Rules for Keeping Your International Infrastructure Mega-Project by sdsdfqw21

VIEWS: 17 PAGES: 80

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           INTERNATIONAL CONSTRUCTION SUPERCONFERENCE 2006




                          top10
               Rules for Keeping Your
             International Infrastructure
                 Mega-Project from
            Becoming a Mega-Disaster
         Before, During or After Performance

LONDON      May 8, 2006   Constructing & Financing Infrastructure International Superconference
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Session Objective

•   Disaster Avoidance
•   Before, During, After Construction
•   Best Practices / Lessons Learned
•   Diverse Viewpoints:
    – In-house Counsel for EPC Contractor
    – Scheduler/Construction Manager/Claims Consultant
    – Outside Attorneys
• Panelists

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Presenters
Mark S. McKain                 Frank McDonough
Bechtel Corporation            McDonough Bolyard Peck




Steve J. Weber, Esq.           Louis R. Pepe, Esq
Holland + Knight               Pepe & Hazard, LLP




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Session Format

• Presentations
• Panelists’ Comments
• Audience Questions/Comments




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 Today’s Agenda
1. Contracts 101:   5.   Effective Project       10. Managing
   Critical              Controls                    and Resolving
   Provisions                                        Disputes
                    6.   Managing Delay
2. The Pre-
   Qualification         and Acceleration
   Process
                    7.   Anticipating and
3. Anticipating          Managing Changes
   and Planning
   for “Back-End”   8.   Managing Unforeseen
   Problems
   “Up Front”            Subsurface Conditions

4. Independent      9.   Force Majeure Control
   Technical Due         and Management
   Diligence

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 Contracts 101: The real world…
 • What’s different today…
     – More aggressive contracting environment
     – Increased reliance upon local governing laws and local
       ADR processes
     – Increased customer focus on financial security
       for performance
     – Increased need to address compliance issues
       post 9/11/01




Mark S. McKain                                Bechtel Corporation
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 Contracts 101: The real world…
  • Customers are increasingly trying to transfer risk to the
    contractor, for example
     – Increased LD amounts
     – Carve outs for gross negligence
     – Carve outs for willful misconduct
     – Blurring the distinction between GN and WM
     – Misalignment of risk and reward
           • EPC risk for EPCM level reward
           • Push to have EPCM contractor placing entire fee at risk
  • Greater tendency for customers to strictly enforce the letter of
    the contract
     – Resort to litigation/arbitration
     – Letting a third-party make the ultimate decision

Mark S. McKain                                         Bechtel Corporation
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 Contracts 101: The real world…

 • Increased reliance upon local law
     – Doing business in civil code countries vs. common law
       countries
     – Pressure from government (int’l) clients
     – Lack of legal precision in civil code jurisdictions
          • No system of legal precedent
     – Growth of new dispute resolution bodies in developing
       countries
          • China Intern’l Economic Trade Arbitration Comm’n
          • Cairo Regional Centre for Intern’l Comm’l Arbitration
          • Singapore International Arbitration Centre


Mark S. McKain                                      Bechtel Corporation
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 Contracts 101: The real world…

 • Concerns with financial security
     – Requests for access to financial data
     – Demands for parent company guarantees
     – LOC’s or bonds beyond “in lieu of cash retention”
     – Requests for security packages
          • Cash retention and LOC’s that are disproportionate
            to actual risk
     – Performance guarantees




Mark S. McKain                                     Bechtel Corporation
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 Contracts 101: The real world…

 • Concern with compliance issues
     – Increased regulation of business transactions
       (both U.S. and int’l)
     – Increased governmental resources for enforcement of
       regulations (e.g. export controls)
     – Increasing focus on anti-corruption measures – made
       more challenging by complex execution strategies in
       new venues




Mark S. McKain                                Bechtel Corporation
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 Before you sign the contract…
 • What should be in the contract?
     – Contract provisions can be divided
       into several categories
          • Those that are absolutely required
          • Those that need attention
          • Those that are unacceptable
     – Not a complete list and not set in stone
     – Be flexible…things will change

Mark S. McKain                                 Bechtel Corporation
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 Critical Contract Provisions
 • In general, we all know what’s important
     – Properly defined scope
     – Good execution plan
     – Getting paid for the services provided
     – Limiting risk exposure
     – Getting the next job from the same client




