Documentation as Defense against Construction Defect Claims
Strong documentation is one of your best defenses against construction defect claims/expenses. It can support that you built a structure right in the first place, or sufficiently corrected an issue, and it can make physically proving this easier if necessary by allowing you to access accurate information in the event something needs to be uncovered.
In order to have the most robust documentation, it is a strong practice to do it contemporaneously, documenting and closing out the work as it is performed, and saving the information in an easy-to-access format that is agreed upon, consistent, and understood by all team members. Robust documentation is definitely worth your company’s time, expense and effort. The question is: Do your policies and procedures ensure that you are doing all you can to drive consistency and thoroughness in your documentation?
It is especially important to capture robust documentation of all conditions that will be hidden within the final structure. Document items overhead, in the ground or walls with photography and checklists with sign-offs. Having these may reduce or eliminate the need to engage in costly and time-consuming exploration to locate a condition after construction is complete.Non-Compliance Reports and Documentation of Correction
On all projects, observations of issues requiring correction may be made by a wide range of entities — including your team, engineers of record, consultants, authorities having jurisdiction, etc. In the event of a claim, all such documentation would be discoverable. Therefore, if a non-compliant item is documented, there must also be formal, retrievable documentation of its having been cured. For every report of an issue, by any party, there needs to be a closed loop of documentation to prove that the issue was corrected appropriately and closed out. It is also valuable if you can demonstrate that definitive actions were taken to prevent recurrence — a proactive approach to continuous improvement. This documentation should include the method and date of correction, with sign off by the involved parties. Review of these issues should be conducted before each progress payment (and certainly before final payment) to ensure that all items for each sub are fully cleared by project completion. You can further strengthen the effectiveness of these practices with periodic audits to ensure all is going to plan.
Photos and Videos
A photo is worth a thousand words. A video is worth a thousand photos. Proof doesn’t get much better. Systematic photos(or better still, videos) of completed work, of testing conducted or other quality control activities are powerful tools. They provide incontrovertible visual evidence of the actual conditions. Whether you use a staff member or a third party for this function, consider developing a systematic method of capturing — throughout all of the key stages of construction — photographs of your good construction practices and results. It is also important to consider carefully the effect of taking photos of non-complying work. More and more, builders take photos of non-compliant work for communication and clarity with the subs and other parties. While this is a very useful practice, it is absolutely critical that if you photograph a non-compliant condition you also photograph and document the cured condition and ensure those images are also readily accessible. Imagine a claim where a photo exists showing something “wrong” behind the walls or in the ground, but only your team’s word or an email stating that the problem was corrected. The best practice is to systematically capture specific photographic evidence that can be accepted as conclusive proof of the deficiency being corrected. A photo — especially one with GPS coordinates, a date, and clear identification — should meet that standard.
As-Builts / BIM Model
An accurate set of construction as-builts — whether paper or digital — can significantly reduce potential for a claim by documenting both the as-built condition and proof of acceptability. Your project team should regularly update the record set with the goal of capturing all changes as they are approved and with sufficient detail so that there is less “remembering” necessary when the final record set is compiled. Daily updates to these documents are preferred but weekly can be acceptable, at a minimum. It is also a best practice to conduct periodic audits of as-builts to ensure compliance. This is commonly performed as part of the monthly pay application approval process. And as subs turn over their as-built sets, check to confirm that there is full agreement between their documents and yours.
The more detailed your commissioning documentation is, the easier it will be to prove that the systems were built as designed and functioning properly at start up and turn over. This documentation provides powerful proof that you delivered the systems as promised. Whether using a third party or in-house commissioning agent, the documentation they produce can have a large impact in the event of a claim. Your documentation of the commissioning process should include checklists with sign-offs, photos, videos, and a narrative for complete clarity, in addition to other required inclusions.
Maintaining all project test records is imperative. Typically, records that you control from the start are not the biggest challenge, but rather those coming from subcontractors. If you cannot prove that the work you are paying for has met the required standards (which test results enable you to do) then you run the risk of having to pay for a re-test or worse--rework. Make sure, to the extent possible, that your subs are turning over all test records related to the progress on each pay app as a condition of payment.
The training provided to the owner in advance of turnover enables proper operation and maintenance practices. These, in turn, reduce the chance of problems down the road which could lead to a claim. In other words, if your owner has a clear understanding how things work, there is a better chance that the systems and equipment will be maintained and operated properly and, therefore, function correctly. Ensuring that your staff and subcontractors understand training requirements early on allows for needed preparation and execution. This is another area where video is a great idea. Video gives the owner a resource to share with future O&M team members and you have proof of what was covered. Additionally, have training attendees sign off on their participation and understanding and make sure the owner knows who to call if there are questions. It is also worthwhile to conduct training on the O&M documents themselves especially for owners, to ensure they know exactly what they have and how to access it. This is especially important if you are turning over a digital model.
Your Company’s timely response to warranty issues is likely to result in a satisfied owner who is less likely to escalate a problem to seek formal remedy. Warranty calls are actually opportunities in a couple of ways: 1. Your response can strengthen an important owner relationship, and 2. If an item can be fixed under warranty, your exposure is reduced. This is a key item to stress with your teams as their responsiveness can make a real difference. Does your company offer a 6 month and 11 month post-completion walk-through of your projects to identify items needing attention? The practice can provide your team an eyes-on opportunity to check for potential issues. This is also an opportunity to document that systems are working properly and to catch any systems being operated or maintained improperly, which could lead to problems later. Make sure subs deliver their warranty documents to you in advance of turn-over, as a condition of payment. Also, ensure the owner knows what their warranties are, how they can access the information easily in the O&M documents, and who to contact when there is a perceived issue. Finally, make sure your company has an internal means of easily retrieving all relevant warranty documentation.
Make sure up front that subs understand requirements for attic stock and that the owner knows those requirements, too. Simply having (and knowing they have) sufficient undamaged attic stock can cure a lot of issues for an owner. Producing an inventory of the attic stock, with sign-offs by a representative for the owner provides acknowledgement of receipt of the stock, and also gives assurance that at least one member of the owner’s staff knows what is on hand.
If things look like they’re going sideways, your quick and competent response is critical to avoid escalation. Consistently file all of the Information we’ve discussed for easy and fast retrieval. Define your policy around what will be kept, how it will be kept (hard copy and / or digital format), where it will be stored, and for how long. And have a process for backing that information up on a regular basis.
Make it so!
All the policies and procedure in the world will do little good if they are not consistently implemented across your organization. Checklists for close-out and final subcontractor payments can help, but it is up to you to educate your teams, so that they understand the importance of these concepts and processes, and consistently follow them.
About the Author
Cheri Hanes, CRIS, is a risk engineer with XL Group's north America Construction team. Before joining XL Global in May 2012, Cheri was with Yates Construction as a Construction Project Engineer and Sustainability Manager for the North Texas division. She has over 19 years of construction industry experience, in multiple roles including preconstruction, operations, and project management. Cheri is a LEED Accredited Professional (Building Design + Construction) and has completed studies at Clemson University as a Construction Document Specialist.
The information contained herein is intended for informational purposes only and does not constitute legal advice. For legal advice, seek the services of a competent attorney. Any descriptions of insurance provisions are general overviews only. In the US the insurance companies of XL Group Ltd are: Greenwich Insurance Company, Indian Harbor Insurance Company, XL Insurance America, Inc., XL Insurance Company of New York, Inc., and XL Specialty Insurance Company. Not all of the insurers do business in all jurisdictions nor is coverage available in all jurisdictions. XL Group is the global brand used by XL Group Ltd’s insurance companies. Information accurate as of November 2014.