Engineering, Construction and Architectural Management 2001 8 | 3, 185-197

Construction claims management: towards

an agent-based approach
Z. REN, G. J . A N U M B A & O. O. UGWU
Centre for Innovative Construction Engineering, Loughborough University, UK

Abstract Disputes are now considered endemic in the

construction industry. They often arise from the poor
resolution of claims in the course of construction
projects. Efforts have been geared towards reducing
the incidence of claims. These efforts are of two kinds:
those that seek answers from basic principles and legal
issues at the pre-construction phase and those that
attempt to solve the problems through claims
management procedures at the construction phase.
This paper reviews the developments in claims

INTRODUCTION
Over the past three decades, the construction industry
has experienced an increase in claims, liability exposures and disputes, along with an increasing difficulty
in reaching reasonable settlements in an effective,
economical and timely manner (Barrie & Paulson,
1992). The unique, dynamic and complex nature of the
industry inevitably leads to a situation where conflicts
are bound to arise, and claims are inevitable. In fact,
claims are now considered as a way of life for the
construction industry (Bradley & Langford, 1987), as
shown by the following:
Onyango (1993) found that 52% of all UK construction projects ended up with a claim of some
type;
Keane (1994) reported that 1.2 billion could be the
subject of construction claims or disputes at any one
time and that more than 83% of contractors claimed
for one or more time extensions during 1992-94 in
the UK;
Semple et al. (1994) identified that more than half of
claims constituted an additional cost of at least 30%
of the original contract value based on their survey of
construction projects in Canada. In addition, about a
third of claims amounted to at least 60% of the
original contract value. In some cases, the claim
values were almost as high as the original contract
value.

management and highlights the deficiencies in current

claims management approaches. It focuses on the need
for improvement of the efficiency of claims negotiation
and suggests the use of multiagent systems as an
approach to achieve it. The potential benefits of the
suggested approach are discussed in the concluding
section of the paper.
Keywords claim justification, claim negotiation, claim
quantification, claims management, multiagent systems,
risk management

The reasons for this problem are very complex, and

can be analysed from social, industrial and project
perspectives:
Social factors: the construction industry, as a whole,
is under increasing pressure from the society to be
more competitive in terms of cost, time, quality and
environmental issues. As a result, the industry is
becoming more risky than ever;
Industrial factors: the wide range of participants, the
increasing size of projects, enhanced competitive
tendering, increasing technological complexity,
uncertainty in construction environments, unbalanced risk allocation, and complex and confused
interdependent relationships brought about by some
project procurement systems, also contribute to
construction claims;
Project factors: unforeseeable site conditions, unrealistic planning and specifications, changes by the
client, acceleration, unfulfilled duties by project
participants and 'force majeure' are the direct causes
for claims (Ren, 2000).
To seek answers to the problem, numerous research
projects, courses and publications on various aspects of
claims, such as Wood (1975), Diekmann & Nelson
(1985) and Levin (1998), have been undertaken to
investigate industrial practices and to explore the
principles and procedures of claim settlement and
dispute avoidance. Basically, these efforts are of two

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kinds: those that seek answers from basic principles and

legal issues at the pre-construction phase and those that
attempt to solve the problems through claims management procedures at the construction phase (Field et al.,
1993). This paper undertakes a systematic analysis
of developments in claims management, highlights the
problems in current claims management procedures,
and makes suggestions for further improvement, based
on the use of an agent-based approach.

DEVELOPMENTS IN CLAIMS M A N A G E MENT

Claims management is the process of employing and
co-ordinating resources to progress a claim from
identification and analysis through preparation, and
presentation, to negotiation and settlement (Keane,
1994). The aim of claims management is to ensure that
the client pays a fair price for interfering with the
contract in the execution of the work (Bramble &
Callahan, 1992). Besides the management activities at
the construction phase, claims management is also
heavily dependent on the legal principles and other
management theories at pre-construction phase, which
mainly includes standard construction contract forms,
risk management theory and project procurement
systems. These principles and theories are vital to
avoid construction claims and disputes in the first
place, and to ensure that claims management starts
right if claims cannot be avoided. To understand claims
management fully, it is therefore necessary to explore
the development of these theories and principles.

