10 Point Strategy for Responding to a Claim
You are tasked with reviewing a claim, responding to it and hopefully, reaching agreement with the contractor. So, how do you go about it?
Some forms of contract set out clear provisions that oblige the engineer to act fairly in producing a response. It is, however, true to say that not all responses to claims will be treated in this way. A strategy to deal with the claim should be considered carefully by the engineer and the employer. In this article, we set out ten considerations you should make before responding to a claim.
1. What is your responsibility?
Is your responsibility as the responding party to defend the respondent's interests, minimising the claim as much as possible? Or is it to produce a fair and reasonable determination?
2. Value of the Claim Vs. Cost of Defence
If the defence of the respondent's interests is of primary concern, you should assess the value of the claim. Does it justify the expenditure of significant resources to offer up a rigorous defence? If a claim is likely to result in a significant award, it would probably be worth providing the necessary resources to ensure that a high-quality effort is made.
3. Chance of Success
What are the strengths and merits of the claim and its chances of success? Are the odds of success favourable enough to justify the effort and expense in providing a rigorous defence?
4. Quality of the Claim
What is the quality of the claim submission? Does it provide enough information to enable proper conclusions to be made? Does it satisfy the basic principles necessary to establish entitlement and quantum? Can it be properly understood? If the claim does not fulfil the necessary criteria, should it be rejected on the basis that the case has not been proven? In this situation you might request further particulars. Alternatively you could proceed with a response and attempt to close the matter equitably.
5. How to Respond
The strategy should also consider how the response is to be pitched. Is it felt that the best result would be obtained by minimising any awards and leaving plenty of room for negotiation? Perhaps it would be better to ensure that the value of the award is reasonable. In this case you should assess whether arguments are absolutely sound, and the case for the respondent is bulletproof. The latter usually results in an initially higher award to the claimant but is often harder to refute. A response strategy aimed at minimising the quantum might have a chance of success if received by inexperienced parties, but, if the matter subsequently proceeds to a dispute, such a response is unlikely to succeed when experts get involved.
6. Dispute Procedures
If a strategy of rigorous defence is adopted, what is the dispute procedure and what is likely to be the outcome if the matter does progress to a dispute?
7. Time Scales and Obligations
Would the respondent's interests be best served by protracting the matter or by dealing with it in a timely manner? If the former strategy is adopted, would protraction cause the respondent to be in breach of any contractual obligations and, if so, to what effect?
8. Resource Management
Some claims are complicated in their very nature. If this is the case, they require a certain amount of specialist knowledge and experience to prepare an adequate response. Do the resources available include the required experience and knowledge, or should additional resources be brought in?
9. Relationship Management
Past and future relationships between the parties should be considered, possibly at executive level. Consider the impact before embarking on a course of action that could end in contention.
10. Who Will Receive the Response?
The actual personnel who are likely to receive the response or determination should also be considered. Will they be difficult to persuade? Has animosity crept into the relationship? Is the person responsible likely to have sufficient knowledge to understand the matters in question and the contractual principles relied upon? Is the claimant likely to engage the services of an expert to assist him/her or to deal with the matter on his/her behalf if a negative response is issued?
I hope that this gives you some guidance if you are responsible for responding to claims.
The above is an amended version of a chapter from the Third Edition of Andy Hewitt’s book, Construction Claims and Responses. It is available from Wiley Blackwell.
Responses to claims are covered in detail during the 6th module of our Construction Claims Premium E-Course. To view the full course syllabus or to enrol click here.
10 Top Tips for Claim Presentation
You have established that a claimable event has occurred on your project.
You have gathered the evidence and records, completed your delay analysis and/or calculations of the additional payment.
You have decided on the information that you need to include in your claim to establish cause, effect and entitlement.
It’s now time to put all this information in a claim document ready to submit to the employer or engineer. But what’s the best way to do this to ensure your claim is successful?
Here’s 10 top tips to help you write a bullet proof narrative and compile your claim into a solid submission:
- Make it user-friendly: use clear indexing, organisation and cross reference to substantiated documents.
