Pre-Litigation Preparation During The Construction Job -How To Position Yourself To Win Steven P. Rice∗ Crowell & Moring LLP I. INTRODUCTION There are three main ways during a project by which an owner or contractor can position themselves to win in litigation. II. A. Early recognition and evaluation of issues. B. Proper project documentation. C. Effective communication. EARLY RECOGNITION AND EVALUATION OF ISSUES A. Pre-Construction 1. At the design and bid stages, issues will be apparent concerning the feasibility of construction, both in terms of the drawings and specifications and the projected schedule. 2. During the period between contract award and the NTP, issues will also arise as the parties get ready for the commencement of construction. 3. For example: a. ∗ Conflicts among contract documents. Steven P. Rice is a partner in the Construction and Litigation Groups of the Irvine, California office of Crowell & Moring LLP. For over twenty years, he has represented owners and contractors in a wide variety of construction and real estate matters, including litigation in state and federal courts, arbitration, and mediation, relating to commercial, residential, and public projects. Mr. Rice received his J.D. degree from Harvard Law School in 1980 and his B.A. degree in Economics from Occidental College in 1977. These materials are intended to be for instructional and informational purposes only and should not be considered legal advice concerning specific matters. 4. b. Material substitution/availability. c. Regulatory and permitting issues, e.g., timing of issuance, environmental restrictions, work hours, access, clean-up. d. Anticipated weather impacts based on start date and length of construction. e. Actual site conditions. Prescription: a. Supervisory personnel should thoroughly familiarize themselves with the contract documents and the site. b. Issues should be thoroughly analyzed as to their possible impact (time and money) and then forthrightly discussed both internally and with the other parties. On larger projects, a pre-construction review of the contract documents by counsel or other experts may be costeffective in helping to flag issues and resolve them before problems develop on the job. c. Written records should be kept: i. Design memos. ii. Pre-bid meeting minutes. iii. Internal bid documents, such as the contractor’s take-offs and related notes regarding bid review, site visits, and any assumptions made in the bid, and the owner’s bid evaluation materials. iv. Pre-construction meeting minutes. v. Notes of telecons and other meetings and conversations. vi. Correspondence. Confirm your position in writing to the other parties. vii. Personal diaries and calendars. B. d. Any pre-construction agreements reached should be clearly confirmed in the contract documents. e. Training. Construction 1. Facts which may lead to issues regarding claims for time or money will usually be apparent at the time of construction. 2. However, sometimes it is the cumulative effect of an issue or issues which leads to a claim. 3. For example: 4. a. Owner-initiated changes in design or other aspects of the project/changes for contractor convenience. b. Unforeseen site conditions. c. Actual material availability. d. Action by governmental authorities in interpreting or enforcing permits or regulatory restrictions in an unforeseeable or unreasonable way. e. Weather. Prescription: a. Supervisory and field personnel are responsible for identifying issues in the field as they occur and immediately reporting them to project management. b. Project management will determine the practical impact of such issues, obtain the support of accounting personnel and other staff to determine the full impact (including both time and money), and collect the evidence necessary to support the existence or nonexistence of impact. c. Issues should be presented and discussed at project meetings. Issues should not be allowed to lapse over from meeting to meeting to meeting without resolution. Issues should also be pursued in informal discussions, with all positions confirmed in writing. d. If subcontractor claims are also involved, such claims need to be considered at the same time, even if it occurs in a parallel set of discussions. e. Written records should be kept: f. III. i. Daily job reports. ii. Cost accounting records. iii. Meeting minutes. iv. Notes of telecon and other informal communications. v. Contractually required notices must be timely given. vi. Correspondence. vii. Personal diaries, calendars, and notes. If a resolution is reached, carefully review the Change Order or other documentation to confirm that the impact of the agreement is clearly understood. E.g., Are the parties resolving both time and money? Will claims for cumulative impact be preserved? What is the effect with respect to subcontractor claims? PROPER PROJECT DOCUMENTATION A. Different people seeing the same event or hearing the same conversation will describe it in very different ways. You don’t want the resolution of a claim to be determined based on a swearing contest between witnesses. It introduces too much risk and uncertainty into the outcome and increases the likelihood of (1) an incorrect evaluation of the merits of a claim by management and your lawyers and experts, and (2) an incorrect result by an arbitrator, judge, or jury misled by persuasive but inaccurate witnesses. B. Proper project documentation reduces this risk and uncertainty. Such documents are generally viewed as highly credible because (1) they are prepared when the author’s memory is the clearest, (2) they confirm that a fact or an issue is important because time was taken during the project to make a record of it, and (3) they are prepared before a formal legal dispute developed and are therefore seen as free of after-the-fact rationalizations and the influence of lawyers and experts. Therefore, they are more likely to be accepted as accurate by an arbitrator, judge, or jury. C. What is “proper” documentation? D. 1. It is prepared at the time events happen. 2. It is clear and complete. 3. It is objective, i.e., free of unnecessary emotion. Prescription: 1. Pre-construction records, including: a. Design memos. b. Bid documents, including take-offs, pre-bid meeting minutes, notes, bid evaluation materials. c. Permitting, and records of other governmental restrictions. d. Pre-construction meetings and telecons. 