What’s Up With Division 1 (No. 14)

This year my family chose somewhat of an atypical holiday photo.  We proudly feature the Division 1 branded umbrella!  You can see the #1 logo just over my daughter's shoulder.  

I hope you and your family/friends are having a wonderful holiday season.  I know how busy 2021 felt for many of our D1 members and we all deserve some down time before we ramp back up in 2022! 

Even with the heavy workloads and crazy, evolving work life balance decisions we had to make in 2021, I am so proud of the efforts Division 1 members made this year to engage, educate, and network with each other.  Here is a listing of some of the programs and events we conducted:

• Virtual Escape Room (Feb. 2021) with Divisions 7/9
• Napa Valley Wine School Online Class (March 2021)
• Return on Investment of Construction Claims (March 2021) 

• Privilege Walk (April 2021) with the Forum's D+I Committee and NAWIC
• Charting Your Path to an ADR Practice (June 2021) with the Section of Litigation's Construction Litigation Committee, NAWIC, and the AAA

In addition, we scheduled eight Division 1 Toolbox Talk Series programs this year.  Our TTS Planning Team has demonstrated incredible creativity and effort to get this series off the ground.  Big thanks to Jade Davis, Patricia Thompson, David Ponte, Daya Naef, and the other TTS team members / discussion leaders that put on these programs!  We are going to continue strong in 2022. Contact me (rtdunn@PierceAtwood.com) if you want to get involved. 

Finally, Catherine Delorey and The Dispute Resolver editorial staff published nearly 40 posts in 2021.  Great job TDR Team!

Looking forward, our next TTS program is scheduled for Thursday, January 27, 2022 at 12:00PM ET.  Sakib Kahn will be co-leading a discussion about thorny topic of litigating design delegation issues.  Registration page and promotion of that will be sent out next week.  

We also are conducting a second Building Results program for the Forum/D1's law student membership on February 2, 2022 at 5PM ET. The Forum's law student liaison and D1's YLD liaison, Lexie Pereira and I will co-moderate this program with excellent panelists: Jeff Cruz, Leslie O'Neil, Carmela Mastrianni, and Richard Wittbrodt.  

The Forum's midwinter meeting is in San Diego on February 23-25, 2022.  Division 1 events will include:

• Division Lunch - A Perfect Storm: The Engineering and Legal Lessons Learned in the 10th Year Anniversary of the Indiana State Fair Stage Collapse."  Our speakers will be Kurt Hoigard, an engineer with Raths, Raths, Johnson (RRJ) and John Van Winkle, Van Winkle Baten Dispute Resolution.  Thanks to Marissa Downs for taking the lead on this lunch.   

• Practicum - Advanced Advocacy Skills in Mediation Practicum | Wednesday, February 23, 2022, 1:00PM – 4:00PM, San Diego, CA.  Construction cases are complex and often involve not only complex technical issues, but also numerous parties, voluminous documents, and a myriad of claims and counter-claims.  Many construction cases are resolved through mediation – and nearly all of them will at least attempt mediation voluntarily, or be required to by contract.  However, a successful mediation of complex construction cases requires a skilled neutral and experienced advocates. This Mediation Practicum will provide advanced mediation and negotiation insights and skills for construction lawyers, construction companies, and neutrals alike to maximize the potential to effectively mediate and resolve complex construction cases.  This practicum will be an interactive event with the attendees including participating in and observing role plays and learning from some of the top construction lawyers and mediators.

REGISTER HERE FOR THE PRACTICUM

After the midwinter meeting, the ABA Forum on Construction Law is conducting 3 additional meetings in 2022:

• New York City - May 4-7, 2022
• Lake Tahoe - July 26-28, 2022
• Memphis - October 2022

Happy Holidays and looking forward to working with you all next year!!  

Tom Dunn, Division 1 Chair

Pierce Atwood LLP

rtdunn@pierceatwood.com

View from the Field Part 2 - The Front-End Makes the Megaproject

This series of blog posts provides a practitioner’s view of the management processes and challenges associated with megaprojects as well as large and complex projects. Addressed by both Edward W. Merrow of Independent Project Analysis, Inc. and construction lawyer Andy Ness at a recent ABA Forum on Construction Law conference, their high-level perspectives are elaborated herein. This multi-part series has and will expand upon some practical aspects of the many challenges facing managers as well as highlight suggestions for implementation by inside or outside counsel.

Mr. Merrow’s High-Level Findings

In Mr. Merrow’s presentation, he advised and emphasized that only about 35% of Megaprojects are successful. By contrast, Major Projects less than $500 million have a success rate of approximately 63% (hence even these projects experience a failure rate of one-third). Key metrics are: Cost Index, Cost Growth, Execution Schedule Index, Execution Schedule Slip, and Production Problems. Mr. Merrow’s theme for success – “The Front-end Makes the Megaproject.”

