Construction Claims are NOT Personal Issues, but are Symptoms of Unresolved Issues
Posted on September 3, 2020 | ⌚ 3 min read
It is quite common to take a claim submitted by a contractor personally and consider the claim a big issue, while labelling a contractor who claims his rights under the contract as a "claim-oriented" contractor, which is perceived as a bad thing. However, claims in a construction project is not the issue, it is merely a symptom of early, unresolved errors.
Construction contracts are very complex, with many variable factors. Therefore, there exists the claim mechanism in construction contracts to adjust the balance between the parties due to these variable conditions. However, these variable factors are rarely the contractor's fault, it is rather the employer who is usually responsible for these faults. Some of such faults that give rise to claims later in the projects are:
Delayed Payments. Employers consistently delay making payments to their works' contractors, which cause major financing trouble to the contractor, and will eventually lead to delays in completing the works. Contractor's claims related to extension of time and/or financing charges, as per the conditions of contract, due to the consequences of such late payments are, however, usually met with lots of skepticism from the employer, which is the main cause of the issue in the first place.
Variations. Another big issue is many variations during the construction phase. Usually employers want their projects to fast track from early design stages, due to many economical reasons. This may lead to incomplete designs, which constitute several variations to the contractor later on. Naturally, these variations have financial and time impacts, which are most commonly not easily approved by the employer.
Nominated Subcontractors. Most constructions contracts allow employers to nominate subcontractors to the main contractors. Issues arise when this nominated subcontractor is culpable of critical delays to the works but the employer holds the main contractor liable for such delays.
Late Approvals. Another common issue is late issuance and approvals of documents by the employer and the engineer. Obviously, this causes delays to the contractor, which is clearly entitled for an extension of time under the FIDIC Red Book 99 for example. However, most employers don't easily concede and admit their errors.
Ambiguous Contracts. Construction contracts consist of many documents, with the Specifications and Conditions of Contract amongst the most important as they define what the contractor should do exactly, and the rights of both parties. Ambiguous, unclear and opinion related clauses (such as "to the engineer's satisfaction" or "the highest level of quality" or "reasonably inferred") are divisive and some may be actually un-biddable. Issues arise when the parties interpret the contract differently, and the dispute may enter into the "Contra Proferentem" area. Employer's interests are best served by clear, unambiguous drafting/preparation of a balanced contract.
Issues might not always be so clear cut, as the contractor is usually culpable to other delay events that may be concurrent with the employer's delays which complicates a speedy resolution. However, employers should acknowledge contractor's rights to compensation for delays, prevention and impediment to the contractor by the employer.
Generally speaking, I believe that employers should start realizing that negotiating and accepting (in due time) contractor's claims which the contractor is actually entitled to under the contract or at law is not a sign of weakness.
I also believe that employers should take their time in the pre-tender stage to ensure that the design and contract documents are complete, clear and fairly balanced, to minimize the probability of claims at later stages of the project, and minimize the probability of a claim escalating to an expensive and time consuming dispute.
Strong contract administration is also imperative for all parties involved in a construction contract. A good contract administration system could tackle many potential issues before they grow and develop into a claim, or worse, a dispute. When all parties have all their rights under the contract respected, the project will be the winner at the end.