1. John Santos
Claims Coordinator
University of Texas
Timothy D. Christ, M.B.A.
Director
LWG Consulting, Inc.
Liquidated Damages: The Penalty for failing to
achieve the impossible. Construction Defect/Delay
Response Strategies for University Risk Professionals
2. University Risk Management and Insurance
Association
Learning Objectives
1. Develop familiarity with various types of
construction defect/delay issues and the risks
they pose for colleges/universities
2. Have a basic knowledge of the common
construction defect/delay causes and best
practices for mitigating against such incidents
3. Be introduced to up-to-date insurance coverage
considerations, recovery options, and
OCIP/CCIP, other insurance policy
developments.
2
4. University Risk Management and Insurance
Association
Audience Experience with Construction Projects
4
How many have had a project go bad?
How many have gone to litigation on a project?
What are the common reasons for problems?
Are there any unique state-specific or system-
specific challenges for construction projects?
What creative methods have you used to ensure
successful delivery?
8. University Risk Management and Insurance
Association
Common Construction Defects
8
Faulty materials
Faulty workmanship
Faulty design
In many cases, the construction defect is a combination of
these 3 causes/reasons
The GC and their subcontractors may control 2 of the 3
causes/reasons:
Faulty materials
Faulty workmanship
9. University Risk Management and Insurance
Association
Bids and Selection Methods
9
Bids
Open bids
Closed bids
Selection Methods
Low bid selection
Best value selection
Qualifications-based selection
Insurance rating for contractors and subcontractors
10. University Risk Management and Insurance
Association
Typical Construction Contracts
10
Lump sum
Cost plus fee
Guaranteed Maximum Price (CM at Risk)
Unit price
11. University Risk Management and Insurance
Association
Project Stages
11
Design
Programming and feasibility
Schematic Design
Design Development
Contract Documents
12. University Risk Management and Insurance
Association
Project Stages
12
Pre-Construction
Assign project team
Project Manager
Contract Administrator
Superintendent
Field Engineer
Site Investigation usually takes place during this step.
13. University Risk Management and Insurance
Association
Project Stages
13
Procurement
Labor, materials, and equipment
Aka “mobilization”
14. University Risk Management and Insurance
Association
Project Stages
14
Construction
Pre-construction
Permitting
Site grading & utilities
Foundation
Steel erection
Form & Pour concrete
Carpentry
Masonry
Roofing
Mechanical/Electrical
Drying In
Elevators
Plumbing
Electrical
HVAC
Interior finish out
Commissioning
Occupancy
16. University Risk Management and Insurance
Association
Project Management
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Project Management/Site supervision
Weekly project meetings
Trade coordination
Shop drawings & submittals
Reporting and cost control
Preparing and submitting applications for
payment
Final inspections & Occupancy
Commissioning and Project Closeout
17. University Risk Management and Insurance
Association
Common Construction Defects
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Building envelope and structure
Door & window
Exterior wall
Roof
Damp proofing and waterproofing
Deck and balcony
Infrastructure
Drainage
Compaction and structural
Foundation Electrical and HVAC - condensation
Plumbing and other leaks to internal systems – “wet walls”
Sound, vibration, odor, vapor transmission and code compliance deficiencies
20. University Risk Management and Insurance
Association
Common Construction Defects
20
Construction defects cause problems and result in
million dollar+ issues, but construction accidents
or deaths make the news.
