See discussions, stats, and author profiles for this publication at: https://www.researchgate.

net/publication/215909221

AN ANALYSIS OF THE EMPLOYERS’ CLAIM MANAGEMENT SYSTEM IN

INTERNATIONAL CONSTRUCTION PROJECTS

Conference Paper · January 2006

CITATION READS

1 1,764

2 authors, including:

Kongkoon Tochaiwat
Thammasat University
182 PUBLICATIONS   64 CITATIONS   

SEE PROFILE

Some of the authors of this publication are also working on these related projects:

ISBE Program View project

MIRED Project View project

All content following this page was uploaded by Kongkoon Tochaiwat on 21 May 2014.

The user has requested enhancement of the downloaded file.

 AN ANALYSIS OF THE EMPLOYERS’ CLAIM MANAGEMENT SYSTEM IN
INTERNATIONAL CONSTRUCTION PROJECTS

Kongkoon Tochaiwat1
Visuth Chovichien2

1
Ph.D.Candidate, Chulalongkorn University, kongkoon@hotmail.com
2
Assoc.Prof., Chulalongkorn University, fcevcc@eng.chula.ac.th

ABSTRACT : To be successful in procurement of a construction project, the employer needs an efficient claim
management system. This research aims at analyzing the communication processes among parties in international
construction projects in order to find the availability of each important data required in the employers’ claim
management processes. The research also seeks to provide guidelines to improve the efficiency of the processes, as
well as to describe the level of importance of each document flowing in the process. In order to establish a
representative model of international construction contract management procedures, the “Conditions of Contract for
Construction (First Edition)” and the “Client/ Consultant Model Services Agreement (Third Edition)” prepared by
Fédération Internationale des Ingénieurs-Conseils(FIDIC) and International Chamber of Commerce’s Rules of
Arbitration (ICC’s Rules of Arbitration) were selected. All documents flowing in the representative model were
analyzed of their availabilities of claim data. The missing data, the level of importance of each document, and
guidelines for improving the system were then identified. The results acquired can be used to improve existing claim
management systems, especially those of employers’ organizations, and can enhance success and fairness to all parties
involved in construction industry.

KEYWORDS : Construction claims, Claim management, Information system, Contract, International project

