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Construction Claims & Disputes | Claim Management

Construction Claims & Disputes | Claim Management

Claims occur on major projects in all sectors, whether in fast growing, emerging, or mature markets.
 

All project owners want to increase their return on investment and bring projects online faster. To achieve this, completion dates are brought forward so that assets become profitable more quickly. The impact of this is that best practices in planning and design becomes subordinate to program acceleration.

Contracts are awarded on incomplete designs and are based on unrealistically optimistic construction programs. These circumstances make variations and claims inevitable, which is why it is paramount that organizations have a discernable claim management strategy when embarking on a major project. The consequences of not having a claim management strategy in place at the outset of a project is almost always underestimated.

  • For a claimant, a poorly executed (or nonexistent) claim management strategy will leave them out of pocket, potentially waiving millions in obtainable entitlement or, even worse, exposing them to damages. A common mistake for a claimant is to assume that the project was so obviously disrupted and delayed by events outside of control that there is no need to present any documentation or analysis to prove entitlements to recover additional time or cost.

  • For an employer, a poor approach to claims management would be to deny that any claims exist on the project and to ignore the contractor’s rights under the contract. This approach will create an adversarial relationship that will undermine the parties’ efforts to solve difficult problems. Over time, it will diminish the employer’s reputation in the marketplace which will result in the employer paying a premium when procuring future works, as contractors’ price to cover this risk.

Claim strategies will vary from project to project, and an employer’s needs will differ from those of a contractor. For an employer or a contractor, a claim strategy needs to be tackled holistically, with a set of systems and processes providing a roadmap to negotiate and resolve contentious issues. It will facilitate open discussions between the parties on difficult issues during the project and it will provide visibility throughout every stage of the project, promoting a better understanding, so that better decisions can be made moving forward.

A claim strategy cannot be based on hearsay, sound bites, or speculation; a good claim strategy must embrace data collection and presentation of facts, and has to be able to provide a willingness to explain the causal relationship between the event and its effect on the project. For example, if you are the party seeking compensable extension of time, your strategy must allow for producing a program delay analysis and quantum assessment.

Claims can only be determined through the collection of facts and data, so the claim strategy must ensure that the following documentation can be (or is) produced:

  • A Baseline Program structured with robust logic
  • Program updates (biweekly / monthly) recording actual progress and changes as they happen
  • Drawing logs, or issued for construction (IFC) drawings, that can be cross referenced with shop drawing submittal logs
  • Instructions, RFI, and correspondence logs that can be cross referenced with a claim notice log
  • A log of all project records—commercial meetings minutes, progress reports, variations, payment submittals, etc.

When the real facts, events, and circumstances are known, it is essential to have the technical knowledge and expertise to interpret the project information and assess the contractual entitlements (or liabilities). When analyzing the position and avoiding emotive issues, facts are key. The contractual position needs to be articulated in writing through correspondence, claims, and other documentation, explaining the event, its cause, effect, and entitlement.

A claim management strategy will not provide relief from a bad bargain or onerous provisions of a contract; however, it will provide an approach to ensure that entitlements have been interpreted correctly. This will build a culture of (valid) entitlement recognition and a mindset that claims are a natural part of the project execution process, needing to be managed accordingly.

As claims and contentions get closer to a resolution, the claim management strategy should have enabled the required documentation to be in place to settle all the issues. In doing so, it should have identified and brought attention to each individual event, item by item, considering the following:

  • Does the contract provide entitlement? If so, where?
  • What methods have been used to assess entitlements and why?
  • What are the strengths and weaknesses of the position and the chances of success?
  • If a counterpart is being uncooperative or unreasonable, what is the next step?

If your organization has been involved in the construction of a major project, the chances are you have already been through the claim/dispute resolution and settlement process. To a greater or lesser extent, claims are inevitable on all major projects. If you are involved in a major construction project, it is essential that you have a claim management strategy, as well as the people with the right skill set to manage the strategy, in place from day one in order to ensure a successful outcome.

Interested in learning more?

Contact resources@jsheld.com and we will connect you with a member of our team. You can also reach our main office at 516-621-2900.

 
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