CLAIMS AND VARIATIONS IN

CONSTRUCTION
CONTRACTS

Presented by : -

V . K. Trikha

P. Manavalan
A. CLAIMS

• What is claim?
 A claim is a disguised form of blackmail.
 A claim is the last chance to bail out a losing job.
 A claim is an assertion to a contractual right.
 Claim - extra money, an extra to the contract
price.
• Claims – a common occurrence in the construction industry.
• Claims occur when one of the parties to a contract seeks
consideration, change, or both from an expressed or implied
contract provision.
• Which comes first,the dispute or the claim?
The dispute comes first, because the paper work falls behind
the progress of the work.
• In some cases, a claim is filed by a Contractor with little or no
forewarning, and this itself gives rise to a dispute.
• Contractor's Claim
A legitimate request for additional compensation (costs and /
or time) on account of a change in the terms of the contract.
• Some claims are legitimate and do not give rise to disputes or
confrontation between the owner and the contractor.
• Two situations – The owner and the contractor can come to an
agreement on the claim and then the owner issues a change
order. If the parties disagree a dispute arises which must be
resolved.
A 2. CAUSES OF CLAIMS

• Contract documents
• Actions of parties to the Contract, including owners,
designers, contractors, and suppliers.
• Force majeure considerations.
• Project characteristics.
• Delays are a major cause of claim.
A 2.1 Claims arising from the Contract
• Contracts may contain conflicting provisions in
technical specifications.
• Exculpatory clauses :
 seek to exonerate the owner and transfer to others the
risk for problems that arise.
 Disclaimers for differing site conditions, sub surface
problems, and underground utility interference are
typical exculpatory clauses that create disputes.
• The type of Contract (Fixed Price and cost reimbursable)
and strategies (Unit Price Contracts, Designs build etc.)
create the environment for claims.
• Contract language is often the source of problems that
lead to claims.
 Ambiguities arise because of the use of vague clauses
such as “ reasonable period of time”, or equal , “ and “
in accordance with trade practices”.
A 2.2 Claims due to the action of participants
• Incomplete information on drawings and design errors are
the leading causes of claims.
• A/E failure to perform,and in a timely manner –
 Drawing review, change order approval, inspections,
clarification of drawings and specifications, and correction
of design errors.
 A lack of design coordination and inadequate design
review.
• Claims arise because of unrealistic contract schedule,
attempts to fast track the schedule, performance
specifications, and underestimated project cost.
• Contractors are often the cause of claims.
 Underbidding leads to a claims mentally because the
contractor will attempt to mitigate the forecasted loss if the
bid price is below the anticipated cost.
 Poor construction quality is a Common source of claim.
 Inadequate performance by a contractor usually results in
cost overruns which likely will lead the contractor to
recover the cost overrun through claims .
• The lack of coordination of Contractors and suppliers is
often a problem which creates conflicts and claims.
• Owner’s contractual responsibilities
 Permits and licenses, timely award of contract, and
adequate financing resources to meet progress billing.
A 2.3 Force Majeure causes of claims

• Force Majeure clauses refers to occurrences which are

beyond the reasonable control of any party to the
construction contract.
 These are stated as “Acts of God” or “unavoidable casualty”.
 Claims for a time extension are usually permitted.
 These claims are due to severe weather, floods, fire,
sabotage, and so on.

A 2.4 Project Causes of Claims

• Projects that are complex, large, remotely located, in
congested areas, or require technology at the cutting edge
are subject to construction claims.
• Examples : Nuclear power plants, process plants, unique
structures, underground construction, earthworks and
renovation projects.
A 2.5 Delay Claims

