Contractors! Are Your Claims Responded to Correctly?

EC Harris’ (now Arcadis) Global Construction Dispute Report has, for many years, cited inadequately expressed claims as being one of the top five causes of disputes in the construction industry.

Although the reports do not specifically mention it, I suspect that inadequately and unfair determinations should also be somewhere near the top of this list. This is because over and over again, attendees at our courses complain that their claims have not been responded to either fairly or in a meaningful way.

So, what is the problem?

If we look at the FIDIC forms of contract as being fairly typical of the widely-used forms of contract, we can see that the Engineer has the following obligations when responding to claims:

  1. Respond to the claim within 42 days – Sub-Clause 20.1 (Contractor’s Claims);
  2. In a case of rejection, respond with detailed comments – Sub-Clause 20.1 (Contractor’s Claims);
  3. Include sums that the Engineer considers to have been reasonably substantiated as being due in interim payment certificates – Sub-Clause 20.1 (Contractor’s Claims);
  4. Consult with each party to attempt to reach agreement – Sub-Clause 3.5 (Determinations);
  5. Make a fair determination in accordance with the Contract – Sub-Clause 3.5 (Determinations);
  6. Give notice to parties with detailed particulars – Sub-Clause 3.5 (Determinations).

It should be noted that the above are obligations, which means that if the Engineer does not fulfil them, he will place the Employer in breach of contract. In other words, this is a serious matter, so why do those responsible for administering the contract frequently not comply with them?

If you are a consultant responsible for responding the contractor’s claims, what should you do to comply with your obligations? If you are a contractor, what are your rights when your claims are dealt with incorrectly?

Firstly, the Engineer should review the claim and come to an assessment that is in compliance with the contract. He should then meet with the parties to explain his findings and also to allow the parties to provide additional information or particulars and to express their own points of view. If necessary, he should revise his findings to take into account the additional information received. Finally, he should issue detailed particulars of his assessment of the matter, so that both parties may fully understand how he has reached his conclusion.

It may be necessary to repeat some of the above steps after the assessment is revised, but by doing so, this will bring the parties closer together and hopefully agreement will be reached. In such cases, the Engineer has done a good job.

Lastly, it my firm belief that the Engineer’s assessment should be prepared for the benefit of both parties and it should be adequately explained and reasoned to such an extent that both parties will be convinced that if they raise a dispute, it will fail.

Come and learn more about construction contracts and claims at our May workshops. Choose between our 2-Day Construction Claims Workshop (1st & 2nd May) or our 3-Day Practical Use of the FIDIC Contracts Workshop (8th-10th May). Early bird fees apply until 31st March.