One day while searching the Internet for another matter, I found an interesting FHWA site covering contract claims. The website reported on an FHWA Region 4 State Department of Transportation (SDOT) auditors’ study conducted as a Financial Management Improvement Project (FMIP), which offered written guidance/information on how to prevent and how to evaluate contractor claims.
Having written extensively on contract claims avoidance and having conducted workshops advocating a process called “Partnering Plus” as a means of avoiding claims, I was interested in the study. I will use the next two columns to offer my analysis. At the outset, I want to state my belief that many highway construction claims and disputes could be avoided by state DOTs spending more to ensure as complete and accurate design as possible, contractors spending more in the bid and planning phase of the work to ensure their estimators and project team thoroughly understand the project, and improved communication among the various parties.
With strongly held opinions, I reviewed the portion of the study on claims prevention to see how the Region 4 auditors addressed the subject. The Region 4 SDOT auditors stated that their goals and objectives included the identification of reasons for contract claims and the identification of successful practices to minimize claims. They recognized that contract claims can result in project completion delays and a costly resolution process that does not benefit the state DOTs or the contractor. As a result, preventing claims should always be foremost.
The SDOT auditors’ observation is interesting in that I believe some DOT officials believe some contractors make money on claims and spend more effort building the claim than the project. I am sure a small minority of contractors may take that approach, but every contractor I know would prefer to be able to bid and build projects with no surprises. They schedule their resources similar to airlines scheduling the efficient use of their airplanes. Any disruption causes an impact to the efficient use of those resources. The auditors noted that preventing claims should always be foremost in the SDOT management philosophy.
They then turned to a discussion of the causes of claims, citing the quality of project plans and administration as two factors crucial in preventing claims. I certainly agree with that analysis. Improvement of project plans has always been a part of the “Partnering Plus” concept that I have advocated. As the SDOT auditors noted, ideally, the plans and special provisions should be sufficiently complete and accurate that bidders are able to identify the resources they need to build a project and estimate the costs of using those resources. Once construction begins, if the plans and special provisions are complete and accurate, then the contractor should be able to complete the project on time and within its budget, barring any unforseen major difficulties.
The auditors suggested that state DOTs have a central contact person to answer inquiries during the bidding phase. I’m sure most contractors would heartily agree with that suggestion. Throughout the country, contractors complain that when they raise questions about the plans in the pre-bid phase, they are advised by the SDOT official to “bid it as you see it.” Given that this SDOT answer is so prevalent throughout the country, I have often wondered if this concept is taught at SDOT workshops. The “bid it as you see it” answer to contractors’ pre-bid questions is a recipe for disaster which almost certainly results in claims. Put simply, contractors are forced to bid not as they may necessarily see it, but rather as they perceive their competitors will see it.
The auditors noted that there were three reasons for incomplete and inadequate plans. First, because the state DOTs have downsized much of the design has been sent to the outside, resulting in less control from the DOT. Second, there were many projects put out for bid using outdated plans that were taken “off the shelf” when funding became available. Third, computer aided design and drafting systems, while promoting efficiency, sometimes resulted in plans that fall short of intended quality. These are the same reasons cited by knowledgeable contractors.
In order to avoid these design problems, the auditors suggest that the DOTs conduct additional quality reviews including reviews done by the FHWA and a critical review of the plans before acceptance and final payments to the private design firm. The auditors further suggested that on complex projects the contractors bidding be required to make site investigations, and any plan errors noted be addressed prior to the letting. Meetings conducted with the construction industry for a “constructability review” prior to bidding was another suggestion.
I am a firm believer in the concept of constructability reviews, particularly on complex projects. The open dialogue between design engineers and contractors who actually will be building the project generally results in improvement in the design concept. Such constructability reviews need to be held early enough in the design process so that meaningful corrections can be made prior to the letting.
In my column next month, I will discuss the points the auditors made on project administration, contractor claims, evaluation, claim auditing and contractor claims, settlement and resolution.