Risk Allocation in Today

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Risk Allocation in Todays Construction Industry

• CSCE Dinner Meeting
• Blackfoot Inn
• January 17th, 2008
• George F. Jergeas, PEng, PhD
• Department of Civil Engineering
• University of Calgary

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Agenda

• Introduction
• Engineers responsibility
• Disclaimer Clauses
• Project Partnering
• Conclusions

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Introduction

• Characteristics of the construction industry
• Adversarial
• Win-lose approach
• Risk allocation
• Fixed price and fast-tracking

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Engineers Roles

• Owners agent
• Limited by the Contract
• Engineers actions bind the Owner
• Four roles
• Drawings and specifications
• Contract administration
• Inspection and monitoring
• Interpretation of the Contract

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Engineers Performance

• Not specified
• The law sets the standard

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Standard of Care

• Apply reasonable degree of care and skills
• Perform to the level of an average engineer
• A reasonable engineer should have foreseen the
  harm and prevented it
• Failure can be negligence

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Caution

• Standard of Care can be modified by contract
• Impose a higher standard of care
• Read your contract!!

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Example

• The consultant acknowledges and represents that
  it and all employees it assigns to perform the
  consulting services hereunder possess the
  necessary qualifications, knowledge, skills,
  expertise and experience and the consultant agree
  to perform the consulting services to the
  standard of a specialist in the area of the
  consulting services being provided under this
  agreement
• Robert Simpson

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Risk Allocation Disclaimer Clauses

• No damage for delay
• Examination of the work

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No Damage for Delay

• ....., the contractor shall not have any claim
  for compensation for damages against the owner
  for any stoppage or delay from any cause
  whatsoever.

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Examination of Work

• The bidder is required to investigate and
  satisfy himself of every thing and every
  condition affecting the work to be performed and
  the labour and material to be provided, and it is
  mutually agreed that submission of tender shall
  be conclusive evidence that the bidder has made
  such an investigation.

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Quality of Design

• Edgeworth Construction v. N.D. Lea (1993)
• Significant case
• Resolved the confusion
• Engineer is liable to contractor

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Examination of Engineering Work

• Any representations in the tender documents
  were furnished merely for the general information
  of bidders and were not in any way warranted or
  guaranteed by or on behalf of the Owner or the
  Owners consultants and its sub-consultants
  employees, and neither the Owner nor its
  consultants or its employees shall be liable for
  any representations, negligent or otherwise
  contained in the documents
• The PEGG, 1993

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Next Steps

• Owners can help
• Cover Engineer in their Exclusion Clause or
• Limit or eliminate liability, and
• Partnering

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Limitation of Liability

• To the maximum extent permitted by law, the
  Client agrees to limit the Engineers liability
  for the Clients damages to the sum of .
  This limitation shall apply regardless of the
  cause of action or legal theory pled or asserted.
• 
  DPIC

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Project Partnering

• Partnering
• Tries to instil co-operation amongst project
  participants
• Focuses on teamwork, communication and alignment
  of goals
• A partnering workshop is usually conducted at
  start of project with follow-ups
• Partnering does work

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Partnering

• A structured management approach for transforming
  contractual relationships into a cohesive,
  co-operative project team with common goals and
  established procedures for resolving issues or
  disputes in a timely manner.

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Partnering Process

Problem Resolution
Teambuilding Workshop for Team players
Completion
Monitoring Success
On going Support
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Rockyview General Hospital
We, the team of the Redevelopment Project,
recognizing the unique nature of this project,
commit to creating an environment of trust and
open communication to deliver a quality project,
which meets or exceeds each stakeholder groups
requirements. We commit to maintaining a
seamless, positive, and optimistic work
environment in which all partners' goals can be
achieved.
Capital Project - 2004

• The following goals and objectives were agreed
  and recorded as the Partnering Team Charter for
  the project.
• Produce a project that is safe in its design,
  construction, maintenance and use.
• Create a safe-working environment resulting in
  zero lost-time incidents.
• Minimize the inconvenience to the patients,
  visitors, care providers and protect the
  facility, community and the environment.
• Design and construct a project of optimum
  quality, which is functional, flexible,
  maintainable, sustainable and of which we are
  proud.
• Goal of project is to have zero claims.
• Provide a non-confrontational forum for the
  resolution of any disputes that arise.
• Encourage innovation and creativity.
• Understand each party's role within the project
  team and develop good relationships based upon
  trust, respect and honesty.
• Manage the project effectively, efficiently and
  manage stakeholder change requests.
• Incorporate and share lessons learned from other
  projects and gained from outside
  sources/experience.
• Maintain positive, cooperative relationships
  through clear and open communication, no
  surprises, no hidden agendas, minimum delays of
  paperwork, and resolution of problems quickly at
  the lowest level.
• Prepare, update, and share common project
  schedule.
• Deliver project on schedule and within budget.
• Co-ordinate efficiently with other hospital
  projects as much as possible.
• Empowerment of all team members to allow decision
  making at all levels.
• Improve budget management by regular review and
  tracking of cost accounts and early communication
  of cost overruns and changes.
• Manage scope changes in a fair and timely manner.

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Team Alignment Overall
Team Self-Evaluation Results (Combined)04-Dec-09

1. Communications
2. The flow of information
3. The timeliness of information
4. Cooperation
5. Problems, issues or concerns
6. Responses to problems
7. Disputes/problems
8. Problems are resolved
9. Construction safety performance
10. Design and construction quality
11. Value for money
12. Public Complaints

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Team Alignment by Company
Team Self-Evaluation Results (By Company)
04-Dec-09

1. Communications
2. The flow of information
3. The timeliness of information
4. Cooperation
5. Problems, issues or concerns
6. Responses to problems
7. Disputes/problems
8. Problems are resolved
9. Construction safety performance
10. Design and construction quality
11. Value for money
12. Public Complaints

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Issue Resolution Mechanism
Stage One Within 2 days Names 1. __________ 2.
__________
Stage Two Within 3 days Names 1. _________ 2.
_________
Stage Three Within 5 days Names 1.
__________ 2. __________
Resources Available 1. 2.
Problem Identified
Problem becomes apparent Solution to problem
offered by those who are directly involved with
it If problem not resolved, go to stage two. If
solution agreed, do not go to stage two. If
changes affect other project parties, record them
into a form for circulation.
Problem discussed at progress meeting. Solution
to problem offered by project team. If solution
to problem cannot be agreed at progress meeting,
go to stage three. If solution agreed, do not go
to stage three. Solution to problem recorded in
meeting minutes.
A resolution committee comprising a
representative from each of the project parties
is formed. Problem resolution meeting called
for committee. Mutual way forward for project
greed by resolution committee. Statement of way
forward recorded and issued.
Fact Based Mediation
Finish
Finish
Finish
Alignment Workbook
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Conclusions

• Conduct business with
• Honesty - Integrity - Fairness
• Exercise a reasonable level of care, skill and
  judgement in managing projects
• Provide reasonably accurate drawings, quantities,
  or
• Transmit with exclusion of liability
• Do not undertake the work if cannot succeed!

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Conclusions

• Partnering works
• Focus on maintenance and communication
• Nip problem in the bud
• Early non-adversarial communication
• Keep negotiating
• Work with people

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