The summary, highest level findings (regarding Megaprojects) of Mr. Merrow’s presentation are:

• The Front-end Makes (or breaks) (is essential for success of) the Megaproject
• Sponsors of Megaprojects have three critical responsibilities:
• Shaping – shape the project such that stakeholders are aligned
• Basic Data – technical data are correct and complete
• Front-end Loading – fully define the project before starting execution
• All of these are owner responsibilities alone (i.e., not contractors).

Mr. Ness’ High-Level Findings

Mr. Ness wrote a paper Why Megaprojects Fail So Often and Why You Should Care, No Matter the Size of Your Project and focused on business decisions in “4. Business Decisions That Hurt Prospects for Project Success.” Several key points follow:

Business-driven actions or inactions…

These include under-investing in up-front project development, failing to assign the full required team to the project, untimely changes to the project’s scope, demands to shave the budget or compress the deadline for completing the project without reducing the scope, and involving the company’s purchasing organization in the process of selecting key project contractors and other participants.

Mr. Ness continues “The monumental mistakes usually belong to the business side.” Hence, this is not “The Field” (defined below).

Why Study Industrial Megaprojects?

Given Mr. Merrow’s findings and Mr. Ness’ perspectives, it is legitimate to question the value since most projects, although they may be large and/or complex, are not industrial megaprojects. The reasons are:

• Problems are similar on large & complex (not megaprojects) projects – lessons learned are valuable
•  Large & Complex success rate is 60%+, therefore, failure rate is 30%+
• Formulas and managerial methodologies for success are valuable models for planning and execution of large and complex projects (not megaprojects).

View from the Field – The Front-End

What is the Field? In this case, we define “The Field” as any Project Management Team (PMT): owner, contractor(s) (including engineering, architectural, construction and specialty), suppliers and vendors. I have had all of these roles in large and complex projects, some megaprojects.

Shaping (shape the project such that stakeholders are aligned) – Stakeholder Alignment managerial process is addressed in several industry standards. These resources include PMI Project Management Body of Knowledge (PMBOK), Stakeholder Management and Project Management, as well as Kerzner, Stakeholder Relations Management. Stakeholder Alignment can be achieved using these (and other) processes. The processes can be implemented within the Project Execution Plan (PEP) (also known as Project Plan, Project Management Plan, and other titles) using an extensive PEP workshop process.

In Leading Complex Projects, Mr. Merrow describes the PEP as:

A project execution plan (PEP) is a document that is produced by almost all project teams in all of our clients across all industrial sectors. It is a ubiquitous document that is, in theory, supposed to tell the expected story of the project and its execution. Some PEP’s we see are very good and some of the PEP’s are utterly horrid.

Stakeholders such as inside or outside counsel may achieve insight into the status of Stakeholder Alignment by attending a few workshop sessions and/or reviewing the PEP deliverable.

Basic Data – requires specialized and suitably credentialed Subject Matter Experts (SME’s).  I have encountered these situations and made the decisions to acquire suitable SME’s. Credentialed SME’s should deliver a report assessing basic data status and readiness to proceed into the project development process.

Front-end Loading – How does the project team evaluate readiness (suitable front-end loading)? A creditable tool is Construction Industry Institute (CII) Project Development Readiness Index (PDRI). These tools are available for various industries. Business unit representatives/SME’s (not merely the PMT) provide creditable expertise for representing/contributing business interests, values and requirements. Further, stakeholders such as inside or outside counsel, could assess the status by attending working sessions and/or reviewing standard reports.

Conclusions (Part 2)

The Front-end makes the large and complex project. The developmental processes are all the responsibility of the owner. Hence, owners (including owner PMT’s) need to make sure that this process is robust and complete. Contractors need to evaluate the degree of completeness during the bidding process. Inside and outside counsel can use the managerial processes and deliverables as assessment tools in order to evaluate the large and complex project readiness for further development (or readiness for passage through the next stage gate).

View from the Field – Interface Management

Part 3 of this series will address the challenges of Interface Management that is required when using “Mixed” contracting approach.

Author George T. McLaughlin PMP CCM has worked worldwide in this industrial marketplace since the early 1980’s. He serves Owners, Prime Contractors, and Subcontractors. For the most part, Mr. McLaughlin’s work is performed on-location where the relevant work is being performed hence the title “view from the field.” Mr. McLaughlin is a principal of McLaughlin & McLaughlin out of Austin, Texas.

Meet D1’s Neutrals Series: CLIFFORD J. SHAPIRO

Company: Shapiro Dispute Resolution LLC

Office Location: Chicago, IL

Email: clifford@shapiroadr.com

Website: www.shapiroadr.com

Law School: George Washington University, JD 1982

Affiliated ADR Organization: AAA National Panel - Construction and Commercial Claims

Types of ADR services offered: Arbitration & Mediation

Geographic area served: United States

Q: Describe the path you took to becoming an ADR neutral.

