Tales from the Claims Crypt –

Lessons Learned

James G. Zack, Jr.

CCM, CFCC, ECCCS, ECCDA, PMP
FAACE, FCCCS, FGPC, FRICS
Principal
James Zack Consulting, LLC

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 James G. Zack, Jr.
▪ Principal, James Zack Consulting, LLC
A construction claims consultancy assisting capital project
owners & construction contractors in completing projects
on the jobsite & not in arbitration or court
▪ Senior Advisor, Ankura Construction Forum
▪ Executive Consultant, Hill International
▪ 51 years experience in construction management,
construction claims analysis & dispute resolution
▪ Involved in more than 5,000 claims
▪ Prepared & submitted claims for contractors or analyzed & resolved or
defended claims for project owners in 36 States in U.S. & 39 countries
abroad
▪ Fellow of AACE International, Royal Institution of Chartered Surveyors,
Guild of Project Controls & Society of Construction Claims Specialists
International
▪ Former President, AACE International; author of RP 25R-03 (Lost
Productivity); contributor to RP 29R-03 (Forensic Schedule Analysis)
▪ CCM, CFCC, ECCCS, ECCDA & PMP James Zack Consulting, LLC
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 Introduction
➢Purpose of presentation
❑ Use real life “war stories”

❑ Illustrate how some claims arise

➢Present 10 construction claims stories

❑ Identify situation & claim

❑ Identify outcome

❑ Identify lessons learned for owners &/or contractors

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 Failure to Negotiate Full
Scope of Work When
Issuing Change

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 Full Scope of Work
➢Project = Gas Fired Power Plant
➢Location = Florida
➢Contract Form = EPC
➢Situation =
❑ Project contracted with private power company
❑ FEED negotiated with owner
❑ Design completed & construction underway
❑ Project sold to another private power company
❑ New owner issued change to substitute “Brand B”
cooling water pumps vs. “Brand A” pumps
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 Full Scope of Work
❑ New owner used same pumps in all other plants
❑ To meet planned completion date, owner insisted change
be initiated “promptly”
❑ Negotiations focused only on cost difference of pumps
❑ When new pumps arrived, footprint larger & required
✓Larger pad
✓Relocation of electrical, piping, etc. already in place
❑ New owner had also removed overhead crane
✓Planned to use rubber tired cranes when pumps needed
maintenance
Result - pump building had to be widened to
allow for larger alley at owner’s cost
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 Full Scope of Work
➢Lessons Learned
➢Owners
❑ Negotiate full scope of work before initiating time
& cost negotiations
✓Owner should have known size of substituted pumps &
implications of removing overhead crane

➢Contractors
❑ Research technical & physical requirements when
negotiating change
❑ Check on availability, logistics & other potential
constraints
❑ Based on above, negotiate scope, cost & time
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 Failure to Perform
Operability Review

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 Operability Review
➢Project = Wastewater Treatment Plant
➢Location = Wisconsin
➢Contract Form = D/B/B
➢Situation =
❑ During punchlist stage, O&M staff gained access to
project for first time
❑ Portion of facility had manually operated emergency
shut off valves on both sides of alley - 48” above floor
❑ O&M staff insisted the valves had to be removed,
replaced with chain pull valves - 84” above floor
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 Operability Review
❑ When challenged to justify change –
✓O&M staff pointed out that vehicles used in facility
would likely severely damage current valves
❑ When asked why O&M staff did not identify
issue during design phase
✓O&M staff reminded design professionals & facility
management that they were not involved in design
reviews nor consulted during construction phase

Contractor had to remove valves & pipe

sections, purchase & install chain pull valves
& install in new pipe sections at owner cost
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 Operability Review
➢Lessons Learned
➢Owners
❑ Make certain senior O&M staff involved in 25%,
50%, 75% & 90% plans & specs review
❑ Make certain senior O&M staff involved in
submittal & RFI reviews if issues involve operations

➢Contractors
❑ During bidding, ask if operability review has been
performed by O&M staff to avoid COs
✓Try to incentivize owners to do this before bid opening
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 Overly Complex
Scheduling Specifications