Basis of claims management: starting right

The paper, entitled 'The Condition of Engineering
Contracts', which Rimmer published in 1939, led to
the publication of the first edition of the ICE Conditions of Contract in 1945 (Cottam & Hawker, 1992).
The main forms and conditions of the contract set up
provisions for increasing the time period, and payment
of loss and expense sums caused by unexpected events,
both of which have to be claimed by the contractor.
Similarly, the other popular standard forms of contracts, such as J C T forms, FIDIC, C C D C and AIA,
have also been published with the aim of setting up the
legal basis and principal claim provisions for claims
management.
Since the end of the 1970s, an obvious change in the
construction industry has been the increasing project
size, technical complexity and high risks, which have
led to a large number of change orders. Moreover, the
increasing time value of money makes time extension

claims more critical than ever. The old standard forms

of contract have not changed in line with the development of the industry. According to Zack (1997), 84%
of the respondents of a survey indicated that specifications of projects often required modification; while
55% stated that contract documents often needed
significant changes. Many claims and disputes were
caused by the ambiguous, incomplete and inadequate
understanding of the terms of contract forms and
conditions. As a result, improving the legal framework
for claims has been a major focus of the industry for
many years. The overall objective is to (Vidogah &
Ndekugri, 1998):
(a) get the contractual language right first time in new
contracts;
(b) increase awareness of the probable construction
terms by the courts and arbitrators;
(c) encourage the amendment of the standard terms of
contract;
(d) expose popular misunderstanding.
Some researchers (Levitt et al., 1980; Murdoch &
Hughes, 1996; Cox, 1997; Hartman et al., 1998; Sykes,
1999) have also identified risk allocation in standard
contract forms and project contracts as an important
factor in claims management. In construction projects,
both parties take many risks, of human error and of the
unexpected, which may cause loss to project participants. Construction contracts are supposed to assign
such risks to the parties who have entered into the
contracts. Currently, contractors, under the pressure of
competition, generally prefer to assume less risk while
clients appear willing to push more risks to contractors
during the tendering process which is the major source
of the claims (Zack, 1997). Hartman et al. (1998) point
out that the management of changes and claims is the
management of risks. Project participants, especially,
the client team should have a fair attitude to risk
allocation in selecting the contractor and contract
forms, estimating, scheduling and making detailed
contract provisions. Equity in risk allocation in project
contracts and procurement systems will reduce the root
causes of claims, thereby avoiding construction claims
and disputes.
To reduce construction claims and to facilitate claims
management, new project procurement systems, such
as partnering, design-build and construction management (CM), have been adopted in construction industry. The impact of these systems on claims management
is complex. Generally, it is believed that partnering and
the design-build procurement system can reduce claims
and facilitate claims management as they reduce
conflicts and engender closer collaboration between

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project participants. On the other hand, the benefits

of CM are doubtful. Although, theoretically, the CM
system is believed to be able to facilitate claims
management, industry practice shows that in most
cases construction managers are not willing to make
decisions regarding claims so as to protect themselves
against all possible litigation. In fact, the existence of
a construction manager has, on occasion, complicated
the liability and damage issues that accompany a claim.
The claims management process, as a result, becomes
more confused and complex under the CM system
(Barrie & Paulson, 1992; Keane, 1994).

Claims management process: staying right

In spite of the extensive literature highlighting the
above problems, there is little evidence of significant
improvements in claims management. The continuous
escalation in claims and disputes prove that the
solutions offered by pre-construction research are
inadequate. There is, therefore, a need to look for
approaches other than the above pre-construction
theories and principles. Vidogah & Ndekugri (1997)
point out that claims management and 'people' issues
may be, at least, as important as having a clear
understanding of contractual terms and equitable risk
allocation. Therefore, there is a need for complementary research into the claims management process.
Diekmann & Girard (1995) also report that people
and management issues may be more influential on the
incidence of disputes than risk allocation and project
characteristics.
However, most of the available literature on claims
management, by way of defining remedial measures, do
not go beyond general exhortations to the contractor
to identify clearly the causes of claims and maintain
adequate information to support claims (Vidogah &
Ndekugri, 1998). Very few research projects are reported, which aim at auditing the whole claims management process in terms of precise deficiencies, their
severity and specific remedial measures.
The current framework for construction claims
management is based on the industry practice of the
past few decades. Fig. 1 shows a typical claims management life cycle based on the requirements of FIDIC
(4th edition). Levin (1998) standardizes the management process as:
(a) recognition and identification of changes or the
causes of claims;
(b) notification to the engineer and the client;
(c) systematic and accurate documentation;
(d) analysis of time and cost impacts;

