Think You Have Solid Project Documentation? Think Again.
The construction industry has undergone a sea change over the last 15 years. I wrote a column in this space back then about the rise of technology and the coming age of "paperless" projects, and the potential impacts that change would have on the industry. In that piece, which the DJC published in January 2003, I posed a number of potential issues related to the cost of technology, the security of data, and the nature of the third-party provider.
In large measure those questions have been put to rest. In the intervening 12 years, technology has improved by leaps and bounds. Where we used to communicate by "snail mail" and then fax machines, we now communicate via email and PDF documents. We have the ability to scan hard copies using software programs that have amazing optical character recognition capabilities. And we have dramatically decreased the amount of physical space that is required to hold all the records from a construction project. All of these advances lead to cost savings and efficiencies in managing construction projects.
Yet, while we have reduced the amount of physical paper, we have dramatically increased the amount of sheer data that is generated on a given project. This increase is, in large measure, due to the substitution of emails and text messages for phone conversations. So how does this affect contractors when they end up in disputes on projects?
On the one hand, the increased use, in particular, of email to communicate has resulted in many "agreements" being memorialized that would previously have been made on telephone calls. These discussions were often forgotten or mis-remembered, leading to a battle over whose memory of the agreement was better. When those discussions and agreements – over scope changes, time extensions, material substitutions, and the like – are communicated via email it can be much easier to track what the actual "deal" was on a given issue.
However, an email exchange is still no substitute for a formal contract communication. Informal communication can lead to misunderstanding, emotional reactions that may not be warranted, and beliefs about agreements that may or may not have ultimately been reached. That is particularly true when the terms and conditions of a contract require particular types of notice to be documented and delivered in particular ways, such as on a formal change order request delivered to, and accepted by, a person with actual authority to bind the other side to a change in the contract. Failure to follow the contract, and thinking that an informal communication is "good enough," can lead to a major problem in the event of a dispute later in the project.
The reliance on technology can also lead to a false sense of security. Too many times, I have been told by clients that they agreed with the other side about some important issue, and they are sure there is an email covering the subject, only to find that the email doesn't exist, or that the discussion doesn't quite fit with the client's memory.
The best practice is to always convert these "informal" discussions to formal contract documents. If the discussion involves a change in scope, with price and time implications, it should be converted to a formal change order or change request. If the contractor is being delayed as the result of a circumstance beyond its control, a formal notice of delay and possible cost impacts should be prepared and sent.
In other words, the informal electronic communications that we have come to rely so heavily on should be used to supplement formal contract communications. They should not be seen as a substitute for those important documents, which ultimately form part of the contract itself.
Prudent members of the construction industry should have clear and well-communicated policies in place for the use of electronic communications, including when an issue has risen to the level that it needs a formal document that is prescribed in the contract documents. Taking a proactive approach, and recognizing that email is a tool, but not a panacea for all potential issues that may arise on a project, can result in much cleaner contract documentation and a reduction in claims, disputes, and can eliminate the need to pay your friendly attorney a visit at the end of the project.
Jeremy Vermilyea is a shareholder with the law firm of Schwabe, Williamson & Wyatt, and a co-chair of its construction and design practice group. He has nearly 20 years of experience advising construction businesses throughout the Northwest. Email him at email@example.com, or follow his latest tweets @NWConstLaw.