8 steps for taking over a troubled project

In the current economic environment, opportunities often arise for contractors to take over troubled
projects. These jobs can be rewarding, butthey also present significant dangers. Following are eight
steps you should take to maximize the rewards and manage the risks:

1. Stay in your comfort zone

Given the inherent perils of taking over a troubled project, don't increase your vulnerability by stepping out of your comfort zone. Be sure the job is within your constructioncompany
core competencies. Remember, troubled project opportunities often arise because another
contractor failed to perform. Given this history, the owner and surety will likely scrutinize
your every move.

2. Find out what went wrong.

Make sure you understand how the project became troubled. Was the original contractor unqualified? Did he or she run into financial difficulty? Were the owners or subcontractors part
of the problem?
To get a feel for the situation, visit the site; review meeting minutes and other key project
documents; and speak to the owner, subcontractors, architects and engineers. Also, if possible,
meet with the original contractor representatives to get their insights into what went wrong. This
information will help you decide whether to take the job and, if you do, to avoid similar problems.
And make sure you know the owner and surety teams that you'll be working with in completing
the job. Do they seem competent, trustworthy and reliable?

3. Rebid the work.

Because the project is partially complete, it makes sense to rebid the work based on current site
conditions, a new scope of work in light of what been done and what left to be done, and the
current status of materials and equipment. Obtain bids from existing or new subcontractors, taking
steps to replace any subcontractors that contributed to the job troubles.
Keep in mind that, because the project is troubled, it likely to require a higher degree of
management oversight and documentation than an ordinary job. Be sure to provide ample workers
and assign a project manager who adept at handling difficult jobs and reacting quickly to
problems.

In developing your bid, it a good idea to incorporate contingency funds to cover uncertainties,
such as additional work to correct latent defects left by your predecessor.

4. Review the contract.

Scrutinize the existing contract. Although the owner may expect you to step into the shoes of the
original construction company, your contract to complete the project may require some adjustments.
Review its language to, again, identify any changes in the scope of work or other disputed issues
that must be addressed in the new agreement.
Given the circumstances, it likely that the project has been delayed. If the original contract
completion date is no longer realistic, determine a reasonable completion date and negotiate
appropriate changes. Also, determine the extent to which completion of the job dependson
work performed or materials and equipment supplied by the owner, subcontractors, suppliers
or other third parties. Confirm the status of these parties and build appropriate lead times into
your schedule.
Consider using lean construction techniques to minimize delays and streamline completion
of the project. (See the sidebar Lean construction can enhance efficiency, speed and profitability.

5. Check on funding.

Be sure that the lender is willing to sign off on a new contract. Also, because the cost to complete the project may be more than originally anticipated, confirm that there sufficient
funding to cover monthly draws.

6. Document the original contractor work.

Create a record of the job status, using photographs or video, before you begin your
work. This will help protect you against any claims for defective work attributableto your
predecessor.

7. Manage change orders carefully.

This is particularly important if the original contractor was bonded and the surety has taken
over the project. Make sure you understand the change order procedures and that you obtain
proper authorizations from the owner, the surety or both, if necessary, before you proceed.
Surety approval may be required, for example, for all change orders or for change orders that
increase the contract price by a certain percentage. Or it may be required for all change orders
once cumulative changes exceed a certain amount.

8. Don't hesitate to ask for help.

In truth, there are many issues you should address when presented with an opportunity to
take over a troubled project. Your financial and legal advisors can help you evaluate the risks
associated with a
particular project and take steps to minimize those risks.