(e) pricing;
(f) negotiation;
(g) dispute resolution and settlement.
The current industry practice shows that the main
challenge of claims management is not from the overall
management process, but from the ineffectiveness of
management activity at each stage. The key aspects
include how to justify a proposed claim, how to
quantify and present it with full and detailed documentation, and how to negotiate successfully with
the client and his agent (Levin, 1998). For example,
identification of causes of claims and proper documentation have been recognized as the two most important
and difficult factors to justify a claim. The complex
causes and effects of construction claims make it
difficult to clearly address the claim events and liabilities, which is one of the major barriers for the
resolution of claims, and the major reasons for disputes.
Meanwhile, documentation is extremely important
for the justification of claims as well as the whole
claims management process although it is time-consuming, and is rarely directly rewarded (Wilson, 1982).
Proper records are crucial for justifying the identified
claims, analysing the project scope change and addressing the cost of the identified claim.
Following the justification of a claim, the next task
is to quantify the claim, which includes both the direct
costs or delays caused by the unanticipated events,
and the cumulative impacts of such events. However,
arguments are often generated about the rates of
compensation, quantity of the impacts, and especially
the composition of the cumulative effects of the claim
event, such as loss of productivity, disruption and
indirect costs. These items, by nature, are ambiguous
and sensitive. Some of them are impossible to quantify
with precision even with the best information available.
Therefore, it is very difficult to reach a satisfactory
solution between project participants. Part A of Table 1
shows that the numbers of claims for indirect cost items
are higher than for direct cost items. Part B indicates
that claims for such items are more probably to be
disputed. In most cases, negotiations are the main
approaches to resolve such conflicts before they finally
become disputes.
Negotiations go on throughout the whole claims
management process from the justification to the
settlement of a claim. Although standard contracts
like ICE do not suppose that claims will be settled
by negotiation, in practice, and wisely so, many claims
especially those with greater uncertainty such as
material pricing, cost of disruption, and indirect costs
are settled through negotiation between the contractor

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Table 1 Claims for direct and indirect costs.

Part A*

Part B

Claim items

Ranking Heads of claim

(no. of probably to
claims) be disputed

Ranking

Site overhead
Loss of productivity
Loss of revenue
Financing costs
Equipment costs

1
2
3
4
5

1
2
3
4
5

Premium time

Cost of preparing claims

Loss of profit
Cost of disruption
Head-office overheads
Interest and
finance charges
Others

* Semple et al. (1994).

Vidogah & Ndekugri (1997).

and the engineer (Powell-Smith & Stephenson, 1993).

Successful negotiation of claims is an important
element for controlling project costs and reducing the
potential for litigation resulting from outstanding
claims (Field et al., 1993).
Basically, there are two kinds of claim negotiations:
qualitative and quantitative negotiation. Qualitative
negotiations are about the entitlement of the contractor
to a claim, which is mainly regarding the justification of
a claim based on the identified causes, liabilities and
contract conditions. Such negotiations are essential
and highly evidence-oriented with limited free room
to bargain. Quantitative negotiations are about the
amount of compensation for the entitled claims, which
commonly deal with the amount of the quantity of
claim items, rates of material or labour and indirect

costs. Quantitative negotiations go into much detail and

are time-consuming as there is much more room to
bargain, and both parties try to maximize their benefits
through this negotiation process. Thus, the current
studies on claims negotiation are mainly interested in
quantitative negotiations.
Negotiations are normally started at a lower level
between the contractor and the engineer's quantity
surveyors. The project manager and the engineer will
join the negotiation if their quantity surveyors cannot
solve the problems. If agreement still cannot be
reached, the contractor may contact the client in the
hope that the client joins the negotiation directly and
solves the problems.
Although the cases are quite often diverse and project
specific, claim negotiations are normally hard and time
consuming. This is because:
(a) the consequences of negotiations are directly related
to financial gain or loss;
(b) negotiations are influenced by many internal and
external factors. Table 2 lists some of these factors
summarized from the work of the following
researchers: Hughes & Barber (1992), Scott
(1992), Smith (1992), Spittler & Jentzen (1992),
Just & Torone (1997) and Levin (1998);
(c) negotiation is more a human-oriented process than
a technical process. A negotiator's personal abilities, attitudes and negotiation strategies, in many
cases, determine the result of a negotiation.
Unfortunately, most construction personnel do not
have enough negotiation expertise. Emotion,
irritation and relationship considerations often
strongly influence negotiations.

Table 2 Factors influencing negotiations between project participants.

