Construction Claims - How to Prepare and Avoid Claims
Posted on February 23, 2020 | ⌚ 3 min read
Construction claims are an integral part of most construction projects. Virtually all projects have a claim arise between the contract parties. Therefore, preparing and reviewing claims is a very important and critical task of a competent contract administrator.
Claims may arise due to delays, design changes, unforeseen conditions, exceptionally adverse weather or other conflicts. Almost all claims are made to recover additional costs or grant an extension of time to the contractor or recover liquidated damages for the employer.
What makes a proper claim?
Any claim should avoid being generic, and strive for clarity and specificity. The structure should also follow the natural sequence of occurrence of the event, i.e. what caused the event, what effect it had, what give the contractor or employer entitlement to compensation and finally substantiating all the previous points, CEES for short. These points may be summarized as:
Cause is the default(s) that give(s) rise to the claim. Claimable events are usually outlined in the contract or by law. It can include events such as:
- Variations, which could include addition, omission or changes in scope or any item of work.
- Delay in payments.
- Delay in providing instructions or drawings.
- Delay in giving access to the site.
- Acceleration instruction.
- Contract termination.
- Force Majeure.
- Unforeseen site/physical/weather conditions.
- Failure to complete the works on time.
- Change in legislation.
The effect of the claimed default is loss(es) incurred by the claimant. These are usually either time, cost or delay damages. Additional costs may be claimed for damages suffered due to events such as delay, disruption, acceleration, prolongation, variations, suspension and termination.
Any party's entitlement to any compensation (time or cost) is determined under the contractor, or by law. However, most claims do not prove any entitlement for the events claimed.
Substantiation is the most important part of any claim. An unsubstantiated allegation or statement holds no real weight. Therefore, the claimant should sufficiently prove that he has faced delays/suffered damages, which arose due to events not under his control or responsibility, provide why he is entitled to compensation and that he followed all related contract provisions.
Substantiation is one domain which a skilled contract administrator can flourish. By building a network of documentations, the contract administrator could easily call upon these documents to substantiate and prove a claimable event.
Such documents include correspondence, minutes of meeting, notices, daily reports, memos, programme and its updates, delay analysis, logs (RFI, IR, Procurement, Payments etc.), pre-contract documents and the contract documents.
How to increase the chances of a positive determination?
Just as preparing for the interview at the dream job by appearing as professional as possible, claims should be presented in a clear, simple and a logical format. You may have put together all the CEES for all the event, but a poor presentation could unravel this work.
It is worth noting that, while the completeness and presentation of content is paramount to a successful claim, other critical factors exist, such as delay analysis for extension of time claims, top management strategies, negotiation ability etc.
Nonetheless, here are a few tips for presenting a better construction claim:
Create a standalone document
Ideally, the claim should contain everything the reviewer needs to assess the claim. Any documents, contract and law clauses, programmes and facts should be attached to the claim.
Assume the reviewer is not aware of the project
It is common to assume that the other party working in the same project is aware with the project-specific abbreviations, events and particulars.
However, to make the reviewer's job easy and pleasant to accelerate a favourable claim determination, you should explain all the project-specific terms and particulars in detail in such manner that a person not related to the project could easily understand what you are talking about.
A multi-million dollar claim with grammatical, spelling, or even worse, wrong clause references does not look good, does it?
Following the above-mentioned points, a claim should be indexed, referenced and styled appropriately. Table of contents, summaries, page numbers, paragraph numbers, covers and separators should be included in any claim.
How to minimize claims in the pre-contract stage?
The best time to avoid claims and resolve potential disputes is in the pre-contract stage.
Employers need to know the risk of facing claims and should have the desire to avoid claims. Among the strategies that minimize potential claims:
- Clear, high-quality tender documents.
- Understand site conditions.
- Avoid re-allocating risks in standard forms of contract.
- Avoid open-ended and unclear clauses.
- Avoid agreement to agree clauses.
- Avoid letter of intents, as it may encourage disputes over ambiguities in the absence of contract.
- Ensure RFIs and other notices are replied to clearly and on time.
- Document pre-contract agreements in memoranda of understandings.
- Provide clear design responsibilities.
- Ensure the issued drawings, specifications and bills of quantities are clear, correct and sufficiently and accurately describes the scope of work.