- Use direct quotations: quote directly from the records and contract. This is much more effective than paraphrasing and ensures your position is clear.
- Make the claim a stand-alone document: include everything that the reader may need to verify facts and statements made in the claim.
- Be concise: do not include superfluous or irrelevant information. Information overload will just confuse the reader. If they are uncertain, they will not be confident in making an award.
- Do not assume that the reviewer has prior knowledge: write your clam as though you are explaining the matters to an adjudication or arbitration panel two years after the project has ended…not to your opposite number on the project.
- Lead the reader to a logical conclusion: ensure your claim narrative guides the reader by the hand. Walk them – logically – through all the information they need to establish entitlement to an award.
- Include explanations throughout the narrative: it is necessary to state the facts from the records in a narrative. However, you should expand on the basic facts and explain what they mean in terms of the claim.
- Include summaries and conclusions in the narrative: don’t leave things open to interpretation. Summarise the information and state the conclusions that you want to reader to reach. This is especially important if you have longer narratives as it will help to focus the reader.
- Substantiate facts and statements: by reference to the records and the contract. Include copies of the substantiating documents in the claim.
- Make it look good: ensure that the presentation of the claim document is attractive and to a professional standard. Use suitable fonts and line and paragraph spacing. Number your paragraphs and include headers and footers to good effect. Keep the whole document consistent.
So, there you have it. If you bear these things in mind when you are compiling your claim, it will help its success and show your professionalism.
If you’re looking to strengthen your claims knowledge and achieve better results on your projects, The Perfect Claim e-course will show you exactly how to prepare, present, and succeed with your claims.
Failure in Contract Administration - A Leading Cause of Disputes
I have just completed a training course for a large contractor based in the Middle East. The title of the course was the The Practical Use of the FIDIC Contracts. The attendees were contract managers and contract administrators. The course consisted of weekly 2-hour online tutorials over a period of 6 weeks. After each tutorial, the attendees were given some case studies to examine. They then submitted assignments for grading.
After the first two week’s assignments had been submitted, I was able to reach the following conclusions:
- Despite most of the contractor’s projects being FIDIC contracts, the attendees had very poor knowledge of the contract.
- Many of the attendees based their answers on usual practice and what had been done previously, rather than the actual contract provisions.
- Most of the attendees failed to justify their answers by making reference to the contract.
Contracts managers and contract administrators are responsible for ensuring that:
- The contractor complies with his/her contractual obligations.
- The contractor receives any rights and remedies contained in the contract.
- The employer and engineer act in accordance with the contract.
Given the above, these gaps in knowledge present many risks for the contractor. There was no doubt that the training had benefit. As the attendees worked though the course and followed our advice, not only on the conditions of contract, but on how to deal with contractual matters, their grades improved.
Studies on international disputes over many years have revealed that some of the leading causes of disputes are:
- Failure of the parties to comply with contractual obligations.
- Failure of the project participants to understand the contract.
- Inadequately trained and qualified persons responsible for contract administration.
Our client’s contract administration clearly needed improvement. Hopefully our training has gone some way towards avoiding contentions and disputes on their projects. This company realised that they had a problem and took steps to provide a solution via staff training. Unfortunately, many companies continue to get things wrong, finding themselves in difficult and costly situations.
So, for those facing similar problems, here are my top tips for effective contract administration:
- Ensure that you have adequately trained and qualified staff on the project to deal with contractual matters.
- If you do not have such staff, seek the advice of others, perhaps from head office or external consultants.
- Ensure that you understand your contract and comply with your obligations.
- Be aware of the obligations of other project participants and check compliance.
- Ensure that your project procedures, including any forms and templates are in accordance with the contract.
- When dealing with contractual matters, justify your position by reference to the provisions of the contract.
I hope this helps you to provide effective contract management and to avoid contention and disputes. For those looking to improve their skills in contract administration, this e-course may be of interest. Or for team training, get in touch directly to discuss your needs.