A: I have been a construction litigation attorney for more than 35 years, and for the past 13 years I was an equity partner and chair of the Construction Law Practice Group at Barnes & Thornburg, an AmLaw 100 firm with 20 U.S. offices.  In that capacity, I handled just about every kind of construction claim that exists, and I worked to resolve those claims through litigation, arbitration, and mediation.  About five years ago, I decided to become an arbitrator and mediator. I spent quite a bit of time obtaining formal and informal training, and I was selected by the American Arbitration Association to be a member of its National Roster of Neutrals for construction and commercial claims.

Q: What percentage of your current legal practice is spent on ADR work?

A: As of January 1, 2021, I am working 100% as an arbitrator and mediator.  I primarily handle complex construction disputes and related insurance claims, as well as commercial disputes.

Q: Mediators are oftentimes described as “facilitative,” “evaluative,” or “transformative.” Do you have a style?

A: Each mediation is different, but generally I begin mediations in a more “facilitative” role and progress to a more “evaluative” role when it is appropriate to do so.  Particularly if a party requests it, I will share my thoughts about the risk analysis of the claim.

Q: What should attorneys and their clients take into consideration when selecting a mediator?

A: I think subject matter expertise is important in construction cases.  Also, in a complex, multi-party case, it helps to have a mediator who has successfully handled those kinds of claims both as an advocate and as a mediator.  It can also be important for the mediator to understand and be able to handle the numerous kinds of insurance issues that often arise in connection with construction claims. 

Q: Are virtual mediations as effective as in-person mediations? Do you anticipate that mediations will continue to be conducted virtually post-pandemic?

A: I handled quite a few virtual mediations and arbitrations during the pandemic, and they were all successful.   Frankly, I was surprised at how well these proceedings worked.  However, as we move out of the pandemic, most counsel and parties are telling me they want to have in-person mediations and arbitrations again, or at least to have “hybrid” proceedings at which the key parties and counsel appear in person and other participants can appear virtually.

Q: What role do you think videoconferencing will play in the arbitration landscape post-pandemic?

A: I now regularly use video conference technology for preliminary meetings.  Particularly with respect to mediations, I highly recommend having a virtual meeting with counsel and the key client representatives for each party in advance of the first mediation session.  These meetings almost always provide important information that is not found in the written submissions, and they are a great way to begin the process of building the trust and respect that is critical to a successful mediation. In addition, these meetings often make it possible to forego having opening statements or presentations at the start of the mediation.

Q: Can you describe one of the more notable arbitration matters that you have handled?

A: The most memorable case I had this past year was a AAA arbitration matter where I served on a panel for a large, complex dispute that involved more than 40 different construction claims exceeding $35 million in claimed damages.  The dispute arose out of a luxury apartment building project and involved more than five parties.  The claims were presented to the panel during two weeks of live hearings in St. Louis and then three weeks of virtual hearings via Zoom during the pandemic.  The panel issued a 46-page award.

Q: What are some of your interests or hobbies outside of your ADR Neutral practice?

A: I am a road bike cyclist (who used to be faster), and I play acoustic and electric guitar.  My wife and I also like to visit our grown daughter and her family, and we like to travel.

Irreconcilable Differences and the Right to Cure (Terminating Construction Contracts - Part 1)

In this series we will provide a brief summary of a very complex topic: the termination of construction contracts. Termination should be a last resort on a difficult construction project. There are a myriad of reasons why termination can backfire if not executed carefully and thoughtfully.

This series will scratch the surface of selected legal issues arising from contractual terminations. Although much of this analysis is from the perspective of an owner, we hope the discussion will also be of use for other parties, including design professionals, general contractors and subcontractors.

Complex construction projects can be long, difficult and frustrating endeavors. Inevitably, things go wrong. Delays happen, unforeseen circumstances arise and costs increase. After months of interaction both on-site and during project meetings, personalities clash and patience wears thin. 

In this charged atmosphere with large amounts of capital at risk, it can be tempting to consider the merits of terminating certain contracts. As we counsel our frustrated clients regarding the potential benefits of termination, and more importantly the potential pitfalls and liabilities that could end up in protracted litigation or arbitration, sometimes the best service we can provide is simply letting an exasperated client blow-off steam while reminding them to maintain written records of project-related communication and a back-up set of all project documents. Termination may sound viable in the heat of the moment, but it is hardly a decision that should be made without careful planning and detailed scrutiny of all the legal and practical implications. 

Irreconcilable Differences and Practical Considerations

Unfortunately, certain differences are irreconcilable. In these circumstances, termination may be the only viable option to finish a project. However, even when a material breach occurs, clients should be counseled regarding several important practical considerations before even reaching the litany of legal concerns.

