By Todd Nectow, Thomas, Feldman & Wilshusen, L.L.P.

Marcus Aurelius (the wise old emperor in Gladiator) said, The secret of all victory lies in the organization of the non-obvious.  Miguel de Cervantes (the guy who wrote Don Quixote) said, To be prepared is half the victory.  Aurelius and Cervantes were discussing victory on the battlefield, not commercial construction disputes.  But winning construction disputes can be a real battle for subcontractors; you need to be prepared.  While it might not make for a memorable quote, let’s revise these quotes a little!  Maybe something like this: “The secret of victory in a construction dispute lies in the organization of a well-documented project file” (containing both the obvious and the nonobvious) and “To be prepared with a construction contract claim that is based upon and supported by project documents and data is half the victory in a construction dispute.”  Definitely, not quotes that you would see in a book of memorable quotes, but they are instructive.

Construction disputes come in all shapes and sizes ranging from routine mechanics lien claim to  a “David v. Goliath” breach of contract dispute against a large general contractor.  The events, communications and circumstances that cause a dispute may be “non-obvious” at the time they occurred, but become very important later when the dispute arises, which perhaps is not until the Project is completed.  A well-documented project file, in many instances, is the organization of the non-obvious i.e. the daily, perhaps seemingly random and unimportant, events that occur on a project.  If the non-obvious is not documented when it occurs, it can be forgotten, misconstrued or denied.

Construction disputes are common, so take steps to be prepared to deal with them and be “half-way” to victory.  One facet of preparation is implementing processes and procedures to ensure that a well-documented project file is systematically created and organized.

A well-documented project file not only can lead to victory, it can also reduce the costs to achieve victory. It can also help reduce attorney’s fees and the time a subcontractor spends dealing with a dispute. It is not uncommon for an attorney and client, after a dispute has arisen, to spend a lot of time and expense locating and gathering documents and data and working with project personnel (who are perhaps no longer employed by the subcontractor) to recall details and events that were not documented.

Finally, while this article has a legal focus, the benefits of a well-documented project file are not so limited. There are numerous benefits to having well-documented project files. To name a few, having good project files can assist the subcontractor in making informed business decisions and can assist professionals such as accountants, insurance brokers, and safety professionals provide better advice and guidance to the subcontractor.

 What is a well-documented project file? 

In general, it is an organized collection of data, communications and documents that show the what, when, where and why regarding the subcontractor’s performance on the project.  With this type of documentation and information, a subcontractor is able to show that it performed its scope of work and is entitled to full payment. Alternatively, it can show the exigent circumstances and conditions that negatively impacted and hindered the subcontractor’s performance, justify an equitable adjustment to the contract price, or show that the alleged damage was not caused by the subcontractor. Typical circumstances and conditions are those that impact the subcontractor’s ability to be paid in a timely manner, stay on schedule, realize its anticipated labor productivity, ensure the safety of the labor, obtain materials and supplies, and defend itself against allegations of breach or damage.

In particular, a well-documented project file will include documents and data regarding most, if not all, of the following:

• Plans, specifications, construction manuals
• Bids and documentation of subcontract negotiations
• Prime Contract, Master Agreements and Work Orders, Subcontracts and Addendum
• Supplier agreements and Purchase Orders
• Submittals, RFI and building information modeling (BIM) data
• Change Orders or communications showing the extra work was requested
• Communications with representatives of general contractor, design professionals and suppliers including letters, emails, texts
• Communications between subcontractor’s representatives
• Meeting minutes
• Electronic data and documents within project management and payment software (Ex: Procore, GCPay)
• Pay Applications and payments
• Supplier invoices and payments

Schedules including electronic data, weekly Look Aheads

• Daily Reports,
• Photographs and videos

Guidance on Creating and Retaining a Well-Documented Project File

Consider the following suggestions when planning and implementing a well-documented project file.

