An Ounce of Claims Prevention Worth a Pound of Cure?

I spent last Thursday and Friday at a continuing legal education program offered by the Fidelity & Surety Law Committee of the American Bar Association’s Tort Trial & Insurance Practice Section (“TIPS”) at the Waldorf-Astoria Hotel in Manhattan.

One of the many highlights of the excellent two-day program was a panel discussion on Thursday featuring general counsel and risk managers from five large general contractors: The Walsh Group, Kiewit Corp., Turner Construction Co., Skanska USA and Granite Construction Inc.

During that panel discussion, Mr. Kenneth M. Smith, Assistant General Counsel of Granite, spoke about a topic near and dear to my heart:  in-project claims prevention.  Mr. Smith spoke about how claims prevention begins with the contract review process, which should feature a thorough identification and analysis of key contract clauses to ensure an appropriate allocation of contract risk between the parties.  Legal counsel should follow that review with training of key project staff to ensure that they understand all key contract terms, such as claim notice provisions.

Mr. Smith then spoke about his company’s implementation of monthly impact reports to and/or conference calls with legal counsel to provide a periodic check-up on the health of a project.  Are an excessive number of change orders creating a risk of cumulative impact damages?  Is the project on budget?  If not, in which cost codes can the cost overruns be found?   Is the project falling behind schedule?  Are there personality conflicts on-site that are preventing effective communication between and among project participants?

The purpose of getting answers to these types of questions on a periodic basis is threefold.

First and foremost, the primary goal is to create an opportunity for legal counsel to spot issues and resolve problems as they arise, rather than letting them fester into disputed claims.  As Mr. Smith noted, construction participants are business people, not lawyers, and generally prefer to resolve claims at the project level rather than incur the cost, disruption and risk that invariably attend the claims resolution process.

Second, early intervention by legal counsel can ensure preservation of claim rights in those situations where dispute resolution is inevitable.  I can assure my readers from personal experience that one of the most profoundly disturbing discoveries outside counsel can make when a claim lands on our desks post-completion is the absence of proper claim notice both up and down the contractual chain.  The assistance of outside counsel during a project can help eliminate the risk of that and other inadvertent oversights.

Finally, periodic project check-ups permit outside counsel to begin the investigative process early, ensure that all key documents are preserved and identify all important fact witnesses.  Conducting such activities while the work is ongoing will yield a much more viable claim than waiting to perform the project investigation “post-mortem.”

Legal counsel may be viewed by participants at the project level as a nuisance at best and as a source of finger-wagging at worst.  But if done correctly, periodic project assessments by outside counsel don’t have to interfere with ongoing project operations, and don’t have to feature an endless recitation by legal counsel of all the things the project team is doing wrong.  Instead, an effective claims prevention program can be established and executed to ensure healthy cooperation between project-level staff and counsel, forging a relationship where legal counsel is viewed as a vital resource assisting in the journey toward a successful and profitable project.

So I tip my cap to Mr. Smith and to Granite, and I thank him for sharing his thoughts regarding the virtues of early project intervention by legal counsel.  I offer my clients both contract review and in-project counseling services on a regular basis, and Mr. Smith’s remarks have neatly framed the rationale for making the offer.

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Filed under Contract Review & Negotiation, Feature story, Project Counseling

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