ON TIME AND UNDER BUDGET ... The Post Pandemic Quest for Scope, Schedule and Budget

The following represents redacted portions of a November 5, 2021 presentation to a Pennsylvania statewide audience of facility planners.

by Daniel Cicala, Esq.


On Time, Under Budget with an assumed Level of Quality ... the polestar of any construction project. The mantra of Scope, Schedule and Budget remains as seminal and guiding today as it has ever been. The pandemic, however, has forced us to adjust our way of striving toward and through a successful construction project like no other commodity shortage, hurricane-affected, inflation-impacted event or series of events of the past.


This brief Fidevia Newsletter article is intended to provide a personal and candid, from ‘the trenches’ reflection of how our firm is adjusting to the pandemic to achieve a successful construction project. It is intended for both private and commercial construction, with elements applicable from a small renovation to a monumental, multi-year large scale project.


So … as an introduction, a very quick, high-level recap of what we are currently dealing with in the marketplace:


1. Demand: An overall decent level of demand for construction labor and materials.

2. Labor Supply:

a. Shortage of labor, especially skilled trades … which we were already dealing with pre-pandemic.

b. Still managing loss of hours due to Covid sickness and/or isolation.

3. Materials Supply:

a. Delay in producing and obtaining many materials.

b. Near weekly surprises about the unavailability of one material or product or another ... hardware, bar joists, plastic based-products, fabricated and other specialty items etc.

4. Shipping Delays: The ever-evolving story of an inability to unload ships to needed truck drivers to deliver the materials and products we need to build.

5. Stress: Stress? Yes, collectively most people have been challenged in some way by the pandemic ... and this stress manifests itself in how we communicate and deal with one another.


Before getting more into the weeds and ‘practice pointers,’ which are probably the most interesting to most, I would like to start by discussing what is obvious and seemingly ‘hokey,’ but is really most important when planning and executing a construction project these days … namely a PERSPECTIVE-BASED ATTITUDE.


At the very beginning of the pandemic (has it really been almost 20 months?!), the American Bar Association Forum on the Construction Industry, the leading international group of construction law professionals, started holding regularly scheduled conference calls (pre-Zoom!) to discuss just what we are dealing with and how we should react and advise our clients on existing and proposed construction projects. During the first call, my old boss at Postner & Rubin in New York City made the statement that we are ‘navigating in uncharted waters.’ That analogy resonated in my mind over and over, every day, as we as a firm needed to continue operating during the entire pandemic. It became the underpinning to my mindset. We were all, personally and professionally in our respective ways, needing to find solutions in order to move forward ... and the most therapeutic and successful way to do this was accepting that the waters we were navigating, whether alone in our kayak or with others in a Viking ship, were uncharted.


Well, 20 months later, I respectfully suggest that the paradigm has changed .. sort of like how the pandemic is morphing to an endemic, and the waters are no longer uncharted. No, we are now on land but the land is sandand the sands are shifting. ‘Unexpected’ is now to be expected but we are smarter and more effective, better for the navigation we have endured. Just as Niebuhr’s Serenity prayer seeks the wisdom of understanding what we are confronting in order to courageously venture forward, understanding, accepting and embracing the reality of the current ‘lay of the land’ is the most critical foundational element to begin using all of the tools at our disposal to have an excellent project experience!


Onward to the weeds!


What is Scope, Schedule and Budget? A quality project (Scope) completed on time (Schedule) and within the planned and allocated cost (Budget). Parenthetically, at Fidevia we would also add that the pre-through-post construction process should be pleasant (we actually aspire for construction to be fun!) and should conclude with no residual issues or claims.


Simple enough but can a project have all three ... or is that tantamount to “having your cake and eating it too?” Over the years, I have heard certain professionals argue that you can’t have all three, that at best you can have two. After being engaged in this industry my entire life, I would respectfully offer that you can .. and must .. aspire to and have all three ... and that part of the ‘Art’ of construction, requires properly understanding the interrelationship between the three in order to succeed.


PRECONSTRUCTION PHASE:


MORE OVERALL TIME PLANNING: The beginning is the most important part of the work’ – Plato

Needless to say, an underlying theme to all things post pandemic is that everything takes more time, and up-front planning is no exception.


PROCUREMENT & PROJECT SCHEDULES: If your project dictates a particular completion date, it strongly behooves you to start earlier if you can ... start the planning earlier, design earlier, bid out or retain the construction sooner etc. Materials are taking longer to procure, so, to the extent possible, allow more time for procurement. Lastly, if you can afford more time in your construction duration, allow it ... a corresponding impact is that you may have a lower construction cost if the contractor(s) deem the planned contract schedule as more reasonable.


BUDGETS AND CONTINGENCY: Do we 1) increase budgets to accommodate anticipated material and labor escalation, 2) cut scope because we only have so much money and/or 3) delay the project because we think overall project cost will come down in the future?