1.  Be intentional and proactive in creating an organized digital filing system where important project documents will be stored. Don’t wait to start rounding up important project documents.  Documents that should be included in the project file from the beginning of the Project include the Prime Contract, your bid documents, a fully executed Subcontract with negotiated revisions, the Schedule (both a print and electronic version (e.g. Primavera), Project Manual, Specifications, Plans, insurance policies including Controlled Insurance Program policy and Manual, if applicable, Payment Bond, and the legal description of the property on which the Project is located.  Also, set up procedures so that documents, especially those that are created in the field during the project are systematically stored in the project file.  For example, if the project manager keeps a daily diary on a note pad or a personal electronic device, make sure those records are regularly saved to the project file.
2.           Identify all internal systems and locations where project data and documentation are stored. It is likely that project data and documents will be created in different departments, software systems and even by third parties. For example, pay applications and change orders may be created and stored in the project manager’s laptop.  Payment and job expense data and documents, including bank statements, may be kept by an AR and AP specialist, an outside CPA or a fractional CFO.  Payroll records are kept by a payroll clerk or possibly a professional employer organization. After identification, if the documents and data cannot be easily transferred to the project file, make sure to document the location of such information in the project file.
3.           Train field personnel such as project managers and superintendents to identify events, circumstances and communications that potentially will impact the quality and timeliness of the work and document them in the project file. Help them understand that it is important to document even if it is not obvious how or if the project will be impacted by the event, circumstance, or communication. Documentation can be a formal daily report, but it can also be an email, text or a memo. The key is to create a written record that identifies the what, when, and where of each particular event, circumstance, and communication. Information that is typically useful in a dispute (but not always obvious at the time it occurred) includes the identification and quantity of laborers and subcontractors working on site each day, the location on the project work is being performed, issues that impacted that day’s work, disputes occurring in the field, verbal directives from the general contractor’s representatives and others, inspections performed by third parties and government agencies, work being performed by other subcontractors in close proximity to or that can impact your work, supplier issues, weather conditions, delays and any other issues that can impact your particular trade.
4.           Create photographs, videos and other visuals that document your work and the conditions of the Project. Keep in mind the old saying that “a picture is worth a thousand words.”  Photographs of bad weather, unforeseen conditions, delays, job site conditions, and property damage are excellent evidence that can help a subcontractor win a construction dispute. Please take note of the following when taking photographs: (1) accurately date and label each photograph, (2) map out the location of where each photograph was taken, and (3) make sure you have good lighting!
5.           Obtain data and documents that are either not in your possession or stored on your computer network. For example, there can be a substantial amount of important data and documents stored elsewhere such as a government agency portal (think permitting and inspections), project management systems (e.g. Procore) or a supplier’s online portal (think delivery tickets, bills of lading, statements of account, etc.). While you may freely have access to this data during a project that access is not indefinite. It is good practice to take steps to systematically obtain or download this type of data, documents, and communications into the project file.
6.           Establish a reasonable document retention and destruction policy for project files. All the time and effort to create a well-documented project file will be for nothing if the project file is not retained for a reasonable amount of time after a project is completed. To determine how long the project file should be retained, speak with an attorney that knows the laws in your state regarding statutes of limitation and statutes of repose.
7.           Don’t let perfect be the enemy of the good. A perfect project file is not the goal, rather the goal is to have a project file system that encourages the regular creation of a written record of events, circumstances and communications that occur on a project and that encourages gathering and collecting project documentation in a project file. There likely will be documents that will have to be tracked down later, but you will already be half way to victory!

About the Author

Todd Nectoux of Thomas, Feldman & Wilshusen, L.L.P., represents trade contractors engaged in the commercial, industrial and road/bridge construction industries. His practice primarily involves assisting clients with construction law issues, representing them in lawsuits and arbitrations, and drafting and negotiating construction contracts. His goal is to help my clients make good business decisions based upon a complete understanding of their unique circumstances, the facts and a solid legal analysis.