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Contracts & Claims Management Training Workshop Session - Ii
Contracts & Claims Management Training Workshop Session - Ii
TRAINING WORKSHOP
SESSION - II
Conducted By:
General Manager Contracts
Engr. Tahir B. Mirza
Email: [email protected]
Highlights of Previous Presentation:
Following topics were discussed:
1- Rules of Engagement for Project Execution & Construction Claims:
Introduction. The Contractors Rule of Engagement. Read and know the Contract
documents. Develop comprehensive schedule. Prepare daily construction progress
reports. Notify the Owner of issues. Keep track of costs. Maintain inclusive
documentation. The construction claims. Conclusion.
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Presentation’s Topics
Guidelines for Effective Claim Resolution.
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Topic - 01
Guidelines for
Effective Claim Resolution
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Guidelines for Effective Claim Resolution
Purpose of Guidelines:
WHAT IS A CLAIM?
A claim may be defined as a legitimate request for additional compensation of
cost and time as per terms of the contract and the relevant contract act.
PARTIES INVOLVED IN A CLAIM
1. The Employer Directly Involved
2. The Contractor
3. The Engineer Indirectly Involved
4. The Arbitrator
The Contractor may make claims that addresses changes to work schedule/work
methodology & default of the Employer.
Alternatively the Employer claim may concern the Contractor’s failure to perform
the work in accordance with contract or Contractor’s lack of performance.
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Guidelines for Effective Claim Resolution
CLAIM PROCESS
a) That ”Construction Claim “is a process.
b) This process begins with dispute among the parties involved.
c) Claim is more complex process than a dispute over a monetary relief
d) Claim involves three things i.e. facts, contract wordings &
applicable law.
e) Topics of claim may include changes & delays, Impossibility of
performance, defaults, etc.
TYPES OF MOST PREVALENT CLAIMS
1. Delays.
2. Directed Changes.
3. Constructive Changes.
4. Project Crashing.
5. Differing Site Conditions.
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Guidelines for Effective Claim Resolution
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Guidelines for Effective Claim Resolution
DELAYS:
1. Recognized as most common occurrence.
2. Can upset project schedule.
3. Delay becomes claim only when the activity is enacted by the other
party.
4. Items involved in delay which includes the following:
Actual cause, specific work activities, impacted delay duration.
Once delay occurs the delayed party should give notice to
the other.
1. Document the impact of delay.
2. Contractor shall submit request for time extension and
compensation of delay cost.
3. Delay in any event may create confusion or disruption.
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Guidelines for Effective Claim Resolution
DIRECTED CHANGES:
1. Directed change includes any situation, when the Employer directs the Contractor
to perform works i.e. different than works defined in contract & specifications of
original scope of work.
2. Thus directed change may include the following:
1) Addition of work items
2) Deletion of work items
3) A change in method of construction
4) Change in material type
5) Change in design
2. Directed changes are normally managed through variation orders.
3. Directed change, dispute or claim for compensation may arise regarding the
Contractor request for the compensation.
4. The Contractor must notify the Employer in writing that the instruction issued is
considered as a directed change.
5. Accepting the directed change by the Contractor without Employer’s approval can
jeopardize the Contractor’s ability for compensation.
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Guidelines for Effective Claim Resolution
CONSTRUCTIVE CHANGES:
1. This type of change is caused by the factors other than Employer’s
instructions.
2. Method of constructive change includes:
1) Differing site conditions
2) Deficient & defective contract documents
3) Defective inspections
4) Miss-Interpretation of contract
5) Interference or disruption
3. Contractor's failure to recognize constructive change or to give timely notice
to the Employer may lead to difficulties in resolving the claims.
4. Vigilance is required by all parties to effectively manage the constructive
changes.
5. The challenge is to recognize the change in time to effectively lodge the
claim.
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Guidelines for Effective Claim Resolution
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Guidelines for Effective Claim Resolution
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Guidelines for Effective Claim Resolution
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Guidelines for Effective Claim Resolution
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Guidelines for Effective Claim Resolution
IMPOSSIBILITY OF PERFORMANCE:
1. It may entitle Contractor to relieve from performance of
contract.
2. The burden of proof of impossibility is on Contractor.
3. It may arise from erroneous design, specifications describing a
performance requirement i.e. beyond the capability of present
technology.
4. To prove absolute impossibility Contractor must show that no
other Contractor have done the work & that no method would
have worked regardless of cost.
5. The commercial non-viability the Contractor must establish
that the contract can be performed only at an
excessive/unreasonable cost e.g. a tomb made of spotless
marble.
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Guidelines for Effective Claim Resolution
DEFECTIVE INSPECTIONS:
1. Employer inspector may require a standard of the
workmanship in excess of standard practices.
2. If a Contractor feels that he is held to an in-correct and
exceptional standard, he must refer to referenced
standards/codes and especially to tolerance limits.
3. The Contractor must be aware of implied industry
standards before questioning inspection report.
