25 Tips to Help You Avoid Costly Claims and Disputes
Often people ask us, 'what are the key things we must do to avoid disputes and claims?'. Good news - we've compiled all of them into one handy document of top tips to avoid claims and disputes!
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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:
- Respond to the claim within 42 days - Sub-Clause 20.1 (Contractor’s Claims);
- In a case of rejection, respond with detailed comments - Sub-Clause 20.1 (Contractor’s Claims);
- 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);
- Consult with each party to attempt to reach agreement - Sub-Clause 3.5 (Determinations);
- Make a fair determination in accordance with the Contract - Sub-Clause 3.5 (Determinations);
- 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, they 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 to 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. They should then meet with the parties to explain their findings and to allow the parties to provide additional information or particulars and to express their own points of view. If necessary, the Engineer should revise their findings to take into account any additional information received. Finally, they should issue detailed particulars of their assessment of the matter so that both parties may fully understand how they have reached their 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 is my firm belief that the Engineer’s assessment should be prepared for the benefit of both parties and should be adequately explained and reasoned to such an extent that both parties will be convinced that if they raise a dispute, it will likely fail.
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Online Learning | 6 Tips for Success
Online learning has become a great way for busy professionals to study whilst balancing a busy professional and family life…but, as I’ve learnt over the past year, it’s not without its challenges.Read more
Late Payment: What Can We Do When We Don't Get Paid?
What can we do if we don't get paid or suffer from late payment? We get this question a lot at claims class, along with similar questions about late certification.
In some regions, this is less of a problem because legislation is quite strict on payment terms. However, elsewhere, it is common for the paying party to hang onto money for as long as possible.Read more
Trying Your Luck - Where do you draw the line with your claim submissions?
I was recently asked a question by one of our distance learning students which, at some time or another, you may have asked yourself. The question was:Read more
A Simple and Effective Way to Improve Claims: Visuals in Narratives
One of our distance learning students recently raised a point that graphics and other visuals can be effectively used in narratives to enhance a claim document. I agree with him, provided that you follow some basic rules. In this blog we look at visuals in narratives and how they could improve your claim.Read more
Top 10 Secrets of Successful Subcontract Commercial & Claims Management
It is no secret that subcontracting is one of the highest risk sectors within our industry. Subcontractors suffer more than most from the mistakes and misdemeanors of others. If the project is poorly funded, the Main Contractor’s first course of action is often to reduce outgoings. The easiest way to do this is to delay or limit payments to Subcontractors.
If the Main Contractor faces liquidated damages or the rejection of interim payment applications, the first to feel the impact will again be the Subcontractors (and often for reasons completely unrelated to the Subcontractors' own performance!). This is not due to malice, but rather an unpleasant commercial inevitability in jurisdictions without statutory protection for Subcontractors. The reality is that the further away you are from the source of the project funding, the less likely it is that the cash will find its way to you.
However, there is much that a weary or wary Subcontractor can do to minimize their risk and maximize their recoveries. Here are our top 10 recommendations:
1. “Back to Back” or “Pay when Paid” – Is It Really?
The authors of this piece doubt that these terms are often as straightforward as they seem. What people declare as being “back to back” is rarely so. A Main Contractor may not have been paid for a variety of reasons. Unless those reasons expressly relate to your performance, you may legitimately ask why this has anything to do with you. Ask yourself, “If the Employer never pays the Main Contractor, does that mean I will never be paid?” Is that what you actually signed? We rarely find this to be the case, and this often causes confusion between Contractors and Subcontractors who blur the difference between the commercial reality of their financial position and the conditions of the Subcontract they have entered into.
2. Have You Actually Seen It?
You’ve heard about it, and it’s referred to in your Subcontract, but more often than we would care to count, we find that the Subcontractor does not have access to a full copy of the Main Contract. Ask for it and ensure that your Tender team has actually seen it. Make certain that a copy is retained, as many Subcontract claims or claim defenses are founded upon what the Main Contract does or does not actually say.
