When a surety elects to takeover a project, the primary relationship one thinks of is the bonded principal and the obligee. While there are other contractual relationships, such as subcontractors and vendors, non-contractual or third-party relationships in a construction project can have the most troubling effects for sureties attempting to meet bond obligations. One of these non-contractual parties is the end user. While end users may not be directly involved in the performance bond process, their experiences and feedback can influence the owner’s actions and add to the cost of completing the bonded contract.
The end user or facility user, as the labels suggest, is the party who will occupy and use the facility for its intended purpose. This is seen primarily in public projects where one government agency is responsible for design, construction and financing while another agency will occupy and use the facility.
In this post we:
· address the most common types of end-user interference in a takeover scenario
· cover several best practices for mitigating end-user interference before it begins
Surities assert, and rightfully so, that the end user and their effects on the project are the obligee’s issue and shouldn’t impact a surety’s ability or cost to complete the bonded work. In reality though, that is rarely the case. End users have specific expectations regarding the quality and functionality of the completed project. If these expectations are not met, they often raise concerns or disputes with the owner or obligee. While one would hope that the intended end user of the facility would be involved in the planning and design of that facility and that any dispute would be settled internally, that is not always the case. These disputes can escalate, engulfing the whole project and all those involved in disputes, disruption and delays.
End-User Interference in a Surety Takeover: Almost Always Inevitable
Poor coordination between the designer and end-user in construction projects can lead to several significant issues, with implications for the project’s overall success. These issues often arise toward the end of the project when the end users can visualize the project and recognize the discrepancies between what was designed and what is was needed. These issues often flow over to the surety and its completion contractor. This interference usually costs the surety time and money. Common examples include:
1. Performance Expectations: End users may have specific expectations or requirements that must be met for the project to succeed. Having unrealistic expectations about timelines, costs or quality can lead to dissatisfaction and potentially impact the surety’s ability to complete the job as agreed.
2. Project Delays: End users may cause project delays if their requirements or feedback cause result in the project scope or design. Slow decision-making or approval processes on the end user’s part can hinder progress and affect the project’s timely completion.
3. Stakeholder Resistance: If end users are dissatisfied with the performance or decisions of the surety contractor, resistance or conflicts may result. For example, if end users are unhappy with the quality of work or changes made during the takeover, they may raise complaints or withhold approvals, which can stall progress.
4. Increased Scrutiny: End users might be more vigilant and involved in the oversight of the project during a surety takeover. Their increased scrutiny can lead to more detailed inspections and higher standards of accountability, uncovering issues that need addressing. End users may also put their foot down about small deviations that occurred prior to the takeover, insisting upon costly, unnecessary remediations because “This isn’t what I bought.”
5. Adjustments and Change Orders: End users might request changes or modifications to the project as it progresses. These requests can lead to additional work, redesigns or rework, all of which can affect the cost and timeline of the surety takeover.
6. Legal and Contractual Claims: If end users have unresolved issues or grievances with the project, they may pursue legal claims or contractual disputes. This can complicate the takeover process and result in additional legal and financial challenges for the surety company.
7. Public Relations and Perception: End users’ feedback and satisfaction can influence the public perception of the project and the involved parties. Negative feedback or complaints from end users can impact the reputation of the surety, potentially affecting future projects and business opportunities.
Knowledge Drives Proactivity
Understanding the potential for end users to negatively effect a project is the first step in providing sureties with the ability to take proactive measures to limit the impact. When managing end-user issues during a surety takeover project, the goal is to ensure a smooth transition and minimize disruptions during construction. Below are a few steps a surety can take to mitigate these issues:
1. Communication: Start with a comprehensive briefing about the takeover process, timelines and potential challenges with the owner and end user. Ensure that everyone understands who is responsible for what aspects of the project. Clearly communicate the limitations of the surety’s role and the project scope to the facility user. Define and document the owner’s and facility user’s roles and responsibilities. This helps manage expectations and prevents misunderstandings about what can be achieved. Educating end users on the process will help them understand their role (or non-role) in the project and will help mitigate interference.
2. Change Orders and Modifications: End users might request changes or modifications to the project scope during construction. While change orders are typically managed through contract amendments, excessive or poorly managed changes can lead to performance issues. Setting a clear understanding of how such changes will be incorporated is critical. Early on, lay out the process: No change order will be performed without an executed modification by the owner, and the end user is not to communicate directly with the contractor or especially, any subcontractors.
3. Document Everything: Keep detailed records of all communications, decisions and changes. Implement a robust incident management system to track issues promptly. Ensure that there is a transparent process for escalating and addressing critical problems. This documentation helps resolve any disputes or claims. And is especially important if the project gets to the point where liquidated damages are being assessed and the goal is to get to substantial completion and argue later.
4. Dealing with Occupied Space: Conduct a thorough assessment of current systems, workflows and user needs before the takeover begins. This is essential when working in an occupied facility or space. Less disruption for end users limits complaints and avoids unnecessary issues with the owner. Develop a detailed work plan that includes timelines, key milestones and responsibilities. This plan should address potential risks and include contingency strategies should the space not be available as planned.
5. Project Turnover: When the project nears completion, ensure the smooth handover process includes necessary training or briefings for the facility user to operate and maintain the facility effectively. Stress the importance of having the correct personnel attend the training. Incorporate feedback from the facility user as appropriate. Be proactive. Timely resolution of these concerns helps avoid disruptions and unnecessary disputes between the parties.
When considering the impact of end users on surety takeovers, it’s essential to understand that end users are the ultimate recipients or beneficiaries of the project or service. Their needs and actions can significantly affect the process. By taking these steps, you can better manage potential user issues; ensuring smooth completion of work while maintaining user satisfaction.
For questions or more information on best practices in managing end user interactions during in takeovers and our Surety Claims Consulting, contact Nick Deeley (ndeeley@vertexeng.com) or submit an inquiry.
