Guiding Principles of Risk Allocation: 10, 11 & 12
10. Impact Claim Deadlines on Change Order Cost Quotations
When contractors price change orders, they usually include "reservation of rights" language to allow themselves the opportunity to make future claims for additional time or money to complete the project.
A disclaimer is often used by the contractor in the change order quotation to allow for further review in order to assess the impact the change order will have on the construction schedule sequence of activities and the overall project duration. This is reasonable since, in most cases, the contractor will not have had an opportunity to complete a total assessment of the time and cost implications of the change order. A compromise may be to allow the contractor a reasonable identified period of time after the change order is signed to analyze and predict its cost and time impact on the overall project. The contractor then informs the owner about its conclusions and the contractor’s claims are then crystallized and dealt with. The period for the contractor to analyze, formulate and transmit its claims to the owner may vary with the type and magnitude of the project, but it could range from one to six months.
If a contractor doesn’t inform the owner within the designated period of the cost and time impact of the change order, the contractor then waives the right to any additional time or cost resulting from the change order. If the monthly as-built schedule procedure described earlier is employed, this will assist the contractor to formulate its impact claims arising from project change orders.
11. Dispute Resolution Provisions
You can substantially mitigate the effect of disputes on projects by providing for provisions that describe how disputes will be resolved. Contracts that fail to define the dispute resolution process, fail to provide alternatives to litigation.
Some of the dispute resolution alternatives include negotiation, mediation and arbitration. In many cases, mandatory mediation and arbitration provisions should be stipulated in contracts, depending upon the nature of the contracts and whether they would likely be amenable to shorter and more efficient resolution through alternative dispute resolution (ADR) techniques rather than resorting to costly and time consuming litigation.
In addition, in their dispute resolution contractual provisions, the parties have an opportunity at the outset of the contractual relationship, and before matters have gone off the rails, to name future mediators and arbitrators who would be involved in the ADR process should the need arise.
12. Negotiation Training
Negotiation skills are critical to the speedy and efficient resolution of construction disputes. Not everyone is a born negotiator. Firms in the construction industry should endeavor to put forward individuals to negotiate contracts and claims who are diplomatic, show some degree of flexibility and also some facility for the English language. It would also be helpful if negotiation skills were high on such individuals' resume.
Formal training in dispute prevention, resolution and communications and negotiations should be a key ingredient in any successful ADR program, and should be a critical issue for any firm in the construction industry seeking to avoid prolonged, expensive and reputation impugning disputes.