2. Contract documents, including contract, general and special conditions, drawings (including all revisions, with explanation), and specifications. 3. Daily job log should record: a. Manpower, preferably broken down by sub. b. Equipment, used and idle. c. Major work activities. d. Any delays or problems and the persons involved. e. Areas of work not available. f. Safety and accidents. g. Oral communications, including telecons and informal meetings. h. Weather summary. i. Jobsite visitors. Although formal responsibility for the daily log will be assigned to one person, all key project personnel, such as foremen, projects engineers, and project managers, should be encouraged to maintain personal daily logs or diaries in a form which will be usable later. Information recorded by other personnel will be similar to the daily log although obviously not as extensive. Daily logs can provide persuasive evidence even as to the pricing of a claim. See Hof Construction, Inc. v. General Services Administration, GSBCA No. 13317, 96-2 BCA (CCH) ¶ 28,406 (1996) ( engineer’s daily logs found to more reliable than a subcontractor’s pricing proposal in determining the amount of change order labor costs because they were maintained regularly, in detail, and contemporaneous with the work in question). 4. Meeting minutes and notes. 5. Contractually required notices. 6. Change Order Requests/Change Orders. 7. Schedules (including all revisions, with explanation). 8. Cost accounting records. See Roy D. Garren Corp., AGBCA No. 85-196-1, 91-1 BCA (CCH) ¶ 23,306 (1990) (contractor failed to recover costs of labor inefficiency resulting from design changes because of inability to segregate costs). 9. Correspondence. Always confirm your position in writing. See Beauchamp Constr. Co. v. U.S., 14 Cl.Ct. 430 (1988) (correspondence may demonstrate and support unreasonable delay claim). Photographs and videotapes. 10. 11. D. File organization. Good project documentation won’t do you any good if you can’t find it. a. Home office. b. Field office. c. Accounting records. c. Index and labeling system. d. Storage. 12. Training. Documents should be created and maintained in a consistent and uniform way by all personnel. The benefits of one employee’s good documentation practices can be reduced or lost if the records of another employee who was also involved in the event are inconsistent or if records are otherwise maintained inconsistently during the project. See Circle, Inc., ENGBCA No. 6048, 95-1 BCA (CCH) ¶ 27,568 (1995) (board drew inference that there was no differing site condition from the contractor’s failure to document actual site conditions in one area in the same manner that it documented conditions in another area). 13. Periodic internal checks of documentation. Excuses, excuses. 1. It takes too much time. It costs too much. 2. Pay now, or pay more later. a. Document preparation is less expensive, less timeconsuming, and more accurate when done during the project. b. The information contained in project documents is more reliable and more credible than documents prepared after the fact or during the course of litigation. c. Proper documentation will save substantial legal and expert fees during litigation, and the work product generated by these professionals will be better. d. IV. The cost and time impact of preparing proper contemporaneous project documentation can be mitigated through the use of standard forms, training, and the development of good work habits. EFFECTIVE COMMUNICATION A. Four characteristics: 1. Timely. 2. Personal. 3. Credible. 4. Documented. B. “Timely” means that an issue is raised before or promptly after it arises. It will be easier to collect information, and both sides will have more flexibility in developing solutions. C. “Personal” means that (1) professional working relationships are developed between the parties, (2) informal verbal communication is exhausted before more formal methods of communication are utilized, and (3) communication is pursued through the highest level appropriate for each particular issue, always having equals dealing with equals. D. “Credible” means that (1) your position is substantiated with evidence, (2) your position is thoroughly explained and justified, (3) your position is presented in a professional and dispassionate way without the use of rhetoric which will cause the other side to “stop listening,” and (4) your position is reasonable, i.e., not artificially high or low. E. “Documented” means that (1) all written evidence necessary to an understanding of your position is collected and presented to the other side, and (2) all communications are confirmed in writing through, for example, notes, written memos, and correspondence. F. Effective communication is enhanced not only by establishing and maintaining regularly scheduled job meetings, but also through informal, unscheduled contact where issues can be raised and perhaps resolved in a more flexible environment. V. G. These strategies should be used in all communications with the other side from the inception of the project at the pre-bid stage through to the completion of construction. Effective communication skills should be a primary hiring criteria for your staff. H. Effective communication during the project will help you win in litigation because your efforts will show the arbitrator, judge, or jury that you have acted with diligence, professionalism, and good faith, all of which are important to presenting a persuasive position. CONCLUSION A. If during a project you succeed in early identification and evaluation of issues, maintaining proper project documentation, and utilizing effective communication practices, you will be well-positioned to maximize your prospects of prevailing in litigation. Your documentation will be organized; relevant witnesses will be identified; all contractual requirements will have been followed; and you will have insulated yourself from allegations by the other side that you failed to act diligently or in good faith. In addition, you will probably have saved yourself considerable legal and expert fees at the same time because your positions will already be well-formulated and welldocumented. B. These same considerations should also be helpful in avoiding litigation in the first place because they will position the parties to make a more accurate assessment and have a more meaningful discussion of the merits and demerits of potential claims before litigation begins.