documents flowing in the process, accompanied by

1. Introduction
An employer needs an efficient claim management
system in order to be successful in procurement of a
construction project. This research aims at analyzing
the communication processes among parties in
international construction projects in order to find the
availability of each important data required in the
employers’ claim management processes, guidelines to
improve the efficiency of the processes, and the level of
importance of each document flowing in the process.
2. Research methodology
This research was performed in the following steps:
1) Analyzing the provisions concerning
communication among parties in an international
construction contract.
The related provisions consist of those contain in
the employer-contractor contract, employer-engineer
agreement and rules of arbitration. In order to establish
a representative model of the international construction
contract management procedures, the “Conditions of
Contract for Construction (First Edition)” and the
“Client/ Consultant Model Services Agreement (Third
Edition)” prepared by Fédération Internationale des
Ingénieurs-Conseils(FIDIC) and International Chamber
of Commerce’s Rules of Arbitration (ICC’s Rules of
Arbitration) were selected [3-5]. The list of all
their reference clause, issuer, and receiver, was created
and used in the subsequent steps.
2) Grouping documents by their purposes and
contents.
In order to facilitate the analysis process,
documents with similar purposes and contents were
grouped together. For example, FIDIC construction
contract agreement and FIDIC client/ consultant
agreement are in the same group because both contain
the parties’ intention to have contractual relationship
with the other.
3) Analyzing the availability of each claim data in
the representative project.
The availabilities of 105 data necessary for claim
management, proposed by Tochaiwat and Chovichien
(2005), were inspected [13]. In addition, the missing
data from all mandatory documents were listed and the
relevant optional documents needed to be added to the
system were analyzed.
4) Calculating “Document Importance Index” of
each document.
Document Importance Index of each document was
calculated by summing of all “Data Importance
Indexes” of all claim data contained in the document.
The higher Document Importance Index, the higher
importance the document is in construction claim
management process [13].
 5) Research conclusion analysis (or schedule analysis) and cost impact analysis
[12].
3. Construction claim and claim management 5) Preparation of claim
process The purpose of this sub-process is to give the other
3.1 Construction claim party in the contract a substantive description and
Construction claim is defined as “a demand or details of claim. Preparing of claims can be divided
assertion by one of the parties seeking, as a matter of into two activities: (1) claim pricing (2) claim filing.
right, adjustment or interpretation of contract terms, 6) Negotiation of claim
payment of money, extension of time or other relief Kululanga (1989) listed five activities involved in
with respect to the terms of the contract” [8]. Several negotiation: (1) ascertaining that all information is
research works confirm the effects of construction current and complete, (2) minimizing the scope of
claims on cost and time of projects. Semple et al. negotiation beforehand so that insignificant points
(1994) found that a large majority of claims involved should not precipitate a violent argument and disrupt
some delays and in a number of cases delays exceeded progress, (3) knowing one’s weaknesses and trying to
the original contract duration by over 100%. As to the utilize weak points by conceding them in return from
project cost, more than half of the claims resulted in the other party, (4) foreseeing problems, and (5)
additional costs of at least 30% of original contract anticipating the opposition’s next move [7].
values [11]. Callahan (1998) reported that transit
agencies in the United States and Canada experienced 4. Documents flowing in a project and availability
an average cost escalation of 7% of contract value from of claim data
settlement of disputes and claims for heavy civil From the analysis, there are 352 documents
contracts [2]. In Thailand, Khanchitvorakul (2000) specified by the FIDIC’s agreements/ ICC rules of
discovered that the average cost escalation from arbitration, which can be grouped into 206 groups of
contract value caused by claims was approximately 7%, documents. Most of them are related to the employer
proximate to Callahan’s finding [6]. or the engineer except 6 groups of documents (8
Although construction claims have significant documents).
effects on the projects, they are not always given From checking the availability of the claim data,
adequate considerations. From the project employers’ there are 18 claim data missing from the mandatory
point of views, one of the problems is that they the do documents of the representative project, as shown in
not realize what data are required in managing their Table 1.
claims and how important such data are.
Table 1 Claim data missed from the representative
3.2 Construction claim management project
There are a number of sub-processes related to Group Claim data
construction claim management. Levin (1998) 1. expert’s opinion 1) engineering expert’s opinion
