Industry Practice and Legal Problems

Introduction

Background and Objectives Work was conducted on three separate but related research projects, funded sequentially, and directed toward improvement of knowledge surrounding the high incidence of law suits and lesser levels of adversarial conduct in the construction industry.

The work was initiated in 1990 at the recent height of outrage over high levels of litigation in construction; levels which had caused many operatives to suffer damaging losses, shift to new manners of organizing for business such as partnering, or leave the industry entirely. The impact of litigation on the industry was all too apparent and "old fixes" such as ADR and partnering were clothed anew and readily prescribed by the highest councils as measures to promote relief. Relief attributable to these techniques and to accompanying attitudes of cooperation has indeed begun to appear.

However, a nagging concern hangs over the industry that we have a long way to go before the whole matter of adversarial conduct is being met as effectively as possible. It is just this concern and its related issues that the work associated with the three projects attempted to address. While it is relatively easy to catalog the legal transgressions and their consequences, it is much more difficult, and quite possibly more important, to define and counter the causal factors underlying the practices of business that lead to difficulties with legal implications.

The three studies examined profiles of practice and the related causes of problems rather than attempting to fix blame or list legal winners and losers. The study conduct, spanning four years, reflects change in industry conditions and attitudes as well as in contractors' perception of self weakness.

The research sought to identify those problems of frequent occurrence and consequence to controversy, and search for features of business conduct that directly or indirectly had the potential to promote or preclude the problems. The cumulative data provides a unique base of thought provoking information on the business of construction. It was sponsored by the State of Florida Building Construction Industry Advisory Committee.

Investigation

Development At the outset of inquiry, the Phase I study set up abroad-based exploration of practices in the industry that were linked to later legal difficulties. A conventional literature search and review of court records produced minimal hard fact to influence our opinions or define direction. "However, the results in terms of inferential data, i.e. textual allusion or suggestion as to causal activity or lack of activity were remarkably consistent in highlighting proper procedure as a primary issue to be examined more closely," (Barnes, Mitrani & Valdini 1994). This theme was reinforced through extensive interviews with contractors, subcontractors, design professionals, and construction attorneys. Weak and poorly conducted management was spoken of consistently as the leading contributor to trouble.

Several years previously, Ellison and Perreault had cited contract and management administration issues as causes of litigation that occurred most frequently and called them the areas of practice most needing improvement (1988). This corroboration was identified by the Florida team after Phase I work, ironically reinforcing the independent validity of both conclusions.

The development of theme in Phase I led to a questionnaire type survey eliciting multi-dimensional information from 413 South Florida contractors. A discussion of this survey and its findings have been published previously and will substantiate the interview revealed central theme of practitioner failure to tend to business (Barnes et al, op city. Repeatedly, it was clear that both administrative and technical aspects of management were receiving inadequate attention. Loss of control was the frequent outcome at all levels: activity, project, and company.

Phase II studies extended and expanded the previous work to include a more specific survey addressed to a wider audience. The data from that effort reinforced the findings of the initial work. The general contractors in a still predominantly regional audience responded more readily than did the subcontractors during a period of deep recession in the industry. Despite high correlation with previous response distributions, the total numbers lacked validity as substantive evidence. That phase of work also focused on the generation of seminar type education modules in identified areas of practitioner weakness for presentation to industry groups (1992).

A final round of survey was carried out under Phase III of the total effort. This survey was evenly distributed state-wide to a grand total of 1074 construction firms and is the primary subject of discussion in this paper.

Survey Currency The third survey was designed to increase and improve the data base developed in the first and second studies. It continued, through organized sets of questions, to address specific issues of conduct identified in the Phase I work. The questions addressed basic features of project related activities identified as causing disputes leading to litigation and the nature of resulting economic impact; and, typical categories of claims or disputes with information on form of resolution used.

The survey form required time and thought for proper completion. It incorporated several matrix questions seeking specific answers that depended on recall or research for accuracy. The issues that these questions addressed are extremely complex in themselves and reflect the basic operational problems in our industry. Raw data from the third survey is presented in Tables 1. through 8. and reflects the questionnaire format and content. A blind indexing was used to distinguish generals from subs and the three trade breakdown of those selected sub categories. Additionally, we were able to track responses from four geographical areas and three code jurisdictions in the state. While a full analysis of these geographical and code breakdowns is beyond the scope of this paper, the gross data showed distinct patterns of conduct and response.

