Claims & Responses: The Engineer's Role in Stopping Disputes Before They Start
Claims and Responses: The Engineer's Role
Every claim needs a response and, under most contracts, this responsibility falls to the Engineer.
Under most common international contracts, the Engineer is required to review claims and respond neutrally and impartially, guided by the conditions of contract. In practice, though, Engineers often take a defensive position to protect the Employer's interests.
The problem is that an unfair, defensive response won't persuade the Contractor that their claim lacks merit. Instead, it pushes the Contractor toward raising a formal dispute just to secure what they're entitled to under the contract.
Avoiding Disputes
Disputes are bad news for any project. Rather than focusing on project delivery, the parties become tied up in resolving the dispute, burning significant time and money in the process.
And if the dispute is ultimately resolved in the Contractor's favor, all that time, cost, and effort is wasted. An Engineer who takes an unfair defensive position is the one who sets this chain of events in motion, which means that ultimately, this doesn't protect the Employer's interests at all.
Engineer's Responses
A response may have a number of outcomes:
- The Engineer may need additional particulars to help assess the claim and reach a conclusion
- The claim will be accepted in full
- The claim will be rejected entirely
- The claim will be accepted in principal, but with reduced quantum
The goal of any response should be to lay out the Engineer's findings clearly enough that both parties accept them, and to make both sides confident that pursuing a dispute would fail. This approach allows most claims to be resolved amicably as the project moves forward.
If the Engineer believes a claim has merit but can't reach a final conclusion because something is missing, the response should clearly specify what additional information is needed.
If the Engineer plans to accept a claim, whether fully or at a reduced amount, the response should give the Employer confidence that the award is fair and justified under the contract. Likewise, if the claim is being rejected or reduced, the response should give the Contractor confidence that the Engineer's findings are fair and reasonable.
Finally, the Engineer should meet any response deadlines set out in the contract. Delaying a decision doesn't make the issue disappear, and if a claim is valid, the Contractor should receive a time extension and/or prompt payment to support their cash flow. Both outcomes ultimately benefit the project, and by extension, the Employer.
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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.
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 Does FIDIC 2017 Affect Claims?
I guess like many of you, I have not had the opportunity to examine the 2017 editions of the FIDIC contracts in much detail, because as yet, I have not come across any projects that are using them. This situation will, however, gradually change. As it does, we will need to know what has changed and how it has changed. As such projects reach final account stage there will undoubtedly be claims to resolve and disputes to settle. I have recently been doing research for a forthcoming book, so thought it would be worthwhile to highlight the changes from a claims perspective.
Employer's Claims
How to Manage and Minimise the Submission of Spurious Claims
The Claims Class blog has attracted loyal readers over the years. We receive lots of comments and questions on issues that our readers are dealing with on their projects, which often gives me inspiration for new articles. A reader recently shared that they spend a lot of time dealing with inadequate claims. They asked how to effectively manage and minimize the submission of spurious contractor's claims. Here are my thoughts...
Consultants need to spend a lot of time and effort managing and responding to contractor's claims, so it's worth ensuring that you focus this time on justifiable claims. Don’t waste time reviewing and responding to claims where the contractor has no entitlement or to those that lack appropriate submission.
Remember, the onus is on the claimant to prove the case. Most contracts require consultants to be fair and reasonable when responding to claims. However, this obligation does not extend to proving the contractor’s claim on their behalf.
Fair and Reasonable
Most forms of construction contracts support this obligation. They require the contractor to submit a formal claim for additional time and/or payment. For example, FIDIC states under Sub-Clause 20.1 (Contractor’s Claims):
“Within 42 days after the Contractor became aware of the event or circumstance giving rise to the claim, the Contractor shall send to the Engineer a fully detailed claim which includes full supporting particulars of the basis of the claim and of the extension of time and/or additional payment claimed” (emphasis added).
In my view, FIDIC is a little weak on this. It does not attempt to define what comprises a fully detailed claim, including full supporting particulars of the basis of the claim and of the extension of time and/or additional payment claimed. In my opinion, the Contractor must ensure that their claim adequately demonstrates their entitlement to an award.
Tips for Proving Entitlement:
- Show the event that gave rise to the claim;
- Explain and demonstrate the effect on the time for completion, costs, or the contract price;
- Ensure that there is a clear link between cause and effect, for example, that the delay actually affected the time for completion and by how much;
- Show that claims for additional payment for varied work are calculated correctly;
- Demonstrate that claims for costs are based on actual costs incurred as a result of the event and are calculated correctly;
- Explain that the contract provides entitlement to an award for the event in question;
- Show that the contractor has complied with any conditions precedent contained in the contract;
- Substantiate every statement or fact relied on in the claim for verification purposes;
- Ensure that the claim submission is a stand-alone document that includes all relevant details for the respondent to properly examine the matter and make an award.
You would expect that contractors would know all this, as it is just a case of good professional practice. But, when inadequately expressed claims have been a leading cause of disputes for many years, it seems this is not the case.
How can you, as a consultant or employer, ensure compliance with these principles and prevent spurious claims?
