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Construction Dispute Resolution Methods for Prime Contractors
Articles

Completion Contracting: Unraveling Project Distress and Securing Success

July 28, 2023

Scheduling for Completion Contracting 

As construction professionals, we are familiar with basic scheduling techniques for the various sectors of the construction industry where we work. Typically, a construction schedule is developed based on a sequence of activities defined by the project design documents. Developing the schedule on a new project follows a logical approach of defining predecessor and successor relationships between these activities. Doing so, establishes the project’s critical path, defined by PMI1 by as the sequence of activities with the longest duration from project commencement to completion.  

Building projects naturally progress from site development activities, to underground rough-in activities for the building, to foundations, building envelope, finishes and systems installations and so on, until the project milestone of “substantial completion” is achieved. Civil or infrastructure projects will have a different scopes and sequence of activities, but generally follow the same concept of building from the ground up, executing the deepest installations first and then the subsequent activities (structures, earthwork, paving, drainage, etc…), until reaching substantial completion and putting the project into service. 

Substantial completion is commonly defined as the point at which the project is delivered for its intended use to its Owner; however, it is important that the scheduling milestone for substantial completion and/or final completion be verified against the definition of these milestones in the Contract between the Contractor and the Owner. 

These are the basic steps in developing a schedule for a “normal” project, but what happens when a Contractor gets into trouble, the bond is executed by the Obligee, and we have to step in to complete the project? Can we rely on the Contractor’s existing schedule to define the steps to project completion?  

The simple answer is “NO!” When we enter the role of a ‘Completion Contractor” or “Completion Construction Manager” we have the obligation to the Surety to analyze the actual status of the project, comparing physical progress to date vs. planned progress and the design documents, in order to properly calculate the steps to project completion.  

Completion Contracting: The Completion Schedule is Job #1 

We have to be cognizant of the fact that our presence on the project is because the project is in “distress” and the Contractor executing the work did not perform as planned. The causes for the failure could be project specific or result from other conditions such as bankruptcy that would have an effect on all the Contractor’s projects. Or, the distress may have been caused by Owner actions that are actively being disputed. 

Regardless of the cause, the first step is to develop a completion schedule that begins with a forensic analysis that includes: 

  • Baseline and progress schedules previously submitted to the Obligee by the Contractor. 
  • The actual project conditions in relation to the Contract. 
  • The design documents referenced in the Contract. 
  • All approved and any pending submittals. 
  • All other documents governing the construction of the project. 

Many times, we find that a Contractor in financial trouble will put cost savings ahead of good practices or common industry standards and create situations on the project that require corrective action so the project can continue as planned. 

Building envelope issues, delays in procurement, and conflicts with key subcontractors are three typical symptoms of a distressed project that could change the critical path. These conditions require activities that are neither planned nor designed and should be addressed in order to develop an accurate schedule for completing the project.  

  • If the project was delayed or work suspended, incomplete building envelope activities such as roofing or glazing may have allowed water infiltration and/or exposure to the elements, causing the deterioration of work in place. Civil projects may have issues with erosion, sedimentation of new piping and drainage structures, or other damages. The new schedule will need to address the remedial activities to restore damaged work as part of the project’s completion schedule. 
  • Likewise, a comparison of the project’s procurement plan for long lead items against the actual release for fabrication and delivery of these materials may expose delays in procurement caused by the Contractor’s financial issues. In cases like these, a thorough review of the Contractor’s submittal logs, subcontracts and purchase orders and the financial status of key vendors will be required to ensure the schedule isn’t affected by procurement issues. If delays in procurement of long lead items are discovered, the release of these materials must be prioritized and the revised durations for these activities entered into the project’s completion schedule. 
  • The forensic analysis of the project must also include meeting with key subcontractors to review their status on the project. Part of this analysis is to evaluate the performance of these subcontractors to determine if they can continue working on the project or if they actually contributed to the failure of the project and need to be replaced. 

We often find strained relationships between the failed Contractor and the subcontractors; good subcontractors may be unwilling to continue with the project while problem subcontractors may not easily accept termination. It is important to note, as we enter the “relet” phase, the process for contracting needs to be clarified between the Obligee, the Subcontractors and vendors and the Surety.  

Typically, as Completion Contractors, we perform a complete financial analysis of each vendor and provide the information to the Surety, who will enter into the corresponding contractual agreements to complete the project. In our role, we need to evaluate the time it takes to “relet” the project and reestablish these contractual relationships with subcontractors and vendors – additional time that also needs to be considered in developing the project completion schedule. 

Getting the Full Picture: If the Contractor Won’t Help, Work with Key Staff  

Another key element in developing the project’s completion schedule is securing information from the Contractor and key staff members on the project. This process can be difficult, since the Contractor usually views the Completion Contractor as an adversary; however, the project history and information gleaned from the Superintendent, Project Manager and Project Engineers can be invaluable in projecting the timeframes for completing the project. 

Managing Expectations for Parties with Divergent Priorities 

Once we’ve developed a project completion schedule that considers all the elements noted above (and others), the next step is secure the “buy-in” for the revised schedule from the Surety as our Client, the Obligee, and the subcontractors and vendors. 

This is where managing stakeholders’ expectations is paramount: the Obligee will undoubtedly be looking for project delivery as early as possible, while the Surety will have concerns over the budget at completion. The schedule we develop needs to provide an accurate projection of all the time required to complete the project, without compromising the schedule based on outside influences. 

We do not want to provide an Obligee who has already suffered delays on their project with an unrealistic schedule that will further affect their utilization and startup plans. As Completion Contractors, our responsibility is to reveal all the intangible elements affecting the project (especially those not foreseeable by merely reviewing design documents or project records) and introduce these to present all the stakeholders a realistic and achievable project completion schedule. 

If you have any questions about best practices in Completion Contracting or would like more information on the Vertex team’s experience in these often complicated situations, please contact me; Gustavo Fernandez, via email at gfernandez@vertexeng.com or message me at (727) 240-6077. 

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