Standard Construction Contracts recognize the following delays:

a) Excusable delay – entitles a contractor to a time extension. These
arise because of owner – initiated actions or changes, severe
weather and other force majeure considerations and design
problems.
b) Inexcusable delay – Caused by events which should have been
reasonably expected or generally of the Contractors own making.
c) Compensable delay – entitles a contractor to both an extension of
time and additional compensations.
Examples: change in scope, late supply of owner materials or
information, impeded site access, out of sequence work
requested by owner, and differing site conditions.
Delay – not to be confused with the concept of suspension or
disruption of the work.
Suspension – is a temporary work stoppage that may or may not
delay the project.
Disruption – is the interruption of the Contractor’s planned work
flow, but may not involve any delay.
A 3. CLAIMS AVOIDANCE
• A claim may arise under any form of construction Contract.
• Fixed Price contracts attract more claims than cost-
reimbursable contracts.
• To avoid claims, through consideration be given to the
contracting method before proposals are accepted from the
contractors.
• The owner and the Engineer can undertake lengthy and
detailed investigations of the project before the contract is
awarded and select the form of contract that suits the
situation.
• Fair allocation of risk and incentives for cooperation are also
good prevention methods.
• An owner can prevent claims by creating a climate of
cooperation on a project.
• Three simple rules to avoid making claims : (For contractor)
 Know exactly what the contract requires.
 Do what the contract requires, but without interference.
 Don’t do anything else, without proper documentation.
4. TYPES OF CONSTRUCTION CLAIMS
a. Directed Changes :
• Change in the Contractors’ Scope of work.
• The change might be an addition or deletion of work or the
use of different methods,materials or designs.
• By definition,the owner recognizes the existence of a
directed change.
• Directed change involves either a written or verbal
instruction to change some aspect of the work.

b. Differing Site Conditions :

• Also known as “Changed Conditions”, usually involves
variations from sub surface or foundations conditions as
stated in the contract.
• Can be any site conditions that deterimentally affect the
work performance and that could not have been known or
reasonably anticipated at the time the parties entered into
the contract.
c. Defective & Deficient Contract Documents :
• Also known as Errors & Omissions.
• Usually concerns errors and omissions in the contract
drawings, specifications, or the contract language.

d. Superior Knowledge :
• Used to support allegations that the owner knew facts that
were not disclosed at the pre-contract stage and that had a
significant impact on Contractor’s Performance.

e. Constructive Change:
• Applies to contract modifications that develop gradually and
are created without notice or knowledge.
• Difficult to document since the effects of changes do not
manifest themselves until after the project has been
completed or is near completion.
f. Delay :
• A delay situation is one in which the activity of one party
is impeded by the inactivity, inability, or constraint of
another party.
• When a delay occurs, the impacted party should go on
record and , if possible, document any resulting effects
connected to the delay.

g. Acceleration :
• When the work scope is increased but the schedule is
not modified to accommodate this increase.
• Also applies to situations in which the contractor is
required to complete work in advance of agreed
schedule.

h. Interference :
• This claim situation frequently involves third party
constraints or disruptive influences imposed by the
owners contract administrations.
i. Other construction claim type about which owner should
possess a fundamental knowledge include:
• Suspension.
• Breach of Contract
• Termination
• Inclement Weather
• Warranty
• Strikes
• Impossibility of Performance.
• Owner – furnished items.
A5 Claims Settlement Methods :
• Claims are settled by one or more of the following
methods.
i) Negotiation
ii) Dispute Review Boards (DRB)
iii) Mediation
iv) Minitrials
v) Arbitration
vi) Litigation

• Often a claim may progress through several different

methods before final settlement is achieved.
i) Negotiation :
• Most claims begin with negotiation.
• It involves two parties who agree to Communicate with each
other and make decisions. The parties reach an agreement
which is a modification to the contract.
• Negotiation is the least costly and the most flexible method of
dispute resolution, allowing a high degree of control over
issues and the time factors.
• The matter in question can remain confidential.
• Most likely to preserve the ongoing business relationship of
parties.

ii) Dispute Review Boards (DRB) :

• DRB are formed at the inception of the project and remain
through- out construction.
• Disputes are heard as they arise and resolution are arrived at
in a timely manner.
• DRBs consist of industry experts who make non binding
recommendations for the settlement of each dispute.
• DRB fosters co-operation between the contractor and the
owner, and provide a means for prompt and equitable
resolution of claims and disputes.
• DRB is an intermediate step aimed at avoiding more
expensive and less satisfactory procedures.
• A DRB emphasizes dispute prevention.

