Cost Claims: 11 Tips for Success
Cost claims can be tricky...and if you want yours to be a success, there are some important principles to follow. Not only that, you need to present your claim in line with good practice. This article discusses both.
Before we go further though, I'd like to mention that some contracts and legal jurisdictions refer to “costs” and others refer to “loss and expense”. Essentially, they mean the same thing, but here I will refer to “costs”.
Principles for Cost Claims
1. The general principle for cost claims: put the claimant in the position that he/she would have been in, had the breach of contract or claimable event not happened.
2. Most cost claims are related to extension of time claims. If there is an extension of time, the Contractor will incur costs to maintain his site and head office for longer than planned. These costs are generally referred to as “prolongation costs” and form the majority of cost claims.
3. Most contracts provide that cost is actual cost incurred. In other words, money that the claimant has spent or will have to spend.
4. In light of the above, you cannot calculate costs from estimated costs shown in the Preliminaries or General Items from the bills of quantities.
5. If there is true concurrent delay, i.e., where an Employer-responsible delay and a Contractor-responsible delay occur at the same time, and both affect the time for completion, then the entitlement to claim costs for the concurrent delay period is generally negated. Why? Because the Contractor would have incurred costs for this period had there been no Employer-responsible delay, so he/she may not profit from his/her own failure.
6. In some cases, the contract may allow for recovery of profit and costs. Check your contract and the clause that provides entitlement for this.
7. Calculate the cost at the time that the cost was incurred. In a claim for prolongation costs, the costs are incurred during the time of the delay and not for the extended period. If, for example, a delay of 30 days occurred in August and the delay analysis demonstrates that this delays the time of completion by 15 days, you need to calculate the cost for 15 days of time-related costs during August.
Good Practice
1. Prolongation cost claims will be for extra site overheads, i.e., time-related resources deployed to the project during the time of delay. You need to keep contemporaneous records of resources to show that the claimed resources were deployed to the project. You need to submit these with the claim as substantiation.
2. Show actual cost with reference to payroll information (invoices, etc.). Substantiate these records and submit with the claim.
3. Calculate prolongation costs based on a cost per calendar day. This will then relate directly to the extension of time period. If you try to allow for irregular work weeks or public holidays, the calculations will get complicated, difficult to understand and any revisions during negotiations will be difficult to make. Keep it simple.
4. Present cost calculations in a clear, well-explained manner. Explain the principles that you've based the calculations on in the claim narrative. If necessary, provide further explanation in the narrative of how you've done the calculations. The idea here is that any non-financial expert reviewing the claim can understand the calculations, audit them and ultimately, agree with them.
Want to learn more about cost claims?
Join me on 20th September for a talk on cost calculations that I'll be delivering as part of the Institute of Construction Claims Practitioners' upcoming online conference: Construction Claims and Dispute Avoidance - How to Achieve Successful Outcomes.
Will Your Contract Admin Stand Up to Future Claims?
Good contract admin (or administration) is key to any successful project. If a claim is to succeed, it must contain certain essential elements: Cause, effect, entitlement and substantiation.
In other words:
- What happened that gave rise to the claim.
- The dates that various events occurred.
- The effect of delays on the time for completion
- In the case of incurred costs: Are they appropriate? Are they calculated correctly?
- Does the contract contain entitlement to compensation?
- Is every statement or fact in the claim substantiated?
We should also remember that the onus is on the claimant to prove that the claim is just. It is not the respondent’s job to do this when reviewing the claim.
To achieve this, the contractor’s contract administration systems must be able to support future claims. If they are not, it will be difficult or impossible to prepare a claim that fulfils these criteria.
Contract Administration: Things to Consider
Some things to consider in this respect are as follows:
- Is your record keeping adequate and can the records be easily retrieved?
- Are important and formal records drafted so that they may be understood by a person not familiar with the project?
- Are notices that are required by the contract given within the prescribed time frames? Do they contain the correct information?
- Has a baseline programme been established? Is it prepared in line with good practice?
- Are revised programmes prepared when circumstances dictate?
- Are progress updates accurate? It is difficult to subsequently claim a delay if progress has been reported showing no delay.
- Do monthly reports adequately record the events, and may they be understood by a person not familiar with the project?
- Are daily records of resources deployed to the project being maintained and submitted to the engineer on a regular basis?
- Do you have adequate and properly qualified and experienced resources to create and maintain efficient contract administration?
- Do you have adequate and properly qualified and experienced resources to prepare your claims?
If you can answer yes, to all these questions, there is a good chance of success for your claims. If not, then you may need to reconsider your approach.
For more help with these subjects, consider one of our e-courses, such as the Perfect Claim. Or, you may wish to speak to one of the team at Decipher
Abbreviations and Acronyms: To Use or Not?
A couple of days ago, I spent a frustrating couple of hours reading a FIDIC report.
Why was it frustrating?
It was not because the report was particularly difficult to understand. It was because it was littered with so many abbreviations and acronyms.
