How to Manage and Minimise the Submission of Spurious Claims

The Claims Class blog has attracted loyal readers over the years. We get lots of comments as well as questions on issues that our readers are dealing with on their projects. And this often gives me inspiration for new articles. A reader recently asked how he could effectively manage and minimise the submission of spurious contractor’s claims. So here are my thoughts…

Consultants need to spend a lot of time and effort to manage and respond to contractor’s claims. So it’s worth making sure that this time is spent working on justifiable claims, not on reviewing and responding to claims where the contractor has no entitlement, or to those that have not been submitted in an appropriate manner to enable a proper review and response.

Remember that the onus is on the claimant to prove the case. Even though most contracts require consultants to be fair and reasonable when responding to claims, this obligation does not extend to proving the contractor’s claim on the contractor’s behalf.

Most forms of construction contract support this obligation. They require the contractor to submit a formal claim for additional time and/or payment. By way of illustration, FIDIC has this to say 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 make any attempt to define what comprises: 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. But in my opinion, the Contractor must ensure that his claim adequately demonstrates he is entitled to an award via the following:

  1. Show e.g. the event that gave rise to the claim;
  2. Explain and demonstrate the effect on the time for completion, his costs or the contract price;
  3. 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;
  4. Show that claims for additional payment for varied work have been calculated correctly;
  5. Show that claims for costs are based on actual costs incurred as a result of the event and have been calculated correctly;
  6. Show that the contract provides entitlement to an award for the event in question;
  7. Show that he has complied with any conditions precedent contained in the contract;
  8. Substantiate every statement or fact relied on in the claim for verification purposes;
  9. Ensure that the claim submission is a stand-alone document. It should include all relevant details for the respondent to properly examine the matter and make an award.

You would expect that contractors would know all this, because 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.

So how can you, as a consultant or employer, ensure that your contractors comply with these principles? How will this help to prevent the contractor from submitting spurious claims and wasting your time?

Firstly, you could include specific requirements for claim submissions in your contract conditions along the line of the above. And make this a condition precedent to an award. This would only work on new projects and could not 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 comprise the above suggestions and the contract will support you in this.

At this point you should tell the contractor that these particulars are necessary to enable you to carry out your obligations and to make an award within a reasonable time. You should also advise that any claims which 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 buy-in to this, both the agreement and the requirements for claim submissions should be recorded.

If the Contractor follows the guidelines, he will be obliged to investigate the matters fully rather than adopting the tactic of ˜throwing everything at the wall in the hope that some of it sticks”. If his claim is not a just one, he will, during this process, realise that it’s not worth the effort of preparing and submitting a claim for which he has no entitlement.

If he does however, decide to submit a claim that is not in compliance with the agreement, you will be justified in responding by pointing out areas of non-compliance and advising that the claim does not prove that consequently, an award may be made.

If you consider that the matter may carry entitlement and it is only the claim itself that is inadequately expressed, I would stop short at formally rejecting. Why? Because having received the response, the Contractor may well up his game and resubmit the claim. You must remember here that, at the end of the day, if the Contractor is properly entitled and his claim eventually demonstrates this, you will be obligated to make an award.

I hope this helps any consultants who’s job it is to respond to claims.

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