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Construction Contracting: Claims

OBJECTIVES

o Identify the potential sources of conflict
o Identify different types of claims
o Identify the procedures for claims management

TABLE OF CONTENTS
o Introduction
o Typical claims against owner
o Typical claims against contractor
o Delays
o Claims analysis
o Claim prevention suggestions

INTRODUCTION
o Construction projects are becoming more and more complex due to advanced technologies, new developing standards and changes desired by owner.
o The successful completion of project mainly depends on cooperation between the contractor, consultant, and owner.
o In this context it has been seen that claims and disputes always erupted due to conflicting opinions.
o With the introduction of sophisticated techniques in construction scheduling, it has become easier to avoid delays but at the same time the increased complexity of construction processes, documents and conditions of contracts has been contributing to higher possibilities of disputes, and conflicting claims.
o All the above factors have made “claims” an inevitable burden in implementing today’s construction projects.

A claim is a demand or assertion by one of the parties seeking, as a matter of right, adjustment or interpretation of contract terms, payment of money, extension of time or other relief with respect to the terms of the contract.

Claims stem from a wide variety of conditions including:
1) Late payments
2) Changes
3) Constructive changes
4) Changed conditions
5) Delay or interference
6) Acceleration
7) Errors or omissions in design
8) Suspension of the work
9) Variation in bid-item quantities
10) Rejection of or-equal substitutions

TYPICAL CLAIMS AGAINST OWNER
o Poor project planning
o Scope changes
o Constructive change orders
o Errors and omissions
o Contract accelerations and stoppages
o Site access or availability
o Other construction interference and delays
o Strikes and acts of God
o Low bidders

TYPICAL CLAIMS AGAINST CONTRACTOR
o Late completion - liquidated damages
o Out of specification materials
o Defective work
o Property damage

DELAYS

o Excusable Delay
- Beyond control of owner or contractor

o Inexcusable Delay
- Beyond the control of the contractor
- Owner caused changes to work
- Differing site conditions
- Suspension or termination of work by owner

o Concurrent Delay
- Two or more delays in same time frame

CLAIMS ANALYSIS
According to owner should ask the following questions when analyzing a claim presented by contractor.

o Were the requirements met?
o Did the contractor refer to the proper clauses in the contract?
o Does the owner or consultant bear part of the responsibility?
o Was the situation predictable at the time the contract was signed?
o Were the specifications defective?
o Was the contract misinterpreted?And, if so, which competing interpretation will rule?

CLAIM PREVENTION SUGGESTIONS
o Carefully analyze and consider exactly what you are building and precisely how it will be built .
o Complete the project design before the contract is bid.
o Conduct a thorough review of the design prior to the bid stage.
o Give bidders sufficient time to carry out a complete review of the bid package and an investigation of the construction site.
o Allow enough construction time, remember in this context, time is not money.
o Identify with enough anticipation what type of contract will best suite the project.
o Think about every sentence included in the contract, why it is there and whether it is necessary.
o Clearly identify in the contract every operation that the contractor must accomplish to complete the job.
o Use standard list of definitions, and always use the same defined word consistently.
o Clearly identify who will be responsible for material delays.
o Analyze all potential bidders before preparing a bid slate.
o Carefully analyze contractors’ technical proposal.
o Seriously question the contractors’ excessively low bid.
o If you are forced to accept a low-ball contractor, anticipate a claim and work on it from the beginning.
o Be reasonable when analyzing the contractors’ complaints about changes and omissions.
o Appreciate the contractors’ right to perform the contract in any fashion he deems appropriate.
o Understand how many factors can affect a contract and delay and disrupt the work.
o Keep strict control of: progress reports, daily meetings, schedule revisions, cost estimates, change orders and their justifications, correspondence.
o Develop a solid document control plan.