Are Your Communications Effective?
In a training workshop that we delivered to one of our Dubai-based clients they asked how they could improve their communications on projects.
Knowing how to write effective letters, the type of language to use, what specifics to include, etc. is a common challenge for many project teams. So, here are my top tips for effective communications.
The advice that I am going to give here does not only apply to letter writing. It works for all forms of communication on a construction project – reports, notices, meeting minutes, etc. and claim narratives. For the sake of clarity, I will lump them all together under the heading “communications”.
Make Your Construction Communications Stand the Test of Time
We must remember that as well as communicating information, a document will become a project record. It may need to be referenced and relied on in years to come and possibly, in dispute proceedings. For this reason, note that you are not writing it to be understood by the project team with intimate knowledge of the project. You are writing it to be understood by someone with no knowledge of the subject, sometime in the future.
It's crucial to explain all matters so that such a person will gain a complete understanding of the matter. The document should contain sufficient information for them to do so without having to refer to other documents.
Using quotations, either from other records, or the contract, as opposed to paraphrasing is a really strong way of making a point or justifying an opinion. If you do use quotations, make sure that you identify them clearly. This way, the reader knows they are not your words or that you have put a ‘spin’ on the original.
Many people do a good job of presenting the bare facts but fail to explain what the facts actually mean in terms of the subject matter. In doing so, they fail to lead the reviewer to the conclusion that is desired. NEVER let the reader draw their own conclusions. One way to help reach the correct conclusion is by including explanations, summaries and conclusions within the narrative of the document.
Simply put, we should state the facts, make sure that they can be understood. Then summarise the facts and explain to the reader their implications in terms of the matter in question, and the conclusion that must be drawn.
Don't Try to Impress
Some people attempt to impress the reader by the use of complicated contractual language, or even legal terms. Ask yourself if this will have the desired effect on a resident engineer. Often they will have spent their professional career on site, amongst mud, steel and concrete rather than in a courtroom.
The use of impressive-sounding language will never replace a well-presented, easily understood ‘story’ that deals with and explains the facts logically. It is therefore better to use the most simple and direct language possible to provide a proper understanding of the points being made.
Be Succinct and Clear
It is essential that a long letter, report or claim should comprise a stand-alone document which provides complete understanding. However, many documents and construction communications actually contain too much information.
The inclusion of irrelevant information serves no purpose at all and will do nothing to bring about a clear understanding of the matters being discussed. In fact, the reverse is true and a reviewer could very well suffer from information overload and become confused.
A person who cannot fully understand the matter, will definitely not be confident in taking the action or reaching the understanding that you are hoping for. Narratives should therefore be as concise as possible whilst still properly illustrating and explaining the points being made. Always remember that quantity is never a substitute for quality in construction communications.
Abbreviate to Complicate?
One of my pet hates is the use of abbreviations and acronyms. I say this because I have often been obliged to read documents that appear to have been written in code. I have just one piece of advice with regard to the use of abbreviations and acronyms. Simply, DO NOT USE THEM. Possibly persons intimately involved on a project would understand that when an abbreviation such as ‘BL2’ is used, it means ‘Basement Level 2’. But would an outside party would understand the meaning?
If a reader does not understand or they become confused, then your communication skills are poor. Therefore, abbreviations and acronyms should be avoided unless they are common in the industry and would be understood by anyone unfamiliar with the project. The small amount of extra effort to type words out in full is definitely worthwhile. It will avoid both confusion and annoyance.
Ambiguities can often be created by the use of such words as ‘them’, ‘they’, ‘him/her’ and ‘it’ when referring to parties, organisations or people. Examination of legal and contractual documents reveals that parties are referred to as ‘the Claimant’, ‘the Respondent’, ‘the Employer’, etc. This ensures that there is no ambiguity or confusion as to which party the writer is referring. This may mean that a little more typing is necessary. But, the small amount of extra effort is worth it if confusion or ambiguity is to be avoided. If you don't like contractual names such as ‘the Employer’, ‘the Contractor’, you can refer to each party by name.