iii) Mediation :
• Provision for mediation is usually provided for by the
Contract.
• A neutral third party, who assists in the negotiations and
often proposes solutions, but does not render a binding
decision.
• The mediation works both sides to develop and facilitate a
settlement.
• Mediation is becoming popular because costs can be kept
relatively low while producing a timely settlement.
• The parties maintain close control of the issues as in
negotiations, but with the added benefit of an objective
opinion.
iv) Mini trials :
• Minitrials are also a non binding resolution procedure
which follows a structured process similar to litigation
and is usually conducted by a judge.

v) Arbitration :
• Arbitration is stipulated by Contract or legislation or is
simply agreed upon by the parties.
• A neutral third party acts as a decision maker for a panel
which consists of representatives from the opposing
sides of the dispute.
• The decision by the arbitrator is final and binding.
• Arbitration is usually less costly than going to court, and
it allows greater control of both time and decision
making than litigation.
vi) Litigation :
• Final recourse as a settlement method and is utilised only
when a construction claim can not be resolved by
negotiation, mediation or arbitration.
• The most expensive process for resolving disputes.
• There usually are no winners in this process.
• A decision is rendered by a judge which is final and
binding.
• Major disadvantage is that an engineering decision may be
placed in the hands of people who have no engineering
knowledge.

Conclusion :
• Knowledge of the different construction claim types allows
owners to recognize potential claims situations and can
protect the owners from incurring losses and assist in
recovering compensation.
• The parties must notify each other in a timely manner as
soon as claims situation arises.
• Knowledge of construction contract law is beneficial to
both the owner and the contractor.
• Owner – Contractor relationship has a great effect on the
settlement of claims.
• For an owner, fairness pay off in the long run.
• According to the old axiom, remember that “TIME IS
MONEY”. This is just as true for the owner, the consultant,
the contractor and all the sub contractors.
 VARIATIONS
CONSTRUCTION CONRACTS
B) What is Variation?
• Variations in Construction Contracts can mean charges
to the terms of the Contract – Changes to the scope or
character of the works.
• There is no single definition of what constitutes a
variation, usually any standard form the Construction
Contract will contain a definition of variation in term of
specific actions and activities
• Contract clauses and procedures, which define what
constitutes a variation and how to manage them.
• Variations are “changes within a Contract” and not
“Changes of the Contract”be rescinded in favour of
writing another one.
B 2 Nature of Variation
• The nature of variations is usually defined by a variation
clause in the contract.
• Major variations include –
 Additions, omissions and substitutions.
 Changes in quality, character, form kind, position,
dimension, line, level, specified sequence or method of
timing of construction.
 Changes which cause limitations or restrictions to site
access, working pace or hours.
 Removal from sites of any material or goods that are not in
the Contracts.
 Opening up for inspection of any work covered up;
 And the replacement of any person employed in
Connection with the Contract.
B 3 Issues Concerning Variation:
• Problems concerning variations arise in three areas :
 Scope (was it a variation or was the contractor bound to do
it anyway?)
 Non-compliance with procedural requirements.
 Valuing Variations.

B 4 Extent of Variations :
• The spirit in which variations are permitted is to allow the
contract to proceed without re-drawing another contract to
cater for the change.
• Only one party benefit from the variation that party should:
 Have to forego some advantage under the Contract.
 Give some service or
 Pay some of money for the benefit of the other party.
 Variations follow negations for compensation fro eth direct
loss and likely loss due to disruption.
B 5 Causers and Causes of Variations
• The client, Consultant, Contractor and other stakeholders,
cause variations.
• There are many reasons that may cause to initiate
variations. Some of which are financial, designs aesthetic,
changes in drawings, weather, geological and Geotechnical
reasons.

B 6 Effect of variation on Projects

• Variations have several effects on the project, some
tangible and offers intangible.
• The challenges of variations as the establishment of the:
 Variation itself.
 Effect of the variation on other work.
 Loss and expense directly experienced arising from regular
progress of work having been materially affected due to the
execution of variation and for which its reimbursement is
not covered by any other part of the contract.
Thank You,

V. K. Trikha

P. Manavalan