The Importance of Correctly Identifying Claims
For contractors, it is their responsibility to identify situations in which there is an entitlement to a claim for additional time or payment. On the employers side, identifying these situations early means they can take steps to avoid claims and make provisions for the additional costs. Consequently, it is essential for good management of projects that we are able to look at what is happening on the project and identify claims as early as possible.
So, what should we be looking for? The most frequent causes of claims are as follows:
Payment for Additional or Changed Work
On a remeasureable contract, the work is valued against agreed rates. The contractor will be paid for the work actually carried out, including any variations to the original scope of work. However, we must consider circumstances resulting in abortive work, rework or additional mobilisation of resources. The remeasurement does not compensate for these.
On a lump sum contract, a single price for the work is agreed in advance. Variation will need to be evaluated separately in order to calculate the change to the contract price. Sometimes a variation is formally acknowledged so a claim does not have to be made, but frequently, changes are introduced by instruction without acknowledgement of a variation. Consequently, submit the required notices and follow up with a claim for additional payment.
Extensions of Time
If a delay affects the agreed time of completion, contractors need to consider an extension of time. Monitoring of actual progress against planned progress is essential. As is identifying events which may have an effect on the time of completion. In either case, we must check whether the event leading to the delay is something for which the contract allows an extension of time for. If so, submit the necessary notices and follow up with a claim.
The contractor should submit extension of time claims based on when they are entitled to an extension of time. Not when they need an extension of time to avoid delay damages. Hence, identifying claims early is essential.
Prolongation Costs
Circumstances giving rise to an extension of time will often carry an entitlement to claim for additional costs of loss and expense. Submit claims for prolongation costs either with the extension of time claim or as an associated, separate claim. Put them forward as soon as possible and don't leave them until the end of the project.
Acceleration Costs
Circumstances giving rise to an extension of time will usually carry an entitlement to claim for additional costs of loss and expense. This arises from the extended period for which the contractor is obliged to maintain time-related site resources and head office overheads.
The engineer will often attempt to pressure the contractor into undertaking acceleration measures without agreeing to the increased cost. In such a case, the contractor must make their position clear. Agree the acceleration measures and the nature of the costs before undertaking any acceleration measures. Otherwise, it may prove difficult to have a subsequent claim agreed.
Disruption Delay and Costs
Disruption occurs when an event for which the employer is responsible causes the contractor to work less efficiently. This may manifest itself in the requirement for additional resources or time in order to achieve a target. The latter situation would cause delay, which could also affect the time of completion. In this situation, an extension of time would be warranted. Identifying claims like these as they occur will give the claim a greater chance of success.
When to Submit the Claim
When a claim situation has been identified, the contractor needs to submit the claim within the time period specified by the contract. This is not usually an onerous task, provided that the contractor has sufficiently qualified and experienced resources available to prepare the claim.
Don't leave claims until the end of the project and don't comprise consolidated claims for more than one event. The longer you leave a claim the less likely it is that it will be accepted.
If you're looking to know more about whether to submit your claim, check out this article. If you want to develop your understanding further, take a look at some of the courses we offer here.
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.
How To Avoid Disputes From the Outset
Hewitt Decipher Partnership recently presented a webinar on international arbitration. Panel members included a barrister, an arbitrator and a solicitor. They were joined by HDP employees who provide expert advice to legal professionals working on construction disputes. The aim was to look at how to avoid claims.
Whilst these professionals earn fees from disputes, the overwhelming consensus was that the best way to deal with disputes is to not have them in the first place.
So, what can we do to avoid disputes right from the start of the project?
Increases in Material & Other Costs
The consultancy side of our business has recently received enquiries along the lines of the following. “We have come to the end of our project and are facing a huge loss due to increases in the cost of materials and shipping and because of measures that we have had to adopt to control COVID-19. What can we do?”
FIDIC 1999 Claims
A Guide to Claims for Extensions of Time and Additional Payment Under the Red, Yellow and Silver Books
A new book by Andy Hewitt, FICCP, FCIOB, FCICES, FQSi
Inadequately expressed claims are one of the most frequent reasons for time-consuming and costly disputes. Andy Hewitt’s latest book examines the FIDIC Red, Yellow and Silver Books. He takes a look at each clause that provides entitlement to make a claim for an extension of time and additional payment.
Andy explains in practical terms the interpretation and application of clauses. He also discusses FIDIC procedures for:
- The giving of notices.
- The submission of detailed particulars of the claim.
- The Engineer’s responses and determinations.
Interim Claims
How To Deal With Them
One of our Claims Class students asked for some advice on interim claims. It is a topic that often crops up, so I thought that readers of this blog might also benefit from some practical advice.
The principles discussed here are appropriate to many forms of construction contracts. However, for the purpose of this article I shall use the 1999 FIDIC contracts as an example.
FIDIC 2017 Notices
A guide to the requirements, content and composition of notices under the FIDIC 2017 Red, Yellow and Silver books
Some of the biggest mistakes that contractors make when it comes to claims under FIDIC 2017 relate to notices. Such failures include failure to:
- Give notices when obliged to do so by the contract.
- Give notices within the time frames specified in the contract.
- Properly identify communications as notices.
- Record the necessary information within notices.
- Cite the contractual clause under which the notice is given.
- Address and/or copy the notice to the correct party.
- Deliver to the notice to the place specified in the contract.
- Deliver to the notice by the means of communication specified in the contract.