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CONSTRUCTION CONTRACT CLAIMS AND
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i
BY
IJOSEPH
C. LAVIGNE
I
A REPORT PRESENTED TO
OF THE DEPARTMENT OF
PARTIAL FULFILLMENT
FOR THE DEGREE OF
UNIVERSITY OF FLORIDA
Summer 1993
I
I
TABLE OF CONTENTS
CHAPTER ONE -
INTRODUCTION
CHAPTER TWO -
2.1
2.2
Introduction
Establishing Contract Risk
2.3
2.4
2.5
2.6
3.3
3.4
5
6
10
12
15
18
20
Introduction
Change Order Terminology
20
21
3.2.1
3.2.2
3.2.3
3.2.4
3.2.5
22
22
22
23
23
Change
Constructive Change
Change Order
Claim
Dispute
24
25
3.4.1
3.4.2
3.4.3
25
26
26
3.5
26
3.6
Classification Of Claims
28
3.6.1
3.6.2
3.6.3
3.6.4
28
29
30
3.7
3.8
32
33
3.7.1
3.7.2
3.7.3
3.7.4
33
34
35
36
36
I
CHAPTER FOUR - A LEGAL FOCUS ON THE ARBITRATION PROCESS
4.1
4.2
4.3
4.4
4.5
4.6
Introduction
The Development Of The Arbitration Process
Enforceability Of Arbitration Clauses
The Legality And Validity Of Arbitration
Arbitrability And Timeliness Of Claims
Comparing Arbitration To Litigation
50
Introduction
50
5.2
5.3
5.4
5.5
51
53
54
55
5.6
Prehearing Procedures
56
5.7
57
5.7.1
5.7.2
5.7.3
5.7.4
58
58
59
59
60
5.7.6
5.7.7
Opening Remarks
Evidence And Subpoena Rights
60
60
5.7.8
Evidence Rules
61
5.7.9
Witness Testimony
5.7.10 Site Visitation
5.7.11 Documenting The Hearing
5.7.12 Reopening The Hearing
Awards
5.8
5.9 Arbitrated
Awards Enforcement
5.10 Judicial Review Of Arbitrated Awards
SIX -
6.1
IU
39
39
41
42
43
45
5.1
5.7.5
39
Introduction
61
62
63
63
64
66
66
69
69
6.2
6.3
6.4
6.5
6.6
6.7
6.8
6.9
6.10
6.11
Fact-Based Mediation
AAA Expedited Procedure
71
71
Mini Trial
73
69
73
74
Advisory Opinions
74
Non-Binding Arbitration
Step-By-Step Disputes Resolution
Disputes Review Board
75
75
76
7.3
7.4
Introduction
The Partnering Concept
3
7.4.5
7.4.6
7.4.7
88
88
89
7.4.4.1
7.4.4.2
90
Facilitated Workshops
Individual Roles And
Responsibilities
7.4.4.3
7.4.4.4
91
92
93
94
Periodic Evaluation
Escalation Of Unresolved Issues
Final Evaluation
95
95
95
96
97
7.5.2
98
7.5.3
7.5.4
7.6
87
87
7.4.4.5
83
7.5
80
81
80
98
99
99
101
BIBLIOGRAPHY
109
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Ae esil 09 Ior
St#/A, USNPS/Code 031
(Ms. Marsha Schrader - DSN 878-2319)
Telecon, 27 Aug 93 - GB
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CHAPTER ONE
INTRODUCTION
U
3
It
Relaying on the
It
is also an
Therefore,
Resolving
This can be
execution.
The purpose of this research paper is to investigate
the reasons behind the increasing trend toward adversarial
contract relationships and claims.
It
also looks at
3
I
3
3
Risk avoidance,
risk
or control it's
Chapter Three
3
3
3
3
Chapter Six
Chapter
potential role
U
for solving the litigious nature and mounting decay of the
contractual process within the construction industry.
Most privately funded projects designed by an architect
3
3
The General
AIA Document
A201,
Specifically,
the arbitration
5
3
Arbitration Association[AAA]"
3
3
3
(3-12).
still
still
i
*
I3
However,
it
i
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g
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1
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construction industry.
I
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WO
2 .1 INTRODUTIQON
Contracting for construction services is an inherently
Risk
process.
3
3
parties (15).
I
I
effects the
I
3
2.2
Unrealistic
3
3
However,
This
It
is
also possibly
contracting parties.
I
failure.
which,
in some cases,
Disagreements
The
3
5
Conversely,
a poorly
3
I7
completing
unrealistic.
