Management of Claims through Preventive Contractual Considerations Ali Ghourchi *, Ehsan Saghatforoush, Armin Keshavarzi Ali Ghourchi, M.Se, Student, Department of Construction and Engineering Management, Mehralborz University (MAU), Tehran, Iran, ali,ghourchi@email.com Ebsan Saghatforoush, PhD., Assistant Professor, Department of Construction and Engineering Management, Mehralborz University (MAU). Tehran, Iran, e.saghatforoush@mehralborz.2c.ir ‘Anmin Keshavarzi, M.Sc. Student, Department of Industrial Engineering, Faculty of Engineering Kharazmi University, Tehran, Iran, armin keshavarzi@email.com Abstract One of the most important issues and challenges of large-scale projects in the world is claim management. Projects and executive contracts usually encounter to claims of one of contracts side toward another due to different reasons. Claim is usually a written request together with contractual document that emerges in financial or pertaining to time compensation or realization of other terms that contractually cause conflict between requester, other contract side or employer. Comparative examination of contracts in terms of presenting claim grant provides the possibility to managers for having appropriate tools in selecting proper method of cession and also before beginning work to provide realistic evaluation from probable claims. Also final figure has advantages of introducing proper methods for encountering claims and in case of undertaking these methods probability of emerging unnecessary and disproportionate clashes reduces significantly at the time of claims presentation. This is a practical research using Survey method to collect desired data. This was carried out by asking contractors to fill up questionnaire forms. This study shows that caring about time. cost and quality of any international contract can significantly affect on the claim management process. Key word: claim management, contracts types, international contracts 1 Introduction Claims are inseparable part of moder contract that nowadays their occurrence in industrial projects is a usual event. Concept of claim in contract is not a new concept. But its dark point is managers’ method in evaluating and measuring efficiency of claim process and how to respond to it, On the basis of such outlook many extensive studies and researched are carried out on difference aspects of claim managements [1].Using term "claim" ensures an emotional reaction that often includes accusation and retaliation concepts. This concept also associate with results such as interrupt of relation .clash of opinions and need to arbiter or juristic persecution and these cases altogether lead to delay in work performance and huge costs payment [2]. For avoiding occurrence of such events from 1985 to 1994 various researches are conducted on claims and following these studies two solutions is presented for preventing such cases [3] as follows 1.1 _ Review of legal terms in the contract document On the basis of conducted examinations, a claim takes place when performing a part of contract is possible with violating its other part. In other word, a part of contract sustains a Joss that this loss can be compensated with violating other part of contract [4] In this perspective, root of many clashes can be explored in following items: Deficiency and weakness of contract documentary Initial fault in project real cost calculation Change in terms of work completion Emerging conflict between project interested parts On the basis of this outlook at the time of occurrence of a claim it can be proved contract terms involved in deficiency and inefficiency. 1.2 Assigning a bit of risk to the contracts First time in 1978 it was proposed that risk and probability and consequences of different claims occurrence to be considered and calculated in the course of project [5]. Prominent approach of this analysis is recognizing and examining potential claims that are obtained in review of terms and items of contract, This approach in 1990 became groundwork of new forms of design for contractsas well as an introduction on contracts new engineering in 1993 [6]. In last review that took place in 1995 on arbitraries it was revealed that proper documentary of project activities has important role in conflict settlements. From other side construction and installation industry institution that support research of such type in the United States of America reported in 1995 that in conflict occurrences role of senior management at the time of conclusion and signature of contract is much more important that other project features [7]. In 1993 result of studies indicated that it is necessary for a counselorto put claim management in its priority. Purpose of this attention and priority is not necessarily presentation of lige documentary at the end of project and request of excessive costs, but itis preventing prudently claim occurrence [8]. Conducting such researches as well as frequency of claim occurrence in projects attracted researchers‘attention to managing these claims as well as recognizing variables producing them. In 2001 claim management process was subdivided into pieces such perceiving claim, informing, examining, documentation, announce and negotiation and also by use of comprehensive quality management tool was modeled for prevention.2 Problem statement Contractor is committed to carry out specified work in determined time period with determined cost and quality through contract that is annexed with terms and documents and receive some amount of moneyfiom employeron the basis of terms of contract. Any factor that leads in disturbance in commitment inserted in contract by contractor and employer probably would expose to claim. In fact claim is a tool for proving a right for compensation of imposed costs and time out of contract and is approving ownership of time and cost. Origin of claim occurrence is there individuals: 1- Employer 2+ Third person 3- Contractor At first, some demands from one side are set forth the other side (Claim). If these demands were not agreed by two sides conflict is triggered. Claim is set forth during or at the end of the project duration and ensue undesirable consequences for contractor and employer such as pause in work completion, decrease of motivation of groups engaged in the project, impairment of relation of employer and contractor and cost, time and energy consumption of both side for claim settlement, neglecting some documentaries, deeper conflict and individuals interference, possibility of neglecting and forgetting or falling from importance of some claims [9] This highlights the need for research on preventive methods in contracts to decrease claims in the projects. 