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.

Want to learn more with Claims Class and improve your claim management skills? Join the Claims Class community today and sign up for our e-courses. We’ve got something for everyone, plus you can study anytime, anywhere with full support from our tutors.