In soft construction market, claims avoidance leads to margin gains

In a soft construction market with rising construction costs, especially in dense urban environments, the first question my clients ask me is where they should look to save costs.

In a soft construction market with rising construction costs, especially in dense urban environments, the first question my clients ask me is where they should look to save costs. With U.S. construction output growth only expected to increase at 3 percent per year, according to the latest Arcadis International Construction Costs report, owners, developers and builders must be smarter about how they construct in this tough market and constantly look for ways to save costs.

As a construction claims professional, I think it’s important for owners to remain vigilant about claim avoidance. Claims and disputes can be a significant cost factor in construction projects and in my experience, I’ve found that the earlier an issue is identified, the less expensive the resolution.

Follow the construction documents

The simplest way to achieve early detection of construction phase issues is through the use of construction documents. For instance, construction documents such as requests-for-information (RFIs) and technical submittals are usually reflective of the clarity of the contract documents (ie., plans and specifications) as well as the contractor’s understanding of them. However, the alarm sounds when you discover an excessive number of RFIs or resubmittals regarding a particular contract specification or drawing; this can be indicative of either a design problem or a lack of requisite understanding by the contractor, both of which could result in a claim if not addressed quickly. 

Monitoring the critical path

I also advise owners and developers to recognize whether a contractor is adequately moving the project forward in a timely manner and has committed a sufficient amount of resources to the project. One method to do this is for owners and developers to monitor not only the critical path method (CPM) of a project’s schedule but also the size of the “critical band.” The critical band consists of those activities which have a total float within a certain number of days of the critical path; I recommend 10 or 20 work days but no more than the duration of the update period.

In addition, I advise owners and developers to monitor the number of activities the contractor has actually started or finished in relation to the number of activities the project’s schedule indicated were planned to start or finish within that period. If I find the number of activities within the schedule’s critical band is increasing, but the increase is not a result of additional details being added to the schedule, it usually means more activities in the schedules are becoming “near-critical” and that a larger portion of the project has become sensitive to external influences. This could lead to construction claims.

Comparing ratios

I also recommend that owners and developers evaluate the amount of labor and equipment their contractor has devoted to the project. This answer becomes clear when comparing the ratio of the number of activities actually started or finished to the number of activities that were planned to start or finish. A low ratio could suggest the contractor does not have enough laborers or equipment on the project. This is a warning sign! If not corrected, the project is certain to fall behind schedule. 

A ratio greater than 1.0 for activities planned to start versus those actually started signifies the contractor has started more activities than planned. This could be a result of adding detail to the schedule or implementing construction phases “out-of-sequence.”

A low ratio of activities planned to finish as opposed to the number of activities actually finished could be, among other things, the product of inadequate activity durations for the planned finish activities. If so, this could be a sign of other potential flaws in the CPM schedule.

Dave Ponte shares more on building in urban environments.

Identify issues – the sooner the better

I believe cost and schedule surprises are more efficiently managed through the early identification of issues. Through the categorization, tracking and monitoring of construction documents – beyond simply monitoring RFIs and submittals – and by employing a more in-depth examination of the project CPM schedule, project owners (and their representatives) can more readily identify and address problems before they become expensive issues or claims. And in a world of narrow growth margins, every dollar counts.

About Dave Ponte

Dave Ponte serves as Principal Project Director for the Arcadis Buildings business line with more than 30 years of experience in the design, construction and management of large, complex construction projects. His areas of expertise include forensic analysis of complex design and construction issues, development and analysis of multifaceted CPM schedules, preparation of detailed expert opinions/reports encompassing both technical and quantum construction issues, and development and analysis of construction cost budgets.

David Ponte

Principal Project Director for Arcadis Contract Solutions 781 267 7531 Ask me a question