Part 5 of 8 – Legitimate claims Vs Cheating

Part 5 of 8 – Legitimate claims Vs Cheating

“Claims” is taboo word in client’s parlance!

One must appreciate that, raising Claims is NOT an act of cheating! Many believe that the contractor is there to rake up some or other condition; interpret some clause of contract; twist the situation; all to raise financial claims. In many contracts this makes client / consultants paranoid, which results in humongous documentation in order to set records & to create a defense mechanism to ward off any such possibility of claims.

We all must understand that there can be legitimate claims in any contract, arising out of many situations. There could be dozens of reasons, in every contract, leading to additional cost claims. Is it wrong for one to request for cost compensation against such reasons?

One such example can be of claims related to time overrun. Many contracts face time overrun, leading to extended period of contract, thereby forcing the contractor to stay put for a longer period, during which the contractor is bound to incur costs towards fixed overheads, cost of idle machinery & other resources. If the time overrun is caused by certain action or inaction by the client, is it not legitimate for contractor to claim for such costs? It’s very rare that the client wholeheartedly accepts delays caused by reasons attributable to them & generously agrees for additional cost claim. There have been incidents wherein the client agrees to delays caused & accepts responsibility for delays however does not agree to cost claim; in some cases, even if agrees for claims, sets it off against the penalties & liquidated damages under some or other reasons.

Many contracts carry a condition which says, the client may approve extension of time of the project however refuse to compensate associated costs. I wonder why! While the extension of time caused by reasons attributable to client, is agreeable to client, then associated costs become a legitimate claim. One must appreciate it.

No contractor enters into an agreement with a predetermined intent to raise claims. No contractor intends to always read between the lines or twist the conditions to raise claims. It’s just that certain obvious situations & justified reasons lead to a claim. Even in case of claims, every contractor has willingness to settle it thru discussions for a fair & reasonable settlement. No contractor wishes to adopt legal means to settle disputes / claims. On the contrary, I have come across a few clients representing the Govt departments, agree to the legitimacy of claims however refuse to admit it officially fearing them to be questioned by Govt Auditors, hence advise contractor to take it to Dispute resolution or Arbitration process, thereby the person in question is relieved of burden & owning responsibility of agreeing to claims. Its quite strange & painful, but true.

You may ask any contractor small or big, about their take on getting retention money released from any client, whether its private entity or Government agency. It’s the toughest task for any contractor. Its usually money forgone. Only if you are lucky, just simply lucky, you may expect the retention money to land in your hand within a reasonable time. In most cases, we follow up, write, attend meetings, discuss with no results in sight. If at all you don’t get tired of follow up, you may expect part of retention money after deductions against “many reasons”, after couple of years post its due release date. Even then contractor feel themselves lucky in such cases!

Reluctance to make a decision & reluctance to own the decision, often lead to many claims lead to a dispute, ultimately to be referred to dispute resolution, wherein under the law of Arbitration, we all end up in National waste of time, money, efforts & involvement of many other entities to resolve dispute, which is completely avoidable.

Be fair! Claims is NOT cheating.