Clarity is King
To make the reader’s job easier, contractual clauses referred to should be named as well as referring to them by number. For example, Sub-Cause 20.1 (Contractor’s Claims) and not just Sub-Cause 20.1. This ensures that a reader who is unfamiliar with the contract will have a better chance of understanding the communication without constantly having to refer to the contract.
Document authors often try to make their job easier by referring to other records or to parts of the document. For example, “As previously explained in Section 3, the Engineer delayed the Contractor and caused the Contractor to incur costs”. This requires the reader to refer back to Section 3 and try to find how, why and by how much the ‘Engineer delayed the Contractor and caused the Contractor to incur costs’. Making the reader refer to other parts of the narrative to understand what you are saying is not good practice. Very often a short explanation or even cutting and pasting the relevant information will achieve this with little effort,
It may be tempting to proofread a document that you have prepared yourself. This is dangerous. Often, when proofreading your own work, you read what you think you have written and not what you have actually written. A review by another person will usually pick up mistakes or items that need additional clarification which you would not have identified when proofreading your own work.
4 Key Points
In closing, one of the principles that we teach on our claims courses are the 4 Key Points. These may equally be applied to other forms of communications and are as follows:
- Key Point 1: Make the reviewer’s job as easy and as pleasant as possible.
- Key Point 2: Ensure that the submission is a stand-alone document.
- Key Point 3: Assume that the reviewer has no prior knowledge of the project.
- Key Point 4: Do not include irrelevant information or content within the claim submission.
I hope this helps you to become more effective in your construction communications. For more help with this and related topics, take a look at our E-courses.
Construction Claims: 8 Important Principles
I recently presented our Construction Claims training course to a government department in Africa. As part of the practical nature of the course, we asked the attendees to complete an assignment to test their knowledge. When grading the assignments, it became clear to me that certain important principles were often misunderstood. I therefore thought it would be worthwhile to replicate them here for the benefit of our Claims Class community.
Principle 1: Incorporating Changes at Tender Stage
Question: How should changes to tender drawings (issued through a tender addendum) be incorporated into the contract documents?
Sometimes, during the tender process new information or errors come to light or the scope of work changes. Often tenderers raise queries which are addressed and clarifications are issued to all the tenderers.
The tenderers then price the work based on the revised information. This information must subsequently be incorporated into the contract documents. The way to do this is not to simply include the tender addendums or responses to requests for information as supplementary documents. to the correct way is to incorporate the information by changing the contract documents to reflect any changes during the tender period. This will avoid confusion, ambiguities and possible contention as the project proceeds.
Principle 2: Measuring Variations on a Remeasurable Contract
Question: On a remeasurable contract, how are variations taken into account?
Under a remeasureable contract the whole of the works are remeasured. The contractor is paid based on the actual quantities provided which are valued at the contract rates and prices. The contractor will be paid on the basis of the remeasured works – whether the quantity of work increases or decreases.
The remeasurement will therefore include any changes brought about by variations.
Principle 3: Measuring Variations on a Lump-Sum Contract
Question: On a lump sum contract, how is the Contractor compensated for variations?
If a variation is instructed on a lump sum contract, the works affected by the variation must be measured and evaluated separately in order to calculate the value of the varied works. This value will them be added to or omitted from the contract price.
Principle 4: Costs Associated with Extension of Time Claims
Question: Should costs associated with an extension of time be based on the resources being used during the time of the delay or the extended period?
A claim for prolongation costs is a claim for actual time-related costs incurred as a result of the delay. This means the costs that have been incurred during the period of the delay and not the costs incurred during the extended period. The following illustrates the principle:
- Contract period 1 January to 31 December
- Period of compensable delay – 30 days during July
- Effect on the critical path and the completion date – 20 days until 20 January, Year 2
- Prolongation costs incurred – 20 days during July.
