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Prepared by "PCO Subject Expert" Nader Samir; Project Manager and CRCICA Registered Expert, Egypt
Index
A) Typical claims against Employers:
B) Typical claims against the contractors:
C) Dealing with Claims :
C.1) Critical path method and Schedules
C.2) Record management
A) TYPICAL CLAIMS AGAINST OWNERS
Scope Changes :
Scope changes are usually initiated by a change order, letter of intent, or a field directive. They may direct changes, work deletions or additions to the original scope of the contract. Change orders are just part of everyday business in construction environments. To think that a project or a construction contract can be executed without them is an erroneous belief. An effectively organized effort to eliminate cost and time impact as a result of processing work outside the original scope of the contract should be high on the list of priorities of every management team since change orders are the usual reason for cost and time overruns. This is especially true for contractors wanting to realize their planned profits.
Scope changes are often narrowly defined, and estimates of the associated cost and schedule impact are usually lacking accuracy; Contractor, Engineer and Employer may agree on the fact that something should be done, but they may not be so agreeable on its full description and associated cost implications.
When Employers or their authorized representatives give directions that interfere with the normal contract development without acknowledging cost and schedule implications, it is usually called a "constructive change". Additionally, constructive changes are sometimes found after the fact, when reviewing schedules, records, letters and minutes of meetings; this does not negate the contractor's right to recover additional expenses. Contractors are advised to train their teams to recognize constructive changes since this can make the difference between a profit and a loss situation.
Errors and Omissions :
A potential for claims arises when the contractor questions plans and specifications given by contractual terms, and the Employers or their representatives fail to recognize it as a valid change order. Constructive change orders may be generated by absence of agreement on this issue. Even if the contractor is forced to proceed as directed by the Employer and contractual obligations, recovery of additional costs may be pursued at a later occasion. Contractors are advised to document these cases as closely as possible for future identification of additional costs.
Contract acceleration and expediting :
Contractors are frequently directed to accelerate performance of the contract or a portion of it within the original or adjusted completion date. This direction constitutes a change in the contractual obligations, and the contractors have the right to pursue compensation for it. Furthermore, contractors may expend extra effort in response to a directed increase in work without an increase in time. This constitutes a constructive acceleration which should be carefully analyzed, documented and decided upon. Validation of this kind of claims is, of course, difficult and requires the contractors to prove their case.
Work Suspension and Stoppage :
When contractors are notified to suspend work due to reasons out of their control, they have the right to be compensated for the time and cost involved in the suspension or part of the suspension even if the contract document calls for "work-around" directives.Contractors are compelled to keep detailed data related to cases like these to be able to recover related expenses.
Site Access :
When the contractors' scheduled activities have the need for a right of way and/or a location to proceed and the Employer fails to provide them on time, the contractors should pursue a compensation for the time and cost of the resources scheduled and not being able to perform productively.
Lack of Productivity :
When the contractual obligation forces the contractor to joint-occupancy, interference by other Employers' contractors' actions or lack of progress in the area may hamper performance and a justifiable claim for compensation over productivity levels may arise.Productivity or the lack of it is not an easy subject to be justified. Regardless of how controversial these issues may become, contractor6 are urged to substantiate their facts while they are actually happening.
Strikes and Acts of God :
Time delays due to facts beyond a contractor’s Control such a6 Strikes, boycotts, unusual weather, earthquakes, fires, and floods are excusable delays and the contractor should be entitled to a time extension.
Actions by Employers:
The following is a checklist for usual Employers’ actions impacting contractual performance may become handy when managing projects:
B) TYPICAL CLAIMS AGAINST CONTRACTORS
Out of Specification Materials:
Discrepancies may result due to differing interpretations about contractual material specifications. Contract specification omissions/clarity are frequent with the undesirable result that decisions have to be waited for or directions given on-the-run at the job site with the consequent confusion, delays and usual increase in scope work. The main problem comes while supplying materials where it is known that there are numerous competitive manufacturers which may substitute for one another. The contract's language is usually followed but when the issue is material specifications, complications may arise since every Employer wants to save money by competitively bidding prices from different manufacturers while still getting maximum functional efficiency.
Defective Work :
Contractors are responsible for the quality of their work as specified in contractual terms. This is not always easy to establish, since by definition, defective work is difficult to spot and decide upon. Defective work may be blamed on the designer due to lack of adequate specifications or on the Employer for disturbing the original design or on the contractor for lacking the Skills needed for the job. It is not difficult to see why many claims are generated over this issue.
Property damage :
Claims may result from several sources, including:
Contractor's Late Completion :
Contracts usually call for a completion date on the assumption that the Employer is in need of the facility by that date. A contractor finishing late may bring inconvenience to the Employer and/or financial. Some contracts include clauses where penalties are considered against the contractor in the event of completion delays, but regardless of the contract having or not having that clause, the Employer may claim damages due to late completion.
Low-ball Bidders :
Contractors sometimes come up with extremely low bids which may force them to be excessively cost conscious in their efforts to recover from their tight situation. Their low bids are due to a number of circumstances, such as:
C) DEALING WITH CLAIMS :
C.1) Critical Path Method & Schedules
Schedule Components :
Properly designed schedules include:
The Critical Path method depict what has to be done, when it has to be done, how it has to be done, who has to do it, and where.
Contractual obligations :
Contractual obligations usually include:
Typical Schedule Check List :
The following checklist provides a valuable tool for planning and scheduling administration:
Legal Implications :
If properly included in the contract, some general legal implications of an approved schedule may be summarized as follows:
C.2) Record Management:
Records for substantiating a claim :
Good, accurate records are the best assistance anybody can get when negotiating changes and disputes. This is particularly important for the contractors since they usually have the burden to prove the impact for any issue under dispute had on their performance. The records usually needed to substantiate a Claim are:
Daily and Weekly Reports :
Performance is usually documented through periodic reviews and revisions of the project approved schedule. Reports showing scheduled vs. actual performance determine the project status at any time so anybody can visualize the work completed to date, the rate at which the work was performed, and the costs incurred. Daily and weekly reports should include:
Change Orders Records :
Since change orders are one of the major causes of claims, it is important to maintain good records of them including:
Furthermore, keeping the correspondence well organized by subjects will provide the means of understanding what happened, should an after-the-fact claim arise. It also helps in relating new problems to old ones.