Mark S. McKain                              Bechtel Corporation
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 Critical Contract Provisions

 • Scope of work/definitions
 • Schedule
 • Changes
 • Terms of payment
 • Performance guarantees
 • Dispute resolution
 • Limitations of liability
 • Warranties

Mark S. McKain                              Bechtel Corporation
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 Critical Contract Provisions

 • Scope of work/definitions
     – Adequately defined the scope?
          • Base scope vs. changes
          • How will changes be addressed?
                 – More on this later…
     – Is it a structure based project?
     – Is it a process based project?
     – Definitions
          • Project specific definitions?
          • How do you define mechanical completion and
            substantial completion?


Mark S. McKain                                           Bechtel Corporation
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 Critical Contract Provisions

 • Schedule
     – Have we addressed schedule issues?
          • Is the language sufficiently detailed?
          • Milestones
          • Liquidated damages?
          • Float
          • Critical path
          • Concurrent delay
          • Relation to other clauses
          • Obligations to update

Mark S. McKain                                       Bechtel Corporation
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 Critical Contract Provisions

 • Changes
     – Critical to the success of any project
     – Addresses the inevitable
     – Purpose is to avoid disputes over changes in scope
     – Need sufficiently detailed clause to address
       contingencies
     – Relevant language should address cost and schedule
       issues relating to
          • Actual scope changes and
          • Impacts to base contract work

Mark S. McKain                                     Bechtel Corporation
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 Critical Contract Provisions

 • Terms of payment
     – Early and often…
          • Best strategy may be to get paid up front
          • Disputes happen and take time to resolve
          • Disputes in foreign jurisdictions can drag on
     – Currency fluctuations
     – Tied to milestones
          • Tied to what and how defined?
          • What is mechanical completion?
          • What is substantial completion?
     – Clearly defined (and earned) bonuses


Mark S. McKain                                          Bechtel Corporation
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 Critical Contract Provisions

 • Dispute resolution
     – Must assume disputes will happen
     – What’s the game plan to resolve?
          • Best case – on project
          • Probable case – off project ADR
          • Worst case – unfamiliar court system
     – Identify acceptable forums/venues upfront
          • ICC, LCIA
     – Identify acceptable governing law
          • Need consistent interpretation/enforcement of contract
          • NY law, English law

Mark S. McKain                                      Bechtel Corporation
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 Critical Contract Provisions

 • Limitations of liability
     – Balancing risk and reward
     – Placing fee at risk
          • Scope of services vs. LOL
     – Carve outs from total cap
        • Willful misconduct
        • Gross negligence
        • Trend appears to be overplaying WM and GN to
          circumvent contractual LOL
        • Lack of consistent definitions for WM and GN
        • Possible responsibility for lower tier subcontractors

Mark S. McKain                                      Bechtel Corporation
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 The Pre-Qualification Process
 • Current trend
     – Owners are relying on the prequalification to
       award mega projects
     – Now part of the competitive bidding process
     – Recommended approach for
          • Large/complex projects, specialty services
          • Intensive OEM supplied equipment projects
          • Multi-year projects


Mark S. McKain                                    Bechtel Corporation
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 The Pre-Qualification Process

 • Benefits of prequalification
     – From the contractor’s perspective
          • Levels the playing field amongst bidders
          • Unqualified bidders (should be) eliminated early
          • Encourages qualified bidders to pursue work
          • Remaining bidders
                 – Have better understanding of the competition, and
                 – Bring added value to the customer


Mark S. McKain                                         Bechtel Corporation
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 The Pre-Qualification Process

 • Benefits of prequalification
     – From the owner’s perspective
          • Risk mitigation
                 » Completing projects on time, within budget and with
                   the expected quality
          • Bidder responses provide information
          • Helps minimize review of marginal candidates
          • Promotes collaboration/teaming


Mark S. McKain                                     Bechtel Corporation
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 The Pre-Qualification Process

 • Downside to prequalification
     – Poorly drafted RFPs
          • Subjective vs. objective criteria
          • Requirements that are too vague or stringent
          • Qualified entities will not make the effort
     – Not intended to replace competitive bidding
     – Problematic disclosures
          •   Corporate successor issues
          •   Safety – EMR factor
          •   Poorly performed past projects
          •   Terminations (convenience vs. cause)
          •   Prior claims and litigation


Mark S. McKain                                          Bechtel Corporation
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Anticipating and Planning for “Back-End”
Problems “Up Front”

 Performance Guarantees
     – Scope of work
          • Typically process related
          • How is the EPC contractor positioned?
                 – Entire process or
                 – Balance of plant
          • Does the EPC “wrap” the process?
          • Who defines/controls the process definition?
          • Appropriate flow downs in place?
          • Are flow downs back-to-back?