The costs must be time related costs. Typically they would include site management and admin, time-related labour, site establishment, non-productive plant and equipment, insurances bonds and guarantees and head office overheads,
It is essential to substantiate the claim with detailed records of the resources deployed during the time of delay and cost records.
Principle 5: Preliminaries
Question: May the preliminaries or general items be used to calculate costs?
Most forms of contract allow for payment of ‘cost’ or ‘loss and expense’ for compensable events. Cost is defined as actual cost incurred by the claimant. Therefore, they may not be derived from notional estimates such as those included in the preliminaries or general items sections of the bills of quantities.
Principle 6: Notices
Question: Why are notices usually a contractual requirement?
Notices are a contractual requirement to formally advise parties of events that may affect their rights, obligations, and the contract’s performance. They serve as a trigger point for specific procedures, such as claims or variations. Correctly used, they help prevent disputes by allowing transparency and proper communication.
In most contracts (e.g., FIDIC, JCT, NEC), notices are required to notify the employer or project manager of potential delays, claims, or changes. These notices often include strict timeframes. This allows the affected party sufficient time to investigate, respond to, or mitigate the impact of the event.
Failure to issue a notice within the prescribed period can result in loss of entitlement to claims, even if the contractor has a valid case. This is because there must be a fair opportunity to address the issue, minimise costs, or adjust the project schedule accordingly.
Ultimately, notices promote good project management. They ensure timely communication of key events, preserving contractual rights, and reducing the risk of disputes.
Principle 7: Cause and Effect
Question: What must be linked to the cause of a delay in order to demonstrate entitlement to compensation?
Linking cause and effect in a delay claim is essential to establish entitlement to an extension of time and prolongation costs. A delay claim must demonstrate a clear causal link between the delay event (cause) and its impact on the project’s critical path (effect) and thus the completion date.
Without this link, a contractor’s claim may be rejected on the grounds that the event didn’t actually cause any delay to project completion. Merely stating that a delay event occurred is insufficient; the contractor must demonstrate how the event impacted key activities and prevented progress on critical tasks. This is usually achieved by way of a suitable delay analysis.
Establishing cause and effect establishes the claim is valid, credible, and defensible. It allows the employer to assess liability fairly. Clearly identifying the responsible party and impact on the schedule and will help to avoid or resolve disputes.
Principle 8: Time Impact Analysis
Question: A time impact delay analysis compares two programmes to calculate the effects of a delay event. What are the two programmes used in the comparison?
Time Impact Analysis is a prospective method of delay analysis. It is used to assess the impact of a delay event on a project’s critical path and completion date. The process is as follows:
- Update the current programme for progress for the date immediately before the delay and note the predicted completion date. Progress before the delay may have affected the completion date, but this needs to be allowed for.
- Insert a fragnet to illustrate the delay into the updated programme. Ensure that the appropriate logic links are included and note the predicted completion date including the delay.
- The difference between the two completion dates is the number of days extension of time caused by the delay in question. This should be added to the prevailing completion date to calculated the revised date.
This method is favoured for claims because it takes into account progress before the delay. It only calculates the effect of the delay which is the subject of the claim.
A time impact analysis is most effective when used in real-time, during the project, to assess ongoing delays. It provides objective evidence of whether a delay justifies an extension of time. It will also quantify the duration of the extension based on the actual impact on the project schedule.
Want to learn more about construction claims? Check out our Construction Claims Intermediate E-Course and get the confidence you need to manage claims effectively.
A Guide to Fair Pricing: Mastering Construction Cost Adjustments
Fluctuation provisions in construction contracts are designed to adjust the contract sum. This might be needed to reflect changes in labour, material, and associated costs. By adding fluctuation clauses, you can mitigate the risk of price volatility during the project.
However, in my experience, these provisions are rarely included in contracts. This often stems from a reluctance by the employer to assume the potential risk of significant price increases. Often the contractor is left to bear the full burden of material price fluctuations. This risk can be substantial and difficult to predict, especially on multi-year, large-scale construction projects.
What can you do if labour and material costs rise?
