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Review of Types and Causes of Construction Claims
Bhagyashree Apte1, Sudhanshu Pathak2
1
Post Graduate Student of Construction Management (M.Arch.) DYPCOA, Akurdi, Pune
2
Asst.Professor & P.G. Coordinator, Civil Engg Department, DYPCOE, Akurdi, Pune, India
International Journal of Research in Civil Engineering, Architecture & Design
Volume 4, Issue 2, April-June, 2016, pp. 43-50
ISSN Online: 2347-2855, Print: 2347-8284, DOA: 05022016
© IASTER 2016, www.iaster.com

ABSTRACT
Claims are inevitable in construction projects. In the last few decades in fact, the frequency and
severity of claims and disputes have increased significantly. Construction claims are considered as
one of the most worrying and unpleasant events of a project. Claims appear to affect the completion
of construction, cause delays in delivering projects, and affect overall budget. These claims are
undesirable because they require significant time and resources to resolve, and also cause
adversarial relationships among the parties creating disputes. It is therefore in the common interest of
all involved parties to prevent them, minimize them, or resolve them as amicably as possible.
Identifying common claim types and their causes is essential in devising ways and means to minimize
and hopefully avoid them in future projects.

Keywords: Claims, Contract, Delays, Disputes.

1. INTRODUCTION
1.1 General Introduction

There is vast development and investment in Indian Construction sector in past few years. This
growth continues in large infrastructure, real estate and industrial expansion projects.

The construction projects are complex, have long construction periods, involve uncertainty, are
multiparty in nature and require integration of different work components like Civil, Electrical,
Mechanical to work together as a single unit.[1] The projects require highly specialized designs,
detailed plans and specifications, high-risk construction methods, effective management, skill full
supervision, and close coordination. In this complex environment, participants from various
professions, each has its own goals and each expects to make the most of its own benefits. Due to
these differences in perceptions among the participants of the projects, conflicts are inevitable. If these
conflicts are not managed timely and properly it turns in to claims

Thus, claims are common and inevitable in construction projects.

1.2 Concept of Contract and Claims

Construction project contracts are the agreements made by construction project owners (contract
issuing parties) and construction enterprises (contractors) according to basic construction procedures
in order to complete specific construction projects and to define the rights and obligations of both
parties. Though both the parties assigned are not competitors but associates with common goal to
achieve the successful completion of said project, difference of opinion leading to conflicts do arise.

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During the execution of a project, several issues arise that cannot be

resolved among parties involved. Such issues typically involve contractor
requesting for either time extension or reimbursement of an additional
cost, or sometimes both. Such requests by the contractor are referred to as
“claim”.

If the owner accedes to the claim of contractor and grants him extension of
time or reimbursement of additional cost, or both, the issue is sorted out.
However, if the owner does not agree to the claim put out by contractor
and there are differences in the interpretations, the issue takes the form of a
dispute, as explained in fig.1
Fig. 1 If These Conflicts are not Clearly Managed, Claims are Made by Contractor and
further if Claims did not Get Clearly Resolved Disputes Arises

Claims appear to affect the completion of construction, cause delays in delivering projects, and affect
overall budget which results in to strained relationship of parties, stalemates, delays, disputes, that cause
or carry the potential force for litigious and arbitral action of the parties, for resolution in contract.

Both parties are responsible for this unpleasant situation. The employer and his professional
representative who prepare the contract in haste leaving many shortcomings in their documents and
also commit defaults in fulfilling their obligations, try to defend their documentation though they very
well know that some aspects are indefensible. On the other hand, as experienced many claims made
by contractors, are ill founded because the basic principles are misunderstood, common sense and
psychology, which cost nothing, are seldom employed in the preparation of claims. None of these
attitudes is justifiable and therefore there is need that both parties must be objective in their approach
to the subject of claims.

To tackle the problem of claims effectively it is necessary for both sides to have a better understanding of
the basis and principles of contract and therefore of the rights and obligations of the two parties.