Mark S. McKain                                            Bechtel Corporation
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 Anticipating and Planning for “Back-End” Problems “Up Front”


 Warranties
     – One size (or clause) does not fit all…
     – If you are the EPC contractor what is your scope?
         • Entire project or BOP?
         • Process v. structural project?
         • Are you wrapping the work of subcontractors?
         • Do you have the appropriate flow down protection
           for subcontractor warranty issues?
         • Misalignment with subcontractors can cause
           upstream exposure
         • Need to be aligned with performance guarantees

Mark S. McKain                                 Bechtel Corporation
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                         4

 Independent Technical Due-Diligence Report

  Key Points
  A report by an engineering/legal team independent
  of the Contracting Parties:
      – evaluates the Project’s technical
        and economic feasibility,
      – identifies any issues of serious concern, and
      – verifies that the Project Sponsors, EPC Contractor
        and the proposed Suppliers are qualified for their
        specific role


Frank A. McDonough, PE              TOPMcDonough Bolyard Peck, Inc
                                       TEN RULES – Before, During, & After   26
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 Independent Technical Due-Diligence Report

  Overview
      – Usual Application: Large technically
        complex projects, eg. Power Plants
      – Hired By: Funding Agencies, Govts
      – Purpose: Provide Confidence on
        major elements of the Project




Frank A. McDonough, PE              TOPMcDonough Bolyard Peck, Inc
                                       TEN RULES – Before, During, & After   27
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 Independent Technical Due-Diligence Report

  Documents Reviewed
      – Engineering Process Design Package, eg.
        Gasifiers, Boilers
      – Draft Turnkey Contract, Invitation to Bid, EPC
        Proposal, Draft Contract, Project Agreements
      – Project Permits
      – Financial Pro-Forma
      – Other Technical Data

Frank A. McDonough, PE              TOPMcDonough Bolyard Peck, Inc
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 Independent Technical Due-Diligence Report

  Procedure
      – Meetings with Sponsors
      – Site Visit
      – Meetings with Process Package Entities




Frank A. McDonough, PE              TOPMcDonough Bolyard Peck, Inc
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 Independent Technical Due-Diligence Report

  Typical Outline
     Design Overview         Sections, Services, Connections

      Tech Evaluation        Issues & Solutions, eg. Geotech


                             Qualifications, Contract, Delay
               Project
          Performance        and LDs, Transfer of licenses,
                             Design, Services



Frank A. McDonough, PE               TOPMcDonough Bolyard Peck, Inc
                                        TEN RULES – Before, During, & After   30
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                         4

 Independent Technical Due-Diligence Report

  Typical Outline
          Components         Raw materials, Existing Infrastructure,
                             Construction, Environmental
         Operations
    and Maintenance
        Detailed Costs       Capital, Project financing, Advances

  Economic Analysis          Revenues/Costs, Debt service, Risk
                             Analysis


Frank A. McDonough, PE              TOPMcDonough Bolyard Peck, Inc
                                       TEN RULES – Before, During, & After   31
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 Independent Technical Due-Diligence Report

  Benefits
      – Fresh and timely look at project
      – Independent of contracting parties
      – Cost-effective




Frank A. McDonough, PE              TOPMcDonough Bolyard Peck, Inc
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 Effective Project Control System
  Control What?

                     Schedule and Progress

  Why?

