On paper, everyone agrees that collaboration is essential. But what happens when it’s used as both a sword and a shield?
Some contractors push “collaboration” while running aggressive commercial strategies designed to overwhelm, force concessions, and shift risk back to the owner.
In our latest article, we share examples, warning signs, and a practical checklist for owners dealing with commercially aggressive contractors.
Collaboration in Construction – a Sword and a Shield
Last week, we published an article titled ‘Maintaining Relationships in a Challenging Environment’. If you haven’t read this yet, please start here.
In case we are accused of being critical of contractors, we can assure you that we will be equally critical of owners in future posts.
In my opinion, the article stands out for two reasons. It addresses many of the strategies and tactics that Contractors employ, and it provides some rudimentary pieces of advice for how parties to a contract should collaborate and engage. Following this advice can be straightforward; however, the prolonged war of attrition may be challenging for some people.
Suppose that instead of collaborating or even engaging in any degree of cooperation, the Contractor prioritizes commercially aggressive behaviour and seeks to use collaboration as both a sword and a shield? This article focuses on the tactics and strategies that contractors may employ throughout a contract and how an owner should address these strategies.
Contractors often assert that an owner’s representative is being uncollaborative. This typically occurs when no progress is made on incomplete change requests or claim submissions, or when the contract may not provide a path to entitlement for the contractor’s creative requests. Of course, the owner’s representative may be acting unreasonably, or may be seeking a far greater level of substantiation than what is considered ‘industry standard’, or indeed they may have an axe to grind. For the sake of this article, we will focus on where the contractor’s commercial representative is being continually aggressive and the owner is pushing back.
A standard play out of a contractor’s playbook is to assert that an owner’s representative is being unfair and unreasonable (typically the person accused is organized, astute and continually refutes changes and claims where CEES has not been demonstrated). In this instance, the contractor attempts to downplay their role or actions, which is why such vehement disagreement exists. While the assertion of unfairness may be unfounded or not demonstrated, it may force the owner’s senior representative to settle or horse-trade under the interests of ‘fairness’ or what is ‘best for the project’ (we refer to this as the ‘force concession approach’).
In Ireland, we have a common phrase relating to construction claims – “throw as much s&%t at the wall and see how much of it sticks”, or more professionally stated, “Pursue a strategy of comprehensive, volume-based approach of issue-raising, recognizing that select items may succeed”. In my opinion, latter does not quite have the same ring to it.
The contractor’s strategy may include some of the following elements:
- Submit a myriad of Requests for Information (RFIs) or deviations, highlighting the asserted shortcomings and ambiguities in the scope and specifications. Lessen the technical requirements, seek relaxations (but don’t give credits), and ask for clemency where a requirement is onerous. Overwhelm your opposite number, test how they respond to issues.
- Submit all manner of changes, leaving ultimate flexibility to revisit and increase costs in the future, particularly when it comes to decoupling cost and schedule impacts.
- Test the owner’s contract administrator, what do they focus on?, whats substantiation do they consistently require? , where are their strengths and weaknesses?, what do they overlook?, where will they concede?, what will they vehemently defend?; amend your strategy based on these findings.
- Assert that the calculation of the schedule extension is not foreseeable or quantifiable, until a later date (this is so other elements of underperformance can be included here). As above, include language to revisit.
- Agree on the direct costs only, reserve the right to seek an extension of time as per point five.
- Provide as little substantiation as possible; information is power. While some records will fully substantiate our position, submitting these may provide a precedent that we can’t meet or be consistent with for all other changes.
- Assert that the allowance included in the ‘contract’ was less than what it cost because of ‘insert owner issue, change, alleged direction or other issue’ – claim the difference, and don’t provide transparency (surely a spreadsheet will suffice?). Anything more would break the rule in number 6 above.
- Continually assert and reference the issues encountered, attribute them to the owners risk (no matter how remote they may be from the issue), play the blame game, never accept responsibility.