However,
inconsistent or vague.
In
risk (6).
One of the main disadvantages of fixed price
contracting is that it
Though it
I8
U
3
At other times a
bad gamble may lead to run away project costs forcing the
contractor to look for ways to cut expenses (15).
The
I-
and risk.
These types of risk avoidance have underscored the
construction industry's ability to get the work done without
third party intervention.
The
current mood in the industry that only one party can come
out ahead at the end of the contract has been the catalysts
behind the movement away from a cooperative venture towards
one filled with conflict and hostility.
Unfair risk
He believes
10
weather,
ilist
1.
2. Subsurface conditions.
3. Adequate labor force.
activism.
Adequacy and availability of owner representative.
6.
7.
8.
9.
10.
11.
12.
Site access.
Sufficiency of plans and specifications.
Innovative design.
Owner involvement in design.
Appropriate designer involvement in construction.
Late or unsuitable owner furnished material and
equipment.
16.
17.
18.
19.
20.
21.
Labor productivity.
Subcontractor capability.
Delays and disruptions.
Worker and site safety.
Adequacy of performance time.
Changes in needs or requirements of finished
project.
22.
Governmental acts
23.
24.
25.
26.
Acts of God.
Union strife and work rules.
Cost escalation.
Overlapping insurance coverage.
27.
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I
11
(15-8)
U
2.4
The owner
and the designer set the stage for risk allocation when
developing the contract documents.
These,
3
3
"risk
(6-451).
Hore
U
"any interpretations or evaluation of the subsurface
investigation record made by the bidder shall be at the sole
risk of the bidder" (6-451).
The contractor
in the
schedule
This
(6).
m
*
----
13nm
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3
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*
The owner
Under these
negotiated.
Increasingly,
Barrie
14
Shedding confrontational
I
i
transfer (15-3).
retention or
Therefore,
as Smith believes,
He states
Sthat: Contract
preparation that
allocates risk
with a
balanced input from all parties will be most cost
effective ....How these risks are allocated among
parties to the contracting process has a direct
bearing on total project cost. (15-1)
II
Therefore,
it
is
performance (15).
15
I
design agent may then be able to eliminate or reduce these
types of risks to a reasonable level through careful project
document development.
It
Definitions.
Quality interpretations and variations.
Examination of work site.
7.
8.
9.
4. Subsurface exploration.
5.6. Changes
and alterations.
Extra work.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
16
The
Though he may
In reality,
dispute proceedings
(15).
5.
6.
7.
8.
9.
10.
11.
parties (6).
I
*
17
If
the decision is
to bid on the
3
3
Furthermore,
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Likewise, the
18
Lastly,
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the designer is removed from assuming unrealistic liability
in relation to his involvement and ability to control the
final product (15).
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project.
19
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IC-
THREE
CHANGES,
3.1
CLAM
INTRODUCTION
As so astutely stated by Judge Kern at the conclusion
Coakly Company:
... except in the middle of a battlefield, nowhere must
men coordinate the movement of other men and all
materials in the midst of such chaos and with such
limited certainty of present facts and future
occurrences as in a huge construction project... Even
the most painstaking planning frequently turns out to
be mere conjecture and accommodation to changes must
necessarily be of the rough, quick and ad hoc sort,
analogous to ever-changing commands on the
battlefield (10-5.1).
any, construction
3
3
|20
I
resolved in the field through a simple alteration in the
specified requirements.
Frequently however,
When
5
5
is
It
1
3
3
.2
II
mechanics of claims.
This section is
devoted to defining
Change
of the contractor.
or both.
3.2.2
Constructive Change
Change Order
unilateral.
contracting parties.
Sthe
22
This
5
*
dispute (13).
Under the AIA General Conditions,
Document A201,
2.
3.
3.2.4
S3.2.5
pj~t
parties.
5
S-23
Disputes
alternate dispute
'3
3.3
The owner,
who is
3
3
3
A
contractor can likewise create a change the contract
when he fails to perform in accordance with the project
documents.
noncompensible
responsible for
contested.
At times,
unanticipated circumstances.
it
These
U
documents who assumes responsibility for any additional
3
5
contractor
Sarbitration, other
litigation.
3.4.1
11.
*
Suspension of work.
25
3
3
12.
13.
14.
15.
16.
representative.
Nonperformance by owner.
Termination of contract.
Equivocal or conflicting contract clauses.
Slow or inadequate response to submittals and
requests for information (6-453).