              To Create the necessary factual
               record of project performance


Frank A. McDonough, PE              TOPMcDonough Bolyard Peck, Inc
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 Schedule System

     • Specify up front
       – CPM
       – Timely Updates and Analyses
       – Resource-loaded, manhours
       – Pay quantities for progress
       – Change Orders, how and when analyzed
         and added to schedule
       – Commissioning

Frank A. McDonough, PE              TOPMcDonough Bolyard Peck, Inc
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 Methodology

     • Timely analysis by experienced
       scheduling teams
     • Delay Analysis Methodology (by contract)
     Issues
       – Prospective: based on forward measure of delay
         at the time the Change or Delay was introduced.
       – Retrospective: Major issues often cannot be
         agreed prospectively, how handle after
         the fact?
Frank A. McDonough, PE              TOPMcDonough Bolyard Peck, Inc
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 Managing Delay & Acceleration
  • Top Managers must be involved in
    the Schedule Dialog
  • Identify and discuss problems pro-actively
  • Resolve differences as you go




Frank A. McDonough, PE              TOPMcDonough Bolyard Peck, Inc
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 Managing Delay & Acceleration

  • The Scheduling goals should be:
      – Accurate, agreed upon Updates
      – Open discussion of delay, recovery
      – Formalize agreements on Changes




Frank A. McDonough, PE              TOPMcDonough Bolyard Peck, Inc
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 Managing Delay & Acceleration

  Chronic Scheduling Problems and
  How to Solve Them
  • No Contract Scheduling Requirements?
      – Spell it out.
  • No Approved Baseline?
      – Make it a payment Milestone.
  • Electronic files missing?
      – Always make a CD.


Frank A. McDonough, PE              TOPMcDonough Bolyard Peck, Inc
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 Managing Delay & Acceleration

  Chronic Scheduling Problems and
  How to Solve Them
  • Disagreement on Monthly Updates?
      – Both parties sign off
  • Disputes over Delay/Acceleration?
      – 3rd. party Independent review




Frank A. McDonough, PE              TOPMcDonough Bolyard Peck, Inc
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 Managing Delay & Acceleration

  Conclusions
      – Top management must be versed in the
        Scheduling process
      – An integrated, complete schedule record of
        progress, delays and changes is essential to
        the project.




Frank A. McDonough, PE              TOPMcDonough Bolyard Peck, Inc
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 Anticipating and Managing Changes
  I.     The "Changes" Clause
       A.       In General
            •     The "changes" clause is one of the most important
                  provisions in the contract, encompassing not only
                  formal changes in design, but also "constructive
                  changes.”
            •     Allows the Owner to make changes to the plans or
                  specifications during performance.
            •     Commits the Owner to pay for price increases
                  associated with changes/extras


Steven J. Weber, Esq.                             Holland + Knight, & After
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 Anticipating and Managing Changes

  I.    The "Changes" Clause (contd.)
       B. "Pricing" Change
           •    As an example, Paragraph 7.3.3 of AIA Document
                A201, General Conditions of the Contract for
                Construction (1987 ed.) sets out the following methods
                for determining the "cost or credit" due for changes or
                extra work.
           •    In the event of a change, where the price is to be
                negotiated or determined at a later date, the contractor
                should keep a separate account of his costs, with
                detailed backup information (invoices, payrolls, etc.).


Steven J. Weber, Esq.                             Holland + Knight, & After
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 Anticipating and Managing Changes

  I.     The "Changes" Clause (contd.)
       C.       Authority to Issue Order
            •      The contractor should investigate the authority of
                   any person ordering changes on the owner's behalf
                   to ensure that the owner will be bound by his
                   actions.
       D.       Requirement for Written Order
            •      Contract stipulations requiring written work orders
                   generally are considered valid and will be enforced
                   by the courts because of the necessary protection
                   they provide for the owner.
Steven J. Weber, Esq.                              Holland + Knight, & After
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 Anticipating and Managing Changes

  II.    The "Constructive" Change
        A.       In General
                 •   In relation to the standard changes provision, a
                     constructive change is viewed as conduct which is
                     not a formal change order, but which has the
                     effect of requiring the contractor to perform work
                     different from that prescribed by the original
                     contract, but in theory, which could have been
                     ordered under the changes clause.




