By 1

Dr. Karunanayake S
MICE/MRICS/MCIArab/BSc (Hons)/B.Eng./MBA/LLM/Ph.D
Introduction

Claims commonly arise between the parties to construction contracts. This can be as a result of
problems such as delays, changes, unforeseen circumstances, insufficient information and conflicts.
Claims might be made for things such as loss and expense, extension of time and liquidated damages.
The contract should set out exactly what can constitute a claim and how it should be dealt with. There
may also be claims associated with the appointment of consultants.

Claims must be properly constituted and documented:

• Proper legal entitlement must be established.
• Cause and effect must be clearly demonstrated by contemporaneous records.
• Additional costs must be backed up by full supporting documents.

Unmerited and exaggerated claims should not be made, and claimants should avoid unnecessary
optimism when reporting settlement figures to managers and should be willing to accept a reasonable
offer of settlement without recourse to expensive legal action, which occupies management resources
that would be better utilised elsewhere. There is no guarantee of success in court.

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Clients

The client should keep mind:

• The desirability of avoiding claims.
• Their obligation to resolve proper claim entitlements in an efficient and professional way.
• Investing in front-end surveys, particularly ground investigation and topographical surveys, can help
reduce the likelihood of claims. A National Economic Development Office (NEDO) report on 5,000
industrial buildings, 8,000 commercial buildings and 200 roads and bridges established that over
60% of claims arose from delays due to ground problems.
• It is important to ensure that all geotechnical data is made available to all parties in the bidding
process.
• It is important to pick the most suitable method of procurement in relation to risk allocation and
appropriate contract conditions. This includes deciding which elements of a project are to be
designed by the contractor or subcontractors.
• Avoid drafting changes to standard forms of contract which, while attempting to re-allocate risk, can
lead to ambiguity and uncertainty. The balance of marginal judgement will favour the party that had
no hand in drafting the contract. The ‘contra proferentum’ rule may be applied against the
interpretation of ambiguities.
• Usually the earlier a dispute is settled, the cheaper the settlement. In addition, there are considerable
advantages to reducing the period of antagonism between parties to the contract.

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Tender documentation

A number of strategies can be used in the preparation of tender documentation to help avoid claims:
• Avoid dealing with items post tender. Statements such as ‘to be agreed’ can lead to dispute without
the leverage of competition.
• Phrases such as ‘to suit the contractor’s programme’ are open ended.
• Setting a conditional date such as, ‘in accordance with the architect’s instruction’ creates uncertainty
for tendering contractors. It is not possible to enforce an ‘agreement to agree’.
• Avoid ambiguity in design responsibility, such as ‘the contractor shall complete any design required
after the consultants have finalised the drawings provided for tender purposes’.
• Ensure that programmes, resource charts and method statements supplied by contractors with their
tenders are provided for tender assessment only and are not adopted as contract documents or as the
basis for variations.
• If possible avoid ‘letters of intent’ as they encourage arguments over details in the contract not
covered in the letter of intent. There are many cases where disputes have gone to court with no
signed contract in place. At the very least a letter of intent should limit activity to pre-construction
activity, such as engineering design and pre-ordering of long-delivery items of manufacture. It is also
beneficial to define payment terms in a letter of intent as this can be one of the most contentious
matters of legal disputes. There is no exact legal definition of Quantum Merruit (a reasonable sum of
money to be paid for services rendered or work done when the amount due is not stipulated in a legally
enforceable contract.), and so a letter of intent should describe how overheads, profit and indirect
costs are to be treated.
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Design

Many claims are based on delays resulting from design consultants issuing schedules, drawings and
specifications after construction has begun. Conflict can then arise due to arguable deficiencies in that
information:
• Missing, or not produced
• Late
• Incorrect
• Insufficient to order or build
• Impractical
• Unclear or conflicting
• Inconsistent with pricing information
• Inappropriate or not fit for purpose
• Uncoordinated with other information

Some flexibility is allowed by standard traditional contracts for the design team to issue further
drawings and details reasonably necessary, either to explain or amplify the contract drawings.
There can be an onus on the contractor to raise any queries on newly received information within 28
days of its receipt or forfeit their right to additional payment.