Firstly, you could include specific requirements for claim submissions in your contract conditions along the lines of the above. Make this a condition precedent to an award. This approach would only work on new projects and cannot be introduced into existing contracts.
One method I have used with success is to meet with the contractor at the beginning of the project and explain exactly what I consider to be a fully detailed claim, which includes full supporting particulars of the basis of the claim and of the extension of time and/or additional payment claimed.
Again, this could follow the suggestions above, and the contract will support you in this.
At this point, you should inform the contractor that these particulars are necessary to enable you to fulfill your obligations and make an award within a reasonable time. You should also advise that any claims that do not comply with these requirements will be rejected on the basis that the claim does not adequately prove that an award may be made. Once you have persuaded the contractor to agree, you should record both the agreement and the requirements for claim submissions.
A contractor following these guidelines is obliged to investigate matters fully, rather than adopting the tactic of “throwing everything at the wall in the hope that some of it sticks.” If their claim is not justifiable, they will, during this process, realize it’s not worth the effort of preparing and submitting a claim for which they have no entitlement.
What if the claim is still not justified?
However, the contractor may still decide to submit a claim that is not in compliance with the agreement. If so, you can respond by pointing out areas of non-compliance and advising that the claim does not prove entitlement, and consequently, no award may be made.
Consider whether the matter carries entitlement, and it’s only the claim itself that is inadequately expressed. If so, I would stop short of formally rejecting it. Why? Because after receiving your response, the contractor may improve their claim and resubmit it. Remember, if the contractor has proper entitlement and their claim eventually demonstrates this, there is an obligation to make an award.
I hope this helps any consultants whose job it is to respond to claims.
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Determinations, Rocks and Hard Places
Most form of contract oblige the consultant responsible for determining the contractor’s claims (the Architect, Engineer or Contract Administrator), to make a fair and reasonable award or decision in accordance with the contract.Read more
Responses, Determinations and Decisions
Our Claims Class 2-day Intensive Training Course in London was slightly unusual in that the balance of the delegates was significantly weighted towards the client’s side and also included an arbitrator and an adjudicator. These particular delegates were obviously interested in learning how claims should be responded to and in the case of the arbitrator and adjudicator, how decisions should be presented.Read more
The Engineer's Responses and Determinations: What Should be Included?
Earlier this year, I presented a CPD talk to RICS members in Dubai on the topic of Engineer’s Responses and Determinations. I usually like to kick things off with a poll, and I asked the group the following questions:
This is clear feedback from RICS members that Engineers often do not perform their obligations, which has a detrimental effect on projects.
So, what should Engineers be doing to help projects when responding to claims? Well, as usual, the contract provides the answers, so let’s have a look at what the FIDIC Red Book has to say on the subject.
FIDIC Sub-Clause 20.1 (Contractor’s Claims)
This requires the Engineer to respond within 42 days of receipt of the claim. The response may be acceptance in full, rejection, or presumably acceptance with a reduced quantum. The Engineer can request further information if it is not possible to reach a conclusion from the information included in the claim. However, if they do so, the Engineer shall respond on the principles of the claim. If rejecting (or reducing the quantum), the response shall contain ‘detailed comments’.
FIDIC Sub-Clause 1.3 (Communications)
This clause states that ‘Approvals, certificates, consents, and determinations shall not be unreasonably withheld or delayed’. This reinforces the provisions of Sub-Clause 20.1 (Contractor’s Claims) to respond within 42 days.
Why does FIDIC place such importance on the response time?
Sub-Clause 3.5 (Determinations)
This clause provides that the Engineer shall consult with each Party and endeavor to reach an agreement. If an agreement is not achieved, the Engineer must make a fair determination in accordance with the Contract, taking due regard of all relevant circumstances. In either case, the Engineer must give notice to both Parties with supporting particulars.
FIDIC Sub-Clause 3.1 (Engineer’s Duty and Authority)
This states that ‘whenever carrying out duties… specified in… the Contract, the Engineer shall be deemed to act for the Employer’. Does this mean that the Engineer is obliged to defend the Employer’s position by not making ‘a fair determination in accordance with the Contract, taking due regard of all relevant circumstances’? I think not, and neither did the RICS attendees.
So, what should an Engineer include in their Response or Determination to comply with the Contract?
Sub-Clause 20.1 (Contractor’s Claims) directs the Engineer to: ‘…respond with approval, or with disapproval and detailed comments. They may also request any necessary further particulars but shall nevertheless give their response on the principles of the claim…’.
Under Sub-Clause 3.5 (Determinations), the Engineer is obliged to “make a fair determination in accordance with the Contract, taking due regard of all relevant circumstances.”
The Engineer therefore has an implicit obligation to demonstrate to both the Employer and the Contractor that the response or determination is fair and reasonable and in accordance with the Contract. They should also demonstrate that if either party chooses to escalate the matter to a dispute, they will ultimately fail. The Engineer’s response must therefore be a comprehensive document that clearly sets out the findings and includes the same criteria as a claim:
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