SDC INSTITUTE Winning Cash Flow Strategies on Change

SDC INSTITUTE Winning Cash Flow Strategies on Change Orders & Claims Session 1 1

Anwar Hafeez, President - SDC & Associates, Inc. Graduate Civil Engineer Bechtel & Tutor-Saliba & Perini Los Angeles Central Library San Diego Convention Center LAX Airport Expansion Radisson’s Flagship Hotel WMATA (DC Subway) Armed Forces Medical University Walter Reed Medical Center Barracks $1, 400, 000 construction $ 300, 000 claims

Why have claims escalated since 1979? Higher interest rates (late 1970’s) 3

US BANK PRIME RATE 1949 -1999 4

Increased cost of money resulted in. . . Push for faster and cheaper Shortened design time Shortened building schedules Loss of architect’s in-house expertise Supplier written specs 5

The drastic results incomplete plans & specs sloppy, uncoordinated documents tremendous increase in document errors confusion (more RFIs) contractors exposed to L. D. s sooner 6

The drastic response OWNERS: greater use of Construction Managers higher justification standard on TIA increase in owner construction costs CONTRACTORS: increased contractor overhead increased PM’s workloads n multiple projects 7

The drastic response BOTH: increasingly sophisticated CPM schedules more sophisticated doc control system increased overhead 3 x more construction attorneys w Membership in ABA Construction Industry Forum (1980 -1990) 8

Trends in the st 21 Century Funding Limitations in early 1990 Excessive litigation n How to curb this dangerous trend? w Use of arbitration & mediation w Emphasis on prevention n n Partnering 1991 DRBs Design-Build Unresolved: n How to get complete, coordinated drawings & specs 3 -D CAD – interoperability BIM Drawings 9

What we will cover today… Pyramid for n n Project success Claims success Importance of Daily Reports Sources of claims and change orders How to Win Defective Docs How to Win Conflicts & Omissions How to Win Ambiguties CPM & delay claims Inefficiency Claims Proving & pricing claims & c/o’s Negotiating tips 10

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SUCCESS BUILDING BLOCKS • CPM schedule: well prepared & updated A system for RFIs, C/Os, submittals Documentation: detailed & thorough Good cost accounting system 13

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SUCCESS BUILDING BLOCKS • CPM schedule: well prepared & updated A system for RFIs, C/Os, submittals Documentation: detailed & thorough Good cost accounting system • Timely requests (time extension, change order, etc. per contract) Relentless follow-up Proper pricing & negotiating Understanding of the procedures and rules 15

Timely Requests American National Electric Corp. v. Polythress Commercial Contractors, 604 S. E. 2 d (N. C. Ct. App. 2004) Elect. Sub. - Fire Station Perform per schedule within specified days GC made several changes to the schedule during const. Project 60 days late Sub. sued for delay and inefficiency costs GC stated that the Sub. did notify them on a timely basis as req’d (within 21 CD after occurrence) Sub’s President testified depo. - was aware work was being delayed but did notify GC in writing until months later GC stated that lack of timely notice defeated Sub’s claim YOU MAKE THE CALL!!!! 16

Timely Requests American National Electric Corp. v. Polythress Commercial Contractors, 604 S. E. 2 d (N. C. Ct. App. 2004) Court said that the language in the contract was: 1. 2. 3. 4. Plain and Sub. was bound to the same language that the GC was bound to the Owner These obligations bound the parties to a time certain during which notice of delay for compensation was req’d Sub. did not comply with this obligation & thus its claim was defeated Hence, Sub. was foreclosed from making a delay claim against the GC due to its failure to abide by the notice provisions of the contract 17

Construction Projects Are Built on Communication No one person can build a project without great communication Communication is vital to success at every level If you can’t communicate – You can’t manage

Just What is Communication? Information Encoding Sender Goal Message Information Verbal Written Graphic Formal Informal Decoding Receiver Understanding Medium Feed Back

Five Levels of Communication Two Way - Face to Face n Most Effective w Both verbal and non verbal expressions are apparent by both parties w Instant Feedback is possible Two Way – Written n Effective w RFIs / E-Mails Two Way - Not Face to Face n Not as effective w Feedback possible, but non verbal expressions are not apparent One Way – Not Face to Face n Least Effective w No feedback is possible w No non-verbal expressions available One Way – Written n Effective when prepared correctly w Daily Reports