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Contractor’s master programme

Many contracts require the contractor to draw up a contractor’s master programme after the execution of
the contract. The contract documents should specify the level of detail required by the contractor's
master programme, however, the contractor should make allowance for the following:
• Realistic time for carrying out each section of the work, with proper consultation and agreement with
the major subcontractors involved.
• Sensible periods for specialist design and manufacture, including approval periods for checking
conformity and co-ordination with other specialist input.
• Providing consultants with an even workload for the approval of specialist drawings.
• A stated system for recording progress against programme and future updating to reflect enforced
changes.

Upon receipt of the contractor’s master programme, the client’s team should examine and challenge any
aspects of the programme that cannot be justified. This programme is most likely to be the basis upon
which all future claims for delay, extensions of time, disruption and loss and expense are based and
judgments made. Challenging the contractor’s master programme at a later date when claims are
submitted is arguing from a position of weakness.

The client should not ‘approve’ the contractor’s master programme, as approval might be considered to
relieve the contractor of liability for programming the works in such a way as to achieve the completion
date.
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Cause and effect

Global claims, made by lumping together many different causes of delay to make a case for
continuous disruption and cumulative effect, has not always found favour with the courts. This
method of ‘death by a thousand cuts’ can be fairly easily counter-challenged by the client’s team,
citing all the contractor’s deficiencies such as labour shortages, poor management, plant
breakdowns and subcontractor non-performance. This all leads to the argument of parallel,
concurrent or contemporaneous delay.

It is better to be specific rather than generic. This is a more painstaking exercise requiring more
intellectual rigour, as the claimant lists each alleged default, linking it against the consequential
delay and its knock-on effect, backed by contemporary records.
This approach is obviously a more precise way of establishing quantum and will lead to a more
factually-based judgement. In other words, to succeed, a claimant needs to establish a discernible
nexus between the breaches pleaded and the consequential delay and/or associated costs.

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Notice and particulars

Under UK commercial law and under all forms of building contract any party has to give the other
notice as soon as a breach is apparent so that it can be remedied or its consequences mitigated. Failure
to do this expunges the right to additional payment for loss or expense.

The delay or loss and expense notice should:

• Identify the specifics of the breach and legal entitlement clauses in the contract.
• Disclose as much full information as possible, including the effect of the delay.
• Identify relevant dates and periods of delay involved.
• State any criticality and effect on the completion date.

The client team should immediately check the factual basis of such a notification and comment on any
content that appears to be subjective.

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Concurrent delay

Concurrent delay is a situation where several causes of delay are running in parallel. An example
might be where consultants details were issued late, but an industrial dispute delayed progress of
critical work at the same time. In more recent judgments, the courts have disregarded arguments
about which was the dominant delay and judgement has been made on the basis that the loss
should lie where it falls.
In the above example, the contractor may be entitled to an extension of time and relief from
damages but not entitled to loss and expense.

Head office or factory overheads

Hudson’s formula appears to be the one most readily accepted by the courts:
(HO Profit % / 100) x (contract sum / contract period (weeks)) x (delay (weeks))

In applying the above formula, the following should be subtracted:

• Credit for staff time included in the project costs as visiting supervision.
• Any additional overhead recovered within the final account, e.g the variation account.
• Credit where resources were re-deployed due to delay.

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Quantifying claims

Quantifying claims may involve a number of considerations:

Costs
Actual cost is the proper basis for evaluating claims. It is a popular misconception that the contractor is
bound by its tender rates as its full entitlement. Costs may include allowance for inflation resulting from
delay.

Preliminaries
Preliminaries include set-up costs, running costs and dismantling costs. Thus extensions of time should not
include set-up or dismantling costs but merely running cost at the time of the breach and its associated
period of delay.

Disruption
Disruption describes loss due to inefficient productivity. It is extremely difficult to assess.
Often the most effective approach is to localise the claim to a specific area of breach. Then compare
individuals productivity prior to and after the disruption occurred against the productivity during the
period of disruption. Generic claims based on statements such as ‘this was the tender price and this is the
outturn cost’ are unlikely to succeed.