As far as the third option, I am not sure there is any reasonable expectation that construction prices will go down. Sure, some commodity prices increase and then decrease .. but other commodities go up, labor is not expected to meaningfully improve in the foreseeable future and other construction-related economic indicators don’t support a material short-term change. Additionally, besides the fact that it may take from weeks to many months for an Owner to plan, design and price a project, how a contractor prepares and projects its costs is often complex. Depending on the contractor and the project, a contractor’s price often incorporates price contingencies based on an evaluation of market expectations and competition and this is further multiplied by the many subcontractors, sub-subcontractors and suppliers etc. doing the same. In short, I would not delay planning and pricing a needed project, and while I would likewise probably not delay starting a project, the reasonable course of action would be to continue to assess the market conditions etc. and formally make that decision when pricing is received.


Regarding the first two options, take the time to ‘Value Engineer’ the project to determine scope and material selections that can be eliminated or substituted in order to reduce the overall cost of the project. If these scope items are identified prior to getting prices, these would take the form of “Project Alternates” which would allow added flexibility when awarding the project. You may also consider having additional value engineering options beyond the alternates should you still need to reduce the overall project cost; sometimes these additional items can even be effectively implemented and realized after prices are received.


STORED MATERIAL PROVISIONS: A common vehicle to facilitate the early purchasing of materials is to allow a contractor to obtain and be paid for materials stored at the project site or at some other agreed upon location. The consternation this causes with some Owners can be effectively ameliorated with a proper understanding of the related legalities and implementation of corresponding insurance and financial protection. More and more we are utilizing this contract-permitted tool to facilitate early purchasing where the contractor reasonably needs assistance with early procurement.


PREPURCHASE OF MATERIALS: In addition to the above, an Owner may want to separately, on his or her own, consider pre-purchasing specialty materials and equipment prior to obtaining pricing in order to avoid a subsequent delay during the construction phase. One typical example is mechanical equipment. We have had pre-pandemic projects where it was prudent to eliminate a potential delay by purchasing such equipment … now this is a topic of conversation with virtually all planned projects.


CONTRACT LANGUAGE THAT PROTECTS AGAINST OVER-AGGRESSIVE CONTRACTORS: When the pandemic first began, we were working with other attorneys to craft fair, protective language to allow construction to proceed in our new pandemic environment. Similarly, we started implementing new contract provisions that addressed the pandemic for new projects and these provisions continue to be modified as pandemic conditions continue to unfold. I am certainly not suggesting creating onerous and unfair language. However, it is totally appropriate to have added pandemic-specific clauses that fairly characterize the market conditions and insulate an Owner from Scope, Schedule and Budget over-reaching by an aggressive contractor looking to take advantage of the situation. While I was in law school and as a young attorney, I was trained to believe that contracts should protect one’s client, but also be fair ... meaning a contract is not intended to be weaponized to prey upon contractors, but instead to be used as an effective shield to fairly protect an Owner. I think this foundational philosophy is in part critical to why we have virtually no claims on our projects ... even post pandemic.


CONSTRUCTION PHASE:


OVERALL VIGILANCE AND CONTINGENCY PLANNING: Effective construction-phase Scope, Schedule and Budget management has always been important. That importance is, well .. that much more important! Work that could previously ‘slip’ in schedule, procurement that could be consummated later, coordination that could be afforded more time previously ... all of these efforts and others must be executed with greater efficacy and with an overall goal of saving /not wasting time.


Relatedly, as a firm we subscribe to the ‘whatever-it-takes’ mindset … our modern-day version of a favorite Confucius quote, When it is obvious that the goals cannot be reached, don’t adjust the goals, adjust the action steps. We also aspirationally problem solve from the standpoint that it is far more noble and productive to prevent problems in the first place than to merely solve them. All of this underpins a similar productive effort to anticipate issues and think through contingencies ... yielding new ideas as well as making clear what is and is not compromisable.


SUBMITTAL PHASE FLEXIBILITY: The pandemic has increased the likelihood that a specified item of construction will become unavailable. We would recommend that Owners entertain, where permissible, appropriate and comparable substitutions that are more readily available than contractually-specified items. Again, this takes more work in researching, tracking down and pricing reasonable substitutions so an Owner can make an informed decision.


MORE COMMUNICATION: Communication has always been a critical ingredient to a successful project ... we communicate to make clear our objectives and aspirations, better understand each other and avoid misunderstandings and create synergies in the execution of our respective and sometimes competing objectives and aspirations. The extent to which we do all of this is essentially the correlated extent to which we effectively build relationships and a project team. Like many of the comments above, more time is needed to communicate and strive to communicate more effectively.


CLOSING THOUGHT:

All of us in the construction industry or who have gone through a decent-sized project understand that construction can be a complex and hardscrabble enterprise that can easily wear someone down or leave a bad taste about the process. Serving as an Owner’s rep and striving for and achieving successful projects, project after project, requires professionalism, passion and committed zealous efforts to protect our clients ... but success in these efforts also requires integrity in dealing with all participants of the team .. and it is so much easier when we understand that we are all truly paddling in the same stream together. I have accepted the daily construction challenges … and, to me, the pandemic is rather a daily reminder of how precious our lives are and the need to respect each other and build relationships. If it takes all that much greater effort to navigate the waters and creatively adapt to the shifting sands, how special it is that we have that opportunity.


Thanks for reading … and Happy Thanksgiving!