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 Scheduling Specification
➢Project = Surface Water Treatment Facility
➢Location = Alabama
➢Contract Form = D/B/B
➢Situation =
❑ At end of project, contractor submitted large
claim for time extension & time related damages
❑ Consultant retained to review claim & assist city
in resolving issue
❑ Drawings well done, standard AWWA
specifications & minimal changes to work
❑ Scheduling specification lengthy & very complex
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 Scheduling Specification
❑ When consultant arrived at site learned city’s PM
was chief water inspector
❑ Discussion with PM revealed that
✓Contractor had submitted baseline schedule that city
“accepted” with little or no review – i.e., did not reject
✓Contractor had submitted monthly updates as required
✓When asked “What did you do when the contractor provided
the schedule updates?”
✓Response was “I put them in the box under the drafting table.
I can’t read that stuff!”
❑ Contractor realized this by month 2 – all delay &
claim notices in schedule update report
City negotiated settlement for $1.0+ million
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 Scheduling Specification
➢Lessons Learned
➢Owners
❑ Prepare or revise scheduling specification for each
project taking into account project
✓Duration
✓Complexity
✓& capability of staff to manage schedule
✓No such thing as “one size fits all” schedule specification
❑ If staff not able to manage complex specification
✓Simplify specification
✓Hire scheduling consultant
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 Lack of Contract
Constraints

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 Lack of Constraints
➢Project = Mirror Image Hospital Building
➢Location = Arizona
➢Contract Form – D/B/B
➢Situation =
❑ Existing hospital contracted for mirror image 5
story building across street from existing facility
❑ Design called for 4 sky bridges between new &
existing buildings
❑ Several months into construction, contractor
advised they would start work on 5th floor sky
bridge following week
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 Lack of Constraints
❑ Hospital PM responded – “Of course you know work
can only take place between midnight & 5:00 AM.”
❑ Contractor responded – “Where does it say that in the
contract documents?”
❑ PM said – “Everyone knows this!”
❑ In discussion PM reminded consultant that hospital
specialized in surgical removal of cancerous brain
tumors using laser scalpels
❑ PM noted surgery theaters work from 6:00 AM to
midnight 7 days a week & could not risk work vibrating
existing building
Sky bridge work done on shortened night shifts,
incurring delay & additional costs that owner paid
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 Lack of Constraints
➢Lessons Learned
➢Design Professionals, CMs & Owners
❑ Design team & CMs must question owners about any
potential constraints that must be included in contract
❑ Owners, think through all constraints needed to
complete work on time & budget & advise designers &
CMs

➢Contractors
❑ When preparing bids think about potential constraints
that logically should be in contract & ask questions
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 Impact Damages Claim

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 Impact Damages
➢Project = Wastewater Treatment Facility
➢Location = Wisconsin
➢Contract Form = D/B/B
➢Situation =
❑ Contractor provided submittals to owner
❑ Contract required responses within 30 days
❑ Owner took more than 90 days to respond
❑ Delay pushed concreting activities from fall to winter
❑ Concrete placed at 0 degrees or colder temperatures
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 Impact Damages
❑ Contractor filed “impact damage” claim
✓Did not request time extension as delay only consumed float
❑ Owner denied claim – “Even though we took longer to
respond no delay resulted. Claim denied!”
❑ Contractor responded – “Agree no delay but placing
concrete in dead of winter drove cost from @$90/cy in
place to @$300/cy!”

After several rounds of negotiation & sound legal

advice from outside legal counsel, owner paid entire
cost increase
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 Impact Damages
➢Lessons Learned
➢Owners
❑ Impact damages typically recoverable under Changes
clause
❑ Contractors do not have to prove project delay to
recover impact damages
✓Impact damages & delay separable
➢Contractors
❑ Whenever potential delay arises
✓Give written notice as required by contract
✓Track all time & costs separately from base scope work
✓Look for impact damages separate from delay damages (i.e.,
work pushed into winter, higher labor rate period, etc.)
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 Substantially Low Bids