3.4.2
3.4.3
Other ChanMes
3.5
other conditions.
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agreement (15).
*
overhead (6).
3
5
5
3
determine.
Their
3.6
CLASSIFICATION OF CLAIMS
Barrie has classified claims into four general areas
additions,
time of award.
for both the changed work and the work originally contracted
for (6).
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schedule (6).
3
3
This difficulty
3
3
whose responsibility it
Regardless of
I
*
Delay Cl
At
30
I
the project as a result of the delay.
Inexcusable delays
are not compensible for time or money since they are due to
the contractor's own negligence and are not the
owner.
3
3
the delay are complex or have been muddied by several interrelated events.
Though it
Trying to
Even
impact,
including
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3'a
lP
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3
3
3
3.6.4.
Acceleration. Compression.
compression,
specification changes,
additions,
the contractor
overtime,
there is a drop in
I
3
contract (6).
3.7
Architects (AIA)
it clearly
It
the
33
I
within the scope of the project.
The contractor is
work (13).
read in part:
if
required
3.7.2
3
3
arises.
3
I
later" (3-11).
34
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1
1
3.
4.
5.
within 10 days:
1.
2.
3.
4.
5.
3
*
3.7.3
The architect is
I
This decision is
Arbitrati
Notice of
A few
However,
Act,
In fact, most
One
36
attorney:
making the architect a claims officer only invites
trouble.
It is unreasonable to expect the architect to
have the knowledge and skill to resolve the numerous
types of claims that will invariably arise on any
construction project. Moreover, it is unrealistic to
expect the architect to act completely
impartially (14-31).
Dale Ellickson, senior director of AIA's documents program
responded in kind.
stating:
The role of the design professional as a quasi-arbiter
is supported not only be long experience, but more
pragmatically by the logic that the design architect or
engineer is most familiar with the scope and intent of
the project.
Bringing in a third-party also would be
Allowing the on-site
more costly and time-consuming.
architect or engineer to handle this function permits
the disposition of small problems that could easily
become large problems if left to the end of the
project (14-31).
arbitration is
recourse.
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viewed
and reasonable.
community as a whole,
decisions" (12-7).
correct.
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CHAPTER FOUR
A LEIGL FOCUS ON THE ARBITRATION PROCESS
4.1
INTRODUCTION
Arbitration was established as a method to resolve
arbitration board if
authority (16).
its
Often
39
I
function and limited contractual enforcement only to those
arbitrations that has already made a ruling (16).
Other
Some
Others
Sweet
I
*
!40
3
*
5.
6.
For example,
in the case of
it
stated:
The law favors contracts for arbitration of disputes
between parties. They are binding when they are openly
and fairly entered into and when they accomplish the
purpose for which they were intended.
Our trial courts are clogged with cases, many of then
involving disputes between contracting parties. One of
the principal purposes which arbitration proceedings
accomplish is to relieve that congestion and to obviate
the delays of litigation (16-673).
4.3
U
3
I
*
However, the
This is
An
They may
He notes:
4.4
is not in their
lacks
However,
it
4.5
process (16).
As an example,
The legal
it
4
43
Nevertheless,
decision (3).
Again,
Several legal
As with the
courts'
Therefore,
is
5
3
4.6
3
3
I
Arbitration
45
I
Though the American Arbitration Association (AAA)
is a
Under C! Rules,
based on the
size of the claim with $300 set as the minimum fee (16).
The size of the fee can become exorbitant as the cost of the
claim increases.
For example,
an abbreviated scale of
provided as
follows:
Claim Amount
$25,000
$200,000
$200,000 to 5 million
Filing Fee
$750
$2,250
$2,250 plus 1/4% of the
excess over $200,000
$14,250 plus 1/10% of
the excess over
$5 million (16-694)
Over $5 million
This AAA fee is due sixty days after filing or before the
first
arbitrated hearings,
(1).
For
are also
In comparison,
46
complexity.
systam (16).
IB
5
3
litigation process.
Arbitration has the advantage of speed and cost
effectiveness over litigation.
5
I
3
3
I
Therefore,
4
I
47"
I
Arbitrators are not educated in the field of law nor
have the experience of a trial
disputes.
However,
commonly
3
3
Furthermore,
5
3
In fact,
48
3
3
Without
Ii
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CHAPTER FIVE
THE ARBITRATION PROCESS
5.1
INTRODUCTIQN
This chapter addresses the dispute resolution process
through arbitration.
