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.
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
FIDIC 2017: What You Need to Know Now
It is now 5 years since the FIDIC 2017 editions of the Red, Yellow and Silver Books were published. As anticipated, it’s taking the industry some time to get on board and adopt these latest editions on projects.
Change Can Be Uncomfortable....But it's Inevitable
Nobody likes change. Employers and engineers are no different. It can be uncomfortable and it takes time and effort to take effect. But, as time moves on more and more projects will move to the FIDIC 2017 editions and it's critical that project teams understand these contracts.
I also suspect that Read more
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?”
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.
Claims Class Helps Student Secure US$1 Million
This month I am going to allow myself to pat myself on the back, because of a success story from a recent Claims Class student.
A gentleman from an African country contacted me to discuss enrolling on one of our claims courses. He had found out about Claims Class after purchasing a copy of my Book FIDIC 1999 Notices. This is what he told me.
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.
The Difference Between A Claim to the Engineer & A Claim in Arbitration?
A student recently asked, "is there any difference between a claim submitted to the Engineer and one submitted for arbitration?" My response was along the lines of “Yes, there frequently is, but there shouldn’t be”.
The Scenario:
Let me explain why by describing a very frequent scenario related to claims.