I have a lot of experience reading contract documents, but even for me, it was difficult to make sense of.
Sure, FIDIC placed footnotes in the document to explain what the abbreviations stood for. But, the fact that I had to keep checking these disrupted the 'flow' of reading and again, made it harder to understand.Read more
The Cycle of A Poorly Written Construction Claim
It is no secret that poorly written construction claims are one of the main causes of time-consuming and costly disputes.
However, the dispute process often finds in favour of the claimant.
Why is this?
Let’s look at a typical claim and dispute cycle:
- The claimant submits a construction claim that does not include: Cause, Effect, Entitlement and Substantiation (CEES).
- The respondent rejects the claim because it does not prove the claimant’s case.
- Discussions and negotiations take place, but the parties maintain their positions.
- The claimant is convinced that the claim is a fair one and elevates the matter to a dispute.
- At this point, the claimant realises that the claim needs improvement. They consult an expert.
- The expert confirms that the claim is poorly written. They advise that if it has any chance of persuading adjudicators or arbitrators in favour of the claimant, it needs improvement.
- The claimant engages the expert to improve or rewrite the claim.
- The adjudicators or arbitrators decide in favour of the claimant.
- The respondent agrees with the adjudicators or arbitrators, and would have made an award if the claim was properly presented in the first place.
So here's a question...
Wouldn't it have been better for the claimant to submit a well written construction claim in the first place, saving all parties time and money?
Need to improve your claims writing skills? Check out our e-courses today.
Looking to upskill your project teams? Book a call with us to discuss how we could support you.
FIDIC 2017 Claims: Andy Hewitt's Latest Release
I’m old enough to remember when the FIDIC 1999 contracts were published. If I remember correctly, it took a good 10 years for the industry to, not only adopt them, but to see their use as best practice on new projects.
At the time, I was lucky enough to work for a proactive company that sent me on a training course about the new contracts. They also bought copies of Brian Totterdil’s excellent book: FIDIC User’s Guide for all its contracts and claims consultants.
Fast-forward to the release of the FIDIC 2017 Editions...
It is now 6 years since FIDIC introduced the 2017 editions. The updated contracts aimed to improve, strengthen and clarify several aspects of the old editions.
Based on past trends, Read more
Construction Claims Education - Celebrating 10 years!
This Summer marks 10 years since we started delivering education on construction claims and contracts.
When I decided to write a book on claims all those years ago, I never imagined it would lead us here.
But off the back of that book, people started to contact me about training. I realised there was a need for practical, quality training in the field. A few months later we launched our first course on construction claims and 'Claims Class' was born.
10 Years On…
Fast-forward to today and I'm proud to say that Claims Class is a recognisable brand. We are well-known for the quality of training we provide and offer a range of courses on construction contracts and claims.
Our mission has been, and continues to be, to:
- provide construction contract and claims training that is accessible, practical and accredited;
- provide students with knowledge and skills to work as sought after construction professionals;
- improve professional standards within the specialist field of construction contracts and claims;
- ensure that projects are well-managed, completed on-time under the contract;
- reduce construction claims; and
- ensure that where claims do arise, resolution happens quickly and professionally.
We've trained hundreds of professionals across the globe and at any one time, have students from over 60 countries studying with us.
Celebrate with us
As a thank you to everyone who has attended a workshop, taken an e-course or follows and likes what we do...
we're offering a huge 30% saving on intermediate and premium and 20% on basic e-courses until 26th August.
You won't see this saving for another 10 years so if you've been sat on the fence, now is the time to sign up! Check out our e-courses today.
25 Tips to Help You Avoid Costly Claims and Disputes
Often people ask us, 'what are the key things we must do to avoid disputes and claims?'. Good news - we've compiled all of them into one handy document of top tips to avoid claims and disputes!
Read more
Why Choose A FIDIC Certified Trainer?
If you’ve followed Claims Class for a while, you’ll know the name Andy Hewitt, our newly certified FIDIC trainer!
Maybe Andy tutored you as a student on one our e-courses. Perhaps you’ve seen him speak at industry seminars and conferences. Or if you’re a bookworm, perhaps you’ve read some of his books on claims and FIDIC?
Not one to sit idle, Andy has recently added another string to his bow...
What is Included in 'Lump Sum'?
A simple matter that often causes confusion is exactly what a lump-sum price includes.
Take a typical contract designed by the employer. The contractor is required under the contract to provide the works defined on the drawings and in the specification. In other words, the drawings show the extent and the configuration of the design. The specification describes the composition and quality of the work. Thus, it is clear that the lump-sum requires the contractor to provide whatever is included in the drawings and specification.
Reflections on Construction in 2020
To say that 2020 has been an unusual year would be an understatement. Not just for the construction industry, but for all of us around the world. Despite the challenges, things are not entirely doom and gloom. We have all learned in one way or another from the COVID-19 experience. Sometimes we need a challenge to force us to think about alternative ways of doing things.
Read more