Claims Analysis Method

The Problem
The Port of Seattle is responsible for the delivery of dozens of major construction projects each year. Although the projects range from fairly small and straightforward to very large and complex, the majority involve major public works construction contracts. Within the Port’s project delivery organization, the project manager is responsible for overall planning and implementation of projects, including ultimate responsibility for construction. However, a robust internal Construction Management organization provides comprehensive contracting and field construction oversight, management, and support. Any given major construction project has at least one construction manager and one or more resident engineers. Inspectors and other construction management support staff also may be assigned to larger projects. Generally, the project management organization and construction management organization work very closely during construction to, among other things, monitor contract performance and make the necessary decisions to complete the project on time and within budget.

Every contract encounters situations that result in change orders to the construction contract. From time to time, significant or critical issues may occur that prompt the contractor to request significant accommodation in the form of either an extraordinary change order or an actual claim. In accordance with best practices, the Port’s Construction Management Group engages in appropriate analysis to substantiate and approve all changes to contracts. However, in certain cases, the claim or request is complex, costly, and perhaps of questionable merit. In such cases, very specialized and comprehensive analysis is required to evaluate the fundamental basis of the claim and determine the appropriate cost and schedule consideration due the contractor.

Occasionally the Port receives a change order request or an actual claim that is so complex, comprehensive, and precedent setting that it warrants extraordinarily detailed review and analysis. At times they have faced the problem of lacking the appropriate staff to conduct a properly thorough or vigorous analysis and review. In these circumstances, the Port has risked issuing change orders or settling claims for more than the contractor is truly entitled. Failing to address such risks not only costs the Port time and money, but it could also compromise their negotiating posture on future contracts. Therefore, it has been imperative to apply the necessary analysis and scrutiny to all major construction change orders and claims. The challenge has been to provide the necessary legal and disciplinary experts who can to perform these often complex reviews in a timely fashion and in a way that substantiates and bolsters the Port’s negotiating position.

The Solution
In May of 2007, P&M as the prime consultant was awarded the advertised open order contract for Claims Analysis services with the Port of Seattle Engineering Department / Aviation and Seaport.

By calling on the expertise of the P&M team, we significantly supplemented the Port's available construction management staff capabilities to assure a comprehensive, thorough, analytically sound evaluation of major change orders and claims on key projects.

For each project, the claims analysis support processes varied, but they consistently provided advanced techniques and tools of schedule (time) impact analysis, cost impact analysis, and forensic cost or schedule analysis. In each case, a comprehensive evaluation report was prepared that presented recommendations, supported the results of the analysis, and provided the Port appropriate justification for its position. Using tools like Primavera Project Planner and Microsoft Project scheduling software, P&M could carefully and completely deconstruct the contractor’s time impact claims and examine the merits of each element. Other cost analysis techniques were used to perform a similar level of evaluation on cost claims. Analysis and evaluation also included appropriate review of the contract documents, general conditions, drawings and specifications, as well as relevant field conditions and events occurring during construction.

In each case, the solution was provided as a supplement to the existing and ongoing construction management being performed by the assigned construction management staff. The consulting team used advanced analytical tools and methodologies to respond to critical concerns and provide needed information for better decision making. In most cases, the organization either did not have the in-house capability to perform these additional functions or did not have those resources available.

The Result
Contractor requests for change orders or claims are generally at least partly fair and appropriate. On some occasions, however, all or part of the change is unsubstantiated and without merit. The particular details of each claim varied, but through comprehensive and professional review, P&M evaluated numerous change orders and claims on Seaport projects. The reviews provided significant support of the Port’s position and identified and documented salient justifications. Again, specific results varied, but they were generally extremely positive for the Port. The following paragraphs summarize the specific results of claims analysis support on specific identified projects.

 

Shilshole Bay Marina Redevelopment Project

Infrastructure Impacts Claim: The SBM Redevelopment Project was performed through a GC/CM contract and involved complex and intricate logistics associated with compelling operational requirements and with the multiple major construction efforts being conducted simultaneously. The contractor for the Infrastructure/Utility work was especially challenged by the operational constraints involving the parking area and its availability for use as a work area. The Port recognized that available staging space was limited, and the space was impacted by other work occurring in the same or adjacent spaces. Other changes also presented the possibility of impact. Eventually, a subcontractor to the GC/CM submitted a claim for inefficiencies and a time extension that amounted to a request for just over $450,000. Other significant characteristics of this claim, aside from the significant cost, were that it appeared to have some merit and involved complex issues that were difficult to untangle, quantify, and assess fairly. The subsequent analysis was also quite complex, requiring careful and painstaking preparation and documentation.


