Managing Construction Risks

With education construction activity at record levels, it is vital for administrators to have procedures in place to minimize project risks. Following are excerpts from a recent industry roundtable on school construction management and insurance conducted by American School & University:

AS&U: What are your key concerns regarding school construction projects and how do you minimize project risks?

Licata: We have found that the amount of time and detail you spend upfront planning and coordinating not just the design of the project, but also who the architect is going to be and the care you take in selecting the architect and contractor, can minimize project risks. Several years ago, we went through a pretty extensive and exhausting prequalification process where we narrowed a typical project list of potential contractors from maybe 25 down to six or seven. So, for us, the upfront work has been very important in prequalification of contractors and architects-because we found that is where most of the mistakes start.

Miele: What we do before we start any project is sit down with building custodians, the business manager, superintendent and representative from the board and take suggestions from them. Then we tell the architects what we want to do and what we want to use. We try to be specific on equipment, and one of the things we've done at Upper Darby is standardize equipment whenever possible. In the past, architects would tell us or give us a package saying 'this is what you're getting.' We don't do that. We say 'this is what we would like,' even as far as the building finishes go.

McGair: I think Mike makes an excellent point. Our district has a highly trained maintenance staff, and one of the important factors is receiving their input into the various mechanical systems that are part of any construction project. Our maintenance technicians are the individuals who work with these systems every day. In many instances, they have very valuable knowledge that can be offered to the architects and engineers.

Lechner: In our school system, we have the Department of Planning and Architectural Services which consists of four registered architects and 17 technical personnel. I also have an educational specifications writer that details various aspects for an upcoming project or projects. The aspects included are very detailed, down to each and every piece of equipment and specific types of materials to be used. We then advertise once a year for architectural or engineering services, narrowing the interview process down to five or six firms.

AS&U: What are some of the things you look at?

Lechner: The main thing is we want the architect to have an extensive practice in educational facilities. You cannot have just anybody design a school; otherwise you would have to lead him every inch of the way.

Wood: One of the things that's happening in the Commonwealth of Pennsylvania, and I don't know whether you folks are facing it or not, growth is so rapid that we're not giving engineers and architects the time they need to do the design. I say you take the time upfront and send out a good spec.

Licata: You can't rely on the architect to know your program. You've got to know your program inside out so that you're telling them what you want, you don't let them tell you what your needs are. By doing that upfront stuff, there's no excuse for not knowing exactly what your mechanical systems need to be, for example. It takes so much off of them [architect/engineer] that when you get to the end you have nobody to blame but yourself if it doesn't work or wasn't installed properly.

AS&U: Where does insurance come in and how do you reduce the potential for lawsuits?

McGair: When you talk about insurance for any capital project, it is important that terms of insurance become a part of the negotiated agreement with the architect. Thereis also the question of who pays for the insurance. The contract must contain the specific insurance coverage and which entity will cover the cost. Many times, unfortunately, insurance coverage is assumed.

Lechner: We extend insurance coverage, and have different requirements for different contracts. For example, if we go with construction management, we have different contracts with the architect. The general conditions are also different, so it has to be tailored to the specific job and the combination which is included in the particular project.

AS&U: Do you review insurance contracts or do you let a district solicitor or attorney review it?

Lechner: We make the primary review of the architectural contract and then we send it to our attorney, who will give us the final OK. Also, our district does not allow arbitration; it is written right in the specification. If somebody has a dispute with the board, he has to go to court, and we designate which court he has to file his suit.

Wood: I'll tell you one thing all of us often overlook is the structural engineer. I want to see his [insurance] policy. And I want to see what he has in liability insurance. We've all heard of the shopping center or mall roof that collapses. I think it's critical to make sure you check the insurance that a structural person is carrying. Many districts don't, since the architect typically hires the structural person. We specify the structural person [for construction projects].

Bermann: That doesn't happen often in a small setting. We never get beyond the architect in regards to the arrangements [for subcontractors]. We go under the assumption that the people he [architect] has contracted have the necessary protection.

McGair: The insurance coverage of the structural engineer is an example of one of those areas that is assumed. It would be wise to request the architect to provide documentation that verifies insurance and amount of coverage for all engineers and other professionals who will be working on your project.

Therefore, if there is a problem with insurance, we can raise the concern prior to the start of the project. The pre-planning stage is when you need to catch this type of problem as opposed to having it go to litigation.

