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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How to Make Sure Your Claims are Accepted
If you wish to ensure that your claims are accepted, you should bear in mind EC Harris’ (now ARCADIS) report Global Construction Disputes Report. This report cites incomplete and/or unsubstantiated claims as one of the major reasons for construction industry disputes.
A typical scenario I have encountered many times is when a contractor submits a poorly prepared or ‘inadequately expressed’ claim to the Engineer for evaluation. The Engineer then rejects the claim on the basis that the contractor has not proven their case. The Engineer is quite correct to do this, because the onus is on the claimant to prove that the claim is justifiable, and in such a case, the Contractor has not done so. However, the Contractor, believing that they have a solid basis for the claim, then escalates the matter as a dispute.
To avoid this situation, the Contractor must examine the cause of the claim, its effect on the completion time and/or the contract price, the entitlement to an award under the contract or at law, and must adequately substantiate all of these matters. If this is not done, then the claim will undoubtedly fail.
I would also suggest that inadequate responses from the Engineer contribute significantly to disputes. If responses are not prepared in a professional manner, the Engineer is actually encouraging a dispute. In my opinion, the Engineer has a duty to resolve matters proactively and fairly. Although this does not extend to making an unjustified award, the Engineer’s response should be made in such a manner that both the Employer and the Contractor are fully aware of the Engineer’s findings and how these findings have been reached. This often requires a fully detailed response. Both parties must also be given the opportunity to provide feedback on the Engineer’s findings, which may result in the Contractor providing further and better particulars that could change the Engineer’s initial opinion.
If both parties address claims properly and professionally, the likelihood of them being elevated to disputes will be considerably reduced.
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