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 Substantially Low Bids
➢Project = Gas Fired Power Plant
➢Location = Central America
➢Contract Form = EPC
➢Situation =
❑ US owner bid project on low bid basis
❑ Lowest bid more than 30% lower than second low
❑ Low bidder foreign contractor
✓No experience working in Central America
✓Little experience designing & building power plants
✓No relationship with labor brokers in Central America
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 Substantially Low Bids
❑ Owner ecstatic with bid price
✓“Wow, look at how much money we saved!”
❑ Contract negotiated & awarded
✓Design underway & construction started
❑ In first 6 months of construction, schedule
showed project nearly 1 year late!
✓Due in large part to lack of skilled craft labor
❑ Owner met with contractor to find solution
✓Contractor’s proposed solution – “We will import more
labor from our country!”
✓Contract referenced national labor law that allowed only
certain number of expatriates on any construction project
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 Substantially Low Bids
❑ Contractorrecommended owner tell national
government to change law & allow more foreign
labor
❑ When owner said this not possible, contractor filed
large delay damages claim

Contractor default terminated

Issue went to international arbitration
Owner incurred heavy penalties from national
government as concession had “take or pay” clause for
natural gas
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 Substantially Low Bids
➢Lessons Learned
➢Owners
❑ Lowest bid not always a “win” for owner
✓May be due to lack of experience with project type,
misunderstanding of scope of work, etc.
❑ If low bid 10 – 15% below second low, ask low bidder
to review bid & confirm no bid errors within 24 hours
➢Contractors
❑ If bidding work of this type for first time, retain staff
experienced with type of work during bidding
❑ If bidding in a location never before worked on, seek
local help to prepare bid
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 T&M Changes with “Not
To Exceed” Cost

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 T&M Changes with NTE Cost
➢Project = Wastewater Treatment Plant
➢Location = Texas
➢Contract Form = D/B/B
➢Situation =
❑ During construction owner issued numerous changes
✓Generally due to problems with design
❑ Owner & contractor frequently unable to negotiate
FFP for changes
✓Owner issued T&M changes to “keep work moving”
✓Owner surprised & upset at final costs of changes
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 T&M Changes with NTE Cost
❑ Owner decided to issue T&M changes with “not to
exceed” (NTE) costs
✓To “control the costs of T&M changes”
❑ Contractor sought advice on how to deal with the
NTE requirement – advised to
✓Track costs daily & separately from base scope costs
✓Summarize weekly, report to owner monthly
✓If reach NTE costs & changed work not complete, drop
tools!
✓Do not exceed NTE costs
❑ Contractor followed advice
✓$85,000 NTE cost reached but changed work not done
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 T&M Changes with NTE Cost
❑ Contractor “dropped tools” & walked away from CO
work
❑ Owner directed contractor to complete changed work
for the NTE cost
✓Or face potential T4D
✓Contractor refused
❑ Owner sent “cure notice”
✓Contractor legal counsel & surety met with owner

Owner withdrew cure notice & agreed to pay

contractor for actual cost + mark up of CO work
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 T&M Changes with NTE Cost
➢Lessons Learned
➢Owners
❑ Cannot force contractor to perform changed work for
less than actual cost unless FFP CO
❑ Contractors allowed to stop changed work when
reach NTE cost
➢Contractors
❑ Track cost carefully, do not exceed NTE cost
✓If do this, acting as “volunteer” & not entitled to extra cost
❑ Keep owner advised routinely & provide Estimate at
Complete (EAC) for each CO routinely
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 “Recover Lost Time”

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 “Recover Lost Time”
➢Project = 2 State Highway Projects
➢Location = 2 Midwestern States
➢Contract Form = D/B/B
➢Situation =
❑In both cases, projects running late
✓Neither contractor had filed delay claims
❑In both cases, contractors directed to “recover
lost time” at own expense
✓In both cases contractors said they would pay LDs
rather than accelerate work
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 “Recover Lost Time”
❑In both cases, contractors threatened with
default termination
❑In one case, contractor refused to accelerate
& was default terminated
✓Contractor filed wrongful termination lawsuit
❑In other case, contractor complied with
directive to recover the lost time
✓At end of job, contractor filed a constructive
acceleration claim in court
❑Both cases went to court
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 “Recover Lost Time”
❑In both cases, contractors argued
✓Cost to accelerate exceeded cost of daily LDs