The Purpose of Communication in Business Recording in Daily Reports n n n Production Time Problems Informing n n RFIs Submittals Schedules Letters Persuading n n Conversations / Meetings Verbal

Project Communication Tools Contracts Purchase Orders Plans and Specs RFI’s Addendums Memos Daily Reports Time Sheets Change Order Requests Change Orders Personal Conversations Telephone Conversations Letters Reports Schedules Tables Material Schedules Submittals Requests for quotes Cost Proposals Email / Internet

Why Good Communications = Project Success Opens the door to discussion Establishes the basis for resolving conflict Keeps everyone on the same page Opposition backs off when they know that you have great documentation Show the opposition what great documentation that you keep – invite over for coffee

Why Communication Within a Construction Company is so Difficult Tall Organization FLAT ORGANIZATION

Verbal Communications In person conversations n n Think of yourself as a liaison for your company Best chances of success Walkie-Talkie n Don’t Assume the listener is alone w Ask – “Is this a good time to talk about. . . ” Telephone n People are much bolder than when they are talking face to face Meetings n Discover the value and use them to your benefit

Graphical Communication Using Pictures to help get the point across Photos n Diagrams n Drawings n Details n

Written Communication RFIs Memos Letters Time Sheets Daily Reports

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With good documentation and an updated CPM Schedule: 1 30

Without an accurate updated CPM Schedule: 1 31

Poor communication, weak documentation, no updated CPM 1 32

Change Orders DOCUMENT in: • • • RFIs Submittals Letters to the Owner Superintendent’s Daily Report - Labor/Material/Equipment (Segregate) CQC Daily Reports Memos to File Memos of telephone conversations Meeting Minutes Diary Photographs and/or video tapes E-mail

The Daily Report

WHY DO WE PREPARE DAILY CONSTRUCTION REPORTS? Furnish information to off-site persons Who needs and has a right to know important details of events as they occur daily and hourly To prevent problems Get Change Orders Entitlement for Delays/Costs Furnish historical documentation that might w w w Have a legal bearing Used in cases of disputes Used in negotiations Need to be factual and impersonal as possible, free from the expression of personal opinions/feelings

WHY DO WE PREPARE DAILY CONSTRUCTION REPORTS? (Cont’d) Most readers are not fully informed about all aspects of the project. To understand the progress made to date and the problems that are anticipated, readers must fully grasp what the project involves. If the report goes only to your immediate supervision, you can assume that he probably knows technical terms related to the project.

WHY DO WE PREPARE DAILY CONSTRUCTION REPORTS? (Cont’d) If the report goes to others, you should assume that the reader does not know the technical details and perhaps not the technical concepts. In other words, you must go into as much details as necessary to inform your specific audience

The Daily Report What should be included the daily report? n n n n Date Weather: wind, temp, humidity or rain Segregate Labor / Materials / Equip for each Activity of Work Segregate CO Work & Contract Work Delays – causes (even if no manpower) Verbal conversations Safety Visitors

The Daily Report How do YOU fill out the daily report? What are the important elements? How do you show change order work vs. contract work? n Why you should not combine them? How could you keep track of the costs of an overzealous inspector?

The Daily Report How long does it take to fill out the daily report? Who gets copies? Who reads them? Anyone? How are they used later? Does the daily report really matter? Does format really matter

The Daily Report Why is it important? n Contemporaneous documentation w very credible to all parties n Source for tracking w crew movements w change work - identified separately w interruptions, delays n Piece of an emerging puzzle w When reviewed by experienced managers

The Daily Report Segregate labor, materials, equipment Segregate contract work and change work Specify exact locations of work n Room No n Station No n Attach Photographs n Drawing / Detail No Identify problems and delays Keep copies in “CO files” Daily

Being Professional in Speech and Writing Develop / Use appropriate language n n n Continue to develop your vocabulary Learn the language of your trade Learn general Construction Language Use proper speech in writing n n Show respect - Write clearly Avoid crude speech w Racial w Gender w Man, this was a six-pack day n n Reserve strong language for emphasis Become professional / Rise above the pack

Rising above the pack Developing better verbal skills n n n Learn and practice new words Ask what words mean Carry and use a pocket dictionary Check out programs (Verbal Advantage? ) Take a course in business writing

Smart contractors finish rich. 46