Project Owners Ought to Close the Loop

By Stephen Kelly

During a busy development project, it’s often difficult for an owner to take time to manage all the details related to the performance of its contractor or designer. Tackling important issues as they arise, however, can be critical to a project’s success. Here are six examples:

1. Know your contract and follow it

   After contracts are signed, they’re sometimes handled as if they’re radioactive:  packed away, never to be touched again. And, rather than reading the contract, owners may rely on their memory of what was agreed to, or what they consider standard industry practice. But this approach comes with significant risks, and could harm your rights under the contract or your ability to hold your contractor or designer to what was agreed to in the contract. For example, if there’s a dispute between the parties, there’s often a step-by-step process for resolving it. A working knowledge of the contract terms is best, but, at a minimum, you should read the contract (or have your attorney read it) when an important issue arises, to know what the contract says about the issue.

2. Review meeting minutes

   You might ask yourself:  who has time to review meeting minutes? Minutes, however, may be the only written record of a project meeting, and they might not accurately reflect the meeting discussion or what, if anything, was decided (for example, whether the owner agreed that the contractor is entitled to a time extension). Take time to read meeting minutes, flag any substantive errors and omissions, and correct the record if necessary.

3. Close change orders

   It’s not uncommon for written change orders to lag behind informal discussions between an owner and its contractor about how much extra time and money the contractor is entitled to because of a scope change. This is understandable, if keeping the project on schedule is more important than a final decision on cost and time impacts. However, change orders should be signed as soon as possible, because the further you get away from the change decision the harder it may be to assess its impacts or to negotiate cost and time adjustments. It’s also important to make sure that the change order is consistent with your intent. For example, the change order should accurately describe the changed work, and the contractor shouldn’t reserve claims that you don’t intend (for example, a change order to increase the contract price that reserves the contractor’s right to assert a claim for additional time).

4. Respond to correspondence

   Like all busy professionals these days, an owner faces an avalanche of emails, letters, and other documents, and it’s tempting to procrastinate about responding to project documents (or not respond at all). While that approach may be necessary and appropriate in some situations, it’s important to develop a sense for when a response is required – for example, if a contractor describes a situation that may result in a claim, it’s important to get all the relevant facts in the record.

5. Document claims

   Even the best claim can be crippled by poor documentation. If you believe your contractor or architect has made an error, notify the contractor or architect in the way the contract requires. If you need specialized help in assessing an error, consider hiring a qualified expert. If an employee that’s familiar with the claim is about to retire and move to Tahiti, interview the employee about the claim. If the claim can be visually examined, photograph it. Above all, collect, review, and store documents relevant to the claim.

6. Have your designer review design changes

   Coordinating between a contractor and designer can be a pain, and it can be tempting for an owner to try to take on a designer’s responsibilities in order to save time and money. For example, an owner may try to approve a change in the work without consulting its project architect. The risk with this approach is that, absent limited circumstances, a contractor won’t be responsible for the design, and a failure to consult with the project architect may result in the owner bearing the risk of a design issue.

There are only so many hours in the day, and the details of a project can be overwhelming. At the same time, letting important issues linger unaddressed risks the success of the project. Addressing important issues in real time is the best approach.

"Project Owners Ought to Close the Loop" was originally published July 16, 2014 by the Daily Journal of Commerce.