For example, even assuming an owner has the right to terminate a contractor for cause, the owner may not have an adequate replacement ready to assume the remaining contractual obligations. Or perhaps the owner has a replacement, but in order to assume the remaining obligations and walk onto the project and accept the risks of “cleaning up someone else’s mess,” the replacement is prohibitively expensive. In these scenarios, the termination “medicine” may be worse than the “disease” of maintaining a difficult relationship with an underperforming party.

A second critical decision is whether a client wants to deal with the stress and expense of mediation, arbitration or litigation. Further, the client should be advised to consider termination in the context of its relationship with the lender. Because construction projects are capital intensive, lenders may retain leverage, literally and figuratively, over significant project details. Making a unilateral decision without considering the lender is rarely a good idea.

Materiality and Termination For Cause

The law generally disfavors termination. Termination is a drastic remedy and the law has developed several hurdles before a party can justify terminating a contract for cause. First, the breach must be material. Second, the breach must be not be excused. Third, the breach must have been neither cured nor waived.

Many modern construction contracts contain “breach conversion” provisions. These powerful devices convert breaches from breach of contract claims into claims for relief under the contract. Breach conversion clauses may address common issues such as changes, owner’s misrepresentation of site conditions or suspension of work.

Not all breaches are material. While a material breach may provide grounds for a for cause termination, defining the outer limits of materiality is notoriously complicated. Hopefully the contract documents are detailed enough to provide specific guidance regarding triggering events, cure provisions and compensation. Contractual termination clauses are usually the starting point of the analysis.

Most standard form contracts appoint the architect or another design professional as the “Initial Decision Maker” pursuant to their construction administration responsibilities. The Initial Decision Maker essentially acts as the earliest referee of the formal dispute process. They may be forced to consider for cause grounds for terminations including defective work, excessive delays, the non-payment of subs or insufficient labor on-site. Another example may be determining when a work stoppage amounts to abandonment. Nothing can be more frustrating than a work-stoppage when a project is already behind. However, clients should be counseled that a court may not agree that a given work stoppage amounts to abandonment.

The stakes of deciding to terminate a contract due to a material breach are high. If an owner makes the wrong decision, they can open themselves up to significant liability. It goes without saying that an owner’s wrongful failure to pay is itself a material breach. Wrongful termination can lead to the discharged party receiving lost profits and other damages. In many jurisdictions, a bad faith termination can lead to extracontractual damages.

The Right to Cure

Even when a breach has occurred, most standard contract documents will provide important limitations on the right to terminate. One of the most significant limitations is the right of a breaching party to cure any material breaches capable of being remedied.

The right to cure provides the breaching party with the opportunity to address their mistakes. Sometimes this isn’t practical for logistical reasons, but the legal principle is important. For example, most jurisdictions won’t let a landlord evict a residential tenant without notice of default and other legal safeguards developed over time. The same basic concept applies to construction contracts. The right to cure is a common law concept grounded in the equitable principle that notice is an element of fairness and can promote the informal resolution of disputes.

A “cure notice” must be given by the non-breaching party. There are only limited exceptions to this general rule, including when a material breach clearly cannot be cured in time. Most standard form construction contracts will clearly specify that a cure notice must be given by the non-breaching party prior to termination. Independent of the explicit contractual language, courts usually find that unless expressly waived, a right to cure is implied in every construction contract as a matter of law.

The cure notice must adequately apprise the breaching party of the specific failures which, if not remedied, may lead to termination.

Providing cure notice is an essential prerequisite to a valid termination. If the contractor fails to cure or otherwise provide adequate assurances that it will do so within a reasonable period, the architect of record may certify that sufficient cause exists for termination.

But wait, there’s more. Waiver, mitigation and other defenses will be the topic of Part II of this series.  

Author Patrick McKnight is an associate in the Litigation Department of Fox Rothschild LLP. He can be reached at pmcknight@foxrothschild.com.

Podcast Highlights (No. 1): Design Professional's Guide to Construction Law

As the litigation and dispute resolution division of the Forum, D1 members deal with a variety of aspects of construction law and many are discussed on the Forum’s podcast “Construction Law Today.” This podcast was established in 2019 and created by Buzz Tarlow, one of D1’s ADR neutrals. As an additional benefit to members, the D1 blog is spearheading a series summarizing the Forum podcast episodes.

Episode 22: Design Professional’s Guide to Construction Law

(Click title for the full podcast episode)

This is a summary of the podcast discussion, which focused on the new book “Design Professional’s Guide to Construction Law”, published in 2021,  and edited by the three guests Matt Ninneman, Buck Beltzer, and Mark Mercante. Their practice expertise ranges the whole gamut from transactional to insurance risk management, litigation, arbitration, and acting as arbiters. Unlike the previous edition of this book, that covered construction manager issues along with design professionals, this edition focuses only on design professionals and emphasizes risk management strategies for attorneys to use when counseling these professionals. It also includes recent developments in legislation and case law. 