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Guidelines for Effective Claim Resolution
SUPERIOR KNOWLEDGE/MIS-REPRESENTATION:
1. Such claims relate to allegations that Employer knew facts
but were not disclosed at tender stage.
2. These hidden facts could have significant effects on the
Contractor’s bid or the Contractor’s performance.
3. In other words there is duty on part of the Employer to
abstain from inducing a party to enter into contract
through use of fraudulent misrepresentation.
4. Before proceeding to lodge claim on the pretext of superior
knowledge, the Contractor must demonstrate that this
failure to share knowledge had detrimental effects on the
project cost & time.
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Guidelines for Effective Claim Resolution
STRIKES:
1. Labor strikes are treated as situations beyond the control
of both parties (excluding project site) and are considered
as FORCE MAJEURE events.
2. Such strikes entitle the Contractor to the extension of time
but rarely grant additional compensation.
3. Contractor is bound to inform the Employer of the project
disruptions resulting from labor strikes.
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Guidelines for Effective Claim Resolution
WEATHER:
1. Coverage of weather varies from contract to contract.
2. The working days are defined as day in which Contractor has
ability to work during major part of the day.
3. When rain or Inclement weather prevents the Contractor from
working a full day, the day isn’t counted as working day.
4. Carefully written contracts defines the contract duration in
calendar days, and contain a table of weather days (non-
working days), anticipated for each calendar month.
5. And provides for time extension if these extends weather days.
6. In routine contract documents risk of weather is placed simply
on the Contractor and in such a case the Contractor may obtain
time extension only for extra ordinary weather such as
tsunamis, floods, torrential rains, etc.
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Guidelines for Effective Claim Resolution
SUSPENSION:
1. It is generally self-evident
2. Rights of parties in case of suspension are typically established
by contract conditions.
3. Contractor can claim a constructive suspension when work is
stopped because of action/inaction of Employer, which is not
an explicit suspension.
4. Constructive suspension occurs where Contractor is
totally prevented from continuing its work.
5. Should the constructive suspension occurs the Contractor
must notify the Employer immediately to preserve its rights.
6. Work suspension clause is normally included in all the
construction work contracts.
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Guidelines for Effective Claim Resolution
DEFAULT/NON-PAYMENT/MATERAIL BREACH OF
CONTRACT:
1. Default occurs when either party fails or refuses to perform to
a contract.
2. Employer written contracts, this coverage is typically
restricted to default by Contractor.
3. In PEC/FIDIC supported contracts, Contractor can claim
default when payment isn’t made in accordance with contract.
4. As with suspension of contract, the Contractor must provide
timely notification to allow Employer to cure the cause of
default & vice versa.
5. There are remedies available in the contract Act of 1872 to
deal with the breach of contract and its remedies.
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Guidelines for Effective Claim Resolution
TERMINATION:
1. Contracts may be terminated for cause in the case of default of
Contractor or Employer.
2. Contracts may be terminated for convenience as when an Employer
decides that facility is no longer needed.
3. In either case contract document should address party rights in event of
termination.
4. If contracts are terminated by the Employer by default of the
Contractor. Generally the Employer can recover cost to repair defective
works, discovered after default as well as cost to complete original
works.
5. If cost to complete balance works is more than the balance amount of
the contract, defaulted Contractor is usually liable to the Employer for
additional cost or vice versa.
6. If the project is bonded, then language stipulated in the bond governs
the provisions to complete the works.
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Guidelines for Effective Claim Resolution
TERMINATION (Contd.):
7. In termination for Employer convenience, the Contractor
is entitled to:
1) Payments for the executed works.
2) Cost of works associated with Demobilization.
3) Cancellation of purchase orders.
4) Closing out sub-contracts.
5) Retrenching of manpower.
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Guidelines for Effective Claim Resolution
WARRANTY:
1. Warranty claims are made by the Employer and are
typically governed by the conditions of contract.
2. During defects liability period which is a sort of
contingent contract, Contractor is bound to repair and
remedy all the defects and replacements of parts.
3. However, if nothing happens the Contractor will not
return the sum allocated for this purpose to the
Employer.
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Guidelines for Effective Claim Resolution
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Guidelines for Effective Claim Resolution
DOCUMENTING CLAIMS:
1. Documentation is vital construction management function.
2. If the claimant has no authentic records, the world’s best consultants & lawyers can’t
create them for defense purposes.
3. Likewise if claimant has the record but the documentation, organization, quality are
poor , the cost of compiling suitable information for the purpose of claim may be too
high.
4. Most important point to remember about documentation is that “it must be created
at the time of disruption” e.g.
Letter must be written to record compliance with COC.
Confirm verbal requests in writing.
Record disagreements with statements written by others.
Serve timely notice of request for additional time & compensation.
5. It is imperative to maintain sound record keeping & project documentation system.
6. Proving of the events & consequences of events and causes of problems are essential
in resolving change order, issues to avoid construction claims.
7. It is crucial for Contractors to maintain all documentation as historic record of
the project.
8. Courts & Arbitrators tends to give greater credence to written documentation
than testimonials.
