5568456320 Construction Claims

7/31/2019 5568456320 Construction Claims

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CLAIMS AND VARIATIONS IN

CONSTRUCTIONCONTRACTS

Presented by : -

V . K. Trikha

P. Manavalan


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Claims a common occurrence in the construction industry. Claims occur when one of the parties to a contract seeks

consideration, change, or both from an expressed or implied

contract provision. Which comes first,the dispute or the claim?

The dispute comes first, because the paper work falls behindthe progress of the work. In some cases, a claim is filed by a Contractor with little or no

forewarning, and this itself gives rise to a dispute. Contractor's Claim

A legitimate request for additional compensation (costs and /or time) on account of a change in the terms of the contract. Some claims are legitimate and do not give rise to disputes or

confrontation between the owner and the contractor. Two situations The owner and the contractor can come to anagreement on the claim and then the owner issues a changeorder. If the parties disagree a dispute arises which must beresolved.


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A 2. CAUSES OF CLAIMS

Contract documents Actions of parties to the Contract, including owners,

designers, contractors, and suppliers.

Force majeure considerations.

Project characteristics. Delays are a major cause of claim.


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A 2.1 Claims arising from the Contract Contracts may contain conflicting provisions in technical

specifications. Exculpatory clauses : seek to exonerate the owner and transfer to others the

risk for problems that arise. Disclaimers for differing site conditions, sub surface

problems, and underground utility interference aretypical exculpatory clauses that create disputes.

The type of Contract (Fixed Price and cost reimbursable)and strategies (Unit Price Contracts, Designs build etc.)create the environment for claims.

Contract language is often the source of problems that

lead to claims. Ambiguities arise because of the use of vague clauses

such as reasonable period of time, or equal , and inaccordance with trade practices.


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A 2.2 Claims due to the action of participants

Incomplete information on drawings and design errors arethe leading causes of claims.

A/E failure to perform,and in a timely manner Drawing review, change order approval, inspections,

clarification of drawings and specifications, and correctionof design errors.

A lack of design coordination and inadequate design

review. Claims arise because of unrealistic contract schedule,

attempts to fast track the schedule, performancespecifications, and underestimated project cost.

Contractors are often the cause of claims.

Underbidding leads to a claims mentally because thecontractor will attempt to mitigate the forecasted loss if thebid price is below the anticipated cost.

Poor construction quality is a Common source of claim.


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Inadequate performance by a contractor usually results incost overruns which likely will lead the contractor to

recover the cost overrun through claims.

The lack of coordination of Contractors and suppliers isoften a problem which creates conflicts and claims.

Owners contractual responsibilities

Permits and licenses, timely award of contract, and

adequate financing resources to meet progress billing.


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A 2.3 Force Majeure causes of claims

Force Majeure clauses refers to occurrences which are

beyond the reasonable control of any party to theconstruction contract. These are stated as Acts of God or unavoidable casualty. Claims for a time extension are usually permitted. These claims are due to severe weather, floods, fire,

sabotage, and so on.

A 2.4 Project Causes of Claims Projects that are complex, large, remotely located, in

congested areas, or require technology at the cutting edgeare subject to construction claims.

Examples : Nuclear power plants, process plants, uniquestructures, underground construction, earthworks andrenovation projects.


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A 2.5 Delay Claims

Standard Construction Contracts recognize the following delays:

a) Excusable delay entitles a contractor to a time extension. Thesearise because of owner initiated actions or changes, severeweather and other force majeure considerations and designproblems.

b) Inexcusable delay Caused by events which should have beenreasonably expected or generally of the Contractors own making.

c)

Compensable delay entitles a contractor to both an extension oftime and additional compensations.

Examples: change in scope, late supply of owner materials orinformation, impeded site access, out of sequence workrequested by owner, and differing site conditions.

Delay not to be confused with the concept of suspension ordisruption of the work.