Let me put this into a relevant real-world context. Back in 2022, I acted as the commercial lead on a project just as the global pandemic was ending and war in Ukraine was looming. Working for the main contractor, my role was responsible for the procurement of the supply chain, and it turned out to be a testing experience.
The tendering steelwork contractors would not fix their quotations for more than a day due to the volatility in the market. Other contractors were also reluctant to quote on fixed prices for works too far into the future, unless a margin of safety was included in the contract sum.
Taking that stance in such challenging times was completely understandable. Our issue, as the contractor, was that the contract we had in place with our employer was agreed in 2021 on a fixed-sum basis.
A deed of variation
Thankfully, the employer understood the position and showed empathy. They accepted that their main contractor was facing a tough situation, which could even be potentially business ending.
Through a process of negotiation, we agreed to a deed of variation to increase the contract value. But it wasn’t a simple process and took a great deal of time and substantiation — and, ultimately, led to a delay to the original completion date.
Looking back in hindsight, that was the right decision and an example of the best face of our industry. Official data from the Insolvency Service in the UK, revealed that 4,165 construction firms in became insolvent in the twelve months ending on 31 March 2023.
Three key steps to ensure a successful outcome on your project
Having a provision in your contract for price fluctuations or an employer who is willing to come to an agreement is not the end of the matter. You will still need to compile a credible document that demonstrates why the prices should be amended. When doing so, there are three steps to consider:
1. Establish a narrative
Claimants often identify events in price escalation requests but fail to connect them directly to the cost increases. This leaves it up to the reviewer to infer the link. Provide a clear narrative that explicitly details how specific events caused the price fluctuations and quantifies their impact.
2. Provide relevant index or cost adjustments
The FIDIC form, for example, often utilises cost indices to calculate price adjustments. These published indices provide a clear and consistent method. Alternatively, claimants can demonstrate the actual cost difference by comparing the current material price to the originally estimated price.
3. Substantiation
To come to a successful conclusion, you are going to have to demonstrate that the price fluctuation you are claiming is accurate. Good record keeping is essential. The use of indices is a straightforward approach due to the fact they are transparent and publicly available. Even so, you’ll still have to illustrate to the reviewer what the data is telling them, leading them to a logical conclusion. Cost-based adjustments, however, demand robust record-keeping to validate both the original and revised costs.
Documenting and substantiating cost adjustments under FIDIC
Under FIDIC (2nd ed., 2017), Clause 13.7 addresses adjustments to the contract price for changes in the cost of labour, goods, or other inputs. It’s an optional provision that parties can choose to incorporate in their contract.
The application of Clause 13.7 is contingent upon the inclusion of a "schedule of cost indexation" within the contract. This schedule outlines the specific indices and coefficients to be used for calculating the price adjustments.
FIDIC guidance notes suggest that this sub-clause is particularly relevant when it would be unfair or unreasonable to expect the contractor to solely bear the risk of significant cost escalations. This typically occurs in projects with long durations or in volatile markets where price fluctuations are difficult to predict.
This article was written by Steven Woolnough, Chartered Quantity Surveyor, MRICS, MCIOB, MCICES, MCIArb.
To understand more, the practical use of FIDIC 2017 intermediate course covers variations and adjustments. Visit the webpage now to see the full course outline.
When Should You Submit Consolidated Claims?
A Claims Class e-course student recently asked me when to use consolidated claims. This is something that I see contractors frequently get wrong, so I thought it would be a good subject for this month’s blog.
Should I submit a claim for each delay event or a consolidated claim for several delays?
A typical scenario is:
A contractually inept contractor gets to the last few months of the project and realises that they will not complete on time. Consequently they will be liable to delay damages and will incur overrun costs. The contractor then concludes that they need an extension of time to protect them against such risks.
This thinking is incorrect for two reasons. Firstly, most contracts provide that you should submit claims within a stipulated time of the occurrence of the event. This way, they may be dealt with as the project progresses. If you leave a claim until the end of the project, this will more than likely be a breach of contract and may even affect entitlement.