It is necessary for professional representatives of both sides to have an understanding of business side of
industry so as to appreciate the circumstances in which the contractor conducts the risks in which he can
properly and contractually be expected to undertake and the financial consequences if things go wrong.

If things go wrong by reason of any default on the part of contractor, it must remain his concern;
however, if the default lies with the employer or his management team, then the employer must face
the financial consequences and settle the claims without any loss of time to avoid any adverse effect
on progress of work. Considerate approach for early settlement on issues between parties is always
cheaper and leads to win/win results.[3]

This research aims to study different types of claims, main causes, their effects and means to avoid or
mitigate claims at different phases of project life cycle.

1.3 Definitions of Claims

Construction Claim can be defined as a request by either party to the contract, usually the Contractor,
for compensation for damages caused by failure of the other party to fulfill his part of obligations as
specified in the contract.
The compensation is usually in the form of the additional payment or an extension of time (EOT).

Claim can be defined as as, the assertion of a right to remedy, relief or property Or, A failure to fulfill
obligations under the contract.

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Claim is a written demand submitted by one of the contracting parties seeking additional money, time
and other adjustment to a contract.

As per Hughes and Barber (1992), a request, demand, application for payment or notification of
presumed entitlement to which the contractor, rightly or wrongly, at this stage, considers himself
entitled with respect to an agreement has not yet been reached.

Once a claim has been presented, the owner and contractor can come to an agreement regarding the
claim and, thereby, create a change order or a modification, or they may disagree and create a
construction contract dispute.

Thus claims are generally made by the Parties due to the following circumstances:


Entitlement to an Extension of time.


Entitlement to additional payments


Entitlement to the recovery of costs


Non fulfillment by one party of an Obligation under the contract
Additional payment due to legal entitlement
2. DISCUSSION
2.1 Types of Claims

There are a number of ways to classify construction claims. By determining their relevant legal bases,
construction claims can be classified as follows
Claims can be classified as, [2]
a. Contractual Claims
b. Extra Contractual Claims.
c. Quantum Merit Claims.
d. Ex – gratia Claims.
e. Counter Claims.
Contractual Claim
Contractual claims are the claims that fall within the specific clauses of the contract. In well-accepted
standard contracts, there are a lot of provisions which entitle both the contractors and the employers to
claim for the appropriate compensation such as ground conditions, valuation, variations, late issue of
information, and delay in inspecting finished work.

Extra-contractual Claim
This type of claims has no specific grounds within contract but results from breach of contract that may be
expressed or implied, i.e. the extra work incurred as a result of defective material supplied by the client.

Ex-Gratia Claim
Ex-gratia claims are the claims that there is no ground existing in the contract or the law, but the
contractor believes that he has the rights on the moral grounds, e.g. additional costs incurred as a
result of rapidly increased prices.

Quantum Merit Claims

Provide remedy for a person who has carried out work under the instruction of the owner but no price
has been agreed or where a new one has replaced original contract and payment Is claimed for work
done under the substituted contract.

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Counter Claims

The claims raised by the opposite party to counter the of the claimant is called as counter claims.
Claims Also Can Be Classified As :

1) Contract ambiguity claims

2) Delay Claims
3) Acceleration claims
4) Change Claims
5) Extra work and Variation Claims
6) Price acceleration Claims
7) Change of work order Claims
8) Differing site Conditions Claims
9) Damage Claims
10) Loss of profit Claims
11) Wrongful Withholding of Deposits Claims

2.2 Causes of Claims

There are various causes of claim which leads to disputes if not resolve timely and properly. The few
of such causes can be listed as, [1]



Delay in Supply of Drawings,


Delay in Handing over the Site,


Delay in Supply of materials,


Delay in Payments,


Delay in Starting work,


Delay in Completing the work,


Work actually done but not measured and paid,


Refund of maintenance deposit,


Loss due to extra overheads on account of extension of time limit,


Loss due to idle machinery and idle labor,


Due to Design errors,


Due to inadequate or incomplete specifications,


Due to inadequate information related to design.


