Keeping Construction Claims at Bay

Dafydd Huw Davies
With the continued low price of crude oil, selective tendering and a desire to ensure that greater returns are secured for money spent, claims seem to be appearing in abundance.

What's Meant by the Term 'Claim'?

The term 'claim' is an interesting one, commonly used in the construction industry, but potentially has a very specific contractual meaning. Are you relying on a common understanding for the purposes of your contract or has its meaning been specifically prescribed? The last thing any party wants is to spend time and incur costs preparing a basis of claim which cannot be claimed for!

Identifying a Claim

Once we know what a claim looks like, the next step is to actually spot one. There are many ways of doing this, but each approach needs informed and trained people who know what to look for and whom to inform. Project managers are an obvious group, but training could also be given to document controllers or others who perform an equally important function.

Document controllers are often the first to receive claims communication and can play an invaluable role in the claims triage process, especially when the Contractor or Employer is under pressure to respond within tight timescales.

Managing a Claim

As each project is different, there are different ways to manage a claim. In essence however, claims can either be managed by the Employer or Contractor at a project level, or, depending on a claim’s complexity, be managed centrally by a dedicated multidisciplinary claims team. Both approaches have their merits, but using a centralised team for all but the simplest of claims can facilitate corporate consistency. A centralised team, however, needs to maintain effective communication with its feeder projects, to ensure that all identified claims are processed in a timely manner.

...each approach needs informed and trained people who know what to look for and whom to inform.

A centralised team can also overcome the sensitivities project members may feel in not wanting to undermine their relationship with the client; the impact of which cannot be overestimated, especially when claims aren’t made and money is needlessly lost to the business.

Contractual Provisions

How many times have we heard about the person who innocently applied a guidance note, only to discover that it had no contractual significance and the costs associated with the work couldn’t be claimed? Relying on such documents, albeit in good faith, and incurring legitimate costs, does not necessarily mean that you have a contractual entitlement to be paid or any certainty of being paid.

Knowing the contract's prescribed deadlines and the significance of any non-compliance is also important. Contracts often require a claimant to notify the other party of the fact that it might make a claim within a set timescale. Failing to notify within the prescribed timescale can prevent you from making that claim.

Knowing the contract's prescribed deadlines and the significance of any non-compliance is also important.

The processing of claims can absorb significant time and effort, and incurring these costs when budgets are tight certainly brings challenges. Costs can be reduced by incorporating a contractual provision, covering the costs incurred in managing a claim. A fixed cost basis is one manageable way of doing this.

The Origin of a Claim

Claims occur for a variety of reasons, but most are connected with the construction phase - completion delays in particular. A significant number can be avoided, simply by better management and administration of the contract. A mutual relationship of trust and respect can also go a long way in helping to expedite claims processing.

What's the Claim for?

Traditionally, claims are made for more time and money (loss and expense) or alternatively for changes to the works (variations and quantum).

Seeking the correct advice, however, may allow for a different approach. For example, a claim in relation to Intellectual Property (IP) rights. If you own the IP rights, and the licence to use it is based on the payment at specific milestones, the licensee arguably has breached the terms of the licence in not paying in the contractually prescribed manner.

Faithful+Gould has a successful history of advising on the holistic management of contracts, and specific contractual provisions such as performance bonds and the management of claims. We offer a multidisciplinary approach, ensuring that the very best global practice is tailored to individual needs.

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