Licata: We do everything we can to avoid claims, and the upfront preparation is key. Once you're there [litigation] it's too late. You've still got users who are not satisfied; a board that's not satisfied. Another thing that is a sore subject with me that goes back to when you said maybe we don't take it far enough sometimes. You read an awful lot about building commissioning right now. There are some who will lead you to believe you should pay an additional fee for that service. That's 'horse poppy' as far as I'm concerned.

You've got a design professional who says: 'I have designed this system according to what you've told me.' You've got a contractor who says: 'I've installed it the way you've said.' I've got an architect who says to the contractor: 'I only observe, I don't inspect.' But as the owner, I want all those people standing there before that building opens and I want to see each and every component work. If it doesn't work, I don't care about what kind of insurance you have, I don't care about what kind of liability you have-you designed it, I hired you to design it, you said you designed it correctly, make it work. I know in our system we've done a poor job of ensuring this because of the time constraints. I'm not going to pay extra for that [building commissioning] because I don't think it's my responsibility.

Another thing we often get caught up in, and it's always because of time, is realizing the project isn't over the day the kids walk through the door. All kinds of things change-you open up the building in September during air-conditioning season and never see the heating pipe working. If you do it in the fall, you don't see the air-conditioning system working. You need to go through a cycle, and the building occupants need to understand. [A school construction project] is a huge investment. We can't just walk away from here the day it's finished and then say 'see you in court.' You should be able to go through every season in the year, then sign off on that building.

Miele: Commissioning is nothing but verifying-verifying that a piece of equipment works; verifying the controls are operating. When you're satisfied that what you purchased is what you have and it works, that's when that one-year warranty should start.

AS&U: What role does the type of insurance carried by the architect/engineer play in your selection process?

McGair: As I have stated earlier, insurance is usually assumed as being in place. Having this roundtable discussion brings it more to light and highlights questions that we will be asking and thoroughly reviewing.

Miele: I've never requested or required a general contractor to provide me proof of insurance below his level.

The general contractor is responsible for subs-every man, woman and child that he brings into that building, into that district, to work. If he brings a sub-contractor in and that sub-contractor doesn't have insurance, the general contractor's still liable. What helps me is our municipality requires every contractor that works in our school, that works in our township, to be licensed. And in order to be licensed, you have to have a certificate of insurance.

Lechner: We require the general contractor's insurance to cover all of his subs and subs subs, as well as materials supplied. In addition, we require every sub-contractor with excess work of $100,000 to carry his own insurance.

McGair: Normally, it is the general contractor's responsibility to ensure the sub-contractors have the proper insurance coverage. However, after having this discussion, I will require the GC to provide my office with proof of insurance for all his subcontractors. In the event of a problem, however, I will still go to the GC.

AS&U: Are there any other insurance- or code-related areas schools are exposed to during a construction project that administrators need to pay particular attention?

Lechner: As far as I'm concerned, the greatest exposure school systems have is exposure to suits through ADA (Americans with Disabilities Act), because ADA states that the responsibility sits with the owner, not with any agent of the owner. Therefore, put in the architectural contract that he [the architect] is responsible for compliance with all ADA requirements. Otherwise, the owner is solely responsible for whatever mistakes are made under the ADA.

McGair: Another area is indoor air quality, or environmental conditions. It's such a major issue in this day and age, with so many people having allergic problems, asthmatic problems, etc.

Miele: Here's something interesting. I've brought a copy of our [insurance] policy. It says here, 'things we will not cover you for: We will not cover you for any liability arising from your failure to provide or maintain any form of insurance security bond or to advise or require others to do so.'

AS&U: And that is in your general policy?

Miele: That's in my general policy.

AS&U: And that's a standard policy for any of your [construction] projects?

Miele: This is my architect's policy. So I would bet it would be similar for the contractor's, too. I'd have to check with my solicitor on this one. I read it as if I bring in someone else and they don't have it [insurance], and there's something that goes wrong because of something that they did, in conjunction with this, they may not pay me.

AS&U: Is that something you plan on changing or investigating a bit more?

Miele: Investigating a little bit more, yes. I'll have to talk to the solicitor. And I came across it while I was looking to see if there was anything in here on the ADA exclusions or inclusions.

McGair: I think you'll find on many of the standard contracts that insurance issues are relatively assumed or silent. There may be a one- or two-word statement and that's it. I think after this discussion, it's going to change.

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