completion.
In the next article in this series, we will examine the risks in the second phase of construction, the execution stage, and how these risks can be minimized.
ContractRoom (www.contractroom.com) is an effective contract management software that can be leveraged to reduce risks in construction projects and is the home of #PredictiveAgreement - to learn more about how you too can “negotiate less, agree more” click here to schedule a free, live demo: