MEKELLE UNIVERSITY

ETHIOPIA INSTITUTE OF TECHNOLOGY CIVIL ENGINEERING DEPARTMENT POST GRADUATE PROGRAM

Term Paper on Project Management

Claim and dispute Management

Submitted to Prepared by Dr.Eng.Wubishet Jekale Aster G/hiwot

Date

July 2013

Table of Contents
1. 2. 3. 4. 5. 6. 7. 8. 9. Acknowledgements1 Abstract..2 Introduction....3 Definitions......4 Procedures for managing Claims5 Dispute Resolution..8 The Law..9 References..15 Recommendation and Conclusion..15

Acknowledgement
I want to highly appreciate Dr.Eng Wubishet Jekale who gave me this chance to deal with this issue and read more to know and understand it well. Secondly I want to convey my gratitude to Ato G/mariam who assisted and gave me special attention to compile my term paper on this selected topic.

Abstract
Prevention of some thing destructive before it takes place is the best option. It saves time, money, resources, etc. It is better to face problems than escaping them. Managing claims and disputes is one way of saving the whole project from delay. Claims can grow to disputes but can be managed and solved at their initial stage. There is a traditional saying Never despise a snake, it can grow and bites you. So we should never ignore a small problem that it can even destroy the whole construction project. Here in this paper, it is tried to asses some points regarding claims and disputes. Their causes, types and their management process in the construction industry. It is important to deal with this issue that it is a determining factor in the good performance of one organization.

Introduction
Human beings are all different in nature, back ground, character etc.Thus it is obvious that there are different kinds of disagreement, conflicts and misunderstandings which can result in a great disappointment in their relationship. Our daily activities are full of communications with each other. Thus some people say communication is breath. It is true that people must have a good relationship to each other especially while performing a certain job like construction. Disputes & Construction might be inseparable, unless a relentless attempt has been made by the contracting parties to the Construction Contract to avoid their occurrence. Unresolved claims are the basis for the existence of construction disputes.

Definitions
Claim can be defined from different perspectives. That is it has different meanings for clients, contractors and consultants. For most Clients A claim is a hidden form of a black mail. For Most Consultants A claim is the last chance to bail out of a losing job. For Some Contractors A claim is an assertion to a contractual right. Claim: Something refers to additional cost or time for construction projects. It is believed that claims are caused due to uncertainties. No construction project is perfect. So claim is likely to take place. Claim can be interpreted as follows interpretations: A claimant willful act when there are no other ways to compensate for the loss suffered during relationships. A claimant willful act (Intent to claim) after exhaustively trying not to cause claims happen or providing early warning. Claims, if they are not managed or solved early can become disputes. By definition, disputes are some forms of argument between two parties. In our case, that is construction, disputes can be defined as disagreements between the contractual parties. Claim shall be negotiated, conciliated, adjudicated, arbitrated or litigated (taking a dispute in to court). It should be noted that the time limit for notifying disagreement should be stated in the contract agreement. Claim and Dispute Resolution is the mechanism of settling conflicts between contracting parties using different methods like negotiation, ADR, etc.

Types of Claims
1. Extension of Time Claims

Concurrent Vs Non Concurrent: it refers for simultaneous and non simultaneous time claims. Excusable Vs Non Excusable: are the claims justifiable or not. Compensable Vs Non Compensable :can it be compensated or not Initial Vs Interim Vs Final Delays Initial delays are delays at the beginning of the project Interim delays are delays at the middle of the progress Final delays are at the final stage of the project. 2. Financial Claims Increase / Decrease in Quantities Alterations, Additions and Omissions Prolongation Costs Price Escalations General and Liquidated Damage

Claim Management Procedures

Lets make our focus about the claim between the three contractual parties, namely the employer, contractor and the engineer. Claim administration process can be initiated by Either the Contractor or the Employer. The Engineer can advice on a reasonable incorporation of claims, if the engineer believed that without the treatment of such claims, the successful performance of the project will considerably be affected. Basically, the contract agreement for claim and dispute resolution is the most important thing to negotiate them. Some of the main causes for time delay claims are:

-Inadequacy or Late delivery of Contract Documents -Exceptional Weather Condition - Lack of Clear Claim Administration and Dispute Resolution System -Poor Information, Documentation & Communication Management System.

Here are the procedures to be followed while trying to manage claims and disputes. First the claim should be notified, then it is prepared well and finally submitted.

Claim Notification If the contractor failed to notify his claim intent within the time allowed in the contract; his right to compensation is at risk. Claim Preparation Substantiation is the major purpose during claim preparation. It means the evidence which makes the claim valuable. Documentary Evidences both for legality and procedure validity and Appropriate Computations are mandatory. Identification of full, partial and other entitlements and their submittal and handling strategies shall be well developed. Claim Submittal Strategies When full requirements are met: Submit as soon as practicable. If it is not submitted at the given time limit, it may be invalidated according to the contract agreement. When partial requirements are met: Prepare grounds for submittal such as concurrent claim; mutual benefits, etc.This helps you avoid the complexity of processes and save time wastage.

 When you feel that you deserve compensation and its requirement was not well prepared; choose negotiation as the only means to use. Because other ways will not work if the claim is not well prepared.

Claims and disputes Resolution

The basis of remedy for the claims or disputes may be the contract and/or the applicable law. Such mechanisms are: Preventive; Amicable settlement; and Judgmental settlement. The specific forms of dispute resolution mechanisms are negotiation, mediation, conciliation, adjudication, arbitration & litigation. Applying the above mechanisms for dispute resolution, it is expected that claims and disputes are settled easily.

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Procedures
There are some procedures we have to follow while dealing with claim management. These are the ways of handling, treating and finally solving them. The first procedure is to check whether the claim is -Written and submitted following the overall procedures - Legally supported or not and -If it is well presented and substantiated The second procedure is to check and re-compute the compensation. Some of the points to be considered here are Extension of Time (EoT) Completion time is adjusted as per the Entitlements Cost due to compensations are incorporated into the payment certificate Remedial Rights Entertained Liquidated Damages / Extension of time Cost Compensations

The third thing is claim case is officially closed Then the claim management process is evaluated and lesson is learned from it The whole process of claim management is documented for other references.

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The Law
1. The Ethiopian law 1.1 Claims under the Contract These are of two types: Claims as a result of certain anticipated & specified events & for which a remedy is designated in the contract; and Claims as a result of an event where a certain term of the contract is breached & for which a remedy is designated in the contract.

For example, in case of -Non-performance, -Partial performance, -Defective performance, or -Late performance. The remedies in both cases may relate to financial compensation, time extension, & other benefits or remedies.

Financial compensation Failure to commence, critical or non critical delays, suspension of work, release from performance, default & termination; Delay in certifying payments; Other specified events;

Time Extension Delay in supply of documents or drawings; ( FIDIC Clause 6.3 & 6.4 ) Adverse physical obstructions or physical conditions; ( FIDIC Clause 12.2) Tests required but not provided for; ( FIDIC Clause 36.5) Suspension of the progress of the works; ( FIDIC Clause 40.2) Failure to give possession of site; ( FIDIC Clause 42.2) Other specified events;
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Other Benefits or Remedies Termination of contract under the contract and/or the applicable law. Suspension of the execution of works; Reduction of the progress of the execution of works;

Remedy under the Law It relates to a claim arising out of the contract based on the grounds that a term of contract had been breached but where the remedy is not designated in the contract. Under this circumstance, if the claim is valid, the remedy lies under the provisions of the applicable law.

This is specially related to the assessment of damages or specific performance or others.

The remedy would be sought through adjudication, arbitration or litigation unless the claim is settled amicably. The legal remedy in case of damages may extend to the determination of liability with respect to the consequential damages & assessment of quantum of same, termination of contract as provided under the law( in serious cases)

1.2. The conventional model of dispute resolution is one of an adjudicative process, most frequently fulfilled by the courts. According to Schapiro the ideal court, or more properly the prototype of the court, involves problem solving between the parties represents the informal, non-binding approach, the successful outcome of which is an agreement to settle. In its most basic form direct negotiation provides a simple party-based problem-solving technique. A further dimension is added when either party introduces advisers. Negotiation is a process of working out an agreement by direct communication. It is voluntary and non-binding. The process may be bilateral (between two parties) or it could be multilateral (many parties). Each party may utilize any form of external expertise it considers necessary, and this is often described as supported negotiating. Mediation is a private, informal process in which parties are assisted by one or more neutral third parties in their efforts towards settlement. The new and distinguishing feature here is the addition of a neutral third party who aids the parties in dispute towards settlement. A further important factor is that the mediator does not decide the outcome; settlement lies ultimately with the parties.

1.3 Alternative dispute resolution (ADR)

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ADR is the abbreviation for Alternative dispute resolution; Appropriate dispute resolution; Amicable dispute resolution The term ADR has attracted a great deal of attention in legal and quasi-legal fields since the mid-1980s. However, the 1990s appear to have witnessed an enormous growth in the"ADR debate" with an ever increasing sphere of academics, lawyers and consultants entering the arena. Although the concept of dispute resolution techniques which are an alternative to the court system is not new, the more recent advent of the acronym is essentially taken to describe the use of a third party mediator who assists the parties to arrive at a voluntary, consensual, negotiated settlement. Whilst the origins of mediation may be ancient and Eastern, the recent more formalized technique has principally developed in the USA.

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References
1. The Ethiopian Construction law i.e. The Codes in FIDIC 2. Lecture notes from instructor 3. The internet

Recommendation and conclusion

From the above explained concepts of claim and dispute management processes, it can be concluded that the best way of managing these issues is to prevent them as much as possible. The other option is to try to solve them as soon as possible to avoid time delay in the construction process. Claim and dispute resolution should be clearly written in the contract document. The claimant should clearly explain his/her claim in a clear and written form because it helps to manage it and finally give a solution. It can be done according to the special conditions of contract or can be taken to the law(court). From the many ways of dispute resolution mechanisms ADR is the most recommended and usual because it Maintains a business relationship Speed it takes not more than two days Lower cost: it obviously doesnt cost much if the parties choose mediation. Because they may not need to pay to lawyers.

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