Construction Claims
Abdulrahman Kamal
Commercial & Contracts Manager, M.Sc. | TQM | ISO? QMS-LA | LSSYB? | PRMG | PMP? | RMP? | LEED GA? | CCP? | PSP? | CLAC | P3O? | PMO-CP | MBA
In the construction industry, various types of claims can arise, often related to disputes, changes, or unforeseen circumstances during a construction project. Understanding these claim types is essential for both contractors and project owners. In general, claim is a legitimate request for additional compensation in terms of time and/or cost due to breach of the terms of Contract as per the Contract or otherwise. Such claims may be initiated by either the Contractor or the Employer, depending on the circumstances and the party affected by the breach.
These claims serve as a mechanism for ensuring that contractual obligations are upheld and that parties are fairly compensated when those obligations are not met. They may arise due to various factors, including delays, scope changes, design errors, and other circumstances that impact the execution of the contract.
There are four major types of claims identified in the construction industry and can provide subclaims under each of these major claim categories.
1. Contractual Claims
a contractual claim in the context of construction and business agreements is a formal request for compensation or remedies made by one party to the contract when there is a perceived breach of the contract terms or obligations. These claims are grounded in the terms and conditions set out in the original contract, which stipulate the rights and responsibilities of all parties involved.
- Unforeseeable weather delays
- Owner-directed changes causing delays
- Late issuance of design or approvals
- Delays due to labor disputes or strikes
- Scope changes and associated costs
- Additional work beyond the original contract
- Design or specification modifications
- Changes in project conditions
- Unilateral termination by the owner
- Termination for convenience
- Termination for default by the contractor
- Compensation for completed work and demobilization
- Days beyond contract completion date
- Calculation disputes over liquidated damages
- Contention of delays being excusable
2. Extra-contractual Claims
also known as non-contractual claims, are claims that do not find their basis within the explicit terms and conditions of the contract. Instead, their entitlement arises from common law principles or other legal standards. These claims typically involve compensation for damages or losses that occur due to events or actions not covered by the contract but that are considered unjust or negligent.
- Design or material defects
- Substandard workmanship
- Hidden or latent defects
- Warranty issues
- Owner-mandated acceleration
- Uncompensated acceleration efforts
- Impact of acceleration on the project
- Site inefficiencies and hindrances
- Interference from other trades
- Productivity losses due to third parties
- Design inaccuracies or errors
- Omissions in design documents
- Additional costs incurred due to design issues
3. Ex-gratia claims
An ex gratia payment is a financial or compensatory gesture made voluntarily by one party to another, often in response to damages, losses, or claims, without acknowledging a legal obligation to do so. The term "ex gratia" is derived from Latin, meaning "by favor" or "by virtue of grace," emphasizing that such payments are made as a goodwill gesture or out of a sense of moral responsibility rather than being compelled by a legal contract or obligation.
- Natural disasters
- Acts of God
- Political events
- Unforeseeable events beyond the control of the parties.
4. Quantum meruit Claims
Quantum meruit, which is Latin for "as much as is deserved," is a legal doctrine that allows builders and contractors to recover the reasonable value of work they have performed, even when there is no explicit contract or agreement specifying the terms and compensation for that work.
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- Work or services provided without a contract
- The benefit received by the other party
- Request for equitable compensation
- Extra work performed at the request of the owner
- Unilateral changes leading to additional work
- Compensation for work done in good faith
- Supply of goods or services outside the contract
- Disputes over the value of goods or services rendered
- Uncompensated work or materials provided
Managing and resolving construction claims effectively is a critical aspect of construction project management. It involves addressing disputes, delays, and changes in a way that is fair, efficient, and minimizes potential project disruptions.
Here's an elaboration on the key components involved in managing and resolving construction claims:
1. Careful Documentation
- Records and Logs: It's crucial to maintain detailed records of all project-related activities, including changes, delays, and issues as they arise. Daily logs, meeting minutes, and correspondence should be documented meticulously.
- Contractual Documents: A thorough understanding of the contract terms and specifications is essential. These documents set the framework for what is expected from all parties and provide guidance on claims.
- Change Orders: Whenever changes are made to the project scope or specifications, formal change orders should be issued and documented. These change orders should clearly outline the changes, their impact on cost and schedule, and the parties' agreement to the changes.
- Communication Records: Keep records of all communications related to the project, including emails, letters, and meeting notes. Clear and transparent communication can help prevent misunderstandings that might lead to claims.
