Construction claims, disputes and settlements are a contractor’s nightmare. Most contractors –electrical contractors included – do not relish the thought of submitting a claim but, in today’s market, if you do not claim for work executed you will almost certainly head for liquidation.
It is prudent to recognise the situation and deal with it in a realistic, positive and sensible manner, rather than brush things under the carpet until the end of the job, for fear of upsetting the contractual relationship. It is almost unheard of that there is no change in a project between commencement and completion. It is also almost unheard of that a contractor gets fully reimbursed for the work executed. Based on these two statements, there will almost always be a claim on any project. What happens next is fundamental to any contractor. While claims are generally associated with contractors there are instances where consultants have the right to claim for additional compensation.
Generally speaking, the scope definition will define this: Many contractors execute additional work, at no charge, at the beginning of a project as they do not want to upset the relationship with the engineer at the onset. In many instances, the cost of this mounts up until the contractor realises he or she is losing money, which then results in the submission of frivolous claims, which really upset the relationship. In today’s market of tight margins, incompetence and lack of experienced personnel, a Contracts Manager’s job borders on the impossible. In most contracts, the parties may only claim in accordance with the contract because, by applying the claim clauses, the parties waive the right to submit a claim directly to arbitration or court proceedings.
Generally, a contractor must claim his entitlements in terms of a clause in the contract that allows him to do so. The resolution method of the claim determines the attitude on the project.
Engineer/contractor attitude on a project:
- Win/lose: A party with an all-out win attitude leaves the other party disgruntled, and generally results in a poor project.
- Lose/lose: When both parties have an all-out win attitude, invariably both lose.
- Win/win: The parties work together to produce the best solution to any issue.
All successful projects have a win/win attitude It is difficult to define the scope of work fully – in fact, it’s almost impossible hence there will always be work not defined in the scope that has to be executed. It is understandable, therefore, that the person executing it should be paid and, if there is no automatic re-measurable for compensation, the only way is to claim. A win/lose attitude rarely results in a successful project.
A few fundamental things should be done if you are involved in claims, these are:
- Read the contract carefully at the start of the project.
- Study the scope of work at the start.
- Check that what you are doing is clearly stated in the contract scope. If it is not, list the variances and, in each variance, do the following:
- Define the difference
- Cost the difference
- Find the clause in the contract that allows you to claim. If there is no clause, you have no claim.
- Give notice of your intention to claim stating the clause you intend to claim under (note this must be within the stipulated period in the contract).
- Remember any change or delay is going to cost someone money. There are a limited number of reasons why a contractor has the basis of a claim and only a few items are uncontrollable. Any change can constitute a claim by either party. Contractors are sometimes not aware that a particular set of circumstances or events can constitute a claim. A detailed construction programme is a good indication of a change in circumstances which could result in a claim.
To properly assess the extent and validity of claims submitted, the following provisions generally apply:
- All facts and circumstances relating to the claims shall be investigated as and when they occur or arise. For this purpose, the Contractor shall deliver to the Engineer/Employers Agent, records in a form approved by the Engineer/Employers Agent, of all the facts and circumstances which the Contractor considers relevant and wishes to rely upon in support of his claims, including details of all Construction Equipment, labour and materials relevant to each claim. Such records shall be submitted promptly after the occurrence of the event giving rise to the claim.
- The Engineer/Employers Agent may record facts and circumstances, additional to those recorded by the Contractor, he considers relevant and the Contractor shall, for this purpose, supply the Engineer/Employers Agent with all the information he may require. This stresses the importance of detailed and accurate ‘Daily Diaries’ – if possible, get the Engineer/Employers Agent to sign them off.
A contractor’s failure to comply with the notice period stated in the contract will result in time barring. Any time barring Clause in a Contract is enforceable.
Do’s and don’ts of claims
- Try and pull the wool over the Engineer/Employers Agent/Adjudicator’s eyes – he/she will catch you out and it will prejudice all future claims.
- Submit fictitious claims – this just wastes everyone’s time and is prejudicial.
- Submit cumbersome claims and expect the adjudicator to do a lot of research on reference documents.
- Assume the Adjudicator knows the contract.
- Labour the point in a claim.
- Submit incomplete claims requiring the Engineer/Employers Agent /Adjudicator to refer to outside sources for reference.
- Stretch the tape’ to make up for claims previously not submitted.
- Refer to all contract causes that are applicable to your claim.