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Loss of profit/opportunity costs

This is only valid when the claimant can prove breaches of contract directly prevented it making a profit
elsewhere. Deductions must be made for additional profit that has been paid on the project as a result
of extra work instructed and priced within the final account.

Finance charges and interest

Finance charges and interest on extra capital required to fund costs arising from breaches in the
contract are recoverable providing:
• Interest rates are proven and reasonable (e.g market rates prevailing during the period of breach).
• If financed within the corporate group, the rate will be that received from monies it has placed on
deposit.

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A contractor wishing to avoid a claim against them for delay damages, may make a delay claim,
demonstrating that:
• A compensation event has occurred.
• The event caused a delay to the project’s completion.

Compensation events are similar to relevant events and relevant matters referred to in other forms of
contract such as JCT contracts. Very broadly, compensation events tend to be those events that impact on
the completion date, but are not the contractor’s fault. This might include events that are caused by the
client, or neutral events such as exceptionally adverse weather.

A delay claim for a compensation event can only be made by the contractor if the event actually delays
completion. This can require careful analysis where there are multiple possible causes of a delay to
ascertain the impact of the compensation event itself.

Generally, there are two approaches that can be adopted for this sort of analysis:
• Prospective: An assessment at the time the event occurs.
• Retrospective: An assessment after the event has occurred.

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liquidated damages (LD,

Contracts generally include a clause making provision for the contractor to pay liquidated damages (LD,
sometimes referred to as liquidated and ascertained damages - LADs) to the client in the event that the
contract is breached. In building contracts, liquidated damages usually relate to the contractor failing to
achieve practical completion (i.e. completing the works so they can handover the site to the client) by the
completion date set out in the contract. They are often calculated on a daily or weekly rate.

Liquidated damages are not penalties, they are pre-determined damages set at the time that a contract is
entered into, based on a calculation of the actual loss the client is likely to incur if the contractor fails to
meet the completion date. They might include; rent on temporary accommodation, removal costs, extra
running costs, and so on. They are generally set as a fixed daily or weekly sum, although there may be a
more complicated formulae where the works are phased, where may be partial possession and so on. It is
important that the method of calculation is precisely and formally documented.

If the contract prevents the client claiming liquidated damages, or if actual losses are significantly different
to those that were estimated at the time the contract was entered into, then the client may pursue a claim
for unliquidated (i.e. actual) damages through the courts. Unliquidated damages are damages, the exact
amount of which has not been pre-agreed, and are typically determined by the courts.

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As liquidated damages are not a penalty, they must have been based on a genuine calculation of
damages when they were set. If they are not genuine, they may be considered a penalty by the courts
and so will be unenforceable (see Dunlop Pneumatic Tyre Co Ltd v New Garage and Motor Co Ltd),
although this is unlikely as the courts are very reluctant to interfere in contractual agreements negotiated
freely by two commercial parties of similar standing.

Calculations might include, amongst other things:

• Loss of rent
• Loss of income
• Fees
• Storage costs.
• Rental costs.
• Fees and fines imposed by third parties.
• Finance costs.

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Liquidated damages can be beneficial for the client, as the remove their obligation to prove actual
losses in the event of delay occurring. They can also be beneficial to the contractor as they limit their
liability to a known amount in the event of delay.

However, in some circumstances, the parties to the contract will wish to exclude liquidated damages.
In this case, they should not simply insert 'nil' as the rate of liquidated damages, as this can imply that
the loss for unliquidated damages is also nil. Instead, they should make clear that unliquidated
damages apply, or delete the clause for liquidated damages.

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Variations in construction contracts

A variation (sometimes referred to as a variation instruction, variation order (VO) or change order), is
an alteration to the scope of works in a construction contract in the form of an addition, substitution or
omission from the original scope of works.

Almost all construction projects vary from the original design, scope and definition. Whether small or
large, construction projects will inevitably depart from the original tender design, specifications and
drawings prepared by the design team.