This book was developed because design professionals are at greater risk than most project participants due to variations in state law, updates to contract forms, and shifts in project delivery systems, with an increase in construction-manger-at-risk projects and end-design builds, which have created new risks for which designers and legal practitioners, did not traditionally account. For example, on the design-build side, there is risk that design professionals may face the same treatment as subcontractors, with offsets, etc. On the construction-manager-at-risk side, design professionals begin working with general contractors earlier in the development of the entire project and there is case law that suggests that design professionals, unless it is stated otherwise, might take on additional risk as representative of the owner. Furthermore, design professionals have weakened ability to minimize risk as projects progress. For example, design professionals, particularly subconsultants, can find themselves doing large expensive projects with sophisticated designs that require licensure and significant education and if the contractor does not build in accordance with the plan and makes changes without the designers’ input, the design professional is stuck in the middle with risk on both sides with the typical design professional malpractice insurance policy eroding, with defense costs being taken out of policy limits.

The book examines ways to minimize risk within the contract setting, including consequential damage waivers, waiver of subrogation and setting limitations of liability to the design professionals’ fee or insurance coverage limits, or some set number to which the design professional can agree. On a related note, the book includes a rewritten examination of insurance policies and how to minimize risk using them. This includes a review of standard language, like indemnity provisions. What are they? What restrictions are there on indemnity provisions? Who is covered? What is covered? Who has a duty to defend and when is it triggered? What are coverage positions of former employees? What is the impact on additional insureds? What is excluded from coverage? What is contractual liability? What is the warranty language? What is heightened standard of care? (and more)…

Readers of this book will also see an in-depth examination of numerous doctrines, including heightened standards of care; betterments—which has been better developed recently; and the economic loss doctrine, which has evolved and varies by state. The book also addresses recent modifications to AIA form provisions which incorporate recent state legislation and important case law developments that should be incorporated into design professionals’ form contracts. 

Another specially treated issue in the new book is licensing, including the stamping and sealing obligation of various states. (FYI, the Forum’s Division 3 has a 50-state survey on this issue.) The vast differences in process and procedure are quite surprising.  For example, who is stamping? When do you stamp? What are you stamping? What is the reporting obligation for malpractice? What is the scope? Is there a threshold value? Each state has some expectations for self-reporting, which are also addressed. Finally, the text touches on intellectual property, and how to protect specialized knowledge of structures and advancements in engineering.

In summation, this book is a valuable resource for practitioners and the design professionals that they counsel, as it is comprehensive and current, addressing new trends in the industry that all players must know and incorporate into their contract negotiations and risk management planning.

Blog contributor Kanita Williams is the Principal at The Law Office of Kanita C. Williams, PC, in Washington, DC. Her practice is criminal litigation, real estate and landlord/tenant matters, and construction law.

View from the Field Part 1 - The Keynote Presentation and Segway to the Field

The foundation for this series of posts is the ABA Forum on Construction Law Meeting in October 2021 – Effective Project Management & Strategies: Turning Hindsight into 20/20 Foresight. The keynote speaker was Edward W. Merrow, Founder and President of Independent Project Analysis, Inc. (IPA). Mr. Merrow delivered an authoritative and compelling presentation Why Megaprojects Fail So Often and Why You Should Care No Matter the Size of Your Client’s Project. The presentation was moderated by Andy Ness, JAMS, Washington DC. Many of us know Andy as 2012-13 Chair of the ABA Forum on the Construction Industry.  Currently and additionally, Andy is Director at Large, Project Management College of Scheduling. Mr. Ness offered an extensive paper on the same subject, noting “This paper is written from viewpoint of the construction lawyer.”

I attended this ABA presentation, and have been a longtime follower and advocate of Mr. Merrow’s managerial and project development/delivery process. In 2013, I authored a (four part) series of articles for this blog. Mr. Merrow’s publication, Industrial Megaprojects, was a primary source for this set of articles and for Mr. Merrow’s recent presentation. This series of follow on posts are an extension of my 2013 articles, and may provide a framework for understanding some of the disputes we see in our industry. These posts are offered from the viewpoint of a practitioner on the jobsite, not an attorney.

For decades, I have been assisting clients in the proper development of project “Front-end’s” as well as managing “troubled projects” where the Front-end (or other managerial issues) have resulted in significant project management problems. Engagements included project practitioner as well as testifying expert.

Over the past six years, I have been in key roles on in-progress industrial megaprojects. Two assignments were project management-related, in the field, for prime contractors with construction based on fixed price (design-bid-build). The third was project management advisor for the owner (at project director level) during construction of a grassroots refinery. The contract approach was lump sum turnkey (EPC lump sum).

Mr. Merrow’s High-Level Findings

In Mr. Merrow’s presentation, he advised and emphasized that only about 35% of Megaprojects are successful. By contrast, major projects less than $500 million have a success rate of approximately 63% (hence even these projects experience a failure rate of one-third). Key metrics are: Cost Index, Cost Growth, Execution Schedule Index, Execution Schedule Slip, and Production Problems. Mr. Merrow’s theme for success – “The Front-end Makes the Megaproject.”