- Keep claims short and decisive with attachments as back-up.
- Submit claims as soon as they occur, even if it is early in the contract.
- Always claim what you are entitled to.
- Submit a complete claim and remember the first submission is the best you will get
- Do head all letters related to claims ‘Without Prejudice’. Claims are important – do not rush them as you may prejudice yourself in future.
If a claim is rejected, declare a dispute. Most contracts have a dispute resolution procedure ranging from Mediation through Adjudication to Arbitration. Each process is more expensive than the last. Most contractors go straight to a lawyer for a dispute resolution; lawyers know the law, but do not necessarily understand construction. This can be prejudicial to the contractor. In the author’s opinion, the best way to resolve a dispute is to consult with an Expert Construction Manager who has had claims and dispute resolution experience.
Disruption, one of the biggest causes of cost overrun, is loss of productivity, disturbance, hindrance or interruption to a contractor’s normal working methods, resulting in lower efficiency. In the construction context, disrupted work is work that is carried out less efficiently than it would have been, had it not been for the cause of the disruption.
Disruption is a significant cause of cost overrun on any project and, if such disruption is caused by the Management/Client team, compensation for the contractor must be paid to ensure job creation and Industry stabilisation. Disruption has a significant detrimental effect on any construction project and the effect is often not realised until long after it has occurred. It consists of two components, the first is the one that can be measured and the second occurs, but is more subjective than measurable. This happen when there is a change on the project. This can be a delay, change of scope, or any change whatsoever. Clearly the effect is dependent on the change. All disruption has a cost effect as any change incurs a cost. The two types of disruption can be illustrated by instructing a contractor working in one area to carry out identical work in another area.
The two types are as follows:
- Quantifiable as the cost of moving the crew plus equipment to another location can be measured.
- Subjective as the reduction in productivity of the team is difficult to measure though it does have a significant effect on costs. Furthermore, the cost of re-start up is one that is generally unaccounted for. This means, on normal contracts, disruptions can eliminate a contractor’s total profit and contingency on a project. Change-related events on any project have a negative and synergistic effect on changed and unchanged work. The compounding effect of the numerous compensable events is:
- Inadequately understood.
- Difficult to quantify precisely.
- Seldom, if ever, reflected in the estimated cost of approved and pending project changes. Disruption has a significant effect on productivity.
Author’s recommendation on contracts
Most small to medium contractors do not have a large management structure and therefore cannot spend too much time on paperwork. Regrettably, this can be costly in the long run. On award, employ – on a temporary basis – an experienced Contract/ Claims Consultant to read the contract, examine the scope of work, and advise you of potential pitfalls. If concerned about the cost, ask for a quote first. It is your choice as to whether the consultant continues advising on an ad hoc basis. Record all events and discussions, and if someone writes to you be sure to answer the letter timeously. Should you have a claim, remember that your first submission is the best you will get so ensure its well-presented. If the claim is significant, with no disrespect to your current advisor, get a third-party review before submission. Before rushing off to a lawyer get a claims consultant to examine the merits of your claim – thereafter you may or may not need a lawyer’s assistance.
- Know and understand your contract.
- Be aware of what is in your scope.
- Maintain records.
- Get competent help if you need it – it’s not expensive in the long run.
- Do not make hasty decisions.
- Be proactive not reactive.
- If the contract dispute resolution clause calls for Mediation (recommended) then Adjudication, try and get both Mediator and Adjudicator appointed at the start of contract.
- Declare a dispute if a claim is unreasonably rejected.
About the author
Neville Gurry has more than 50 years’ experience in the Construction Industry ranging from Structural Consulting through multi-disciplinary Construction to Multi-Disciplinary Project Management. From a gold mine in Mali to planning and overseeing the construction of Angola’s only Fina refinery, Gurry has been at the forefront of building a legacy of world class infrastructure across Africa. His core responsibilities include facilitating the resolution of contractual disputes and advising members of the impact of legislation on their activities. An experienced proactive project manager with a range of skills and a broad understanding of all engineering disciplines, Gurry also boasts on-site experience in multi-discipline construction. He is fully conversant with the PMBOK Guide and among his key strengths is the ease with which he is able to work with people of different backgrounds in a range of environments. Gurry’s experience includes running his own construction engineering firm, NEG Engineering Construction, between 1994 and 1996, which focused on management and contracting in the mechanical, structural, and civil engineering fields.
Enquiries: 082 881 7266