The primary elements of the analysis involved a comprehensive schedule impact analysis, analysis of the inefficiencies, analysis of the general conditions and other specifications relating to work performance, and in-depth examination of as-built schedules and work performance. In this case, P&M performed the complex claims analysis. Upon completion of the analysis and associated negotiations, the claim was reduced to approximately $321,000, saving the Port around $140,000. The robust nature of the review and the fairness with which it was conducted also helped to maintain a cordial rapport between the contractor and the Port and may have contributed to a reduced level of claims overall as the project progressed.

Contaminated Soils/Vapor Barrier Change Request: Similar reviews were conducted for a change request associated with additional work required when contaminated soils were unexpectedly discovered during site work construction. The time impact and productivity analysis that was completed reduced the value of the requested change, saving the Port approximately $90,000.

Misc. Schedule Impacts: A substantial claim was received from one subcontractor who alleged that a variety of time impacts and delays had been associated with rephasing dock work, as well as cost impacts associated with a disputed design specification. The contractor’s claimed impact was as high as $516,000. P&M thoroughly reviewed the claim and participated in detailed discussions and analysis with the contractor to evaluate and substantiate the basis for the claim. The Port successfully disputed many of the claimed impacts. Ultimately, the claim was settled for approximately $160,000 less than the contractor’s original request.

 

Terminal 18 North Apron Upgrade

P&M reviewed several issues with respect to the T-18 North Apron Upgrade project. In the first situation, the contractor submitted an “inefficiency” change order request, alleging that pile-driving productivity had been adversely impacted by obstructions in the ground. P&M thoroughly reviewed the contractor’s claims. The review included a “measure mile” study, wherein industry standard metrics for pile-driving production were compared with actual performance on this project. Also reviewed were the actual costs compared to the bid tabulation to assess possible differentials in burn rate. Information was obtained from previous similar work performed in the same area as well as from the contractor and Port field representatives. Ultimately, P&M concluded and presented written findings that the overruns were not necessarily due to obstructions, and that much of the claim was unsubstantiated. The change order was ultimately resolved for approximately half the initial request, or about $77,000, saving the Port about the same amount.

In a second situation, the contractor submitted a change request for an additional $1,500,000. The request asserted that project rephrasing, which moved some of the Phase B work into the Phase C package, had resulted in inefficiencies amounting to approximately $300,000 and time impacts resulting in extended overhead of nearly $1,200,000. P&M conducted the claims analysis including a forensic time impact analysis and provided written recommendations. By comparing schedule versions and analyzing available float and the schedule's capacity to absorb float, P&M determined that the contractor's claim for time impacts and resulting extended overhead was not supportable. After 4 months of robust review and negotiation, the extended overhead portion of the request was tabled. The inefficiency portion of the claim is still being evaluated but is anticipated to be resolved for much less than initially requested. Overall, the P&M analysis is expected to save the Port between $1,200,000 and $1,400,000 on this single claim.

 

Pier 91 Utility Infrastructure Upgrade Project

A variety of circumstances on this project required alterations in the way work was performed. These unforeseen circumstances included a design changes; strike; adverse weather; and other events. The contractor claimed time impacts amounting to 127 days and approx. $1,400,000. P&M conducted a thorough Claims Analysis with cumulative inefficiency claim and time impact analysis of the As-Built Schedule with qualitative forensic review. P&M evaluated work performance on an issue-by-issue and month-by-month basis. For each claimed issue, P&M analyzed the schedule and identified the valid number of impact days. After further review of the contract documents and claim documents, P&M determined the number of impact days that were compensable versus those that were either non-compensable or the responsibility of the contractor. Upon completion of the analysis, P&M produced a written report demonstrating compensable inefficiencies and that only half of the contractor's claimed delays were valid. Ultimately, the claim was resolved for approximately one third of the initial request, saving the Port approximately $900,000.

 

T25-30 Project

On this highly visible and critical project, the contractor claimed entitlement to premium time compensation and lost productivity allowance. P&M prepared a thorough time impact analysis of the schedule and a qualitative review of construction and determined that the requested change was not substantiated. A written report was submitted documenting the analytical basis for the Port’s position. While the contractor originally requested $50,000, the final change was resolved for $30,000, a savings of $20,000.

T91 Carnitech Building

This project project followed the Pier 91 Infrastructure and Utilities project which delayed the start date of the Carnitech Building project and the project had subsequent impacts from an inclement weather period. Like the Pier 91 Utilities project, it was very visible and of critical interest to management. Business issues involving the lease and other “in the field” construction issues challenged the schedule and budget targets and elevated claims issues.

In sum, the contractor claim sought 169 days of additional time and $1M in additional compensation. Following the claims analysis by P&M, the contractor and POS agreed to a 24 day compensable time extension and a contract adjustment of $351,500, inclusive of subcontractors’ claim, a savings of $650,000.

 

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