Suspension is a temporary work stoppage that may or may notdelay the project.

Disruption is the interruption of the Contractors planned workflow, but may not involve any delay.


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A 3. CLAIMS AVOIDANCE A claim may arise under any form of construction Contract. Fixed Price contracts attract more claims than cost-

reimbursable contracts. To avoid claims, through consideration be given to the

contracting method before proposals are accepted from thecontractors.

The owner and the Engineer can undertake lengthy anddetailed investigations of the project before the contract is

awarded and select the form of contract that suits thesituation.

Fair allocation of risk and incentives for cooperation are alsogood prevention methods.

An owner can prevent claims by creating a climate of

cooperation on a project. Three simple rules to avoid making claims : (For contractor) Know exactly what the contract requires. Do what the contract requires, but without interference. Dont do anything else, without proper documentation.


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4. TYPES OF CONSTRUCTION CLAIMS

a. Directed Changes :. Change in the Contractors Scope of work..

The change might be an addition or deletion of work or theuse of different methods,materials or designs.. By definition,the owner recognizes the existence of a

directed change.. Directed change involves either a written or verbal

instruction to change some aspect of the work.

b. Differing Site Conditions :. Also known as Changed Conditions, usually involves

variations from sub surface or foundations conditions asstated in the contract.

. Can be any site conditions that deterimentally affect thework performance and that could not have been known orreasonably anticipated at the time the parties entered intothe contract.


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c. Defective & Deficient Contract Documents :

. Also known as Errors & Omissions.

. Usually concerns errors and omissions in the contract

drawings, specifications, or the contract language.

d. Superior Knowledge :

. Used to support allegations that the owner knew facts thatwere not disclosed at the pre-contract stage and that had a

significant impact on Contractors Performance.

e. Constructive Change:

. Applies to contract modifications that develop gradually andare created without notice or knowledge.

. Difficult to document since the effects of changes do notmanifest themselves until after the project has beencompleted or is near completion.


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f. Delay :. A delay situation is one in which the activity of one party

is impeded by the inactivity, inability, or constraint ofanother party.

. When a delay occurs, the impacted party should go onrecord and , if possible, document any resulting effectsconnected to the delay.

g. Acceleration :

. When the work scope is increased but the schedule isnot modified to accommodate this increase.

. Also applies to situations in which the contractor isrequired to complete work in advance of agreedschedule.

h. Interference :. This claim situation frequently involves third party

constraints or disruptive influences imposed by theowners contract administrations.


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i. Other construction claim type about which owner shouldpossess a fundamental knowledge include:

. Suspension.. Breach of Contract

. Termination

. Inclement Weather

.

Warranty. Strikes

. Impossibility of Performance.

. Owner furnished items.


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A 5 Claims Settlement Methods : Claims are settled by one or more of the following

methods.

i) Negotiation

ii) Dispute Review Boards (DRB)

iii) Mediation

iv) Minitrials

v) Arbitration

vi) Litigation

) Often a claim may progress through several differentmethods before final settlement is achieved.


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i) Negotiation :) Most claims begin with negotiation.) It involves two parties who agree to Communicate with each

other and make decisions. The parties reach an agreementwhich is a modification to the contract.) Negotiation is the least costly and the most flexible method of

dispute resolution, allowing a high degree of control overissues and the time factors.

) The matter in question can remain confidential.

) Most likely to preserve the ongoing business relationship ofparties.

ii) Dispute Review Boards (DRB) :) DRB are formed at the inception of the project and remain

through- out construction.) Disputes are heard as they arise and resolution are arrived at

in a timely manner.) DRBs consist of industry experts who make non binding

recommendations for the settlement of each dispute.


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DRB fosters co-operation between the contractor and theowner, and provide a means for prompt and equitableresolution of claims and disputes.