Factors that hamper negotiation
Contractor
High ambitions
Global claims
Lack of evidence

Factors that facilitate negotiation

Willingness to maintain a good relationship

Willingness to compromise because of the
weakness in claims management
Concentrating on future prospects of work or
compensation (new claims or items)

Wrong calculation
Poor presentation
Engineer
Willingness to protect himself against any harm
Discouraging any claim caused by the
failure of act of the engineer
Client
Willingness to pay less for more work
Discouraging claims

High expertise in construction management

Consideration of reputation

Consideration of the entire project progress

Involvement of client

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A final compromise will be reached under the

influence of all these factors.

construction claims management will be a long strategic

task for the industry. The major deficiencies of current
claims management practice are in the following areas.

Computer supported claims management

Developments in general project
management
principles and the application of new information
technologies strongly support the claims management
process. For example, the improvement of planning and
scheduling technologies in project management, especially the application of the critical path method (CPM)
strongly supports delay claims by sorting out the overall
impacts of unanticipated events on the schedule. Delays
resulting from unanticipated events can be addressed
clearly by analysing their effects on the critical path
while the effects on non-critical paths are excluded. An
'as-planned' CPM schedule is first built based upon the
approved project schedule; then a network model
known as the 'impact schedule' is built to superimpose
various schedule impacts upon the as-planned schedule
including excusable, compensable, non-compensable
and concurrent items. Input to the schedule involves
identifying and quantifying the individual delays and
determining the responsibility and entitlement of the
parties. Finally, delays in the critical path can be
identified and the revised overall completion date for
the project is calculated (Barrie & Paulson, 1992).
The development of modern information technologies, such as MS Word, Excel spreadsheet, MS Project,
Primavera, Intranet, Extranet, Electronic Data Interchange
(EDI) and Expert System, and their applications in
general project management provides an opportunity
for the improvement of claims management through:
improved record keeping and presentation, easier
analysis of the impact of delays and changes, improved
communication and decision support/advice on legal
aspects of a given claim. For example, a well-designed
expert system can help the site engineer to improve the
efficiency and accuracy of their decision making related
to site claims (Levitt, 1987; Adams, 1988; Diekmann &
Gjertsen, 1992; Alkass et al., 1995).

DEFICIENCIES IN C L A I M S M A N A G E M E N T
PRACTICE
Despite the extensive studies on claims management
theories and practices, the increasing incidence of
claims and disputes imply that the current claims
management principles and process are ineffective in
meeting industry requirements. Because of the volatile
nature of construction projects, it is also unrealistic
to expect that claims can be avoided or resolved by a
single principle or method. The improvement of

Awareness and interpretation of contract terms

and provisions
Keane (1994) points out that difference in awareness
and interpretation of standard contract terms is still a
major contributor to the problems in claims management. Contractors, engineers and clients regularly fail
to agree on the basis of a claim and how it should be
settled. The reasons are:
Understanding of the terms of the contract is still
inadequate in spite of the large volume of information dedicated to interpreting them. Understanding is usually based on experience and
common sense. Sometimes, what was meant to be
said may be the determining factor instead of what
was actually written in the contract (Thomas et al.,
1994);
Contracting parties frequently interpret contract
terms from their own perspectives in an ad hoc
manner and for their own benefit. The same contract
clauses are often interpreted differently;
Contracts themselves may contain ambiguous or
unfair provisions. Contract terms alone are insufficient to clearly apportion risks or responsibilities
between contracting parties. This holds true not only
for what is stated explicitly in the contract documents, but also for what is implied.

Inadequate information and documentation

Many researchers have identified inadequate information and poor documentation to support claims as
major problems in current claims management practice. The Wood (1975) report made the same point
when it emphasized the lack of factual evidence as a
prime cause of delayed payment and protracted
disputes. Scott (1992) points out that perhaps the
biggest failing on the part of contractors when dealing
with claims is the lack of sufficient recorded data on
the effects of delaying and disrupting events. Wilson
(1982) and Badger & Gay (1996) all stress the lack
of initial records, such as minutes of meetings,
correspondence, progress reports, status logs, photographs, records of delay and disturbance, and revised
drawings, as the major reason for the failure of
claims. Many contractors' management information
systems are ill designed to support claims. Records are
kept either in an inaccessible way or are incomplete

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Agent-based claims management

or designed for other purposes even if they can be

accessed. Vidogah & Ndekugri (1997) conclude that
the reasons for these problems are: a culture of bias
against paperwork on site operations, poor design of
recording systems, the paper-based nature of most of
the relevant information and poor resourcing of the
claims management role in contracting organizations.

Lack of effective claims management tools

Compared with the number of research projects on the
legal bases and principles of claims, the efforts seeking
to develop effective tools to support claims management activities are few. As a result, claims management
activities rely on the project management tools. Very
few project management tools, especially systematically
designed, are appropriate for claims management. For
example, inadequate record keeping has been recognized for a long time as a major problem area in claims
management. There is virtually no chance of improvement without the application of information technology. On the other hand, industry practice shows that
claim documentation is still perceived to be woefully
inadequate in many cases even with the support of IT.
The increasing power and affordability of information
technologies do not naturally lead to an improvement
of the claims management process. There is a lack of
systematic analysis on how best to apply these technologies. This is crucial for claims management (Vidogah
& Ndekugri, 1997).

Inefficient claims negotiation

Most project managers consider claims negotiation as
the most time and energy-consuming activity in claims
management (Hu, 1997). The major reasons are the
diversity of intellectual background, the many variables
involved, complex interactions, and inefficiencies in the
negotiation process (Zack, 1994). For example, engineers and clients typically respond in a tough and
unyielding manner in claims negotiation because of the
negative perception of claims. Moreover, the negotiation items, such as loss of productivity and disruptions, are generally ambiguous and sensitive. The main
contributors to the inefficiency of the claims negotiation
process are discussed below.

Preparation and negotiation processes

Currently, both the preparation and negotiation processes are time-consuming. This is caused by the
necessary negotiation preparation (evidence-collection,
opponent position anticipation, and negotiation objec-

tive and strategy analysis) and negotiation activities

(offer, evaluation and counteroffer), as well as many
other factors, which may take more time than the
negotiation itself.
For example, before negotiation, claim documents
have to be specially presented for negotiation. There is
quite a substantial delay between document submission
and discussion of the claim. Negotiations are seldom
held immediately for one claim after the documents are
submitted. In most cases, the claim will be discussed
at a progress meeting or special meeting where many
claims are discussed. Moreover, negotiators need to be
appointed and brought together for the negotiation. In
cases where project managers or other key project
personnel act as negotiators, negotiations are often
delayed because of the absence of these people.
During negotiations, unrelated arguments such as
site management, quality or site safety are often used
to pressurize an opponent. A party may expect to get
benefit by waiting or delaying until the other side is
emotionally exhausted. In most cases, neither side
wants to make a concession first or easily. Smith (1992)
identifies improper negotiation styles and lack of
planning as the main reasons for inefficient construction negotiation. Zack (1994) lists some improper
negotiation styles as:
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)

win/lose strategy;
stubborn negotiation style;
making concessions for the sake of a relationship;
bargaining vs. negotiation;
establishing fixed objective vs. a range;
failing to choose right negotiation team members;
failing to plan negotiation;
unclear authority;
failing to document negotiation.

Low client

involvement

The involvement of the client is currently very low in

claims management (Vidogah & Ndekugri, 1997). The
late and low involvement of the client and the engineer's conflicting role as an independent professional
and the client's representative have been recognized as
major factors contributing to the inefficiency of claims
negotiation by the European Construction Institute
(ECI) (1992). In cases where claims are caused by the
engineer's failure of action, the engineer is probably to
discourage the claims, and to deal with the claims in a
partial manner by taking advantage of the low client
intervention. This may finally increase the difficulty of
negotiation and open up the possibility of disputes.

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Z. et al.

Therefore, ECI (1992) recommends earlier and greater

client involvement in claims management.
Human factors
Negotiation involves many human factors in addition
to the pure technical issues. A negotiator's personal
abilities and attitudes, in many cases, determine the
result of a negotiation. Smith (1992) points out that
negotiation has been labelled as a basic survival skill for
today's project manager. Unfortunately, very few construction participants have adequate negotiation expertise. Most claim negotiations are conducted in a
heuristic way. Unnecessary concession and stubbornness are common mistakes, which make the negotiations harder and inefficient.

TOWARDS AGENT-BASED CLAIMS

NEGOTIATION
Although several problems in claims management have
been identified above, the authors, unlike most other
researchers who emphasize the problems of documentation, will focus on the improvement of the efficiency
of claims negotiation. This is because inefficiencies in
negotiation make claims resolution much more difficult
and adversarial, and may delay resolution or, in the
worst case, lead to expensive litigation (Zack, 1994).
Thus, it is necessary to develop a methodology to
facilitate claims negotiation so as to reduce the tremendous time and human resources invested.
A technology that has the potential to improve the
efficiency and effectiveness of claims negotiation
involves the use of a multiagent system (MAS) to
facilitate negotiations between project participants.
Multiagent systems are networked systems composed
of individual agents which can negotiate for their own
benefits. These agents are characterized as autonomous, facilitating and filtering information, communicating, learning and facilitating collaboration (Ugwu
et al., 1999). This makes MAS ideal for supporting
construction claims negotiation. Unlike other negotiation supporting approaches, such as expert systems
and decision support systems, which can only provide
information or suggestions to human negotiators,
agents in a MAS can, on behalf of the different project
participants, directly negotiate with each other regarding a claim item, and reach an agreement within a
specified time frame. This constitutes a promising
approach to solve complicated negotiation problems in
a natural way (Ferber, 1998). Pena-Mora & Wang
(1998) developed a system to facilitate collaborative
negotiation in large-scale civil engineering project, in

