Construction Disputes - Representing the Contractor (Chapter 1 - [?] Flashcards
What are two (2) marco-dynamics which cause the construction industry’s volitility and slender profits?
(1) Fierce competition; but
(2) Complexity and uncertainty of work.
Construction represents what percentage of yearly American gross national product?
10%
(approx USD$180 billion in 2018)
One thing has pre-eminance in predicting a succesful project - what is it?
The extent to which construction risk is:
identified; and
managed.
What are the four traditional construction cycle phases?
(1) Planning or feasibility (2) Design (3) Construction; and (4) Close-out.
Why - economically - is being a contractor not for the faint hearted?
Highly skewed dollars-at-risk against dollars-for-profit
(10:1).
Why is construction so time-sensitive?
Prolongation or acceleration both increase cost.
How does a cyclical business have higher risk?
Capital costs cannot be avoided when quiet.
What is the only major construction risk that cannot be controlled, merely allocated.
Weather.
Performance bonds are rare in the economy, but common in construction. Why?
Inherent risks make performance uncertain.
What is a major source of legislated risk for contractors?
Laws which impose strict liability, but little means of control.
(i.e. inadvertant disturbance of hazardous material)
How does factual density lead to construction disputes?
Uncertainty about “what happened”, leading to disputes.
How can the time/cost versus quality trade off lead to disputes between a principal and contractor?
Differing expectations.
What is “the Abrahamson principle” of risk allocation?
Allocate risk by ability to control.
What is the danger of seeking to transfer away too much risk?
“Squeezing” other party makes litigation more likely.
What is the temptation for Contractors in low economic times?
Assume excess risk, at slender margin, in non-core area, to keep people “busy”.
What can happen when you group construction risks by category?
Collective (often presumptive) allocation trumps individual consideration.
Delay damages are the obverse of what?
Liquidated damages.
What are prolongation costs?
Costs payable because the contractor is onsite longer.
(head office staff, hire costs etc)
What is a “hot” construction market?
Lots of projects.
What are a Principal’s concerns during a “hot” (busy) market?
Busy contractors will stretch themselves thin.
(resources, senior experienced people)
Why aren DRB and DABs not appropriate for all projects?
Expensive personnel.
Anecdotally, what are the two most common cause of construction disputes?
(1) Unprofessional contract management not respecting contract; and
(2) Unexpected risks.
What is a viable alternative to ordering an extension of time?
Ordering acceleration.
Why must a principal ensure liquidated damages are more than acceleration costs?
Otherwise contractor will accept liquidated damages instead of accelerating to finish, placing delivery date at risk.
Why you would assume a lack of records counts against that party, what in reality can happen?
The chaos disadvantages both sides.
Does common law normally favour a prospective or retrospective analysis of damage?
Retrospective
(Why guess when you know damage?)
Who carries the risk of latent conditions at common law?
Contractor.
According to the old proverb:
“Agree, for the law is ________ “?
Costly.
Herbert, Jacula Prudentum (1651)
Should the decision to litigate be subjected to the same cost benefit analysis as other business decisions?
Yes.
The decision to litigate should be economic, not on principle.
What is the first hidden cost of litigation?
Time value of money while dispute resolves.
What is the second hidden cost of litigation?
Time and rescources diverted from profit making work.
What should not be ignored when contracting with a government?
Soverign immunity
(esp. for ex-contractual claims).
What is the US Spearin doctrine?
Owner implicitly warrants design is reasonably free from defects.
What is a “wasting” professional indemnity policy?
Legel defense fees deducted from limit.
- “No construction project is risk free.*
- Risk can be managed, minimised, shared, transferred, or accepted*
- It cannot be ________.”*
Ignored.
- Risk management - The commercial imperative*
- Sir Michael Latham (1994)*
What happens to risk through the construction cyclye?
Risk level changes, and controls need to match.
In relation to subcontractors, what is the owner relying on the head contractor for?
Timely and proper performance of the contract.
(Single point of accountability)
A construction manager is usually the head contractor, but can actually be what?
A pure professional co-ordinator, who does no construction.
A superintendant who manages subcontractors only.
Aside from solvency issues, why else should general contractors not allow the owner to fall too far behind on progress payments?
Threatening suspension is ineffectual close to completion.