34. University Risk Management and Insurance
Association
Case Study
34
Conclusions
Lateral bracing was not correctly installed
Pier depths were not correctly installed
Space between shoring tower #5 and #6 was 45 feet,
which exceeded design specification of a maximum of
30 feet
Shoring towers #5 through #11 have heights exceeding
four times the minimum base width and were not guyed
or braced (Height to width ratio maximum was 1 to 4)
Toggle pins were main cause of failure
40. University Risk Management and Insurance
Association
Quality
40
Quality is an attitude
Quality is a journey, not a destination
Quality is everyone’s job
Quality is a habit, not an act
There are no half measures in the pursuit of quality
excellence --- you have to do it all
Quality is a new way of thinking, being and doing
Quality is so important it pays for itself
41. University Risk Management and Insurance
Association
Safety
41
Safety is an attitude
Safety is a journey, not a destination
Safety is everyone’s job
Safety is a habit, not an act
There are no half measures in the pursuit of safety
excellence --- you have to do it all
Safety is a new way of thinking, being and doing
Safety is so important it pays for itself
42. University Risk Management and Insurance
Association
Quality & Safety
42
Quality and safety go together
The best contractors with respect to safety
performance and risk transfer also had the
fewest claims
43. University Risk Management and Insurance
Association
5 leading indicators in quality management
43
1. 100% material verification
2. Pre-install and first-work-in-place meetings
3. Zero defect program
4. Digital photography procedure
5. Pre-closure inspection sign-off procedure
including digital photographs
44. University Risk Management and Insurance
Association
100% Material Verification
44
For any material delivered to the jobsite, one of the contractor’s field
staff should physically compare the material to the approved material
submittal
This ensures that unapproved materials are not used on their jobs
This person can be an engineer or superintendent
The GC should pass down this requirement to trade subcontractors,
by insisting that they give the GC on a daily basis, a listing of all
materials delivered to the jobsite with a certification that they meet
submittal requirements
Spot check with the GC’s QC personnel that indeed the sub’s
materials comply with submittal requirements
45. University Risk Management and Insurance
Association
Pre-install Meetings & 1st
WIP Inspections
45
A proven technique originated by the US Army Corps of Engineers
http://rms.usace.army.mil/datafiles/rms_qcs_manuals/qcs_manual_2_38.pdf
These are part of the Corps “3 Phases of Quality Control”.
These meetings are held for each CSI division and subdivision
It is basically “Plan the work and then work the plan”.
The Pre-install Meeting reviews the specs, drawings, submittals and
manufacturer’s installation instructions and resolves conflicts and errors –
participants include the owner, designers, the GC and trade subcontractors
for that particular work or assembly. Minutes can be published.
First Work-in-Place Inspections are held in the field to “fly spec” the first work
that takes place. Participants are same as above but includes the
manufacturer’s rep. Minutes can be published.
Follow-on inspections are conducted by the sub and/or the GC’s personnel
or third party independent inspectors on a daily basis to ensure that work
conforms to the requirements.
46. University Risk Management and Insurance
Association
Zero Defects Program
46
To complete the GC’s scope of work with a zero
punchlist at the time of substantial completion
To complete outstanding non-conforming items
during the course of the project within 7 calendar
days of notification of the existence of the non-
conforming work item
To receive the owner's recognition of the GC’s
zero punchlist accomplishments
47. University Risk Management and Insurance
Association
Achieving Zero Defects
47
Start the program at the beginning of the project
Select a zero punchlist jobsite champion prior to mobilization to the
jobsite
Insert zero defect language in all subcontracts
Conduct a zero punchlist kick-off meeting with owner,
Architect/Engineers, the GC (OAC) and subcontractors
Schedule weekly walk-throughs with the OAC project team and
update each team member on the results of the walk-throughs
Publish punchlists weekly
Hold punchlists to a handful of items and promptly correct them
within 1 week
48. University Risk Management and Insurance
Association
Digital Photography
48
Appoint a quality representative to train and implement this
procedure
Label photographs within 24 hours
Purchase a camera that allows audio files of what the photo is
Jpeg images and audio file (wave file) are indexed together – no
need to transcribe voice files
File photo’s in weekly albums plus a copy in a topical album, such
as, RFI’s, NCR’s and pre-closure
If a photo of a NCR or punchlist item is taken, one must “clear” that
deficiency with a photo of the corrected condition
Acquire photo management software to make retrieval easy is best
practice
49. University Risk Management and Insurance
Association
Pre-closure Sign-off Procedure
49
Appoint a pre-closure supervisor (engineer or supt.) to inspect and
enforce correction of deficiencies
Build a 3-day “hold point” into the construction schedule for these
inspections
Walk the area with the applicable trade subcontractors, electrical,
mechanical, etc.