✓Nothing in contracts prohibited contractors

from making this choice

In both cases, courts decided in favor of the

contractor

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 “Recover Lost Time”
➢Lessons Learned
➢Owners
❑ Review contract carefully before directing contractor
to “recover lost time”
❑ Check to see if contractors have contractual right to
pay LDs rather than recover time

➢Contractors
❑ Review contract to see if option available
❑ If not clear on issue, consult with legal counsel
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 “Stop Papering the Project”

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 “Stop Papering the Project”
➢Project = Strip Mall
➢Location = Southern California
➢Contract Form = D/B/B
➢Situation =
❑Contract offered $1.0 million bonus if project
complete 90 days earlier than required
❑Early on contractor encountered several
problems & filed notices of change &/or delay
❑Owner direction “Stop papering the job!”
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 “Stop Papering the Project”
❑Contractor pointed out merely following
requirements of contract
✓Owner replied – “I told you to stop sending all these
notices!”
❑Topreserve relationship, contractor complied
❑Contractor encountered 5 owner caused delays
✓Contractor filed 5 delay claims
✓Owner denied claims & said contractor not eligible
for $1.0 million early availability bonus
❑Contractor retained consultant to perform FSA
✓Delay analysis showed that “but for” owner delays
contractor would have met test for bonus
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 “Stop Papering the Project”
❑In arbitration owner’s attorney argued “No
notice, no claim!”
❑Contractor’s consultant testified on delay
analysis
❑Owner’s attorney asked consultant if contractor
filed “written notice of delay” for each event?
✓Consultant agreed no delay notices provided
✓Pointed out that contractor & owner discussed each
delay in project update meetings
✓Discussions recorded in meeting minutes kept by
owner staff
Arbitration panel awarded full bonus
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 “Stop Papering the Project”
➢Lessons Learned
➢Owners
❑ Notice requirements included for own benefit
✓To stay informed of what’s happening on project
❑ Filingnotices a contract administration matter
❑ Directing contractors to stop filing notices high risk

➢Contractors
❑ Regardless of owner directives, continue providing
notices
❑ Make certain discussion of delay events included in
project meeting minutes

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 Early Completion Schedule
Not Accepted

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 Early Completion Schedule
Not Accepted
➢Project = Sewer Interceptor in Tunnel
➢Location = Maryland
➢Contract Form =D/B/B
➢Situation =
❑Contractbid on hard dollar, low bid basis
❑Contractor planned to complete project early
✓Early completion savings included in bid
❑Contractor submitted baseline schedule with
planned early completion
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 Early Completion Schedule
Not Accepted
❑Owner rejected schedule, directed contractor to
provide schedule using entire project duration
✓Contractor objected, advised early completion savings
in bid so owner already benefited
✓Owner refused to accept schedule
❑Contractor complied
✓Created Ghost Schedule
✓Ran project off Ghost Schedule during project
❑At end of project contractor filed delay damage
& disruption claim
✓Included delayed early completion claim & sought
constructive acceleration damages
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 Early Completion Schedule
Not Accepted
❑Owner argued early completion schedules not
allowed
❑Contractor able to demonstrate planned early
completion schedule reasonable & achievable
✓Also demonstrated they followed Ghost Schedule
based on early completion schedule

Case settled in favor of contractor on basis of

constructive acceleration

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 Early Completion Schedule
Not Accepted
➢Lessons Learned
➢Owners
❑ Include “reduction of contract duration” clause or
specifically prohibit early completion schedules
❑ Do not reject early completion schedules out of hand
❑ Review – reasonable & achievable?
❑ If so, accept schedule & reduce contract duration

➢Contractors
❑ If bid early completion, document it
❑ If owner rejects early completion, show bid takeoff
❑ If owner still rejects early schedule, use Ghost Schedule
or file notice of Constructive Change concerning means
& methods
©2023 – James Zack Consulting, LLC 47
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 Conclusion

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 Conclusion
➢Industry surveys show 2 common causes of
construction claims are –
❑ Inadequate contract administration

❑ Inadequate planning & design

➢“War stories” offered support this conclusion

➢Situations avoidable

➢Strict contract compliance key to claim

mitigation
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 Questions or Discussion?

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James G. Zack, Jr., Principal
James Zack Consulting, LLC
JamesZackConsulting@outlook.com
970-775-8066 or 949-439-9407

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