It is not uncommon for a contractor that has encountered a construction claim to be surprised to learn that he has not maintained the necessary construction project documentation to supports his claim or defense. This article will set out the basic construction documentation that should be maintained and why it is necessary.
In order to prevail on a claim it is necessary to prove that the contractor is entitled to prevail on the claim (entitlement) and then prove the additional costs incurred as a result of the claim (quantum) . Typically, entitlement and the quantum aspect of the claim are proved by reviewing how the contractor planned on building the project (as-planned), as well as how the anticipated costs relate to the actual conditions and costs that were encountered during construction (as-built). While oral testimony is admissible evidence, greater weight is given to documentary evidence. Thus, the existence of as-planned and as-built project documentation are necessary to prove a claim.
Many government construction contracts require a contractor to maintain complete project cost records. Those records may be subject to audit in the event of a claim for a change order. In light of the increasing tendency of government agencies to respond to delay claims with liquidated damages and/or false claims of statute violations, the existence of detailed records are the only viable method of countering such defenses.
The following checklist includes the basic project documentation that will be necessary to prepare and prove, or conversely disprove, a construction claim. The size and type of a project will obviously impact the amount of documentation that will be maintained for each project. Larger projects require greater care in the preparation and maintenance of project documents, while smaller projects cannot economically support such extensive documentation. However, before a project is commenced, a claim-savvy contractor will review this basic checklist and set in place a project documentation policy.
1. Construction Contract and Purchase Orders
The first document that must be reviewed in any construction dispute is the construction contract. The contract must be reviewed to determine which clauses apply to the contractors entitlement to prevail on the claim and what, if any, clauses limit the contractor's ability to recover the additional costs created by the claim. In addition to the construction contract, purchase orders are typically used to establish delays.
2. Bid Documents
In this author's experience, it is not uncommon for missing and incomplete bid documentation to undermine the whole claim. The lack of such documentation calls into question both the contractor's professionalism and the veracity of the purported as-planned costs. In order to prove that the additional project costs incurred were reasonable, it is necessary to establish that the underlying contract amount was appropriate. The bid documentation should include the following: takeoffs, unit pricing, subcontractor and supplier bids, calculations setting forth expected production, overhead and profit mark-ups, and mark-ups for labor burdens.
3. Schedule Data and Devices
In order to prevail on a delay claim, the party asserting the claim must prove that the delay was excusable, compensable and critical. To prove those three elements it is necessary to establish the anticipated project scheduling which was the basis for project bid. A comparison is then made with the as-built scheduling. Therefore, the contractor must have an as-planned and have regularly updated as-built schedules. Ideally, the schedules should be based on a critical path method. In addition, any weekly "look ahead" schedules should be retained. If any third parties had input into the scheduling, the related documentation should be maintained.
4. Project Diaries
Project superintendents should maintain a diary that contains daily entries that, at a minium, set forth: (1) each day's weather conditions, (2) on-site subcontractors and employees, (3) deliveries of critical materials, (4) on-site visits by third parties (e.g. project architect, owner or engineer), (5) discovery of hidden site conditions, discrepancies in plans and/or conflicts, (6) important conversations, and (7) any other noteworthy event. If a delay, hidden condition or project conflict is encountered, the project superintendent should start a separate report that tracks the discovery and resolution of that particular problem.
5. Change Orders and Change Order Logs
Almost every project will have one or more change orders. The delay in responding to change orders can impact the completion the project. Thus, it is important to retain a record when the change order was submitted and when it was approved or rejected.
6. Plans, Specifications, Shop Drawings, Requests For Information and Submittals
The design documents and related correspondence concerning the design of the project should be retained. A sound practice is to create a request for information log, a shop drawing log and submittal log that includes the date that the document was tendered and the date a response was received, along with any germane comments. Such logs simplify a review of delays in the completion of the project.
7. Project Correspondence
Any correspondence concerning the project should be retained. Typically, separate correspondence files are established for each party to the construction project. Ideally, the correspondence should be docketed (i.e. a chronological list that is maintained at the front of the file that states the subject matter for each letter, including who the letter is from and to whom it is written). If a critical delay is identified, a separate folder should be maintained for that issue. Copies of the key correspondence should be placed in that separate issue file, as well as in the regular correspondence file.
8. Job Cost Reports and Estimates
For larger projects, it is a common cost- accounting practice to produce a report of the actual cost of each line item on the bid for comparison to the estimated costs for that line item. Once again, these records are a key element of the as-planned and as-built analysis. In addition, a review of those reports will help identify cost overruns that may be created by changed job site conditions.
9. Financial Statements
A component of every delay claim is home office overhead. The home office overhead calculation is based on the general administrative expenses for the delay years as well as prior years. In addition, more elaborate computer-based accounting systems allow for detailed accounting reports for each project.
10. Employee Payroll Records
On many projects manpower can be the largest expense. The ability to establish, through payroll reports, that the manpower loading for a particular project was not as anticipated when the project was bid is a key part of any disruption and/or delay claim. Typically, the manpower loading is depicted on a graph, with one side for hours and the other side for the date the labor was provided. For example, spikes in the labor loading graph can depict disruption.
11. Photographs and Videos
Dated photographs and videos are useful in determining percentages of completion. They can also be useful in establishing that the work was performed in accordance with the plans and specifications.
12. Miscellaneous documents
If it becomes necessary to pursue a mechanic's lien, stop notice and/or bond claim, additional project documentation may be critical. For example, documentation that evidences the start and completion of the project (i.e. punchlists) will be useful in determining the time for recording a mechanic's lien. Additional documentation should include preliminary lien notices and lien releases.
In most contracts there are claims notice requirements. All correspondence and memorandums that prove that notice of a claim was given in a timely manner should be maintained. Similarly, notices that the contractor is proceeding under protest should be maintained.
Another category of documents are meeting minutes. Such minutes can be from weekly meetings with the owner, general contractor and/or the design team. Ideally, those minutes reflect completion of prior activities and open activities.
It is the claimant's obligation to prove its claim. If he cannot do so, he will not prevail. Alternatively, complete records will be necessary to defeat an owner's delay claim. The lack of complete business records can result in additional costs in proving or disproving a construction claim. If the documents are complete and well organized, the claimant's consultant will spend less time preparing and documenting the claim, thus reducing the cost of presenting the claim.
The author of this article has prepared a request for information log, a shop drawing log and submittal log, as well as related construction administration forms. Upon written request the author will make the forms available for the nominal cost of copying and postage.
This bulletin is published periodically to provide general information about current legal issues. The article should not be construed as advice on a specific question. If you have a specific legal question or need legal advice, you should contact an attorney. This article was written by William C. Last, Jr. of Last, Harrelson & Faoro. Mr. Last is an attorney who has been specializing in Construction Law for over eighteen years. Mr. Last also holds a California A&B contractors license. If you have any questions Mr. Last can be contacted at 650-696-8350 1998