Steven J. Weber, Esq.                              Holland + Knight, & After
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 Anticipating and Managing Changes

  II.        The "Constructive" Change (contd.)
        B.       Constructive changes generally fall into two broad categories:
                  a)    Situations where the owner or his representative
                        misinterprets the contract, e.g., where work that
                        actually satisfies contract requirements is erroneously
                        rejected or where the contractor is ordered to perform
                        work which is actually not required by the contract.
                  b)    Situations where the owner, after the work has been
                        excusably delayed, denies the contractor an
                        appropriate time extension and requires him to comply
                        with the original completion schedule (“constructive
                        acceleration").


Steven J. Weber, Esq.                                   Holland + Knight, & After
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 Anticipating and Managing Changes

  II.    The "Constructive" Change (contd.)
        C. Misinterpretation of Plans and Specifications
              •     If the owner erroneously rejects work that actually
                    satisfies contract requirements or orders the contractor
                    to perform work that is not actually required by the
                    contract, the "constructive change" doctrine gives the
                    contractor a remedy under the contract.
              •     Where the owner insists, over the contractor's
                    objection, that the contract be performed in accordance
                    with a misinterpretation of the plans and specifications,
                    the contractor is entitled to payment for this
                    "constructive change," quantified in accordance with
                    the changes or variations clause.


Steven J. Weber, Esq.                               Holland + Knight, & After
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 Anticipating and Managing Changes
  II.    The "Constructive" Change (contd.)
        D. Acceleration
              •     The second typical situation giving rise to a
                    "constructive change" arises when the owner refuses to
                    give the contractor an appropriate time extension for an
                    excusable delay, thereby forcing him to "accelerate" to
                    maintain his work schedule and avoid liability under the
                    liquidated damages provision.
              •     To the extent that any excusable delay, including
                    defective plans and specifications, or an improper
                    interpretation of otherwise adequate plans and
                    specifications, results in extra work which in turn delays
                    the contractor's progress, the contractor is entitled to
                    an appropriate time extension.


Steven J. Weber, Esq.                                Holland + Knight, & After
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 Anticipating and Managing Changes

  • Cardinal Change
      – Any contract may be breached by the issuance of
        excessive change orders, if the changes do not fall within
        those contractually permitted by the changes clause.
      – The distinction between contractually permitted and
        "cardinal" changes is not capable of precise definition, but
        is determined on a case-by-case basis.




Steven J. Weber, Esq.                          Holland + Knight, & After
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 Anticipating and Managing Changes

  • "Impact Costs/Ripple Effect"
      – It is also possible to make a claim under the changes
        clause for the "impact" of the excessive changes on
        unchanged work.
      – Under the impact theory, changes may induce a "ripple
        effect", causing disruption beyond the direct effect on the
        changed work itself.
      – A "ripple effect" is itself a constructive change for which the
        contractor is contractually entitled to equitable adjustment.




Steven J. Weber, Esq.                           Holland + Knight, & After
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 Anticipating and Managing Changes

  FIDIC Clause
  ¶ 13.1
  • Changes are referred to as “variations”
  • Employer can make variations at any time prior to
     issuing the Take-over certificate for the Works.
  • Contractor must comply unless it gives prompt
     notice that:
      1. It cannot obtain the goods;
      2. It will reduce the safety or suitability of the Works; or
      3. It will have an adverse impact on the achievement of
         performance guarantees

Steven J. Weber, Esq.                            Holland + Knight, & After
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 Anticipating and Managing Changes

  FIDIC Clause
  • Value Engineering by the Contactor is encouraged
  • Employer can request a proposal before issuing a
    variation
      - Contractor must respond as soon as practical
      - Employer then responds with approval, disapproval or
        comments
      - Contractor cannot delay any work while awaiting a
        response
  • Contractor is entitled to be paid per agreed
    proposals, plus reasonable profit


Steven J. Weber, Esq.                        Holland + Knight, & After
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 Anticipating and Managing Changes

  FIDIC Clause – Guidelines to Manage
    Changes/Variations
  • Contractor must give prompt notice
  • Employer should act quickly, especially if a proposal is
    required
  • Parties should promptly negotiate and agree to price and
    schedule impact (if any)
  • All possible cost increases should be resolved in
    advance where possible
  • Parties should execute a Variation Order representing full
    compensation and schedule adjustment due with waiver
    of impact or ripple damages
  • Prompt, contemporaneous resolution is key
Steven J. Weber, Esq.                        Holland + Knight, & After
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 Managing Unforeseen Subsurface Conditions

  I. Introduction
      One of the classic disputes between owners and contractors
      involves the question of who must absorb the added costs of
      constructing a project when construction has been made
      more difficult and expensive by unexpected site conditions.