If
an arbitration clause is
incorporated
litigation process.
Until 1966,
In 1966,
3
!r
50
5.2
With the
Though state
For
51
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3
4.
5.
panel.
3
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6.
7.
8.
9.
3
3
3
may
The
hearing (16).
Though not all are required for every arbitration, some
1
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3
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3
arbitrator(s),
selecting the
HOLDING AN ADMINISTRATIVER
SThe
requested by
3
3
2.
including
Lists of witnesses,
S7.
*
3
1
1
Briefs.
9.
10. Arbitrators'
I
Completing these procedural steps before the arbitration
5.4
Typically,
The parties
3
5
3
3
iarbitration
3
3
Some
On
In this instance
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3
3
5
If
they still
Normally,
3
3
5.5
5
3
Any
cost effective,
5
3
I
The AAA is
bound by the AAA arbitration rules, the time and place for
Ii55
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the arbitration is
PREHEARING PROCEDURzS
The initiating
by the other.
3
3
In some instances,
5
3
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3
56II
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facts and their justification for their position (16).
Justin suggests this advance submission will narrow the
scope of the dispute during the proceedings by eliminating
This
SHowever,the
I
3
Sweet
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3
hearing (16).
57
The
5.7.1
It
is the responsibility of
5.7.2
These statements
3
3
3
3
Even
I
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I
5.7.3.
however,
hearing.
take into account the time that may be needed to obtain the
there is
request (16).
5.7.4
3
3
The arbitrators
fairness and
59
5.7.5
proceed as
award (16).
5.7.6
It
is
OUening Remarks
up to the discretion of the arbitration board
Sometimes opening
5.7.7
60
I
subpoena an individual to testify in the hearings or to
Evidence Rules
It
dispute (16).
Idiscarded
presented by either of
5.7.9
Witness Testimony
3
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3
61
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defense (16).
3
3
5.7.10
Site Visitation
i=
-3
requested to
However,
absent
5.7.11
This
It
if
deliberation.
However,
needed during
Reopening A Hearing
evidence (16).
Since timeliness
I
5.8
ARBITRATED AWARDS
At the conclusion of the hearing,
is not
Usually it
being
held (16).
The award remedies available to the arbitration board
are usually identified in either the arbitration clause or
within the rules used to conduct the arbitration
hearing (16).
is,
As an example,
the AAA
or if
the oral
I
I
The award must be made in fourteen days under AAA expedited
proceedings (1).
to do if
or if
it
sees fit
Giving
The
the disgruntle
I
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3
The board
may also assess the fees associated with the hearing equally
AWARDS ENFORCEMENT
However,
If
the
left to the
JUDICIAL REVIEW OF
RTBITRATED AWARDS
The
66
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3
2.
fraud or
I
3
1.
2.
3. The award is
The right to
!67
I
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error that occurred during the hearing and not solely to
appeal the award (16).
This is
writes:
I
t
process (16).
arbitrated decisions.
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in
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CHAPTER SIX
OTHER TYPES OF DISPUTES RESOLUTION FORUMS
6.1
INTRODUCTION
The purpose of this chapter is to briefly explore
it
is
Though the
representative of the
1
5
5
6.2
3
3
The following
I
Association for incorporation into contracts where mediation
is to be employed, summarizes the mechanics of mediated
disputes:
g
5
As an added
70
Rules,
if
FACT-BASED MEDIATION
This disputes forum provides the parties with an
3
3
I
3
5
3
3
go unresolved (16).
6.4
i
*
71
I
and selecting the location and time for the hearing is
expedited (16).
it
is
required that
dispute (16).
required to be made
However,
Using AAA
3
3
testimony,
errors of
I
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litigation.
72
'I
3
6.5
-INI-TRIL
Under mini-trail dispute resolution,
3
3
the parties
parties not directly involved with the contract who have the
contractual authority to settle the dispute (16).
the
3
5
3
5
If
Before pursuing
If
73
6 .7
money (16).
are made.
The hearings
Verdicts of the
This method of
3
I
6.8
ADVISORY OPINIONS
This form of dispute resolution consists of having a
Iii74
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3
3
3
still
it
was to be
either party
of the dispute.
6.9
NONBINDING ARBITRATION
iImini-trial
It
trial
it
were to proceed to
(16).
It
remains the
iiI
75
I
help solve the growing disputes problem (6).
Resolution Clause (DRC)
The Disputes
(not binding).
2.
Mediation between the disputants, with a thirdparty expert to facilitate early resolution (not
binding).