indicated seven basic sub-processes for claim and 2) financial expert’s opinion
change order administration [8]. They are: 2. equipment 1) hourly employer's equipment
1) Recognition and identification of change operating cost
Construction claim recognition and identification 2) hourly employer's equipment
involves “timely” and “accurate” detection of a ownership cost
construction claim. It is the first and critically 3. financial 1) contractor’s cost of capital
important ingredient of the claim process [7]. 2) employer’s cost in the
2) Notification of change segmented cost code
Construction claim notification involves alerting 3) original employer’s cash
the other party of a potential problem in a manner that flow
is non-adversarial. Time limit requirements are very 4) actual employer’s cash flow
crucial and critical and normally specified in the 5) employer’s cost of capital
contracts. 6) required project rate of
3) Systematic and accurate documentation of return
change 4. relationship 1) relationship between
Records and documentation play a very important employer and third party
role in the settlement of contract claims. However, 2) relationships among each
there are a lot of evidences showing that the importance contractor’s works
of record management is not realized as much as it 3) relationship between designer
should be [9, 10]. and contractor in the project
4) Analysis of time and cost impacts of change 5. employer’s use 1) date of each use of works
There are a number of literature concerning the of works 2) purpose of each use of works
calculation procedures of the time and cost impacts 6. visitor 1) date of site visit
caused by the events leading to rights to claim. These 2) name of visitors
can be grouped into two major categories: time impact 3) purpose of each site visit
 Without the claim data listed in Table 1, the Table 2 Recommended additional documents for
employers cannot perform correct and acceptable enhancing claim management efficiency (Cont.)
analysis of construction claim liabilities and claim No. Group Claim data missed from
quantum and will lose their claim management mandatory documents
efficiency. In order to acquire the mentioned missing 6 1) record of 1) employer’s cost in
claim data, additional 14 groups of documents (18 employer's the segmented cost
documents) should be included into projects. Table 2 financial code
shows the additional documents accompanied by their transaction 2) actual employer’s
relevant missing claim data. 2) financial report cash flow
3) employer’s cost of
Table 2 Recommended additional documents for capital
enhancing claim management efficiency 7 feasibility report 1) original employer’s
No. Group Claim data missed from cash flow
mandatory documents 2) required project rate
1 1) consultant's 1) relationship between of return
monthly report employer and third 8 employer's financial 1) original employer’s
2) consultant's party plan cash flow
weekly report 2) date of each use of 2) required project rate
3) consultant’s works of return
daily report 3) purpose of each use 9 notice of 1) contractor’s cost of
of works contractor's cost of capital
4) date of site visit capital
5) name of visitors 10 notice for use of 1) date of each use of
6) purpose of each site works by employer works
visit 2) purpose of each use
2 site diary 1) relationship between of works
employer and third 11 report of site 1) date of site visit
party visitor 2) name of visitors
2) date of each use of 3) purpose of each site
works visit
3) purpose of each use 12 project's master 1) relationships among
of works schedule each contractor’s
4) date of site visit works
5) name of visitors 13 contractor's daily 1) date of site visit
6) purpose of each site report 2) name of visitors
visit 3) purpose of each site
3 meeting minute 1) relationship between visit
employer and third 14 contractor's weekly 1) date of site visit
party report 2) name of visitors
2) date of each use of 3) purpose of each site
works visit
3) purpose of each use
of works Some of the recommended documents are directly
4) relationship between available to the employers or their engineers such as
designer and consultants’ reports, records of the employer’s
contractor in the equipment cost and feasibility report, while some data
project have to be based on the contractor’s notices or reports
4 1) notice of expert's 1) engineering expert’s such as contractor’s cost of capital and details of each
opinion opinion site visiting by the external persons. Sometimes,
2) report of expert 2) financial expert’s occurrences of claim can be recognized by a visit of the
opinion contractor’s legal department staff or the lawyer [1].
5 record of 1) hourly employer's
equipment cost equipment operating 5. Document Importance Index
from employer cost Document Importance Index indicates how
2) hourly employer's important the document is in managing claims. It can
equipment ownership be calculated by summing of the all Data Importance
cost Indexes of the claim data contained in the document.
From ranking all documents in the representative
project by their Document Importance Index, there are
78 groups (159 documents) with high importance, 65
groups (103 documents) with medium importance, and respectively. Table 3 shows top ten documents with the
82 groups (122 documents) with low importance, highest Document Importance Index.