Secondly, good contracts management dictates that the time to submit a claim is when the contractor becomes entitled to make a claim. This differs from when the contractor needs more time or money. Again, this ensures that claims are dealt with as the project progresses and when matters are fresh in people’s minds.
If the contractor leaves extension of time claims until the end of the project, it is likely that several delay events will have occurred. The contractor usually then compounds their poor contract management by submitting one claim that includes all the delay events – a consolidated claim. Again, this is a poor strategy and is why, we always recommend that contractors submit separate claims for each delay event.
Our mantra is one event, one claim.
This has several advantages:
- Several small claims are easier to deal with for all parties than one large, complicated claim.
- It’s easier to prepare several small claims than one large, complicated claim.
- It’s easier to respond to several small claims than one large, complicated claim.
- It’s always better to submit claims within the contractual time frames than waiting for other events to have a knock-on effect.
- If one part of a large, complicated claim is questioned or not agreed to, this will hold up the award of the whole claim. This would not prevent other separate claims being resolved in a timely manner.
So, if you want your claims to be resolved and the time extended before it runs out, always remember this key point - the time to submit a claim is when you become entitled to make a claim, not when you need to make a claim.
Can a FIDIC Engineer Reject the Contractor's Programme?
One question that is often asked by students is “what actions can the FIDIC engineer take after reviewing the contractor’s initial programme?”. Many people think that the engineer may ‘reject’ the programme if he/she has reason to do so, but this is incorrect.
Let’s have a look at what Sub-Clause 8.3 (Programme) of the 2017 Edition of the Red Book has to say on the subject.
Firstly, it includes a lengthy list of requirements and inclusions that the programme should comply with. The detailed wording has been reduced here for clarity:
- The programme shall be prepared using programming software stated in the specification.
- The commencement date and the time for completion, of the works and of each section.
- The date the contractor will be given right of access to and possession of the site.
- The order in which the contractor intends to carry out the works.
- The review periods for submissions.
- The sequence and timing of inspections and tests.
- All activities, logically linked and showing the earliest and latest start and finish dates and the critical path.
- The dates of days of rest and holiday periods.
- Key delivery dates of plant and materials.
- A supporting report which includes:
- a description of all the major stages of the execution of the works
- a general description of the methods which the contractor intends to adopt in the execution of the works
- the contractor’s estimate of the number of personnel, and equipment required on the site.
Sub-Clause 8.3 (Programme) then goes on to deal with the engineer’s actions after receiving the programme for review:
‘The Engineer shall Review the initial programme… submitted by the Contractor and may give a Notice to the Contractor stating the extent to which it does not comply with the Contract …’
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Claims for Preliminary Costs — What is Included?
When a contractor experiences delays caused by the employer, it's crucial to assess the financial implications of this extended period on-site. While an extension of time may be granted, the additional costs incurred due to the delay can significantly impact the project's profitability.
In this blog, we take a closer look at some of the key principles you should consider before submitting a prolongation claim.
The importance of actual costs in construction claims
The first key principle is that recoverable costs must reflect the actual costs incurred by the contractor. These costs cannot be based on initial estimates of preliminaries, or the amounts listed in the contract's bill of quantities. The costs must be real, tangible, and supported by evidence.
But why go through the trouble of calculating actual costs when you already have an agreed weekly rate in the contract? The reason lies in the legal principle of cost recovery. This is to put the claimant in the position they would’ve been in had the breach of contract not occurred.
If you rely on initial estimates, one of two outcomes is likely. Either the contractor is penalised because their actual costs are higher than the estimated, or they are overcompensated because their actual costs are lower.
To fairly restore the contractor to the position they would’ve been in if not for the breach, cost recovery must be based on actual, incurred costs.
Understanding the impact of a specific period of delay
The second key principle is that costs should be calculated for the specific period of delay, not the extended project period. For instance, if a 12-month project is delayed by one month in month six, only the costs incurred during month six are recoverable—not the additional month (month 13). This distinction is important because preliminary costs typically decrease toward the end of a project. Therefore, the cost impact of the delay period may differ significantly from that of the extended time.