Trade subcontractors have 1 day to make necessary corrections
Pre-closure supervisor inspects corrected work
Pre-closure supervisor makes final walk-through with Owner and
Design Professional representatives
Pre-closure supervisor takes digital photographs of every square foot
of wall/ceilings to be covered up
50. University Risk Management and Insurance
Association
Lessons Learned
50
Using an effective photo documentation process before areas are closed-in
or covered-up will assist in litigation
“Prove your innocence, not defend your guilt”
Take pictures of neighboring structures beforehand to assist in future
liability defense
University of Texas’ “live 24 hour feed” for Southwest Medical
Third-party inspection firms can/should be used to identify deficient areas of
construction
Hire the best inspector, not just the lowest price inspector
Flood test a representative sample of windows/door assemblies to determine
the quality of installations – 2.5% to 10%
An effective warranty call-back process in place that quickly addresses post-
completion customer service issues will reduce litigation
51. University Risk Management and Insurance
Association
Lessons Learned
51
Have an effective document retrieval system for the time period of the statute
of repose where the work was completed
If litigation, or threat litigation, it made - keep the records
Document corrective actions made either prior to or after construction
completion
Document “as-built” construction conditions – record drawings
Select subcontractors based on past quality performance, not just price
Provide adequate supervision of subcontractor’s installed work
Hire the following consultants if the Owner does not:
Waterproofing/roofing consultant
Sound and vibration consultant
Code compliance consultant
52. University Risk Management and Insurance
Association
Lessons Learned
52
CD claims happen to large and small contractors alike
There is no project type that is immune from CD claims
The majority of CD claims involve water in some way
Contractors who only perform inspections required by the Owner or what the
building code requires will likely build projects with CD’s
Insured’s that have a QA/QC program should reduce their CD claims
Insured’s that have a QA/QC program should minimize rework
Failure to construct mock-ups or 100% inspection of critical assemblies may
result in CD’s
Implementation of a water intrusion prevention plan can reduce your
exposure to CD claims
53. University Risk Management and Insurance
Association
Quality Management Manuals
53
Ins.Co. Risk Engineering has published sample quality management
manuals (QMM’s):
QMM – Comprehensive for General Contractors (GC’s)
QMM – Basic for GC’s
QMM – Basic and Comprehensive for non-building Contractors
QMM – Basic and Comprehensive for Contractors - Private sector
Each QMM uses proven procedures, consistent processes, terminology,
forms and meeting minute templates
Best practice is to have all subcontractors submit a Site-Specific Quality
Control Plan for review and approval by the GC
QMM’s provide a sample 2-page Site-Specific Quality Control Plan for
subcontractors to complete and submit to the GC
Companies should have a “corporate” QMM and require each project to
prepare a Project Specific QMM
54. University Risk Management and Insurance
Association
Additional Resources
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Ins.Co. Risk Engineering has developed other quality-related
documents:
Ins.Co. quality management program
QA/QC self-evaluation survey
Trade specific QMM’s including checklists
Quality management implementation plan
Resources on the topic of quality
Water intrusion prevention procedure
Quality control graphic
Water infiltration and mold prevention strategies for
contractors
56. University Risk Management and Insurance
Association
Investigating Potential Problems
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Inform contractor of desire to have independent review of
concern
Hire a well respected forensic engineering firm that is on your
Insurance Policy’s approved vendor list, with the consultant
being specific to that particular issue
Have them do a conflict check
Develop a scope of work and a budget up front
Proceed with investigation
This is a ROOT CAUSE ANALYSIS investigation, not a “How
do we work around it?”
No WRITTEN REPORTS at this stage, only verbal opinions
57. University Risk Management and Insurance
Association
Investigating Potential Problems
57
Maintain an evidence chain
Damaged debris/material kept in a secure location
No adhoc destructive testing
Anticipate what the insurers will need to expedite their
investigation
Send invitation to all potential parties with Proof of Notice and
a RSVP requested
Provide opportunity for all to inspect in situ, if some decline,
make specific note about it, and then send follow-up letter
Do not speculate on cause of loss
60. University Risk Management and Insurance
Association
Certificate of Merit
60
I have prepared this Certificate of Merit in accordance with the following provisions of the Texas Civil Practices and
Remedies Code, Title 6, Chapter 150. I hereby assert:
I am competent to testify. I am over 18 years old, of sound mind, and my opinions herein are completely
truthful, based upon the information that has been provided to me.