which negotiators are motivated by both individual and

group benefits. The negotiation mechanism is built on a
simple game theoretical model which is difficult to
apply in the complex claims negotiation environment.
In this study, a MAS for construction claims negotiation (MASCOT) model has been developed to
address the deficiencies in current claims negotiation
practice. The main focus is on the negotiation mechanism which matches the specific characteristics of
claims negotiation.

The MASCOT model

The MASCOT model has been developed based on
a thorough analysis of the characteristics of claims
negotiation. For example, an essential nature of the
negotiation is that construction claims negotiation can
be understood as a bounded self-interested negotiation.
That is, the negotiation participants are initially selfmotivated, their main interest is to maximize their own
benefits. On the other hand, such self-interested competition is bounded by the willingness of not breaking
the negotiation because that may force them to give up
the claim or go into an arbitration or litigation that they
can hardly afford. Such nature is the starting point
where the MASCOT is built. Meanwhile, the other
characteristics like participant-dependent information,
strategy-influenced process and time impact are also
essential for the development of the model.
Moreover, the MASCOT model also takes advantage
of the opportunities offered by negotiation theories and
intelligent agent technology. The negotiation theories:
game theory, bargaining theory and behaviour theory
and their applications in various MAS environments
provide a theoretical background for the development
of the system. Based on the identified important claims
negotiation characteristics, proper negotiation theoretic
models have been adopted and modified. The key
aspects of the MASCOT negotiation mechanism
include: first, a modified monotonic concession protocol (MCP) is adopted. In MCP, both parties start by
simultaneously proposing one deal from the space of
possible deals, an agreement is reached if one party
matches what the other one asked for, or exceeds what
the other one asked for. The protocol continues to
another round if neither party matches or exceeds the
other's demand. A party is not allowed to offer the
other party less than it did in the previous round. If
neither party concedes at a certain step, then the
negotiation ends and the protocol specifies that a
deadlock has been reached. The advantage of MCP is
that it ensures convergence or puts a stop to the negotiation promptly when convergence is not occurring. In

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MASCOT, this protocol is modified in the situations of

reaching conflict result, complete information assumption, introduction of time penalty and the involvement
of the client agent in negotiation.
Secondly, an economic model for negotiation, Zeuthen's model, is adopted. In this model, two parties'
negotiation problem is considered as a one-party's
decision process under the assumption that if none of
the players concede at a particular step, they will reach
a conflict (Young, 1975). There are two steps in the
negotiation:
the individual negotiator compares the certain value
he can obtain by accepting the other side's offer.
Based on this offer, his own favoured outcome and
the results of conflict, he calculates the maximum
probability of conflict he would be willing to accept in
preference to acquiescing on the current offer of the
other side;
concession will be made by the side willing to accept
the smaller risk of conflict at any given moment in
time. A player needs only reduce his own demand to
the point where he is willing to accept a greater risk of
conflict than the other. Accordingly, each player
must continue to concede until he is willing to accept
a larger risk of conflict than his opponent.
Zeuthen's model best reflects the nature of claims
negotiation, i.e. the bounded self-interested negotiation. The advantages of the model are two-fold: first, it
reflects both parties' risk perceptions during negotiation; and second, the solution of Zeuthen's model is
identical to Nash's (1950) method. That is, patties
settle at the point that maximizes the product of the
difference between what bargainers get from conflict
and what each gets from the settlement point
(Harsanyi, 1965).
Thirdly, a learning mechanism, Bayesian learning
mechanism, is incorporated. The importance of learning in negotiation has been recognized in the game
research community as fundamental for understanding
human behaviour as well as for developing new solution
concepts (Cross, 1977; Jordan, 1992; Osborne &
Rubinstein, 1994). It also recognizes the practical
experience that most skilled claim negotiators have.
The Bayesian learning mechanism, as a simple and
powerful approach, provides a method to update an
agent's beliefs about the opponent based on the agent's
prior knowledge about the opponent and the opponent's offers during the negotiation process (Zeng &
Sycara, 1998). The updated belief then becomes the
agent's new domain knowledge in the next updating
process. An agent can finally get a relatively accurate
estimate about the opponent's key negotiation feature

