HOW TO MANAGE CLAIMS IN CONSTRUCTION

During the execution of a project, several issues arise that cannot be resolved among project participants, however this could be properly managed amicably by parties involve if the major issues are identified.

CHAMAN LAW FIRM

5/27/2022 0 min read

HOW TO MANAGE CLAIMS AND DISPUTE RESOLUTION IN CONSTRUCTION

Construction disputes are highly complicated due to their technical nature. The common factors that can trigger a construction dispute, may include amongst others:

  • Delays in the work progress

  • Non -payment of part payments or the final accounts

  • Disputes concerning variations

  • Defect liability and quality issues

  • Breach of contract

  • Back-to-back payment terms

During the execution of a project, several issues arise that cannot be resolved among project participants. Such issues typically involve contractor requesting for either time extension or reimbursement of an additional cost, or sometimes both. Such requests by the contractor are referred to as “CLAIM”.

The major issues in claims and disputes are identification of issues and the party responsible for the claims, and ascertaining the time and cost impact of the claim.

Further, it is responsibility of the party raising the claim to substantiate the facts. Depending on the decision of the other party against which the claim is made, the claim may be settled amicably or it may take the form of dispute.

In the following paragraphs, the claim management process has been explained from the perspective of a contractor:

1) Claim Identification: The contractor examines the instructions in the form of drawings as well as oral or written instructions provided by the owner/engineer. If it contains extra works, the same is read against the provisions of the contract.

2) Claim Notification: After it is ascertained by the contractor that it is an extra work, the contractor is required to inform the engineer within the time frame stipulated and clarify his intention to claim extra rates for the same. This is very important because failure on contractor’s part regarding this shall entail its rejection by the engineer.

3) Claim Substantiation: The contractor has to fully establish the claim including his entitlement under the contract, giving reference to the relevant clauses. The claim is supported by necessary backup documents like letters, vouchers and drawings are also enclosed. Analysis of time and cost impacts of the change. The objective of this sub-process is to determine the impact of the change occurred. The analyzer shall perform schedule analysis to calculate the time impact while break down the cost into various cost components to calculate the cost impact.

4) Pricing of the change: The purpose of this sub-process is to give the other party in the contract a substantive description and detail of the extra costs incurred or to be incurred due to a contract change. This detailed cost description is necessary for understanding, negotiating, and justifying extra contract costs. There are two types of claim pricing: forward pricing and post pricing.

5) Negotiation of the claim: This sub-process concerns the process of presenting the claim to the employer, and mutual finding the solution of such claim. If an agreement cannot be reached and any party believed his position is correct, he should propose an alternative dispute resolution method. If this fails, the choice remaining is to implement the contractor’s “disputes” mechanism or take the matter to court.

6) Decision of Engineer/Owner The Owner/Engineer is supposed to convey his decision on the claim to the contractor within a time frame specified in the contract. If the claim is not allowed, the same needs to be stated along with reasons. The value of claim allowed shall also be stated.

7) Further Action by Contractor: The contractor has to refer the claim for adjudication if provided, within a specific time frame after receiving the decision from the engineer, if the same is being disallowed. The adjudication process is carried out as per the provisions set out in the contract Mechanisms of Dispute Resolution Apart from the normal legal process, emphasis here is on the alternative dispute resolution mechanisms generally available in construction contracts. Such mechanisms could include negotiation, mediation, conciliation and arbitration.

NB: This article is not a legal advice, and under no circumstance should you take it as such. All information provided are for general purpose only. For information, please contact chamanlawfirm@gmail.com

WRITTEN BY CHAMAN LAW FIRM TEAM

EMAIL: chamanlawfirm@gmail.com

TEL: 08065553671, 08024230080