Public owners and design gap recovery: keeping the record for the architect's carrier

On a CM at risk project, a change order caused by a gap in the drawings is usually paid by the owner first. The contractor did not draw the building and is entitled to be paid for the work. Whether the owner can recover some of that cost from the architect is a separate question, decided later, under the design agreement and by the architect's professional liability carrier.

Public owners have a particular duty here. The money is public, the auditor will ask whether recovery was pursued, and the design agreement usually has a standard of care clause that makes recovery possible but not automatic. This post is about the record a public owner should keep from the first design gap PCO so that the question can be answered when it is asked. It is not legal advice. Check your contract and talk to counsel before pursuing a claim.

Why the record has to be kept in real time

A design gap claim is made at the end of a project, sometimes years after the change orders were executed. By then the project manager may have moved on, the emails are in an archive, and the change order log says design gap on thirty items with no further explanation. The carrier's first question is what the gap was, when it was found, what it cost and whether the architect was told. A list of thirty items with dollar amounts does not answer any of that.

The record that supports recovery is built one PCO at a time. When the contractor submits a PCO for a missing item, the owner's entry should capture what was missing, where in the drawings it should have appeared, the date the contractor identified it, the date the architect was notified, the architect's response, and the cost broken into the cost of the work and any premium for timing. That entry takes ten minutes when the PCO arrives and hours to reconstruct two years later.

Betterment, and why not every design gap is recoverable

Most design agreements and most carriers distinguish between the cost of the omitted work and the cost of the omission. If the drawings missed a duct that should have been there, the owner would have paid for the duct either way. That part is betterment, and it is usually not recoverable. What may be recoverable is the premium: the demolition, the rework, the out of sequence labor, the schedule impact, the change order markup.

That means the owner's entry on each design gap change should split the cost. On a fictional $67 million community center, a missed fire damper schedule might produce a $180,000 change order. If $110,000 is the dampers that would have been in the GMP anyway and $70,000 is the cost of installing them after the ductwork was in, the recoverable portion under most design agreements is closer to the second number. An owner who recorded that split at the time has a claim to discuss. An owner who recorded $180,000 as design gap has a number the carrier will take apart.

Who makes the split

The split is a judgment. The contractor's PCO will not make it, because the contractor does not care which part the owner recovers. The owner's project manager or owner's rep makes it, ideally with the contractor's cost breakdown in hand. It is provisional and can be revised, but the revision should be dated and explained.

Notice to the architect

Most design agreements require the owner to notify the architect of a claimed deficiency within a period, and carriers will ask whether the architect had a chance to respond. On a CM at risk project the architect usually sees the PCO through the request for information or the change order process, but seeing it is not the same as being told the owner considers it a design deficiency.

Check your design agreement for the notice requirement. Whatever it says, the owner's design gap entry should record when and how the architect was told, and what the architect said. An architect who responds that the item was shown on a detail the contractor missed has reclassified the change to coordination, and the owner's record should show that exchange. A pattern of design gaps, each one small and each one noticed, is what recovery conversations are built on.

The public owner's ledger as the claim file

Public owners tend to keep change orders in a procurement system organized for approvals, not causes. The cause is a note field, if it is recorded at all. The split between betterment and premium is not recorded anywhere. The notice to the architect is an email. At closeout, the facilities director is asked whether any of the design gap cost is recoverable, and the honest answer is that nobody knows.

Costwitness keeps the owner's change order register with the cause on every entry, the history of every cause change, the cost split the owner recorded, and the dates and references for notice. The design gap total is always available by cause, and the entries behind it carry what a carrier will ask for. The people still decide what the cause is and what the split should be. The record of their deciding it is what makes recovery a question with an answer.

In the product

Change order register, Monthly owner report, GMP baseline. Free tool: Change Order Exposure, Pre-GMP Readiness Score.

Keep reading

Later: K12 facilities directors: reading the pay application in twenty minutes. All articles on by owner type.