October 25, 2007
Digging a tunnel? Watch out below for risks
By RICK SMITH and MARK HAVEKOST
When you imagine the possibilities of your next construction project, take time to consider what might go wrong in addition to all the positive outcomes. By taking steps to manage risks before breaking ground, many projects can avoid cost overruns, schedule delays and disputes.
In order to get the most out of your risk management efforts, concentrate on areas with the greatest potential for problems: such as the underground. Your risk management strategy should include elements of risk avoidance, geotechnical investigation and specialized contract provisions.
Avoiding potential dangers is often an effective approach to risk management. Avoidance measures can include altering the design of a project to physically avoid problematic areas, or eliminating aspects that threaten to increase costs. This is usually the most successful way to manage risk from both the owner’s and contractor’s perspective, as long as it does not increase project costs significantly.
In some cases, avoiding a specific risk element may require additional time during design, but may prove worth it in the end. For example, during a subway project, the tunnel route or station position might be altered to circumvent areas that are difficult to excavate. This change might lower risk and construction costs, but might also require additional engineering to investigate and permit the new alignment.
Dealing with the unknown
A common cause of headaches on any construction project is ground conditions, especially when excavation is involved. Encountering unanticipated underground conditions could prove hazardous, impacting construction methods and progress, and resulting in cost increases, loss of productivity or contractor claims. Detecting potential problems early with a geotechnical investigation offers the best opportunity to avoid, or develop a strategy to deal with, these issues.
A thorough geotechnical investigation should include studies of geologic maps and historic photographs of the area, a review of local construction history and exploratory hole drilling. These will identify the ground conditions that could lead to construction problems. For example, things like large boulders, poor soil or rock conditions, or buried manmade debris have the potential to halt construction. To cope with this, the contract documents should specify construction techniques to deal with these issues. Conversely, contract documents could ban other techniques prone to problems in similar conditions.
Specialized contract provisions used to manage risk for underground projects typically include: contractor prequalification, geotechnical baseline reports, differing site conditions clauses and special payment provisions. Contract provisions that are carefully tailored to the specific requirements of the project are essential for effective risk management.
Contractor prequalification requires that the contractor demonstrate experience with the type of work planned. This reduces the owner’s risk by limiting bidders to those with similar project experience. Contractors could also be required to show that they can provide the necessary equipment and experienced personnel to successfully complete the work. In a low-bid environment, this ensures that only qualified contractors would work on your project.
Geotechnical baseline reports
The potential for costly disputes can be greatly reduced by including a geotechnical baseline report in the contract documents. A geotechnical baseline report summarizes the ground conditions that can be expected during excavation of a project. This summary could be prepared by the owner, or jointly with the contractor.
By defining a baseline in the contract, an owner can be reasonably confident that all bids are based on similar interpretations of the ground, resulting in a narrow range of bid prices. A geotechnical baseline report will also reduce exposure to claims resulting from overly optimistic interpretations of ground conditions by the low-bid contractor.
Differing site conditions
A differing site conditions clause will further protect both owner and contractor from disputes. Including a differing site conditions clause in the contract relieves the contractor of risk due to unforeseen subsurface conditions. This clause lets the contractor know that the owner will be responsible for the consequences of ground conditions different than the baseline, if they are encountered.
The owner benefits from a differing site conditions clause because contractors can reduce project contingencies, resulting in lower bid prices.
Unfortunately, the risk of encountering differing site conditions during construction cannot be completely eliminated; however, cost overruns can be avoided by putting special payment provisions in the contract. For example, the owner can agree to pay for a recovery shaft that may be needed to remove underground obstacles. By asking for the price of this shaft up front, the owner will pay a competitive price obtained through the low-bid process. The owner might be forced to pay non-competitive prices if these rates are not negotiated up front.
With the right information in hand, project risks can be identified, a strategy developed to address each one, and proper allocation of responsibility between the owner and contractor can be established. With any construction comes the potential for risk for everyone involved, however, through geotechnical investigations, and well-prepared contract documents, it can be managed.
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