This can be because of technological advancement, statutory changes or enforcement, change in

conditions, geological anomalies, non-availability of specified materials, or simply because of the
continued development of the design after the contract has been awarded. In large civil engineering
projects variations can be very significant, whereas on small building contracts they may be relatively
minor.

Variations may include:

• Alterations to the design.
• Alterations to quantities.
• Alterations to quality.
• Alterations to working conditions.
• Alterations to the sequence of work.
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Variations may also be deemed to occur if the contract documents do not properly describe the works
actually required.

Variations may not (without the contractors consent):

• Change the fundamental nature of the works.
• Omit work so that it can be carried out by another contractor.
• Be instructed after practical completion.
• Require the contractor to carry out work that was the subject of a prime cost sum.

In legal terms, a variation is an agreement supported by consideration to alter some terms of the
contract. No power to order variation is implied, and so there must be express terms in contracts which
give the power instruct variations. In the absence of such express terms the contractor may reject
instructions for variations without any legal consequences.

Standard forms of contract generally make express provisions for the contract administrator (generally
the architect or engineer) to instruct variations (for example, FIDIC Clause 51.1). Such provisions
enable the continued, smooth administration of the works without the need for another contract.

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Variation instructions must be clear as to what is and is not included, and may propose the method
of valuation.

Common causes for change orders to be created are:

• The project's work was incorrectly estimated.
• The client or project team discover obstacles or possible efficiencies that require them to deviate
from the original plan.
• The client or project team are inefficient or incapable of completing their required deliverables
within budget, and additional money, time, or resources must be added to the project
• During the course of the project, additional features or options are perceived and requested.
• The contractor looks for work items to add to the original scope of work at a later time in order to
achieve the lowest possible base bid price, but then add work items and fee back on once they
have been appointed. This is an exploitative practice.

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Specific identified compensation events include:
• Instructions to change the service (unless this results from accepting a defect, or from a change
requested by the contractor).
• Failure to provide access.
• Failure of the client to provide equipment, plant or materials.
• An instruction to halt, or delay the works.
• Work done by others.
• Conditions that could not reasonably have been foreseen.
• Exceptionally adverse weather (beyond one in ten year frequency).
• Force majeure (such as an epidemic or an 'act of God').

If an event occurs that the contractor considers to be a compensation event, they must notify the project
manager within 8 weeks of becoming aware of the event (unless the project manager should have given
notification). This is a condition precedent to making a claim, and compensation events cannot be
considered if the 8 week deadline is missed. However the phrase ‘becoming aware of’ leaves some
scope for dispute.

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Acceleration of construction works

Acceleration is the process of speeding up the work of a contractor so that a particular activity, or the
project as a whole, can be completed before the date required under the contract.

Generally, it is the client that requires the acceleration of construction work. A client might require that a
building is handed over earlier than is set out in the contract or, where the contractor has been allowed
an extension of time, may require completion earlier than the revised completion date. This is referred
to as 'directed acceleration'.

Where the contractor incurs additional costs as a result of this sort of acceleration, it can result in a claim
against the client. Typically, the contractor does not have to prove the works were actually completed
more quickly than originally agreed, just that they made a reasonable attempt to do so and that the
attempt resulted in additional costs.

Acceleration of the works may also be undertaken by the contractor voluntarily, if, for example, they
wish to move on to another project, mitigate inefficiencies and delays that may have been incurred, or
to save on costs. They may also be motivated by bonuses awarded for early completion. However, if
acceleration is undertaken voluntarily, the contractor will not be able to claim additional costs from the
client.

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There are several techniques available for accelerating work:
• Working overtime.
• Adding new shifts.
• Providing additional labour.
• Additional supervision.
• Providing additional resources, such as plant and equipment.
• Re-sequencing work activities (also known as project crashing or fast tracking).
• Adopting alternative construction methods, such as off-site manufacturing.
• Changing the design or specification.
• Reducing the scope of the works (for example transferring responsibility for some works from the
contractor to the client), and
• Early procurement of key items.