After Mr. Merrow’s presentation, I conferred with him and he confirmed key points in his current presentation and experience to be consistent with observations in my 2013 Dispute Resolver articles.

The summary, highest level findings (regarding Megaprojects) of Mr. Merrow’s presentation are:

• The Front-end makes (or breaks) (is essential for success of) the Megaproject
• Sponsors of Megaprojects have three critical responsibilities:
• Shaping – shape the project such that stakeholders are aligned
• Basic Data – technical data are correct and complete
• Front-end Loading – fully define the project before starting execution
• All of these are owner responsibilities alone (i.e., not contractors).

Megaproject Contracting Approaches (with many variations) (per Mr. Merrow):

• EPC Lump-Sum (Fixed Price)
• Reimbursable EPC and EPCm
• Integrated Project Delivery aka Alliancing
• Mixed (Design, Bid, Build)

Mr. Merrow addressed Megaproject Outcomes and Contract Types. The “Mixed” is the only approach that improves megaproject outcomes. EPC-LS and EPC/m reimbursable forms produce average results. IPD is disastrous for megaprojects, even though they are often reasonably well-prepared. Owner rating of Prime Contractor’s performance show EPC LS (26% Good, 30% Poor), EPC/EPCm Reimbursable (9% Good, 58% Poor), IPD (7% Good, 86% Poor), and Mixed (64% Good, 0% Poor).

Key points in Mr. Merrow’s summary of “Mixed” Contracting Approaches are:

• FEED, detailed engineering, and procurement by one firm, CM and construction performed by other(s) (Design-bid-build).
• Construction is usually lump-sum, CM sometimes owner-performed.
• Mixed form removes most of the FEED-associated moral hazard
• Dramatically lowers the risk profile for the contractors due to time-related risks.

Why Study Industrial Megaprojects?

Given Mr. Merrow’s findings, it is legitimate to question the value since most projects, although they may be large and/or complex, are not industrial megaprojects. The reasons are:

• Problems are similar on large & complex projects (not Megaprojects) – lessons learned
• Large & Complex success is 60%+, failure is +/-30%
• Formulas for success are valuable models for planning and execution of large and complex projects (not Megaprojects).

View from the Field – The Overview

Drilling down into a more granular level of detail, the issues may be embellished through the eyes of a practitioner (in this case, mine).

Interfaces – Mr. Merrow presented an extensive list of “Typical Characteristics of Megaprojects.”  His explicit characteristics include “Large number of interfaces” and “Multiple partners, stakeholders and other ‘interested’ parties.” In addition, the “Mixed” contracting approach introduces multiple interfaces that are transparent to the owner in other approaches (e.g., EPC-LS).

Every added interface adds managerial demands and complexity. Owners may (or may not) have the staff and expertise to deal with these additional interfaces.

Major implications (other):

• Asset Performance – ability to be placed into commercial operation at a capacity that us planned per specifications.
• Execution Planning – choosing the optimum (or an acceptable) strategy and contracting approach along with execution details.
• Scope of Work – correctly and robustly define the scope, including complete interface coverage (minimal gaps), that is sufficient to complete other planning that relies on scope definition.
• Time Management – preparation and implementation of a time-based managerial baseline.
• Cost and Progress Management - preparation and implementation of a cost and project managerial baseline.
• Procurement (including contracting) – multiple contracts (and possibly purchase orders) must be developed, awarded and administered.
• Data Management – preparing and implementing a data strategy along with use in managing the work.
• Labor Productivity – managing the risk of labor costs exceeding budgets due to inefficiencies or inadequate baselines.
• Completion Management – managing the transition from construction to operations (e.g., revenue-producing).
• Risk Allocation – allocation of a given risk to the party that is most capable of assuming and managing the specific risk.

View from the Field – Interface Management

Part 2 of this series will address the challenges of Interface Management that is required when using “Mixed” contracting approach.

Author George T. McLaughlin PMP CCM has worked worldwide in this industrial marketplace since the early 1980’s. He serves Owners, Prime Contractors, and Subcontractors. Mr. McLaughlin was president and COO of a $35 million engineering and construction (mechanical, controls and electrical) contractor for five years. For the most part, Mr. McLaughlin’s work is performed on-location where the relevant work is being performed hence the title “view from the field.” Mr. McLaughlin is a principal of McLaughlin & McLaughlin out of Austin, Texas. In this role, he provides program and project management services as well as litigation support services. His contact information can be accessed at his website (www.mclaughlinandmclaughlin.com) and blog (http://projectprofessionals.org/).

Should You Use the DRB or Go Straight to Arbitration?

