There is much to be said for trust-building handshakes in the business world but smart contractors looking to defend their interests and preserve profit margins during complex projects must do more, delegates attending an Ontario Sewer and Watermain Construction Association (OSWCA) conference were told.
Diligent record-keeping throughout a project not only protects contractors when projects go awry and claims become justified, senior claims consultant Duan van der Merwe of Envista Forensics told OSWCA members during his recent presentation on construction claims, but the records also enable the development of better estimates on future projects and assist in project trouble-shooting.
“It is very important that all of their work and all of their substantiation comes back into numbers,” van der Merwe explained in an interview after the Feb. 11 seminar, held in Blue Mountain, Ont.
“Traditionally the claims aspect was a handshake, ‘we’ll give you the next job,’ it wasn’t necessarily a claims-oriented industry. But it’s important to understand that when you are claiming you understand the loss of productivity and how that feeds into your loss of profits.”
Making claims is a necessary evil in the construction sector, van der Merwe said. “Everybody thinks they are doing the right thing,” he said, but circumstances can change due to changes to base scope, changes to site logistics, delays by others and other reasons. When this happens, contractors must be prepared to defend their interests.
The paper trail should include minutes of meetings, site diaries, change order logs and daily reports. Every detail should be recorded, including such general information as dates, times and locations, production data, safety programs such as toolbox talks, housekeeping and deviations from original plans. Even notes about crews booking off an hour early because supplies were late can prove to be important later when preparing claims.
“If it’s a piece of paper that somebody scribbles at the end of their shift, if they are tired, they have worked all day, it’s all important,” said van der Merwe.
“I encourage owners to take a look at what’s actually documented, to compare that with other documents that are available such as a risk register or minutes of meetings to see if any issues that were flagged in the daily report are being reflected onto other contemporaneous records.”
A show of hands in the room indicated only a couple of contractors typically prepare a risk register, which van der Merwe explained is a basic list of possible risks that can occur internally and externally with costs assigned to each one.
“A risk register is sometimes viewed as a pointless paper exercise, but it is really sitting in a room brainstorming,” said van der Merwe.
Another documentation system van der Merwe recommended to the sewer and watermain contractors as especially valuable to their sector is the earned value management (EVM). It requires a running tally of planned work at different stages of a project in comparison to actual work accomplished and actual costs.
EVM is the easiest method used on linear construction projects like those of the sewer and watermain sector to identify losses in productivity and potential future schedule delays and budget overruns early in a project, van der Merwe said.
Use of a third-party construction claims specialist can help resolve disputes in a professional manner, he said, to avoid “ruining relationships.”
“It is very important that contractors understand that if they are incurring a loss, if profit margins are getting smaller as time goes on, it is important to recover that loss when it is incurred, and not to approach it negatively, so be proactive, demonstrate that you have truly incurred a loss, that it is no fault of your own and you’d like to recover money,” van der Merwe said.
The advent of a new disputes adjudication system in Ontario under the new Construction Act is further reason to ramp up record-keeping, he said.
The new adjudications will be fact- and numbers-based, he pointed out.
“Once the first couple of adjudications have happened, it will turn into a well-oiled machine, and people will be more comfortable going into snap adjudications and getting these quick turnarounds on disputes rolling,” van der Merwe said.
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