3. Think Carefully Before Signing Your Rights Away in a Claim Cooperation Deal
Cooperation agreements that state something along the lines of “…we will incorporate your Subcontract claim into the Main Contract claim if you drop any direct claims against the Main Contractor” have become commonplace. Let’s be clear: these agreements are not about ensuring that your claims receive a fair and just hearing by the Employer—they are simply about limiting the Main Contractor’s liability to you (and the Employer) for their own actions. The Main Contractor does not wish to pay for anything that they cannot pass on to the Employer. Analyzing both Employer delay events and Main Contractor delay events is essential to preserving your full entitlement. How best to use this information is a key commercial decision faced by the Subcontract management team.
4. Prepare Your Own Programme
It sounds obvious, but a tactic we often see is a request for the Subcontractor not to prepare their own programme and instead simply adopt the Main Contractor’s programme. This can prove to be a very costly decision and often results in the Subcontractor signing up to a programme that does not reflect their own anticipated work sequence or a programme that is not actually approved by the Engineer and subject to further change. Prepare your own programme and ensure that this is what your performance is measured against.
5. Prepare Your Own Progress Reports
It may have seemed like a sensible, cost-saving idea at the time to allow the Main Contractor to measure and report your progress, but these records remain the Main Contractor’s records. Where are yours? This question will be difficult to answer and could prove costly if you end up in a dispute with the Main Contractor. The progress reported will also be the Main Contractor’s perception of progress—not yours.
6. Follow the Subcontract
It costs surprisingly little to properly administer and comply with the terms of the Subcontract with respect to payment applications, variations, progress reports, notices, and particulars. The cost of not following these basic Subcontract requirements can be alarmingly high. You need to comply in order for the Main Contractor to also comply and maintain a clear route for recovery of payment from the Employer.
7. Don’t Be One of the Crowd
On a project that may include 30 or more Subcontractors, it is easier to follow what others are doing rather than doing what you should be doing. Many of the Subcontract terms may differ. Wider relationships may protect other Subcontractors, and they may be holding back accordingly. Don’t be steered by others—follow your Subcontract and comply with the terms.
8. Be First in the Queue (Or Not Far Behind!)
It’s always a difficult decision about when to time your move (in terms of claims for additional time or cost), and it is sometimes the case that the first Subcontractor to ‘ask for more’ is used as an example to others of what they can expect. That said, many Subcontractors leave it far too late to act. This also leaves the Main Contractor exposed as they have most likely proceeded with claim submissions in the absence of your detailed particulars.
9. Are You Getting the Attendance You Deserve?
You priced your tender based on the timely provision (by others) of scaffolding, temporary power, timely inspections, 14-day turnaround of shop drawings, agreement of a coordinated construction plan, etc. Make sure you receive this attendance and support, and if not, make sure you notify the Main Contractor accordingly. Claims arising in this regard will not be passed on to the Employer, as it is most likely due to breaches of attendance obligations by the Main Contractor and therefore likely to be strongly contested.
10. Successful Subcontracting Is All About Relationships
Successful subcontracting is about maintaining a fair balance of risk and reward between the Main Contractor and the Subcontractor. Get this right, and most problems can be resolved. A focused and jointly coordinated commercial strategy is likely to yield far greater financial returns from any Employer. Maintain dialogue with your Main Contractor at all times, but don’t forget to protect your interests at the same time, because if matters are not amicably resolved, you will find yourself in arbitration against the Main Contractor, not the Employer.
This guest blog article was written by DBS Consult, an international claims and dispute management consultancy based in the UAE.
The Second Edition of the FIDIC Rainbow Suite has Arrived
At a packed International Contract Users’ Conference held in London on 5-6 December 2017, FIDIC finally unveiled the Second Edition of the 1999 Rainbow Suite, Red, Yellow and Silver Books. Whilst the Second Edition largely follows the 2016 pre-release version of the Yellow Book, FIDIC have taken on board some of the comments made by the friendly reviewers, and made a number of important changes.Read more
20 Changes in the FIDIC 2017 Editions From a Claims Perspective
I have just returned from the FIDIC International User’s Conference in London, attended by roughly 400 delegates and speakers, all there to hear about the new editions of the Red, Yellow and Silver FIDIC Forms of Contract. In this blog, I have highlighted 20 changes that are of particular relevance to claims practitioners. They include a number of new terms, including 'Exceptional Events' to replace 'Employer's risk' and 'force majeure' events and many more:Read more