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 Managing Unforeseen Subsurface Conditions

  II. "Standard" Differing Site Conditions Clauses
          A. Sample Clauses
             One of the classic disputes between owners and
             contractors involves the question of who must
             absorb the added costs of constructing a project
             when construction has been made more difficult
             and expensive by unexpected site conditions.
                  a) The United States Federal Government Contract Clause
                     (Federal Acquisition Regulation)
                  b) The AIA Contract Clause (AIA Document A201,1987)
                  c) The EJCDC Contract Clause (EJCDC No. 1910-8, 1990)


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 Managing Unforeseen Subsurface Conditions

  II. "Standard" Differing Site Conditions Clauses
      (contd.)
          B. Comparison of the Clauses
                 1. Kinds of "Conditions" Covered
                        • The Federal Acquisition Regulation ("FAR") clause
                          defines a differing site condition as a "subsurface or
                          latent physical condition," while the EJCDC clause
                          similarly defines it as a "subsurface or physical
                          conditions.“
                        • The AIA clause is somewhat different but essentially
                          tracks the Federal DSC Clause, using the phrase
                          "subsurface or otherwise concealed physical
                          conditions ... or... unknown physical conditions of an
                          unusual nature."

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 Managing Unforeseen Subsurface Conditions

  II.   "Standard" Differing Site Conditions Clauses (contd.)
          B. Comparison of the Clauses (contd.)
                 2. Type I and Type II Conditions
                        •   Both the AIA clause and the FAR clause describe two distinct
                            types of unexpected conditions which are compensable:
                                    •     conditions differing materially from those
                                          "indicated" by the Contract Documents and
                                    •     unknown physical conditions of an unusual
                                          nature differing materially from those ordinarily
                                          encountered and generally recognized as
                                          inherent in work of the character provided for in
                                          this contract.
                        •   EJCDC clause was significantly different, providing relief for
                            only Type I conditions so that under the EJCDC clause a
                            contractor assumed a good deal more of the risk of differing
                            site conditions.
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 Managing Unforeseen Subsurface Conditions

  II. "Standard" Differing Site Conditions Clauses (contd.)
          B. Comparison of the Clauses (contd.)
                 2. Notice Requirements
                        •   All three clauses also contain
                            notice requirements


          C. Importance of the Similarities
                        •   The three clauses are substantially similar.




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 Managing Unforeseen Subsurface Conditions

  III.   Recovery Under a Differing Site Conditions Clause
          A. The Purpose of a Differing Site Conditions Clause
             The often stated reason for including a "differing site condition"
             clause in construction contracts is to eliminate the risk
             contingency for subsurface conditions that a contractor must
             include in the price in the absence of such a clause.
          B. Type I Clause in Operation - Contract "Indications"
             To recover for the Type I changed condition, a contractor must
             show four things: (1) the actual conditions; (2) the conditions
             indicated by the plans, specs, and other contract documents;
             (3) the cost effect of the variance; and (4) proper notice of that
             variance.


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 Managing Unforeseen Subsurface Conditions

  III.   Recovery Under a Differing Site Conditions Clause (contd.)
          C. Type II Clause in Operation
             - Type II changed conditions, "unknown physical conditions of
             an unusual nature, which differ materially from those ordinarily
             found to exist and generally recognized as inherent in
             construction activities of the character provided for in the
             Contract Documents“

                - Type II conditions are not limited to subsurface conditions.
          D. Conditions Not Within the Clause
             Generally, non-physical conditions, such as governmental or
             economic conditions (e.g., labor shortages) are not recoverable
             under the differing site conditions clause.