Common costs claimed in the event of a construction delay
When a construction project is delayed, contractors may be entitled to claim compensation for additional costs incurred. Some common examples of cost include:
- Site establishment: Expenses related to managing the site, including staff, office facilities, storage, and security.
- Head office overheads: Indirect costs incurred by the contractor's main office, which can be challenging (if not impossible) to allocate to specific projects. Courts often accept the use of formulas like Emden and Hudson to calculate these overheads.
- Attendant labour and plant: Costs associated with resources that support the project but are not directly involved in productive work, such as site supervisors or equipment operators.
The importance of evidence and documents for prolongation claims
Like any other claim, costs must be substantiated with records. Since prolongation claims are based on actual costs, there’s no excuse for not having the right records—after all, if the costs were real, there’ll be a record of the expense somewhere.
Contractors need to provide supporting evidence, such as:
- Timesheets: To document the hours worked by staff.
- Invoices: For plant, materials, and other purchases.
- Payroll records: To verify labour costs.
- Detailed site diaries: To record daily activities and events.
Maintaining detailed records is crucial for construction contractors. Not only does it strengthen your claims, but it also helps prevent unnecessary disputes. By focusing on actual costs and the specific impact of delays, contractors can achieve fair compensation.
As our final word, remember the power of solid record-keeping —without it, even valid claims can be difficult to prove.
This article was written by Aqeel Haque LL.M, Dip.Law, MRICS.
Cause and Effect: The Key to Successful Construction Delay Analysis
I’m sure that you have heard the advice that if an extension of time claim is going to succeed, the claim must demonstrate a link between cause and effect. The claim must demonstrate that the event(s) on which the claim is based affected the time for completion. Showing the impact and time involved is key.
Delayed activities may not be on the critical path. If this is the case, the delay event may consume float. In turn, this may cause subsequent activities to become closer to the critical path. But if the event does not affect the critical path and thus, the time for completion, there will be no extension of time.
Risk Allocation
The risk allocation of the contract may make the contractor responsible for the effects of some delays. If there is no entitlement to additional time in the contract there will be no extension of time.
Sometimes contractors realise towards the end of the project, that they will not complete on time. In such a case, delay penalties will likely be applied and they will incur overrun costs.
At this point, they might consider they need an extension of time. This is in contract to considering whether entitlement to an extension of time exists. Consequently, they hurriedly submit a claim for multiple delay events. They assert that all these delays entitle them to an extension of time up to the date that they completed. This is known as a global claim. In all but exceptional circumstances, it will be rejected by arbitrators and the courts and thus, by contract administrators. This is because such a claim does not demonstrate the effect of each event, either individually or cumulatively, on the time for completion.
How To Show Cause And Effect?
So how can we demonstrate a link between cause and effect in our claims? The answer is by carrying out a suitable form of delay analysis. The purpose of such an analysis is to illustrate the effect of the claimable delay event on the time for completion by using suitable programming techniques.
There are many forms of delay analysis. The selection of the most suitable method depends on several things, including:
- The existence of suitable programmes.
- The quality of the baseline programme.
- The quality of the records.
- Where the project is in terms of execution at the time the claim is being prepared.
Considering all factors is key to successful analysis. The Society of Construction Law’s Delay and Disruption Protocol gives excellent advice on this subject.
Necessary Knowledge
Delay analysis can be a complicated subject and demands suitable knowledge and skill. It is, therefore, necessary to have suitable resources available to prepare this very essential part of the claim.
If you are the person responsible for preparing the claim and you are using others to perform the delay analysis, you don't have to be a programming expert. However, you need a strong overview of the subject so that you understand the protocols, techniques and how to identify specific causes and their effects. This will enable you to check and demonstrate a number of things:
- The accuracy of the analysis.
- Why the particular form of delay analysis is suitable.
- How the analysis was performed.
- What the analysis demonstrates.
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