Construction Disputes - Representing the Contractor (Chapter 1 - [?]

Question 1

What are two (2) marco-dynamics which cause the construction industry’s volitility and slender profits?

Answer 1

(1) Fierce competition; but
(2) Complexity and uncertainty of work.

Question 2

Construction represents what percentage of yearly American gross national product?

Answer 2

10%

(approx USD$180 billion in 2018)

Question 3

One thing has pre-eminance in predicting a succesful project - what is it?

Answer 3

The extent to which construction risk is:

identified; and

managed.

Question 4

What are the four traditional construction cycle phases?

Answer 4

(1) Planning or feasibility (2) Design (3) Construction; and (4) Close-out.

Question 5

Why - economically - is being a contractor not for the faint hearted?

Answer 5

Highly skewed dollars-at-risk against dollars-for-profit

(10:1).

Question 6

Why is construction so time-sensitive?

Answer 6

Prolongation or acceleration both increase cost.

Question 7

How does a cyclical business have higher risk?

Answer 7

Capital costs cannot be avoided when quiet.

Question 8

What is the only major construction risk that cannot be controlled, merely allocated.

Answer 8

Weather.

Question 9

Performance bonds are rare in the economy, but common in construction. Why?

Answer 9

Inherent risks make performance uncertain.

Question 10

What is a major source of legislated risk for contractors?

Answer 10

Laws which impose strict liability, but little means of control.

(i.e. inadvertant disturbance of hazardous material)

Question 11

How does factual density lead to construction disputes?

Answer 11

Uncertainty about “what happened”, leading to disputes.

Question 12

How can the time/cost versus quality trade off lead to disputes between a principal and contractor?

Answer 12

Differing expectations.

Question 13

What is “the Abrahamson principle” of risk allocation?

Answer 13

Allocate risk by ability to control.

Question 14

What is the danger of seeking to transfer away too much risk?

Answer 14

“Squeezing” other party makes litigation more likely.

Question 15

What is the temptation for Contractors in low economic times?

Answer 15

Assume excess risk, at slender margin, in non-core area, to keep people “busy”.

Question 16

What can happen when you group construction risks by category?

Answer 16

Collective (often presumptive) allocation trumps individual consideration.

Question 17

Delay damages are the obverse of what?

Answer 17

Liquidated damages.

Question 18

What are prolongation costs?

Answer 18

Costs payable because the contractor is onsite longer.

(head office staff, hire costs etc)

Question 19

What is a “hot” construction market?

Answer 19

Lots of projects.

Question 20

What are a Principal’s concerns during a “hot” (busy) market?

Answer 20

Busy contractors will stretch themselves thin.

(resources, senior experienced people)

Question 21

Why aren DRB and DABs not appropriate for all projects?

Answer 21

Expensive personnel.

Question 22

Anecdotally, what are the two most common cause of construction disputes?

Answer 22

(1) Unprofessional contract management not respecting contract; and
(2) Unexpected risks.

Question 23

What is a viable alternative to ordering an extension of time?

Answer 23

Ordering acceleration.

Question 24

Why must a principal ensure liquidated damages are more than acceleration costs?

Answer 24

Otherwise contractor will accept liquidated damages instead of accelerating to finish, placing delivery date at risk.

Question 25

Why you would assume a lack of records counts against that party, what in reality can happen?

Answer 25

The chaos disadvantages both sides.

Question 26

Does common law normally favour a prospective or retrospective analysis of damage?

Answer 26

Retrospective

(Why guess when you know damage?)

Question 27

Who carries the risk of latent conditions at common law?

Answer 27

Contractor.

Question 28

According to the old proverb:

“Agree, for the law is ________ “?

Answer 28

Costly.

Herbert, Jacula Prudentum (1651)

Question 29

Should the decision to litigate be subjected to the same cost benefit analysis as other business decisions?

Answer 29

Yes.

The decision to litigate should be economic, not on principle.

Question 30

What is the first hidden cost of litigation?

Answer 30

Time value of money while dispute resolves.

Question 31

What is the second hidden cost of litigation?

Answer 31

Time and rescources diverted from profit making work.

Question 32

What should not be ignored when contracting with a government?

Answer 32

Soverign immunity

(esp. for ex-contractual claims).

Question 33

What is the US Spearin doctrine?

Answer 33

Owner implicitly warrants design is reasonably free from defects.

Question 34

What is a “wasting” professional indemnity policy?

Answer 34

Legel defense fees deducted from limit.

Question 35

• “No construction project is risk free.*
• Risk can be managed, minimised, shared, transferred, or accepted*
• It cannot be ________.”*

Answer 35

Ignored.

• Risk management - The commercial imperative*
• Sir Michael Latham (1994)*

Question 36

What happens to risk through the construction cyclye?

Answer 36

Risk level changes, and controls need to match.

Question 37

In relation to subcontractors, what is the owner relying on the head contractor for?

Answer 37

Timely and proper performance of the contract.

(Single point of accountability)

Question 38

A construction manager is usually the head contractor, but can actually be what?

Answer 38

A pure professional co-ordinator, who does no construction.

A superintendant who manages subcontractors only.

Question 39

Aside from solvency issues, why else should general contractors not allow the owner to fall too far behind on progress payments?

Answer 39

Threatening suspension is ineffectual close to completion.