Due to Inadequate bid information,


Due to Inadequate time for bid preparation,


Due to Change in work scope,


Due to Changes in plans and specifications during construction,


Due to Insufficient plans and specifications,


Due to Extra items and Variations,


Due to non granting of Completion by Engineer in charge.


Due to Poor management and administration of the construction site.


Due to Ambiguities in contract documents,


Due to Different interpretations of the contract provisions,


Due to Unbalanced bidding,
Due to Employers‟ Lack of Construction Knowledge,


Due to Accidents,


Due to Natural Calamity,


Due to Increase in Material / Fuel Cost,


Due to Court intervention,


Due to Weather conditions,
Due to Unforeseen ground conditions

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Volume-4, Issue-2, April-June, 2016, www.iaster.com (P) 2347-8284

2.3 Most Common Claims

II.3.1 Delay Claims

Construction delay claims, or disputes related to schedule impacts, are one of the most common types
of claims in the construction industry. Delay claims typically relate to unanticipated project events
and/or circumstances which extend the project and/or prevent work from being performed as
originally planned.

Delay can be caused by a number of unexpected events during construction which increase the time
required for completing the work or increase the work which must be completed within a specific
period of time. Common causes of delay include the following-



Defective or insufficient plans and specifications
Owner interference


Late approvals


Liaisoning and permit problems
Interference


Disruption owner inaction


Late deliveries or no access to site
Bad weather.

Impact of delay claims



Extended supervision and overheads


Extended equipment costs
Idle labor and equipment


Wages and material escalation


Reduced job opportunities
Lost profit

2.3.2 Differing Site Conditions Claims

When the actual physical conditions on site related to the project differs from that mentioned in the
contract or conditions on site are unusual or differ materially than that of the conditions ordinarily
encountered then these type of claims may arise. Some such can be listed as:

 The presence of subsurface water which is not been indicated by the contract documents;
 The encountering of loose, soft material at a location or an elevation where the contract
documents indicated the existence of sound materials;[5]
 The encountering of ground water at a higher elevation, or in quantities in excess to those
indicated or reasonably anticipated from the contract documents;
 The presence of a higher moisture content in the soils to be compacted than was anticipated
from the contract documents
 The reusable condition of existing material is not as anticipated
 High water table

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 Sub roofing conditions are different than anticipated

 Drainage systems are not as effective as expected
 Presence of boulders
 Presence of unusual material such as railroad ties

Impact of differing Site Conditions Claims



Excess cost requires in removing or repairing the unanticipated material or conditions
Changes in schedule of work due to additional activities involved


Additional labor force, tools and equipment, required
Necessary to engage additional expertise and skilled personnel.

2.3.3 Change Order Claims

Changes are inevitable in construction projects. When changes takes place in scope of work, design or
detailing of project, material specification or methods of performance which is not considered in the
contract, claim may take place between contractor and client. Due to change in work scope or change
in design the quantity of work may increase or decrease and if it is the work from which contractor is
going to get the maximum profit then he can claim for increased rates for performing the extra work.
Such changes affect significantly projects cost and schedule. Though there are various reasons, for
change orders in construction project mainly the reasons are

 Owner initiated changes



Design errors and omissions


Changes in field conditions
Changes/ amendments in rules regulations bylaws

The main effects of Change Order Claims are

 Project delay in completion schedule



Increase in project cost


Decrease in labor productivity
Decrease in quality of work

2.4 Effects of Claims

 Claims appear to hinder the completion of construction and cause delays in delivering projects.
 Claims affect overall budget of the project significantly.
 Claims require significant time and resources to resolve, cause adversarial among the parties
involved.
 Cause adversarial relationships among the parties creating disputes
 Claims cause strained relationship of parties, stalemates, disputes, that may result in to
litigious and arbitral action of the parties, for resolution in contract causing personnel waste of
time preparing for and participating in litigation or ADR
 They generally produce a “paper war” that can destroy personal relationships on the project.
 They result in increased costs and loss of control over the outcome.