Table 3 Ten documents with highest Document Importance Index

Rank Group Reference Clause/ Document
Sub-clause* Importance
Index
1 1) consultant's monthly report N.A. 60.98
2) consultant's weekly report
3) consultant’s daily report
2 meeting Minute N.A. 51.22
3 1) notice of expert's opinion N.A. 46.39
2) report from expert
4 1) Statement at Completion 1) G.C.14.10[Statement at Completion] 39.70
2) drafted Final Statement 2) G.C.14.11[Application for Final Completion
Certificate]
3) Final Statement 3) G.C.14.11[Application for Final Completion
Certificate]
5 1) publications 1) G.C.1.8[Care and Supply of Documents] 35.48
C.A.42[Publication]
2) cost indexes 2) G.C.13.8[Adjustments for Changes in
Legislation]
3) selling exchange rate 3) G.C.14.8[Delayed Payment]
6 site diary N.A. 35.18
7 1) notice of dispute information to Dispute 1) G.C.20.4[Obtaining Dispute Adjudication 34.64
Adjudication Board (DAB), designated Board’s Decision]
representative, mediator, arbitrator C.A.8[Decisions]
C.A.43[Amicable Dispute Resolution]
2) request for decision or opinion from DAB, 2) G.C.20.4[Obtaining Dispute Adjudication
Designated representative, mediator, Board’s Decision]
arbitrator C.A.8[Decisions]
C.A.43[Amicable Dispute Resolution]
3) request for arbitration 3) G.C.20.6[Arbitration]
I.C.3[Request for Arbitration]
4) notice of answer of request for arbitration 4) I.C.4[Answer to the Request]
5) notice to make counter-claim 5) I.C.5[Counter-claim]
6) notice to reply counter-claim 6) I.C.5[Counter-claim]
8 1) Interim Payment Certificate 1) G.C.14.6[Issue of Interim Payment 32.75
Certificates]
2) Final Payment Certificate 2) G.C.14.11[Application for Final Payment
Certificate]
3) certificate of first installment of advance 3) G.C.14.2[Advance Payment]
payment
4) certificate of payment of retention money 4) G.C.14.9[Payment of Retention Money]
5) payment certificate in case of optional 5) G.C.19.6[Optional, Termination, Payment
termination And Release]
9 1) notice to claim 1) G.C.2.5[Employer’s Claim] 32.19
G.C.20.1[Contractor’s Claim]
C.A.18[Limit of Compensation and
Indemnity]
2) notice of monthly claim details 2) G.C.20.1[Contractor’s Claim]
3) notice of final claim details 3) G.C.20.1[Contractor’s Claim]
4) notice of claim for intellectual and 4) G.C.17.5[Intellectual and Industrial Property
industrial property right Rights]
5) notice of delay caused by employer or 5) C.A.25[Delays]
contractor
Table 3 Ten documents with highest Document Importance Index (Cont.)
Rank Group
10 1) notice of DAB’s decision or opinion
2) notice of arbitrator's award
3) notice of designated representative’s
decision
4) report of decision of minority of DAB
5) notice of employer's decision
6) notice of recommendation or non-binding
opinion by mediator
7) record of fact agreed in mediation
8) notice of award by consent
9) drafted award
10) notice of the Court of Arbitration's
decision
11) notice of chairman of the Court of
Arbitration's urgent decision
* G.C. = FIDIC’s General Conditions of Contract [5]
I.C. = ICC’s Rules of Arbitration [3]
Table 3 reveals the importance of the reports
prepared by the consultants, minutes of meetings,
statements, site diaries, and certificates. The documents
acquired from external sources such as notices of
expert’s opinion, publications, cost indexes, as well as
exchange rates also have significant roles in
substantiation of claims. The documents flowing in
claim process and dispute resolution process tend to
contain the information necessary for proving one’s
rights and responsibilities, which is in accordance with
their high indexes.
6. Conclusion
This research examined all documents flowing in
the representative model to find the availabilities of
claim data. The missing data, the level of importance
of each document, and guidelines for improving the
system were also presented.
There are 18 claim data missing from the
mandatory documents specified in FIDIC’s
construction contract, FIDIC’s client/ consultant
agreement, and ICC’s rules of arbitration. In order to
acquire all necessary claim data, additional 14 groups
of documents (18 documents) should be included.
Furthermore, employers should pay attention to the
consultant’s reports, meeting minutes, notice of expert
opinions, statements, external data, site diaries, and
certificates.
Preparation of the suggested additional documents
and paying attention to the documents with high
importance index can improve existing claim
management systems, especially those of the
employers’ organizations, and can enhance success and
Reference Clause/ Document
Sub-clause Importance
Index
1) G.C.20.4[Obtaining Dispute Adjudication 31.52
Board’s Decision]
2) G.C.20.6[Arbitration]
C.A.44[Arbitration]
3) C.A.43[Amicable Dispute Resolution]
4) G.C.20.4[Obtaining Dispute Adjudication
Board’s Decision]
5) C.A.8[Decisions]
6) C.A.43[Amicable Dispute Resolution]
7) C.A.43[Amicable Dispute Resolution]
8) I.C.17[Award by Consent]
9) I.C.21[Scrutiny of Award by the Court]
10) I.C.23[Notification of Award to Parties]
11) I.C.1[Court of Arbitration]
C.A. = FIDIC’s Client/ Consultant Agreement [4]
fairness to all parties involved in the construction
industry.
7. Reference
[1] Adrian, J. J., 1988. Construction Claims: A
quantitative Approach. New Jersey : Prentice-Hall.
[2] Callahan, J. T., 1998. Managing Transit
Construction Contract Claims. Synthesis of Transit
Practice 28. Washington : National Academic Press.
[3] Craig, W. L., Park, W. W., and Paulson, J., 1990.
International Chamber of Commerce Arbitration.
Second Edition. Paris : ICC Publishing S.A.
[4] Fédération Internationale des Ingénieurs-Conseils
[FIDIC], 1998. Client/ Consultant Model Service
Agreement. Third Edition. Lausanne : FIDIC.
[5] Fédération Internationale des Ingénieurs-Conseils
[FIDIC], 1999. Conditions of Contract for
Construction. First Edition. Lausanne : FIDIC.
[6] Khanchitvorakul, S., 2000. Development of
Construction Claim Supporting System. Master of
Engineering King Mongkut University of
Technology Thonburi.
[7] Kululanga, G. K., 2001. Construction Contractors’
Claim Process Framework. ASCE Journal of
Construction Engineering and Management,
Vol.127, No.4 : 309-314.
[8] Levin, P., 1998. Construction Contract Claims,
Changes & Dispute Resolution. Second Edition.
Boston : ASCE Press.
[9] Pogorilich, 1992. The Daily Report as a Job
Management Tool. Cost Engineering, Vol.34, No.2 :
23-25.
[10]Scott, S. and Assadi, S., 1999. A Survey of Site
Records Kept by Construction Supervisors. Journal
of Construction Management and Economics,
Vol.17 : 375-382.
[11]Semple, C. et al, 1994. Construction Claims and
Disputes: Clauses and Cost/ Time Overruns. ASCE
Journal of Construction Engineering and
Management, Vol.120, No.4 : 785-795.
[12]Tochaiwat, K. and Chovichien, V., 2004.
Contractors’ Construction Claims and Claim
Management Process. Research and Development
Journal of the Engineering Institue of Thailand,
Vol.15, No.4 : 66-73.
[13]Tochaiwat, K. and Chovichien, V., 2005. .
Construction Claim Management System for
Construction Project Employer Seminar. Bangkok.
View publication stats