3.
litigation
dispute is
3
I
hearings (6).
6.11
Board is
A Disputes Review
376
the
I
I
parties at the beginning of the contract for the project
Sduration
(19).
these
completed (19).
is
In urgent circumstances,
the
proceedings (19).
The Disputes
77
I
Either party dissatisfied with the ruling can appeal through
Sthe
Ipast,
(19).
3
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1
3
The
I
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the boards
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CHAPTER SEVEN
~PARTNERING: A
COMIITHENT TO COOPERATION
7.1
INTRODUCTION
The Construction Industry Institute has defined the
I
*
recognizes the
tired of the
To be successful,
It
at project completion is
abandoned.
product (21).
Partnering has received great praise for its
effectiveness from the ccnstruction community.
Owners,
It
is
an effective
partnering (7-12).
This chapter
construction industry.
7.2
It
returns
I*I
I1
It
is not a
This process of
mentality" (7-13).
It
I
I
achieving the desired end results (7).
"an
The
workshop.
The workshop isset up as a round table forum between
the contracting parties where the keys to successful
They
I
I
are further defined by the Associated General Contractors of
America as follows:
1. Commitment.
formed
This
2.
&Wit.
Undertaking the project is based upon a "winwin" attitude between the parties to achieve these
mutual goals.
3.
I
m
Trust.
marriage,
"like any
requires allot
With
I
between the parties, opening the lines of communication
4.
The
3
I
Not
avoidance (20).
5.
3
3
Implementation.
No
the
goals.
as
6.
Continuous Evaluation.
7.
Timely Response.
is
expediently.
for.
Very often,
During
procedures are
7.4
It
potential
The
These steps
completing
to do it.
ison board.
I
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7.4.2
3
3
7.4.3
underlay goal.
3
3
Commitment to
Without
88
As a
Having the
89
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for the owner (5).
They are
Facilitated Workshops
parties.
partnering experience.
He can
i
1
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90
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to properly implement the partnering principals and to
the lead
as a trained professional,
his
Thus,
it
is
guide the team from where they are to where they want
U
3
provide training to
He may assist in
3
3
industrial psychologists,
management
This personalizing of
92
The
Most of these
Issues such as
93
7.4.5
Periodic Evaluation
essential toward
It
acts as a
This is
due to
It
is
It
Final Evaluation
95
Answering
questions such as; have the goals of the charter been met,
what problems came up during construction that could have
been handled more smoothly and efficiently, and what worked
or did not work, will prove beneficial to both (5).
learned is
Lessons
job efficiency
Partnering encourages
It
helps to
achievement and
The Associated
They suggest it
fosters a
m e
96"iH
everyone.
The following
1.
2.
3.
4.
5.
6.
7.
8.
9.
97
7.5.2.
1.
2.
3.
4.
5.
6.
7.
7.5.3
1.
2.
3.
4.
5.
I
' I llliliiiii~
98
6.
7.5.4
7.6
I.
2.
3.
4.
5.
SThe
little
desire to participate,
will be achieved.
Without a true
to eliminate
I. . .
l g
Most of us
It
is
1100
I
I
I
CHAPTER EIGHT
SUKNARY
The owner
facility for the amount of the bid with a modest amount set
aside for contract modifications.
3
5
Gone is
As a
fixed price
Both perceive
This is
often followed by
the contractor,
the subcontractors
teamwork,
a drop in performance,
a breakdown of
an increase demand on
By the completion of
Litigation by its
very
process.
behind,
Not sharing
permeates
This
it
appears
be expensive to undertake
For this
"the
By its
104
still
Though
it
see a
It
is an almost
This is were I
Partnering attempts
It
every issue.
These first
alone (20).
In
under budget,
3]
"3
industry.
results partnering is
In summary,
However,
no forum of dispute
principals.
it
As noted by Beck,
107
appropriately,
share risk
open and timely communications and encourages nonadversarial relationships between the parties can have an
insurmountable effect on the effectiveness of the contract
Contracts that are
It
It
is
is
not to
time America
imperative that
IIN
BIBLIOGRAPHY
1.
2.
pp. 1-24
4.
Unpaged
5.
1-11
6.
7.
8.
9.
Difference",
Dixie
February 11,
1991, Unpaged
10.
11.
109
I
13.
14.
15.
Smith, Robert,
J.,
16.
17.
18.
19.
Vorster, M.C.,
Civil Engineering,
21.
22.
23.
II
I
I
110