I am a Professional Engineer, licensed to practice Civil Engineering in the State of Texas, which is the same
license held by the Defendant, Texas Engineer.
I am knowledgeable in the same practice area as the Defendant, and offer testimony based upon my:
Knowledge
As a licensed Civil Engineer, I have direct knowledge of many types of civil engineering and other construction
projects. I have over 30 years’ experience related to Civil Engineering and various Construction projects.
Skill
As a licensed Civil Engineer, I have direct skill in Civil Engineering and Construction through my education,
training, and actively practicing Civil Engineering and Construction in the State of Texas and other states.
Experience
I have direct experience in design, construction, and maintenance of many types of Civil Engineering projects,
including retaining walls, sub-surface investigations, structural foundations, buildings, and more.
Education
I hold both Bachelor of Science and a Master of Science degree in Civil Engineering. I have taken many
courses and continuing education on many aspects of Civil Engineering, including design, construction, and
maintenance of the physical and naturally built environment, including works such as bridges, roads, canals,
dams, and buildings.
61. University Risk Management and Insurance
Association
Certificates of Merit
61
Training
I have direct training in the design, construction, and maintenance of many types of Civil Engineering projects,
including retaining walls, sub-surface investigations, structural foundations, buildings, and more.
Practice
As a licensed Professional Engineer in the State of Texas and 10 other states, I actively practice Civil
Engineering for many clients.
The documents that I reviewed to prepare this affidavit includes the following:
“Project construction drawings prepared by Texas Engineering Company (DEC) with various revision dates.
“Project Manual for Levee Improvements Project Which Coincides With DHS Segment O-4C (0.44 miles)”,
dated September 2008, prepared by TexasEngineering Company.
Construction Contract 08-024-09-30, the “Contract”, between Hidalgo County Drainage District No. 1 the
“Owner” and Ballenger Construction Company, the “Contractor.”
Change Orders #1, #3, #5, #7, #8, #9, #10, #11, #12, #13 and #14 to the “Contract.”
Letter from Richard Reed of Coats/Rose to Stephen Crain of Atlas & Hall, dated July 27, 2010.
Letter from Stephen Crain to Richard Reed, dated August 30, 2010, covering the “Written Opinion on Matters
Contained in Coats/Rose Letter to Hidalgo County Drainage District No. 1's Attorney dated July 27, 2010
Concerning the Above Referenced Project”, by Richard Seitz, P. E.
Letter from Richard Reed to Robert Guerra and Stephen Crain, dated September 22, 2010.
This affidavit is also based on interviews with Rudy Alvarado and Robert Acuna, who were the Ballenger
representatives responsible for managing this project.
62. University Risk Management and Insurance
Association
Best Practices
62
Quality
Control
Progra
m
Documentation:
• Meeting Minutes
• Warranties
• Record Drawings
• O&M Manuals
• Subcontractor QC Plans
• Non-conformance Log
• Inspection & Test Log
• Inspection Checklists
• Photos/Videos
Material Verification:
• Field verify Deliveries
Conform to Submittals
• Manufacturer Visits
• Proper Storage
Meetings:
• Pre-Install
• First-work-in-place
• Follow-up
• Close-out
Inspections:
• Quality Tours - ZDP
• By GC
• By Subcontractors
• By Third Parties
• Daily Observations
• Mock-ups
• Pre-Cover-Up
• Performance Tests
63. University Risk Management and Insurance
Association
Insurance Programs
63
Rolling Owner Controlled Insurance Programs
OCIP/CCIP’s for specific projects
Traditional programs as specified in the contract
documents
Texas courts view wrap-up policies as the “sole
remedy”
64. University Risk Management and Insurance
Association
Recommendations for Risk Management
64
Allocate risk to the party best suited to control
the risk
Design errors?
