Monday, November 21, 2011

The importance of Documenting Performance

In my introduction to one job I was handed a letter and told, “Straighten this out”. On reading the letter I found that it was a claim from a supplier of construction site work services for some $500,000 plus demanding payment or threatening to take our company to arbitration. The heart of the claim was for a substantial amount of soil that had to be removed from the site and replaced with other good soil. While we think of soil as soil, there are a number of different types of soil that react in different manners when wet. For example “blue clay” is like a rock when it’s dry and it’s like “silly putty” when it gets wet. The reason why this soil had to be removed it was alleged, was that it was marginal soil from the beginning and due to the excessive amount of rains that had occurred, it was thoroughly soaked and therefore could not be compacted as is and could not be dried out in time to meet the completion schedule. Further the supplier alleged that they had taken steps to dry the soil, were unsuccessful and needed to have the soil removed and replaced. The charges in the claim were for the removal, trucking, dumping, purchase of new and placement.

The fact that there had been excessive rains was undisputed. A quick check with the National Weather Service verified the extent. So that couldn’t be argued. A quick review of our soil samples also confirmed that it was they type of soil that could be un-usable if it became thoroughly soaked. So that couldn’t be argued.

The next check was of the resident engineer’s logs and the architect / engineer’s site visit reports. Those were our primary documents as to the contractor’s performance.

In going through the resident engineer’s reports I discovered that prior to the rainy period in question, the contractor had trucked off the site numerous truck- loads of soil. Each truck going on and coming off the site had to check in. So we knew the exact number of trucks that went off site carrying soil and could from the size of the trucks calculate a quantity. A Building site design will have elevations that the contractor must grade and compact the soil to those elevations. The supplier is usually responsible to provide fill to meet those elevations when required. If there is excess fill the supplier is usually required to remove the excess, which they may then re-sell. We established that the supplier had removed a substantial quantity of good soil that could have been piled on site, protected, and used instead of purchasing new soil.

In the review of the Architect/Engineer’s site visit reports I also discovered that they had warned the contractor several times about stripping as large of area as they were stripping. Leaving this soil exposed would create a problem if there were heavy rains because of the nature of the soil. The practice of leaving a large amount of soil exposed was documented to have occurred immediately before and even during the early stages of the rains.

What I had discovered though the documentation was that while they hadn’t created the problem itself, they had multiplied the effect of the problem because of their practices. They left large amounts exposed, which they had been warned against. They further multiplied the effect of the problem by removing substantial amounts of soil from the site rather than stored it on site until the grading and compaction were completed. There was far more soil removed than they needed to purchase in the end, so if they hadn’t removed it and had protected it they wouldn’t have needed to purchase any.

I then worked with the Architect/Engineer to determine what would have been a reasonable amount of area to strip at any one time. That was to identify what amount of soil would need to be replaced if they had managed it properly. We then prepared an estimate of what the cost would be to remove that amount of soil would be and replace it with soil that should have be retained on site and protected.

My $90,000 offer to the contractor was backed up with our calculations, copies of the site logs, copies of the architect’s site visits. As things go, the contractor was not one to give up easy and noted said that they would take the claim to arbitration where they felt they would at least get half of their claim. I reminded them that there was no provision for arbitration in our agreement, We heard nothing for a while and then were contacted by their law firm. The first question from lawyer was whether we could agree to pay $97,000. As the cost of taking the case to court would have been substantial, I agreed. They had looked at the case, considered the evidence, understood that our offer was fair and the case wasn’t worth pursuing as they wouldn’t win.

In a later discussion with the lawyer in getting a release signed I asked him about the additional $7,000 and he explained that the $7,000 was to cover their fees!

Documenting performance is important. In these days of electronic communications if you communicate regularly with a supplier create a folder and keep that just in case you need it in the future whether its to defend against a claim or make a claim of you own.

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