These techniques are likely to result in additional costs and may not guarantee early completion.
While the same number of tasks need to be performed, they are condensed into a shorter period,
and so are likely to require more resources. In addition, purchasing costs may be higher due to time
pressures, incomplete information and the complexity of managing the interfaces between elements.
A greater number of variations are also likely than on a traditional contract.

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 Figure 1: Positive and Negative Consequences of
Conflict

In many construction situations, production may

trump protection. In other words, safety takes the
backseat when production is in jeopardy. This can
create a situation where the person who tries to
ensure safe operation may be faced with people
responsible for production taking risks, which
increase the possibility of injuries while
performing the work. Conflict has both positive
and negative consequences. This could very well
have its roots in knowledge as well as situations.
Having a good understanding of the other person's
basis for their position, their needs, and their past
experience may go a long way in finding a means
to approach and resolve the issues in an amicable
way.

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 Figure 2: Possible Conflict Outcomes
The Emotional Aspects of Conflict

Emotion is usually an integral part of any conflict and

tends to become a barrier to amicable resolution. The
effort to resolve a dispute often is thwarted by the
emotions related to the conflict.

The Language of Conflict

The words we use in describing or when dealing with

conflict reflects our basic assumptions regarding our
opponent, the situation, and ourselves. This sets our
approach to the situation as well as shapes our
expectations of the process.

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Conflict Considered as War

This clearly characterizes a "win-lose" approach. This thinking suggests that the other is in the wrong,
that their position is unreasonable, and that they are out to take advantage. Emotion takes on a large
role in the process and reinforces the "under siege" mentality and willingness to fight to win. It is
unfortunate, but some organizations may consider such an approach as competition and reward it. This
has powerful implications for internal working relationships as it diminishes trust and cooperation
while encouraging infighting. On the whole, this approach tends to be counterproductive to the overall
well-being of the organization.

Conflict Considered as Opportunity

This sort of use of language can make a difference in how conflict situations are seen and dealt with. A
situation that can have negative implications transforms into a positive and cooperative one.
Considering the situation as an opportunity diminishes the possible negative impact of emotion and
enhances the amicable resolution of the situation. It also saves time and resources that can be better
used by both parties for more constructive endeavors. In such a case, the other person is not cast as an
adversary but as someone who can assist us in reaching an agreement. This fosters a working
relationship. It also creates a situation in which "win-win" results are possible.

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Conflict Considered as a Journey

This sort of thinking opens up a large number of possibilities. It is transformational. It takes a more long-
term approach to resolving issues, creating amicable solutions leading to relationship building. In most
cases, the people we end up in conflict with are people we have dealings with over long periods of time
and in different situations. So, our approach to solving conflict in any one situation takes on a more
global context and requires us to look at the "big picture." As a result, our position in one particular
situation may take on a whole new meaning and outlook. This sort of approach fosters empathic
thinking.

Common Sources of Conflict

Conflict in the workplace leads to dysfunction, which is detrimental to the project's outcome and those
involved. Conflicts that are ignored may lead to anger, which can transform a simple problem into one
that may become insurmountable later on. Addressing conflict as soon as it arises is the most effective
way to avoid future discord.

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• Poor communication: Poor communication tends to lead to misunderstanding and discord among
people who have to work together, as on construction projects. Lack of information, partial information,
untimely information, and inaccurate information all can lead to work being done that does not meet
expectations and sets the stage for conflict and animosity.
• Lack of clarity: Project participants may wind up in turf wars when boundaries and expectations are
not clearly defined. It is important to clarify content and to ask for confirmation of understanding.
• Conflicts of interest: Individuals fighting for personal goals may lose sight of project or organizational
goals. One tactic may be continually reminding partners and employees how their personal goals and
efforts "fit" into the project's strategic goals and outcome expectations.
• Limited resources: There are many situations on projects when resources are limited and have to be
managed effectively. Conflict may arise over the use of equipment, space, material, time, manpower,
etc. Such conflicts must be dealt with effectively so as to maintain harmony on-site. Whenever possible,
include employees and partners in the resource allocation process. This will provide them with a
better understanding of how allocation decisions are made in the best interest of the project.
• Power struggles: The need to control is at the root of many conflicts on construction projects.
Perception plays a key role in this regard. Treating everyone fairly and with respect goes a long way to
diminish some of this. But, invariably, power struggles are going to occur and should be addressed
appropriately. If necessary, teach employees how to manage relationships on the project. This will go a
long way toward reducing conflict and the need for others to get involved.