- Assert that we have all the records that prove our case; you will see them in a formal dispute. This is never the case and is not a viable threat. What the contractor’s records will actually show is all interactions between the subcontractors and the contractor, which will illustrate the sheer extent of underperformance, confusion, late and unmet deliverables, an untold number of disputes and uncollaborative behaviour that has nothing to do with the claims that the contractors are asserting to the owner.
- If contentious issues exist between contractors and a subcontractor which has nothing to do with a change to the owner, could it be repurposed?
A practical example of a strategy that an ex-colleague of mine dealt with in a past project was where the extent of groundwater was contentious (greater than anticipated) and a successful demonstration by the contractor could lead to excessive changes and schedule extensions. To illustrate the magnitude of the problem, the contractor stopped pumping or only pumped water when the owner’s representatives were present. The contractor produced a myriad of photographs that sought to illustrate how different the conditions were from those contained in the contract documents (while the pumps were, of course, not switched on).
An approach to commercially aggressive behaviour
Any astute Contracts professional should always consider that a formal dispute could happen and prepare accordingly. This is not only for good contract management practice, but also to ensure that the owner’s behaviour is not portrayed in a poor light in arbitration or litigation. The following should be regularly applied to rigorously defend the owners position:
- Be fair and reasonable, ensure that all correspondence reflects this.
- Take emotion out of it; this is business. Take a leaf out of Abraham Lincoln’s book, draft, cool, then respond.
- Stick rigidly to the four corners of the contract; be careful about straying from this. If a Contractor is obligated to provide a deliverable or information as part of the contract reporting, make sure you receive it, and the contents are reviewed and understood. If the contractor is not continually reminded, the requirements will be eroded over time, and it is difficult to get it back, particularly if it is not broought to their attention as soon as it occurs.
- Provide reasoning and rationale (factual and measured) as to why a contractor’s change/claim has been refuted, highlight where the entitlement has not been proven, and what the contractor has failed to consider, or include in their submission, be specific, not vague.
- If your counterparty asks to meet, extend them the courtesy, provide every opportunity for the contractor to prove their case, and understand what you are seeking.
- When faced with continued pressure, letters, requests, demands, or excessive changes, work through them methodically. This is the time when a project team needs to work together as a combined front.
- Communicate up and down, escalate appropriate, clear messaging to your management for discussions at a senior level.
- Tighten up on documentation and records, needed for accurate assertions in letters, and will most certainly be required for a formal dispute.
- Refute inaccuracies or positioning statements in contractor-authored reports, task the contractor (by official response) to provide clarity and substantiation.
- Apply Cause, Effect, Entitlement, and Substantiation (“CEES”). If one of these elements fails, the threshold of a successful claim has not been met.
- A contractor usually has many obligations in a modern contract; hold them to these obligations.
- Detailed and periodic schedule analysis is critical (as the project proceeds). Follow the contract to the letter and ensure a schedule narrative has been included with each submission.
One common thread that I have experienced many times is that aggressive Contractors overreach, they overplay revisionist history, and try to get too clever on schedule manipulation strategies and tactics. By documenting carefully and holding them to strict notice, entitlement, demonstration of a causal link, and substantiation, the Owner can win the long game.
“The supreme art of war is to subdue the enemy without fighting.”
— Sun Tzu, The Art of War.
We are currently developing materials related to the contractor and owner playbooks, as well as detailed strategies to navigate both effectively. Watch this space for more content.
- I will revisit the example of the former in a later article.
- The playbook meaning strategies and tactics adopted in dealing with owners – we will explore this further in subsequent posts.
- Cause, Effect, Entitlement and Substantiation. For more on this, see our previous article here
- Lincoln would compose what he called a “hot letter,” put it aside until his emotions cooled down, and then write: “Never sent. Never signed.” – Doris Kearns Goodwin (as cited in the NYT article by Maria Konnikova).
