SALT LAKE CITY - Managing risk is necessary among all construction professionals, particularly on the mechanical systems side. Are current trends increasing the need for close monitoring of risk management? The answer is a big 10-4, according to a risk management seminar at the Annual Meeting of the American Society of Heating, Refrigerating, and Air-Conditioning Engineers (ASHRAE).

The increase in LEED projects is one reason mechanical contractors and designers need to pay close attention to their risk, explained Steve Conner, P.E., LEED AP, and vice president, Colvin Engineering Associates Inc., Salt Lake City. “LEED is clearly a growing trend,” he said. “It’s turning into more of a standard.” In the United States, he said, there are 10,000 LEED-registered projects now.

Part of the risk, he continued, is due to a lack of expertise among designers and contractors; a lack of certification of expected results; and the increasing use of new technologies.

“If we’re supposed to certify these buildings, we can’t do that because there is more to the building than what we are able to measure.”

Then there are the “professionals” who are capitalizing on a trend, without really knowing what they are talking about: the “Use this fan and you’ll get LEED” guy. “It could be easy to fall into that trap,” Conner said.

To mitigate this risk, he said, you need to have a LEED AP on staff. It’s also worthwhile to have a LEED advisory committee, staff education and training, staff expertise in renewable energy systems and commissioning, and a working knowledge of appropriate contract clauses.

RISK AND COMMISSIONING

Commissioning is another growing trend, he acknowledged, but “it’s a little bit controversial among mechanical engineering firms.” Their fear is that “this commissioning authority might not be the best party to understand my design.

“There’s quite a range in the quality of commissioning service provided. Done properly, however, there’s a magic moment when everyone agrees that the building and its systems operate as designed and as they should.”

There are a lot of guidelines for commissioning, he said, but not a lot of standards. “We need to educate clients, then negotiate services and responsibilities.”

To mitigate risk, Conner advised cultivating staff expertise (with a market/skill focus). This includes staff education and training (communication and team building skills), and developing documentation and diagnostic skills. “Commissioning can identify concerns and help find solutions, instead of finding problems on behalf of the owner.”

Current trends in commissioning include gathering electronic evidence. To reduce risk, management needs a written policy on how long to retain written information. This can be worked out with a liability carrier. Develop consistent storage and destruction of files, including e-mails. “What should be contained in e-mails,” he asked. Before sending an e-mail, ask yourself how you would feel if that e-mail were read in court.

Be cautious in the digital representation of the project. The risk there is that as a collaborative model, people have the ability to change things, said Conner. You need to be able to keep track of who changed what.

Spell out who will manage, protect, and preserve project integrity. “The collaborative approach challenges legal thinking,” Conner said. Have an understanding of intellectual property rights and ownership.

Contractor forms need to be detailed, not standardized forms, he continued. Also be aware of the possibility of software errors, and provide for what he called “constructability reviews.”

The negotiated contract, he said, needs to include the scope of work, duties and responsibilities, risk management, liability, and limitations of liability (contractual limitations).

TRUE COST OF CLAIMS

The cost of a problem can actually be much higher than it originally appears, according to speaker Jeff Hirst of George Butler Associates Inc., Lenexa, Kan.

For instance, a problem originally cited at costing $1,000 can wind up requiring $20,000 in revenue to offset. This includes 400 staff hours. A $10,000 problem can really cost $200,000, and a $50,000 problem can cost $1 million to fix.

Problem causes are classified as technical (an error or omission of a technical nature which resulted in a loss prevention file or claim) or nontechnical (a breakdown in the project or practice management processes that contribute to a loss prevention file or claim being made).

“Seven out of 10 times, there was a breakdown in management before the technical error occurred,” said Hirst.

The top four management breakdowns are:

• Communications;

• Project team capabilities;

• Client selection;

• Negotiation/contract.

“Can you manage each of these four areas,” he asked. “Yes, you can. It’s a business management issue.” Negotiation-contract issues account for 16 percent of claims. Unclear and inappropriate scope of services account for 26 percent; not formally evaluating the project and associated risks before the contract signed, 30 percent.

Client selection, he said, is “one of the most important areas of risk. It’s selecting clients who understand what you’re all about.” Look at the client’s character, capacity, and capital, as well as the client’s history of claims and litigation.

“Some mechanical engineers assume that it’s normal or OK to absorb some problem costs,” Hirst said. They need to know what the true costs are.

For mechanical firms, projects that dominate claims history include:

1. K-12 schools;

2. Processing;

3. Hospitals;

4. Convalescent homes.

Causes for their claims are related to HVAC and plumbing. According to Hirst, clients are suing for economic loss (51.1 percent); property damage (40.0 percent); body injury/other (6.8 percent); other (1.9 percent).

Publication date: 09/08/2008