Dispute Resolution Boards (“DRBs”) continue to grow in popularity, particularly for major infrastructure projects. As such, we can expect that construction lawyers will increasingly be advising clients on whether to send a dispute to the DRB or go directly to arbitration. In this post, we outline a few of the factors that may inform whether your client should submit a dispute to the DRB or go straight to arbitration.

DRBs (also known as “Review Boards”) are most common in major infrastructure projects. They typically consist of three independent and impartial experts, such as engineers. Lawyers can also make up the DRB. The DRB is actively involved in the project from its inception so its members are familiar with the parties and need little time to get up to speed on the events leading to a dispute.

When disputes arise, the parties may refer it to the DRB. The DRB will then typically investigate the dispute, hear submissions from each side through an informal process, and render either a binding or a non-binding opinion, depending on the nature of the DRB. The precise process followed by a DRB depends on the terms of the applicable contract.

DRBs usually play a very important role in major projects by dealing with issues as they arise on site. By providing prompt decisions, they allow construction projects to proceed without delay. Real-time prevention and resolution by the DRB often promotes open communication, trust, and cooperation between the parties.

When considering whether to refer a dispute to the DRB, clients may be concerned that most DRB decisions are non-binding recommendations. There is a risk the parties will still need to arbitrate (or even litigate) after a DRB recommendation is rendered. Fortunately, it appears that the vast majority of disputes resolved by DRBs do avoid further dispute resolution steps.¹

However, DRBs may also have some downsides. In Canada, there are reports that parties are increasingly seeking a lawyer to chair the DRB committee because of their knowledge of legal processes.² The emphasis on legal procedure may erode the cost and time-saving benefits of the DRB while leaving the parties without the benefits of arbitration, such as finality of the decision.

Moreover, the nature of the dispute may not be within the DRB members’ expertise. While members of the DRB with engineering expertise may be well positioned to adjudicate technical disputes, claims involving contract interpretation and other legal matters may be outside their expertise. Such disputes might be better left to an adjudicator with legal training.

Parties should also consider whether they will end up arbitrating or litigating related disputes. In one high profile project involving the construction of a subway station in Toronto, Canada, one dispute was resolved through the DRB but over 40 individual claims are still being litigated.³ If the parties are already incurring the expense of complex litigation, there may be little benefit gained by hiving off one issue for a separate hearing through the DRB.

The DRB’s heavy involvement in the project can sometimes be problematic too. Depending on the relationships that form on site, parties may benefit from the fresh perspective of an arbitrator who is new to the project. An arbitrator may alleviate any concerns about bias from members of the DRB who have worked on site for months or years.

Overall, DRBs are usually an excellent option for resolving disputes in real time on site. However, it is still important to weigh the other dispute resolution options carefully before choosing to proceed with the DRB.

Author Laura Brazil is a partner in the Toronto office of McMillan LLP. Her practice is focused on construction and real estate disputes. She primarily acts for owners and contractors but also represents subcontractors, material suppliers, designers and other members of the construction pyramid.

Author Anthony Labib is an articling student in the Toronto office of McMillan LLP. He is a graduate of Western University’s Faculty of Law.

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1 “Construction Dispute Resolution Arbitration and Beyond”, American Jurisprudence Trials, August 2021 Update, by Thomas H Oehmke and Joan M Brovins.^↩
2 https://canada.constructconnect.com/dcn/news/government/2019/10/dispute-resolution-board-use-on-the-rise-in-canada.^↩
3 Walsh Construction Company Canada v. Toronto Transit Commission, 2020 CarswellOnt 8055, 2020 ONSC 3688.^↩

Apply to Become a Diversity Fellow with the ABA Forum on Construction Law -- And Perhaps Join Division 1's Steering Committee

The ABA Forum on Construction Law is now accepting Diversity Fellow Applications through Monday, January 31, 2022.  Don't let that January date slow you down . . . APPLY AS SOON AS POSSIBLE.  This is highly competitive program with the Forum.  The Forum's prior and current Diversity Fellows are throughout Forum leadership and excellent construction attorneys / Forum volunteers.  The benefits of this fellowship program cannot be understated, including an opportunity to join a steering committee (Division 1 would happily welcome you 😁!)

More detail about the Diversity Fellowship 2022 is below.  