(e.g. reservation value; even if its initial d o m a i n

knowledge is not so accurate (Fig. 2).
Fourthly, time penalty is considered. Multiagent
system for construction claims negotiation takes the
passage of time during the negotiation process into
account in facilitating convergence. The time taken by
each agent during negotiation is considered as a penalty
element in its utility function. As time penalty is a
driving force for agents, especially those with a high
time penalty, to concede to reach an agreement, the
problem that an agent may try to benefit by diverging
from the Zeuthen strategy can be avoided (Rosenschein
& Zlotkin, 1994). This ensures that the MASCOT
negotiation mechanism is stable.
Finally, an expanded solution searching strategy is
incorporated, which allows the client agent to join the
negotiation if a conflict result will reach between the
contractor and the engineer agents. Moreover, it also
allows the trade-offs between different negotiation
items.

Example
This case involves a seven-town water supply project.
According to the design, the intake structures in G, P
and A towns were the same. The walls of the intake
chamber were based on driven concrete piles. The
length of pile was 8 m with 7.5 m to be driven into the
riverbed. The contractor's quotation for the piling work
was $90 000. According to the contractor's schedule,
the piling work would be made sequentially in G, P and
A towns. After starting the work, the contractor found
that piles could only be driven 3.5 m into riverbed. The
engineer thought the problem was caused by the contractor's old piling machine and reminded the contractor that it was the contractor's responsibility to drive the
piles to the designed level. As a result, the contractor

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tried all the possible methods to conduct the piling work.

However, only three piles were driven 4.5 m into the
riverbed till all the piling work was completed. The
piling work was delayed 60 days in G town.
Following a request by the contractor, a bore-hole
was made by the National Geology Laboratory, which
showed that a 3-m dense gravel-sand layer lay underneath the riverbed at about 3-4 m while the original
drawing showed this to be soft clay. Eventually,
the engineer agreed that the problem was created by
the fault of design. A claim was submitted by the
contractor including time extension, new pile rate, cost
of pile cutting and removal, overheads and loss of
productivity. As the same problem might occur in the
other two towns, both parties were very cautious about
the claim. The real case took more than 4 months to
settle. The most difficult negotiation item was loss of
productivity, more than 10 negotiation meetings were
held at different levels. In this study, MASCOT is
adopted to resolve this claim item.
To apply the M A C O T model, two kinds of information are necessary (Fig. 3). One is the negotiator's
estimate about his own reservation value and optimum
value about the claim item. Another one is his prior
knowledge about the opponent's reservation range and
negotiation habit. Such information is based on the
negotiator's experience with the opponent. If he does
not have enough knowledge, the learning mechanism
will allow him to accumulate such information during
the negotiation process. Suppose, in this case, that the
contractor has an estimate about his reservation value
of S9000 for the loss of productivity and an optimum

value of S11 000. Meanwhile, he also has some domain

knowledge about the possible range of the engineer's
reservation value (e.g. from $8500 to S11 000 with
equal possibility) and the engineer's negotiation habit
(e.g. the engineer normally makes an offer which is
10% lower than his real value). Similarly, the engineer
estimates his reservation value as $9800, the optimum
value as $7000 and the range of the contractor's
reservation value (e.g. from $7500 to $10 000 with high
probability on $8000 and $9000) and negotiation habit
(e.g. the contractor normally makes an offer which
is 20% higher than his real value). After receiving this
information from their owners, the agents start their
negotiation and generate an outcome of $9535 as the
compensation for the contractor's loss of productivity
(Fig. 4). The outcome mainly depends on the negotiators' estimate about his claims compensation and the
prior knowledge about the opponent. As MASCOT
incorporates a learning mechanism, the outcome will
become more accurate as the negotiation goes on. Full
details of various negotiation scenarios are presented in
Ren et al. (2000).