- Photographic Evidence: Photographs or videos can serve as valuable evidence in case of disputes, especially when documenting site conditions, work progress, and defects.
2. Clear Communication
- Early Notification: Parties involved in a construction project should promptly notify each other of any issues, changes, or concerns that could lead to a claim. Early notification allows for proactive resolution.
- Regular Meetings: Regular project meetings provide an opportunity to discuss project progress, challenges, and changes. These meetings facilitate open communication and collaboration among stakeholders.
- Dispute Avoidance: Sometimes, disputes can be avoided through open dialogue and negotiation. Parties should work together to find common ground and reach mutually acceptable solutions.
3. Legal Assistance
- Construction Attorney: In complex claims or disputes that cannot be resolved through negotiation, it may be necessary to involve a construction attorney who specializes in construction law. Legal experts can provide advice, review contracts, and represent your interests.
- Alternative Dispute Resolution (ADR): Alternative Dispute Resolution (ADR) refers to a set of methods and processes used to resolve disputes, conflicts, or legal issues outside of traditional courtroom litigation. ADR techniques are often preferred for their cost-effectiveness, efficiency, and potential for more amicable resolutions. Here are some key components of ADR:
Mediation Process: In mediation, a neutral third party, known as a mediator, facilitates discussions between the parties involved in the dispute. The mediator's role is to assist the parties in reaching a mutually acceptable solution.
Non-Binding: Mediation is typically non-binding, meaning that the mediator does not make a decision or impose a solution. Instead, the parties themselves come to an agreement.
Voluntary: Participation in mediation is usually voluntary, and the parties can choose to accept or reject the proposed settlement.
Process: Arbitration is a more formal process where a neutral arbitrator, or panel of arbitrators, hears arguments and evidence presented by the parties. The arbitrator(s) then issue a binding decision, similar to a court judgment.
Binding or Non-Binding: Arbitration can be either binding or non-binding, depending on the agreement between the parties. In binding arbitration, the decision is final and enforceable, while non-binding arbitration allows parties to seek litigation if unsatisfied.
Process: Negotiation is the simplest form of ADR, involving direct discussions between the parties in dispute. It is an informal process in which parties attempt to reach an agreement without the involvement of a third party.
Flexibility: Negotiation offers a high degree of flexibility, allowing the parties to shape the terms of their agreement to suit their needs.
Process: Conciliation is similar to mediation but typically involves a more active role for the conciliator. The conciliator actively proposes solutions and may play a more involved role in finding common ground.
Non-Binding: Like mediation, conciliation is usually non-binding.
Process: In cases involving technical or specialized issues, expert determination allows an impartial expert to make a binding decision. The parties agree in advance to abide by the expert's judgment.
Expertise: The selection of an expert is crucial, as they should possess the required expertise and knowledge in the relevant field.
Process: A mini-trial is a structured, non-binding process in which each party presents its case before a panel consisting of senior executives from the disputing parties or their legal representatives. After hearing the presentations, the panel provides a non-binding opinion or settlement recommendation.
ADR methods are used in various contexts, including commercial disputes, family law, labor disputes, construction claims, and more. The choice of which ADR method to use often depends on the nature of the dispute, the preferences of the parties involved, and the specific legal requirements or agreements in place. ADR methods can save time, money, and stress compared to traditional litigation, making them attractive options for resolving conflicts.
Adjudication Process: In adjudication, a neutral third party, referred to as an adjudicator, reviews the dispute and makes a binding or non-binding decision, depending on the agreement between the parties. This process is commonly employed in construction contracts to address issues promptly and keep projects on track.
Binding or Non-Binding: Adjudication can be either binding or non-binding, depending on the agreement between the parties. In binding adjudication, the adjudicator's decision is legally enforceable, while non-binding adjudication serves as a recommendation that the parties can accept or reject.
Voluntary or Contractual Obligation: Participation in adjudication can be voluntary, where both parties agree to resolve their dispute through this process, or it can be a contractual obligation stipulated in the agreement between the parties.
Please note that the specific subclaims may vary depending on the details of the construction project, contract terms, and local laws. When dealing with these claims, it's essential to document and communicate issues clearly and, when necessary, seek legal advice or engage in dispute resolution methods stipulated in the contract; managing and resolving construction claims effectively involves a combination of proactive documentation, transparent communication, and, if needed, legal expertise and alternative dispute resolution methods. When disputes or claims arise, addressing them promptly and professionally can help maintain project progress and protect the interests of all parties involved.
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