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If anything is true about conflict, it is that it will occur at some point. No single tool or technique will work
for everyone and in all cases. The reason why is that the situations are always going to vary with different
people involved combined with the different possible approaches to resolution. Due to this, there really
is no one tool, technique, or method that will work universally. The elemental approach is one that will
foster resolution, address the issues symbiotically, and combine honesty with empathy, reason with
intuition, and emotion with logic, as well as a willingness to align goals with the intent to have them work
synergistically. This is also a learning process, and those open to flexibility and willingness to collaborate
will gain trust, increase goodwill, build relationships, and solve problems effectively.

How to avoid disputes

Even the best managed businesses can sometimes find themselves in dispute with customers, suppliers,
partners or employees.

Resolving disputes can take a lot of time and effort, which could also affect running your business. It is
advisable to take steps to avoid disputes completely, or if they do arise, they can be resolved quickly,
with minimal cost and impact on business relationships.

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1. Confirm details in writing

Most disputes occur because there is no clear agreement, contract, policy or procedure in place for
parties to refer to. This can be avoided by having a written agreement or contract in place before you
supply (or buy) goods or services.

Make sure all terms, including payment details, are included in the agreement and that it is signed by
all the parties involved.

If you need to vary the agreement or contract ensure the variations are also put in writing and agreed
to by all parties. This may be as simple as obtaining an email confirming acceptance of the variation
or something more formal.

Business policies and procedures should be developed for employees and contractors to avoid future
disputes. Employees should also have an employment contract.
It is advisable to seek legal advice when you are developing contracts.

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2. Read contracts before signing them

If you sign a contract you will usually be bound by its terms and conditions. Make sure that you read
and understand all contracts before signing and seek legal or other professional advice if you do
not understand any of the terms.

Do not rely on information from the other party as to the meaning and effects of the contract.

3. Develop good communication and relationships

Having good communication and relationships with your customers and suppliers will help to avoid
disputes. Make sure they know how to provide feedback to you if something is not right and, if you
do receive complaints, make sure you deal with them promptly.

Be honest with your customers if your business is at fault. Also don’t ignore problems – it will only
make matters worse.

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4. Be organized

Keep copies of all your signed agreements and contracts in one place so they are easy to find.
Have a system to remind you of key dates and details included in the contract so you don’t breach any
terms and conditions. Don’t file and forget as it could lead to a dispute down the track.

5. Train your staff

Staff should be trained in how to handle customer complaints or negative feedback in an appropriate
and professional manner. Develop and document a complaint handling process for staff to refer to if
required.

Ensure all staff are aware of the scope of their authority to enter into contracts on your behalf.

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6. Know your legal obligations

There are many legal obligations you must be aware of when operating a business. It is important to
understand and comply with these obligations in order to avoid disputes and additional costs for your
business.

7. Seek help early

Don’t wait for a problem to occur. Seek assistance and feedback from your lawyer, accountant or
professional business adviser to ensure you have good systems in place to minimise the potential for
disputes.

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Delay analysis methods

It is essential to analyse and present the exact impact due to the delay events. Delay analysis
methods are used to analyse and present these impacts. The most popular delay analysis methods
are:
• Impacted as-planned.
• Collapsed as-built.
• As-planned vs as-built.
• Time slice windows analysis.
• Time impact analysis.
• Longest path analysis.

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Quantity Surveyor. (2019). Quick Guide to extension of time claims (EOT Claims) · Quantity
Surveyor. [online] Available at: https://quantitysurveyor.blog/2019/10/26/quick-guide-to-
extension-of-time-claims-eot-claims/ [Accessed 29 Oct. 2019].

THANK YOU………………..

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