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Guidelines for Effective Claim Resolution
CONCLUSION REMARKS:
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Topic - 02
Process Model for
Systematic Claim Event Screening
for
Administering Construction Claims
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Process Model for Systematic Claim Event Screening for Administering Construction Claims
Purpose of Guidelines:
This process identifies the major information-gathering and decision-making
milestones as well as the notice and substantiation compliance checkpoints,
which are critical to the development of defense arguments as claims are
addressed.
It further emphasizes the use of tools such as scheduling, productivity, and
economic analysis and other modeling techniques in judging the level of
justifications and reasonableness of submitted claims.
Claims for additional costs and time extensions result from a variety of events
occurring during the course of construction.
To enhance the chances of success, Contractors submitting claims must closely
follow the steps stipulated in the contract conditions, provide a breakdown of
alleged additional costs and time, and present sufficient documentation.
On the other hand, project owners need to follow an overall comprehensive step-
by-step procedure for tracking and managing the claims submitted by
Contractors.
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Process Model for Systematic Claim Event Screening for Administering Construction Claims
Introduction:
Construction projects are becoming more and more complex due to new standards,
advanced technologies, and owner desired additions and changes.
Problems and disputes have always erupted due to conflicting opinions as to the
various aspects of design and construction.
With the introduction and widespread application of contemporaneous period
analysis CPM scheduling, it became easier to point out where the delays are occurring
and how delays in one activity affect others, and possibly the project as a whole, thus
allowing objective judgments as to whether Contractors should be entitled to time
extensions.
On the other hand, the increased complexity of construction processes, documents,
and conditions of contracts has been contributing to higher possibilities of disputes,
conflicting interpretations, and adverse attitudes.
The exhausting and expensive process of litigation has not been making things easier,
as unsettled claims that have developed into disputes can take a very long time to be
resolved.
All the above factors have made ‘‘claims’’ an inevitable burden in implementing
today’s construction projects.
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Process Model for Systematic Claim Event Screening for Administering Construction Claims
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Process Model for Systematic Claim Event Screening for Administering Construction Claims
Is the Contractor No
satisfied with the Final Settlement is
Yes
Engineer’s decision? reached Resort to litigation
Yes
Fig. 1. „Continued 4141
Process Model for Systematic Claim Event Screening for Administering Construction Claims
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Process Model for Systematic Claim Event Screening for Administering Construction Claims
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Process Model for Systematic Claim Event Screening for Administering Construction Claims
No
Owner is to continue
No recovery Was the written change-order his assessment
requirement waived? Yes
(a) A
Fig. 2.Variation orders sub-model
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Process Model for Systematic Claim Event Screening for Administering Construction Claims
Yes
The Engineer is to Does the percentage
agree with the Yes change in total
Contractor on new contract price affect
rates / prices the existing rates in
Quantification the contract?
Agreement reached
Techniques No
Failed to agree
The Contractor is
notified of the
(b) valuation result
Fig. 2.Variation orders sub-model
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Process Model for Systematic Claim Event Screening for Administering Construction Claims
Nonbinding Disputing parties, arbitration board Parties present their cases, arbitration
arbitration board makes nonbinding
recommendations .
Mini-trial Top managers of disputing parties, Managers present their cases and engage
neutral member (three-member in negotiation, neutral panel member
panel) acts as advisor
Hire-a-judge Disputing parties, judge One Judge (active or retired) presides over
Dispute resolution representative for each side, third informal trial where parties present their
boards member chosen by other two(three- cases Panel is formed at onset of project
member panel) and is thus familiar with project details
and work progress. Panel looks into all
arising disputes and passes nonbinding
judgment .
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Process Model for Systematic Claim Event Screening for Administering Construction Claims
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Process Model for Systematic Claim Event Screening for Administering Construction Claims
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Process Model for Systematic Claim Event Screening for Administering Construction Claims
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Process Model for Systematic Claim Event Screening for Administering Construction Claims
Quantification Methods:
If the analysis shows that the Contractor has valid
grounds for a claim, the Engineer now has the
task of quantifying the amount of compensation,
in terms of cost and time that the Contractor is
entitled to.
To achieve this purpose, the Engineer has to
resort to the quantification methods proposed
earlier for the use by the Contractor to
substantiate the claim.
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Process Model for Systematic Claim Event Screening for Administering Construction Claims
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Process Model for Systematic Claim Event Screening for Administering Construction Claims
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Process Model for Systematic Claim Event Screening for Administering Construction Claims
Concluding Remarks:
This guideline has presented a process model aimed at addressing
the stages through which construction claims evolve.
The outcomes from such a systematic claim event-screening
exercises are likely to be more acceptable to all parties involved
and thus reduce the likelihood of claims eventually developing
into disputes, which can be costly to resolve.
The model is characterized by a number of major stations of
tracking and analysis.
These include satisfying notice requirements, claims degree of
substantiation and adopted methods of analysis and
documentation, and the integration of developed, structured
approaches for achieving decisions along technical grounds.
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Thanks
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