DRB is an intermediate step aimed at avoiding more

expensive and less satisfactory procedures. A DRB emphasizes dispute prevention.

iii) Mediation :) Provision for mediation is usually provided for by the

Contract.) A neutral third party, who assists in the negotiations and

often proposes solutions, but does not render a bindingdecision.

) The mediation works both sides to develop and facilitate asettlement.

) Mediation is becoming popular because costs can be keptrelatively low while producing a timely settlement.

) The parties maintain close control of the issues as innegotiations, but with the added benefit of an objectiveopinion.


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iv) Mini trials :

) Minitrials are also a non binding resolution procedurewhich follows a structured process similar to litigation

and is usually conducted by a judge.

v) Arbitration :

) Arbitration is stipulated by Contract or legislation or issimply agreed upon by the parties.

) A neutral third party acts as a decision maker for a panelwhich consists of representatives from the opposingsides of the dispute.

) The decision by the arbitrator is final and binding.

) Arbitration is usually less costly than going to court, and

it allows greater control of both time and decisionmaking than litigation.


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vi) Litigation : Final recourse as a settlement method and is utilised only

when a construction claim can not be resolved bynegotiation, mediation or arbitration.

The most expensive process for resolving disputes. There usually are no winners in this process. A decision is rendered by a judge which is final and

binding. Major disadvantage is that an engineering decision may be

placed in the hands of people who have no engineeringknowledge.

Conclusion : Knowledge of the different construction claim types allows

owners to recognize potential claims situations and canprotect the owners from incurring losses and assist inrecovering compensation.

The parties must notify each other in a timely manner assoon as claims situation arises.


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Knowledge of construction contract law is beneficial toboth the owner and the contractor.

Owner Contractor relationship has a great effect on thesettlement of claims.

For an owner, fairness pay off in the long run.

According to the old axiom, remember that TIME ISMONEY. This is just as true for the owner, the consultant,the contractor and all the sub contractors.


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VARIATIONS

CONSTRUCTION CONRACTSB) What is Variation?) Variations in Construction Contracts can mean charges

to the terms of the Contract Changes to the scope orcharacter of the works.

) There is no single definition of what constitutes avariation, usually any standard form the ConstructionContract will contain a definition of variation in term ofspecific actions and activities

) Contract clauses and procedures, which define what

constitutes a variation and how to manage them.) Variations are changes within a Contract and not

Changes of the Contractbe rescinded in favour ofwriting another one.


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B 2 Nature of Variation

The nature of variations is usually defined by a variationclause in the contract.

Major variations include

Additions, omissions and substitutions.

Changes in quality, character, form kind, position,dimension, line, level, specified sequence or method oftiming of construction.

Changes which cause limitations or restrictions to siteaccess, working pace or hours.

Removal from sites of any material or goods that are not inthe Contracts.

Opening up for inspection of any work covered up;

And the replacement of any person employed inConnection with the Contract.


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B 3 Issues Concerning Variation: Problems concerning variations arise in three areas : Scope (was it a variation or was the contractor bound to do

it anyway?) Non-compliance with procedural requirements. Valuing Variations.

B 4 Extent of Variations : The spirit in which variations are permitted is to allow the

contract to proceed without re-drawing another contract tocater for the change.

Only one party benefit from the variation that party should: Have to forego some advantage under the Contract.

Give some service or Pay some of money for the benefit of the other party. Variations follow negations for compensation fro eth direct

loss and likely loss due to disruption.


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B 5 Causers and Causes of Variations The client, Consultant, Contractor and other stakeholders,

cause variations.

There are many reasons that may cause to initiatevariations. Some of which are financial, designs aesthetic,changes in drawings, weather, geological and Geotechnicalreasons.

B 6 Effect of variation on Projects Variations have several effects on the project, some

tangible and offers intangible. The challenges of variations as the establishment of the: Variation itself. Effect of the variation on other work. Loss and expense directly experienced arising from regular

progress of work having been materially affected due to theexecution of variation and for which its reimbursement isnot covered by any other part of the contract.


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