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 Managing Unforeseen Subsurface Conditions

  III.   Stumbling Blocks - Site Investigation, Notice,
         and Record-Keeping Requirements
          A. Site Investigation Requirements
                  •     Some construction contracts contain clauses which can make
                        recovery for a differing site condition more difficult.
                  •     A "site investigation" clause must be carefully drafted in order to be
                        effective
          B. Notice Requirements
                  1.    Purpose for Requiring Notice and Record-keeping
                          •     If a differing site condition is encountered, the Owner
                                needs to know it.
                  2.    Exceptions to the Formal, Written Notice Requirement
          C. Exculpatory Clauses
              Where the underlying purposes of the requirement are served by "substantial
              compliance" or where the owner suffers no "prejudice" from the contractor's
              failure to comply fully with the written notice requirement, the requirement will
              not bar recovery.


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 Managing Unforeseen Subsurface Conditions

  Common International Clauses
  FIDIC ¶ 4.9
  • Requires Employer to make available “all data on
    hydrological and sub-surface conditions at the
    site…which have been obtained by or on behalf of the
    Employer from investigators for the Works.”
      – Not a Federal requirement
  • Makes Contractor responsible for the interpretation
    of all data
      – Consistent with U.S. Federal DSC


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 Managing Unforeseen Subsurface Conditions

  Common International Clauses
  • Contractor deemed to have inspected site, reviewed
    the data and “other available information”
      – Broader than U.S. Federal DSC Clause
  • Contactor “deemed to have obtained all necessary
    information as to risks, contingencies and all other
    circumstances which may affect the Tender”
      – Much broader than U.S. Federal DSC Clause


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 Managing Unforeseen Subsurface Conditions

  Common International Clauses
  FIDIC ¶ 4.11
  • U.S. DSC– Condition must “differ materially” from
    contract representation (Type I)
  • FIDIC – Subsurface conditions were not foreseeable by
    an experienced contract
      – Baseline is reasonable foreseeability (as defined by the
        limited sub-surface data) vs. contract representations
  • FIDIC also requires similar notice
  • If unforeseeable, Contractor entitled to time and money

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 Managing Unforeseen Subsurface Conditions

  Keys to Effective Management
  1.    Early notice to Owner (Employer)
  2.    Prompt direction from Owner (Employer)
  3.    Fair evaluation of condition
  4.    Good cost recordkeeping by Contractor
  5.    Accurate fragnets to impact current schedule update
       a. Accurate assessment of potential concurrency
  6.   Quantification of Contractor’s daily rate
  7.   Contractor’s prompt execution of the Work
  8.   Ending the impact of the condition
  9.   Prompt execution of a change order with full compensation and a
       waiver of impact (ripple) damages

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 Force Majeure Control and Management
  In General
      What is force majeure in the context of construction?
      the concept is based on the premise that, as a matter of
      equity, performance under a contract has been excused
      due to extreme events beyond the control of the parties




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 Force Majeure Control and Management

     Types of general force majeure events
              •    Weather
                    –   likely the most common example
                    –   typical definition is “beyond the control of
                        the contractor”
              •    Labor Strikes
              •    Absence of workforce
              •    Severe and unforeseen material shortages
              •    “Acts of God”

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 Force Majeure Control and Management

  Weather-related events
  Six inquiries that need to be made:
      1.       In what manner have the parties allocated the risk;
               regardless how the weather event is described, the
               standard that is to be satisfied is “the adverse weather
               conditions not reasonably anticipated.”
      2.       What was a reasonable baseline assumption with
               respect to adverse weather above which the presence
               of inclement weather should be deemed unforeseeable;
      3.       What was it about the particular weather encountered
               that entitles a party to relief;


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 Force Majeure Control and Management

  Weather-related events…
  Six inquiries that need to be made:
      4.       did the presence of adverse weather actually cause
               harm or delay and, if so, to what degree;
      5.       has the party seeking relief presented sufficient proof to
               establish entitlement, and
      6.       are there other factors that mitigate for or against relief
               such as one party’s nonperformance resulting in the
               other party incurring weather delays that it would not
               have otherwise experienced.


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 Force Majeure Control and Management

     FIDIC’s Description of Force Majeure for
     EPC Turnkey Projects
        1. Definition of force majeure under EPC General
           Conditions
              a) Force majeure is an exceptional event or circumstance:
                  1. which is beyond a Party’s control,
                  2. which such Party could not reasonably have provided against
                     before entering into the Contract,
                  3. which, having arisen, such Party could not reasonably have
                     avoided or overcome, and
                  4. which is not substantially attributable to the other Party.