The Forum’s leadership has initiated a fellowship program for diverse construction lawyers with the goal of drawing diverse construction lawyers into the ranks of active, long-term Forum members.  The Forum’s Diversity Fellowship is intended to identify diverse construction lawyers who have demonstrated interest in the Forum and are therefore potential candidates for future Forum leadership. Currently, the Forum awards up to six (6) three-year Fellowships each spring.  Fellows receive the following benefits: •       Waiver of all registration fees for the Forum’s Fall, Midwinter, and Annual Meetings;  •       Reimbursement of reasonable travel and accommodation expenses associated with attending the Forum’s Annual Meeting held each spring (not to exceed $1,500 per annum); •       Waiver of Forum membership dues;  and •       Payment of ABA membership dues in the following amounts:  100% in Year 1; 66% in Year 2; and 33% in Year 3. Additionally, Fellows are afforded the opportunity to join the steering committee of one of the Forum’s fourteen (14) Divisions, and if desired, the Forum will arrange a mentor for each Fellow, appropriate to that Fellow’s needs (e.g. career advice, guidance on navigating Forum meetings, leadership, committees, etc.). While all submitted applications will be considered, the ideal candidates will have between three (3) and twelve (12) years’ experience in construction law.  Fellowship recipients are expected to attend the Forum’s Annual Meeting in the spring and are strongly encouraged to attend the Fall and Midwinter meetings.  The Forum’s 2022 Annual Meeting will be held May 4-7, 2022 in New York, NY. Completed applications must be received on, or before, Monday, January 31, 2022.  The application deadline will not be extended.    Application submissions should be sent to ABAFCLapp@americanbar.org and ksherwin@winstead.com.  If you have any questions about this program, please contact Kristen Sherwin  (Chair, Diversity Fellowship Subcommittee) at  ksherwin@winstead.com *** Posted by Tom Dunn, Chair of Division 1.  If you want to chat with me about this, feel free to reach out at rtdunn@pierceatwood.com.

What's Up with Division 1 (No. 13)

 HAPPY HALLOWEEN DIVISION 1

I hope you have lots of fun with your friends and family this Halloween.  In this post, I want to talk about the Fall Meeting that FINALLY occurred earlier this month.  The meeting focused on project management and was originally scheduled to occur 18 months earlier in April 2020.  It was great seeing everyone in person at the meeting.  Congrats to D1 Steering Committee Members Rob Ruesch (Program Co-Chair) and Katie Kohm (speaker on legal project management) for their work at this meeting.  Here is a photo of Katie on the stage!

We had a planning retreat at the Fall Meeting.  We had a good discussion about what Division 1 is doing, what we can do more/less of, and strategies to collaborate with other organizations.  Thanks to all of the steering committee and D1 members for attending the meeting.  Minutes from the planning retreat are available on ABA Connect by clicking here (will need to sign-in).  

We held a technology practicum in Seattle.  It was planned by D1 Steering Committee Member, Joe Imperiale from Troutman.  He reported that the practicum was a HUGE SUCCESS - perfect attendance, great audience engagement, and dynamic/impactful speakers.  Below are some photos of the practicum - Congrats and thanks Joe!

On Thursday night after the welcome reception, we went to a German beer garden called Rhein Haus -- just a short drive from the hotel.  Our local connection, Ashley Sherwood did an excellent job finding this venue. it was perfect!

We had 6 indoor bocce ball courts reserved, german prezels/meats, and drinks courtesies of JS Held.  Big thanks to Erin Fallon, Jason Ulmenstine, and Andy Englehart from JS Held for sponsoring this event.  We teamed up with Divisions 5 and 10 for the event, but many people were able to join us at the last minute as well.  Tony Lehman and I teamed up for a bocce match against Katie Kohm and Jason Cagle.  While it was a close match, I am happy to report that Tony and I won!  Here are some of the photos from our social event.  

On Friday, we had a lunch program focused on concurrent expert witness examination -- referred to sometimes as expert hot-tubbing.  Cassidy Rosenthal did a great job planning this role-play program. I heard many positive reviews about the program and the excellent quality of the speakers.  

All in all, it was a great meeting.  After many months of virtual programs, it was fabulous seeing each other in person.  I made many new connections and was happy with all of the Division 1 programs we put on.  One of the things we did was pass out some Division 1 bling, including branded lanyards, umbrellas, and waterproof phone cases.  I will bring some of those to the San Diego meeting (except the umbrellas which we will not need) if you did not grab one in Seattle.  

On October 28th, we held our Toolbox Talk Series on Increasing Diversity with Construction Neutrals.  Jessica Sabbath (our D1 Diversity + Inclusion Committee Liaison) and Lisa Colon led the discussion.  Jen Millender with the AAA moderated the program.  We came away with some practical ideas to continue the discussion and advance the goal of increasing diversity including:

• Providing writing opportunities on our blog 
• Allowing for additional mentorship / shadowing opportunities 
• Providing a referral resource -- building off of D1's Neutral Database
• Working with AAA and JAMS on these recruiting efforts at national meetings and through virtual programs.  

Here was the flyer from the program:

Because our normal TTS dates run into holidays in November / December, we are going to combine our November/December programs into one TTS program on Thursday, December 9, 2021.  Stay tuned for the registration link and program information.  

Thanks to all of the Forum and Division 1 volunteers for their efforts at the Fall Meeting.  We are planning out for the future meetings including the next one in San Diego on February 23-25, 2022!

Here are some additional photos from Seattle (some from the plane).  

Tom Dunn, Division 1 Chair

Pierce Atwood, LLP

401-490-3418

rtdunn@pierceatwood.com