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Volume-4, Issue-2, April-June, 2016, www.iaster.com (P) 2347-8284

2.5 Claims Resolution Method

When the problem or variation in the project work is noticed by contractor, he should immediately
notify the same to the owner/ client. On owners part it is essential to respond as quickly as possible.
Contractor should maintain all necessary records and logs for the same. The problem is to be
discussed in regular meetings or special meetings and both the parties should settle the claims as
amicably as possible. If the dispute still continues then mediation is one way to settle the claims in
friendly way. Otherwise arbitration or litigation can be other ways to settle the claims which can be
time consuming and costly for both the parties.

3. CONCLUSIONS

 It is necessary to avoid construction claims at first place for the timely and successful
completion of the project and even if they occur, should be resolved effectively to avoid further
situation of disputes and litigation.
 The defects and loopholes in the contract document. i.e. the contract document may not be
clear, may have dual meanings at different places, or may not have sufficient details causes
claims Also, an unresponsive contract administration may lead to contractor raising the claim.
 Documentation plays important role in avoiding or resolving claim.
 Most common claims are the delay claims.
 An effective claim management process is essential to ensure that any contractual claims arising
are dealt with in a way that is fair to each involved party.
 Contractor ensuring better training of contract management to his team of professionals for
better understanding of the contract helps reducing chances of claims.
 Contractor and owner‟s involvement during design process helps to reduce chances of design
changes.
 The real goal of all the parties involved should be successful accomplishment of the said
project.

4. RECOMMENDATIONS

 All the parties involved should have thorough understanding of the terms and conditions of
contract and of the day to day events and issues on the project
 In the contracts document the rights and responsibilities of contractors, owners and engineers
should be mentioned clearly.
 When events, circumstances, or conditions differ from that called for in the contract, or when
the contractor is being asked to perform work that is different than specified, he should
promptly notify the owner and document what is being done.
 As carefully prepared contract document helps reducing disputes, Contractor should ask owner
to give change orders in writing instead of oral change instructions which later be treated as a
part of contract document. This document should be signed by both the parties before starting
doing any changes in the work.

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 To avoid the claim or successfully resolve there should be meticulous „Documentation‟ and
„Notification‟ followed by both parties. The documents should include, Daily logs,
Correspondence, Reports, Records related to payments, changes, materials delivered, Records
of labors and plants, equipment on site, time records, minutes of meetings, schedules. On
owners side there should be quick response to notifications from contractors.
 There should be trust, understanding and mutual problem solving attitudes on project between
contractor and owner.
 Use software like MSP, Primavera etc. should be made to make bar charts, critical paths,
planning, scheduling, cost control, productivity analysis and most importantly the project
progress report to control the delay of the project.

REFERENCES

[1] Abhishek Shah, „Types and Causes of Construction Claims‟, International Journal of
Engineering Research & Technology (IJERT) ISSN: 2278-0181 Vol. 3 Issue 12, December-2014.
[2] Chaitanya khekale, „Management of Claims and Disputes in Construction Industry‟,
International Journal of Science and Research (IJSR) Volume 4 Issue 5, May 2015.
[3] Awad S. Hanna, ”Risk Allocation and Increased Claims in the Construction Industry” ASCE
Jan 2007.
[4] Ajibade Ayodeji Aibinu, “Avoiding and Mitigating Delay and Disruption Claims Conflict: Role
of Precontract Negotiation” ASCE Feb 2009.
[5] Nor Azmi Bakhary, “Critical Review on Improving the Claims Management Process in
Malasia” Journal of Education and Vocational Research July 2013.
[6] M. Aslam Mirza, „Construction Project Claim Management‟
[7] Michael v. Griffin, “How to Avoid Construction Claims, and What to do about them if they
Occur‟ Hill International, Inc.
[8] Samantha I P, „An Overview of Construction Claims; How the Arise and How to Avoid Them‟
Clark Wilson LLP.
[9] Kamal Ouda Alloh “Investigating of Factors Causes Claims Creation in Construction Projects
in the Gaza Strip – Palestine” January 2014
[10] Waleed El Nemr “Management of Change Order Claims in the Egyptian Industrial
Construction Sector: Analysis and Means of Improvement” A Thesis submitted to the American
University in Cairo, May 2001.

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