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 Force Majeure Control and Management

     1.   FIDIC has identified the following events as possible
          force majeure events under EPC contract documents:
          a) war, hostilities (whether declared or not), invasion, act of
             foreign enemies,
          b) rebellion, terrorism, revolution, insurrection, military or usurped
             power, or civil war,
          c)       riot, disorder, strike or lockout,
          d) munitions of war, explosive materials, radiation,
          e) natural catastrophes such as earthquakes, hurricane, typhoon
             or volcanic activity.



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 Force Majeure Control and Management

     Consequences of Force Majeure
       1. Under the FIDIC EPC General Conditions for
          Turnkey Projects, a Contractor that is affected by a
          force majeure event, and thus incurred costs and/or
          delays, is entitled to:
              a) an extension of time for the delay, and
              b) in the event of an occurrence other than weather-
                 related, potential payment of costs.




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 Force Majeure Control and Management

  FIDIC ¶ 19.3
  • Contractor must give prompt notice
  • Contractor must also provide alternative plan of
    performance (but not implement alternative plan without
    Employer’s consent)
  • Employer has reciprocal responsibilities if it discovers a
    force majeure event
  • If a force majeure event lasts for 182 days, either
    Employer or Contractor may provide notice of
    termination, which will take effect after notice given


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 Force Majeure Control and Management

  Managing the Force Majeure Event
  • Early detection
  • Collaboration on any alternate manner of performance
  • Prompt agreement on any additional cost or time impact
  • Accurate recordkeeping by Contractor
  • Partnered solution to the impediment or early agreement
    on termination
  • Prompt payment by the Employer for all work installed
    up to the force majeure event (¶ 19.5)


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 Managing and Resolving Disputes
  (When Rules 1 through 9 fail –
  and sometimes they will)
  Three Subtopics
      – Dispute Resolution Clauses
      – Conditions Precedent to Arbitration/Litigation
      – Document Retention/Production/Management



Louis R. Pepe, Esq.                              Pepe & Hazard, LLC
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 Managing and Resolving Disputes
     Dispute Resolution Clauses
     (The functional equivalent of a pre-nuptial agreement)
         •   Litigation vs. Arbitration
         •   International Arbitration as the Default Position
         •   The Various Service Providers
         •   Selection of Arbitrators
         •   Neutrals vs. Non-neutrals
         •   Venue
         •   Applicable Procedural Law
         •   Language
         •   Discovery
         •   Arbitrator’s Powers (punitive damages, etc.)
         •   Vacatur / Appeal
         •   Equitable Arbitration


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 Managing and Resolving Disputes

  Conditions Precedent to Arbitration/Litigation
      – Two Party Settlement Negotiations

           • Structure

           • Confidentiality

      – Third-Party Mediation




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 Managing and Resolving Disputes

  Document Retention/Production/Management
  • Requirements for document retention
  • Document production obligations
    (including electronic documents)




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 Managing and Resolving Disputes
• Allocation of E-discovery Costs…
     -      Zubulake vs. UBS Warburg, LLC
     -      Undue burden v. likely benefit – 7 factors:

         1. The extent the request is specifically tailored to
            discovery the relevant information:
         2. Availability of such information from other sources;
         3. Total cost of production compared to the
            amount in controversy;
         4. Total cost of production compared to the resources
            available to each party;
         5. Relative ability of each party to control costs and
            incentives to do so;
         6. The importance of the issues at stake in the litigation; and
         7. Relative benefits to the parties of obtaining the information.

• Spoliation and its consequences
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Conclusions
Rules of Thumb/Guiding Principles
1. You may not win the war with a “good” contract; but you
   certainly will lose it without one.
2. Don’t fall prey to the “honeymoon” syndrome at the time the
   contract is awarded; instead, use that time to hope for the
   best, but plan for the worst.
3. Identify, address and make every effort to resolve problems
   and disputes as early as possible; unlike a fine wine, they do
   not get better with age.
4. Communicate. Your contracting partner will likely not think
   less of you if you tell them of a problem, but they assuredly
   will if you do not.
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Conclusions
Rules of Thumb/Guiding Principles
5.   Put Scheduling on the “front burner” and resolve delay
     issues decisively during construction.




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