A random selection of contractors was made throughout the State of Florida in rough distribution to that of the general population. All were contacted initially by telephone to elicit cooperation. Of 465 mailings to general contractors, 124 responses were received. In addition there were 24 personal interviews of generals bringing the total to 148 responses. Of 619 mailings to Air Conditioning, Roofing, and Electrical subcontractors, 122 responses were received for an overall combined rate of 24%. Of the 122 responses from the trade classified subs, 23 indicated they were generals. This is understandable since some traditional subs work primarily or exclusively as main or prime contractors rather than through a general. We felt the number of these was significant and therefore we shifted their classification from sub to general for a raw data summary reflecting contract position. We then showed responses from 171 generals and 99 subs.

The lower response rate of subcontractors reflected our experience in the earlier surveys. The breakdown of responses does exhibit some interesting differences between generals and subs. These can be seen in the raw data information included herein in the Tables 1-8. We show raw data reflecting responder classification by contract position, i.e., main or subordinate. As most in the industry realize, contract position has serious implications in terms of access to the client's money as well as obligation and responsibility for what happens on the job site. We also compiled the data as a function of trade/tradition, i.e., how a company is classified in the traditional sense. Our data presented here however, reflects how firms work rather than what they are called. This is reversed from the presentation in the technical report for the project (Barnes & Mitrani, 1994). Either way, there are differences which might be of consequence in the pitting of subs against generals, but these are not emphasized in this discussion.

It is of continuing interest however that responses from generals in all study phases reflect a greater attempt than that evident on the part of subs to answer questions accurately and to provide constructive comment. We have speculated on reasons for this in the previous studies as perhaps being attributable to stronger business positions of the generals over the subs, or larger picture views of the generals, or the possibly more detached organizational role; of the general type responders. We simply don't know, an( the mystery is still there. In fact, it is deepened by the diversity of subcontractor trades and their traditions of conduct.

Discussion of Questions The survey questions elicit information in four different areas. The first area treats identification and classification of the responder by business volume, and the nature of responder firm relationships with attorneys. This was general information gathering, intended to be relaxing to the responder and useful to highlight any relation of size or legal support to the overall incidence of problems.

All responders did not answer all questions on the questionnaire, some were extremely precise in answering, and some were less so. Also, the matrix cells in the question areas of Parts II & III contain numbers of instances reported, not the number of contractors reporting instances. Therefore, some cells contain numbers exceeding the number of individual firm responses to the related questions on the questionnaires.

The second area addresses the causal factors a firm felt problems they had experienced were traceable to. Ten reasons and eight choices of results gave responders opportunity to express their known or suspected underlying causes of problems or non-optimized opportunity. Poor scheduling lead the list of perceived reasons for having a problem. Defective workmanship and Contract not read or understood also were identified as prominent reasons. Defective estimate rounded out the top four. The orthogonal listings in this matrix, which can be seen in the raw data sheets of all Figures, dealt with the results experienced for various reasons chosen. You lost money was the overwhelming result selected. Resolution with in the traditional contractor owner-designer triangle, Making up the loss elsewhere, and Gained concessions were also frequent choices.

The absolute numbers recorded from the responses are less important than the pattern of conduct they represent. From phase to phase these numbers have varied somewhat but the general picture hasn't changed. For example, previously, defective workmanship was clearly the leading reason; but poor scheduling was a strong second. Now, from a different audience at a different time, there is a shifting of emphasis. In reality, we are looking at the same phenomenon, five or six dominant reasons that are not excusable, and the rest that are highly undesirable as conduct. The issue of poor scheduling is spoken to in greater detail later.

The third area of inquiry on the survey addressed the resolution of problems. Another matrix of choices ranked problems that typically are bases for claims or disputes against legal forms of resolution. Looking beyond the leading choice of problem, i.e. Incomplete, defective or conflicting design documents, we note that Change in scope and Failure to be paid are next in frequency of occurrence. For resolution, the overwhelming indicated mode is Negotiation without formal proceedings. This would seem to indicate merit in dealing with a problem at the earliest possible time by the most appropriate people. Such resolution's early position in the escalating ladder of formality makes it a natural choice for cost effective reasons alone.

A fourth area of inquiry sought to develop an understanding of how contractors regard participation in trade or industry associations. This subject was brought into a survey for the first time here.

Survey Analysis The third phase survey of interest focused on the causal factors which contractors perceive to be responsible for problems in the industry. It also explored usage of the types of resolution that are at work in the construction industry to address these problems. Overall, the responses of the generals and subs as two distinct groups were similar in a gross sense but markedly not similar in detail. To understand the preceding statement, we have to look at the relative ranking of the matrix answers as well as the ratios of response to the simpler format questions in Part I (the first area referred to above).