2.1 Claim management Claim management is a title that project management institute on the year 2000 added to standard construction and installation special guide PMBOK as one of domains of construction and installation projects management knowledge beside titles of safety management, environment factors management and financial management. This title though didn't insert in main text of this standard but attention of this institute to it can show its importance and role in project management bodyof knowledge. This part includes all policies that are necessary to eliminate or prevent increase of claims as well as managing them in case of occurrence and hence it can be compared with risk management and typical policy in it. These policies are classified in four general part including knowing claims, quantification of claims, preventing claims and claims settlement and for each part specific tools, technies , inputs and outputs is recognized ‘Most important principle in claims management is complete dominance on contract text between both side and its terms and articles. In other word, just by exact reread of contract term and comparing it with existing realities claims can be known and provide itsdeserveand value for setting forth in legal processes. Documentation is another inseparable principle in claim management that in all policies and its executive parts has key role. In claim recognition process, contract terms and scope, description of excessive claimed activities as wellas time needed for completing it are processes inputs deliver claim legal text by use of documentation tools as well as specialistjudgment. Claim legal text together with amount of work that has been carried out for claimed activity is necessary inputs for claim quantification. Sometimes maybe the claim has indirect influence on other aspects of the project such as cost increase, disturbing activities sequences and delay in completion of other activities of the project. It is evident that all these cases can be useful in quantitative estimation and cost of claimed activity. Also comparing "planning" with "reality" is another too] that not only help in claimed activity quantification but also help to recognize its influence on project overall level. Recognizing previous similar cases and comparing among them for achieving to kind of integration of policies in similar claims can be useful in setting forth claim and how to follow it up. This stage ontput is direct or indirect costs of the claim together with increase time for its completion. Though providing an exact contract that all its aspects are defined properly and its probable risks are taken into account is not an easy task, but becoming near to it can decrease as much as possible groundwork of different claims occurrence, Projects scopes exact definition, reasonable and realistic planning, undertaking appropriate method in accomplishing the project as well as benefiting from exact program of risk management can be some Ways to decreasing or eliminating probable claims. Beside mentioned cases clarity and lucidity of contract language, application of appropriate time deadlines for response to both side requests, creating as much as participation condition for both side in project profits, pre-evaluation of contractors competencies, creating conflict examining couneil and so on are tools for eliminating claims or changing them into contracts modifications [10]. It is evident that taking too much time for verifying a claim and taking proper decision for itis not in benefit of none of parties, therefore using methods with low cost and more speed always can be good alternative for legal and juristieprosecutions. Options such as negotiation, mediation and arbitration are measures that before asserting a claimean be useful for settling the problem, though in all these cases an evaluation from cost of mentioned measures must be available so that these costs don't exceed obtained income. 2.1.1 Claim management in different international contracts Claims management has lifetime as long as contract. Maybe there was possibility in setting forth claim and claim occurrence from both sides in simplest and most commonplace contracts. Cases such as predicting delay of rent payment from tenant to hirer and applying legal solutions for its follow-up and taking necessary damages are example of simplest form of claim management in small contracts. There is no doubt that amount and size of presentable claims in a contract is proportional to contract dimensions and therefore in a large-scale contract proper claim management can be very influential in benefit and loss of project between both sides of contract. Claims management in industrialcontract with huge dimensions emerge in new form and is left its traditional structure to such extent that nowadays in many contracts both sides of transaction consider beforehand probable presentable claims in the course of work completion as their own potential financial resource and see it in their calculations and evaluations. Some part of these claims, are usual and typical that inany contract may be set forth and itis evident that for the reason of same frequency prevention methods and response to them is anticipated in the contact. Other claims can be set forth depending to structure of contract, work completion condition andoccurred accidents in the course of project and for the same reason anticipating all of them and solution to cope them in the contract is not possible. Consideration of a proper claim settlement in the project can prevent problems to emerge toa greater extent [11] PMBOK standard recognized four stages for claims management that according to usual policy of this standard each one of these stages is constituted from unique inputs, tools and technics and outputs: * Claim identification: its inputs are contract terms and scope, description of excessive claimed activities and time pertaining to them and its outputs is claim description together with related documentary. Its tools and technics used in it are contract terms and experts judgments, * Claim quantification: its input is claim description and work that is overshadowed by claimed activities, and its outputs are direct and indirect costs, time inerease with related documentaries. Used tools and technics ate quantitative measurement, cost evaluation, contract legal policies and schedule analysis. * Claim prevention: its input are project program, contract terms and risk management program and its outputs are changes and elimination of claim. Used tools and technics includeclarity of contract language, schedule, construction feasibility study, information request policies, pre-evaluation policy, conflict settlement board, common understanding of changes together with related documentary [12] * Claim resolution: its inputs claim description, claim quantification and contract text and its outputs conflict settlement and the end of contract. The used tools and technics include negotiation, alternative solution for conflict settlement, jurisdiction and evaluating costs of claim resolution [13] 2.1.2 Common claims in the international contracts ‘Usual claims that are set forth in contractor's contracts mostlyfall under one of areas of time, cost or quality. For better perception, tangible examples are set forth in following U4]. 1, Claims pertaining to scope and terms of work Claims pertaining to scope and terms of work are those in which employer or contractor due to disagreement in project real scope and terms and its difference with agreed scope at the time of contract conclusion, claim for increase or decrease of the scope and work order and this increase or decrease of work scope forcefilly lead to time and cost. increase or decrease.