Lack of sufficient design detail?
Unidentified existing conditions in land?
Bodily injury and/or property damage during construction
Delay in schedule due to delays in RFI/change order
approval?
Delay in schedule due to logistics at site or other activities
on campus?
65. University Risk Management and Insurance
Association
Recommendations for Risk Management
65
Allocate risk through indemnity provisions
Contractor indemnifies owner for BI or PD arising from
negligent performance by contractor or subcontractors
Use insurance to support indemnity provisions
CGL, auto liability, workcomp
Builders risk policies
Professional liability policies for design team
Require project specific coverage or excess limits
applicable to PL or consider owner’s policy?
66. University Risk Management and Insurance
Association
Recommendations for Risk Management
66
Require additional insured status and evidence
of insurance
Not a certificate of insurance
Get copy of policy declarations and all applicable
endorsements
Include waivers of subrogation
Review documents with appropriate consultants
For example, project lender and owner requirements for
payment timing and conditions should flow down through all
project contracts
Dispute resolution provisions should be consistent
67. University Risk Management and Insurance
Association
Creating Leverage BEFORE the claim
67
Performance bonds
Enforceable Indemnity Provisions which comply with
local law
Additional Insured endorsements collected before
anyone steps on the job
Training and empowering contractor personnel to enforce
insurance requirements
Early tender to carriers
Subcontract provisions requiring mandatory joinder of
subcontractors in presuit ADR and arbitration
68. University Risk Management and Insurance
Association
Any Questions?
68
John Santos
512.579.5029
jsantos@utsystem.edu
Tim Christ
210.557.0968
tchrist@lwgconsulting.com
Editor's Notes
John to give UT examples
UT Tyler Paint in vinyl
Crane deaths in dallas
UT Austin Air Handler
UT Southwestern tunnel case
John to discuss thresholds and procedures for selection process
John to discuss preferred contractor list, different thresholds for bids, job order contracts, maintenance, and other bid projects.
Water intrusion is the leading cause of CD losses
The building envelope is the first place to begin when developing a construction quality management program because this area is where the majority of CD claims arise. Every vertilcal to horizontal transition on a building exterior envelope is a leak waiting to happen!
Whenever two different materials meet on the exterior envelope, such as, stucco and a metal window frame, this is another leak waiting to happen. Building envelope deficiencies are so widespread that if our customers only developed effective procedures to prevent them, their CD claims would be substantially reduced.
The next area to concentrate quality management efforts are “wet” systems, for example, plumbing, drainage and HVAC systems. These need to be inspected thoroughly before being covered-up or enclosed.
Water intrusion is the leading cause of CD losses
The building envelope is the first place to begin when developing a construction quality management program because this area is where the majority of CD claims arise. Every vertilcal to horizontal transition on a building exterior envelope is a leak waiting to happen!
Whenever two different materials meet on the exterior envelope, such as, stucco and a metal window frame, this is another leak waiting to happen. Building envelope deficiencies are so widespread that if our customers only developed effective procedures to prevent them, their CD claims would be substantially reduced.
The next area to concentrate quality management efforts are “wet” systems, for example, plumbing, drainage and HVAC systems. These need to be inspected thoroughly before being covered-up or enclosed.
Kyle Field is undergoing a $450 million renovation started immediately after the 2013 season.
Height to base ratio
Had lathe, plaster, and metal framing…. Very heavy. Cold interior air meets outside humid, salty air, and corrosion occurs due to lack of vapor barrier.
John to discuss safety observations/inspections and how that typically correlates to workcomp claims
When having multiple projects adjacent to each other, to prevent inappropriate access by workers, its important to badge/color-code all workers for specific project.
John to discuss take pictures during course of construction
Web-based
Neighboring building pictures for liability defense
Live 24-hour for Southwest Medical
Bandaid approach vs. true root cause analysis
John to discuss ads and disads of ROCIP’s
Prevents crossclaims
Threshold requirements
Texas courts view wraps as sole remedy for comp claims
Discuss savings w/ this plan and pull out insurance costs