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Agent-based claims management

BENEFITS OF THE AGENT-BASED

APPROACH
From the above example, it can be seen that by
adopting the MASCOT approach, an outcome is
generated effectively through the negotiation between
agents with reasonable accuracy and acceptability. The
main advantages of this approach are:
Improved efficiency of negotiation
The proposed system is expected to solve or relieve the
problems in claims negotiation preparation and negotiation process. First, as claim negotiations are conducted between the autonomous agents through a network,
the time for negotiation preparation, such as time for
negotiation document presentation, waiting for a negotiation meeting or gathering negotiators is reduced.
Secondly, the negotiations between agents are more
efficient than that of human negotiators as the negotiations between agents are continuous, straightforward
and highly concentrated. Thirdly, the unhealthy tricks
of negotiation, such as obfuscation, are avoided as
agents have to reach a result within a specific time limit.
Thus, it is expected that the new approach will address
and solve the negotiation problem in a quick and
effective manner.
Currently, most contracts require the contractor to
complete work first, regardless of claims for extra
payment, regardless of disputes and regardless of
references to arbitration. Claim negotiations are
conducted long after the revised work or even after
the whole project has been completed because the
possibly long argument about compensation could
delay the work further. Having made so, the contractor has little negotiating strength and becomes a
supplicant. The application of the proposed system
will provide an opportunity to settle claims in a timely
manner. Even if the claim could not be settled at the
early stage, the problem areas will be identified for
further action.

Earlier client involvement

The proposed system provides a mechanism for the
client to get involved early in the claims negotiation
process. The client, through his agent, can monitor and
get involved in the negotiations between the engineer
and the contractor. There is scope for the contractor
directly to negotiate with the client. This will result in
important improvements to the current claims negotiation process. First, it is possible to resolve negotiation
deadlocks between the contractor and the engineer

because of non-agreement by the direct involvement of

the client. When a negotiation between the contractor
agent and the engineer agent falls into conflict, the
client agent will join the negotiation and search for any
possible deal that can be accepted by the contractor
agent in its negotiation zone. If such a deal is found, it
will be passed to the engineer agent to expand its
negotiation zone to enable the negotiation move
forward. Secondly, the problems caused when the
engineer tries to cover personal faults are also avoided.
Thirdly, the system also facilitates communication
between the client and the engineer, which will also
facilitate the negotiations.

Reduced influence of unhealthy human factors

The application of the system will avoid many
unhealthy human factors, which are often used in
claims negotiation. For example, a party may seek to
win a negotiation by taking advantage of the other
party's weakness in negotiation tactics, emotional
influences or relationship considerations without
quibbling about how to justify the settlement value.
On the other hand, claims and claims negotiation are
continuous processes during the construction process.
Once a party finds that he has suffered an unreasonable loss, the following negotiations will be much
harder and finally may lead to disputes. The application of the MASCOT system will reduce the
influence of such human factors. The negotiation
between agents will avoid any obvious mistakes,
which its owner may otherwise make. Moreover, the
system could also help those project participants who
do not have enough negotiation experience to avoid
unnecessary mistakes caused by improper negotiation
strategies.

S U M M A R Y AND C O N C L U S I O N S
Despite the extensive studies of claims avoidance and
claims management at both pre-construction phase and
construction phase, the continuing escalation in construction claims and disputes show that the solutions
offered by these approaches are inadequate. This paper
has reviewed developments in construction claims
management and highlighted the major deficiencies in
current procedures. One of these is inefficiency in
claims negotiations. T h e paper proposes the use of
intelligent agent technology (particularly MAS) to
overcome these deficiencies. Multiagent systems offer
the potential to improve the efficiency of the claims
negotiation by automating aspects of the negotiation
process such that distributed construction team

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m e m b e r s can reach agreement quickly and without the

influence of unhealthy h u m a n factors. T h e potential
benefits of the proposed a p p r o a c h , which is being
encapsulated in a c o m p u t i n g application, have also
b e e n outlined. It is evident that that the agent-based
a p p r o a c h offers n e w possibilities for t h e efficient
c o n d u c t of claims negotiations in construction.
However, there are still m a n y key issues that need
to b e further explored to enable the p r o p o s e d system
achieve
the
desired
objective.
These
include
establishing the roles that the client a n d t h e engineer
play in the p r o p o s e d negotiation system, identifying
the m o s t appropriate negotiation theories for the
application of M A S in claim negotiation, negotiation
protocols a n d strategies for agent interaction in the
M A S C O T system, e m p o w e r m e n t of agents, d o m a i n
ontology a n d t h e involvement of each individual
agent's owner in establishing its negotiation strategy.
All of these issues are being addressed as part of
t h e project a n d will be t h e subject of future publications.

ACKNOWLEDGEMENTS
T h e work described in this p a p e r is funded b y the
Engineering a n d Physical Sciences Research Council,
E P S R C u n d e r its Innovative M a n u f a c t u r i n g Initiative
(IMI).

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