Project Procurement &

Contract Management
Lesson -9-Cont’d
Contract Administration
Prof. Dr. Shahid Naveed

2022
Claims
 Claims (Slide Repeated)
• Claims are the unfortunate result of change on conditions that the
contractor considers to be a materially changed condition, but the owner
does not agree.
• Often claims result from a disagreement on the meaning of the terms of
the contract. Claims often result from poor communication and a claim
will be compounded by poor communication.
• Contracts require that a contractor notify the owner of claims within a
specified number of days, and then proceed with the work. The contractor
cannot refuse to proceed with work that is within the original scope, but it
is sometime difficult to determine whether work is within the original
scope.
• Contractors must read the contract to determine what process must be
followed to file a claim.
• Successful settlement of a claim depends on adequate documentation. Con­
tractors have learned to maintain high-quality daily records of the events
in the field. Good records include meeting minutes, records of telephone
conversations, project photographs taken regularly, and other records that
would re-create an accurate picture of the events that caused the claim.
Contractor’s claims (FIDIC)
• Clause 20.1 provides for and sets out procedure.
• Claims include:
• Delayed Drawings or Instruction – clause 1.9
• Late Access or Possession clause 2.1
• Setting out reference point errors – clause 4.7
• Adverse unforeseeable conditions – clause 4.12
• Extension of Time – clause 8.4
• Interference with tests – clause 10.3
• Variations – clause 13.3
• Change in law – clause 13.7
• Force Majeure – clause 19.4
Contractor’s claims [sub-clause 20.1]
• If Contractor considers it is entitled to EOT and / or additional
payment, under any Clause, it shall give notice to Engineer
detailing event or circumstance.
• Notice MUST be as soon as practicable but No later than 28
days after becoming aware, or should have become aware of
event of circumstance.
Failure Will Result In Loss Of Entitlements And No Claim!!
• Contemporary records must be kept. Within 42 days of
becoming aware, or should have become aware, of event (Not
date of notice) fully detailed claim to be submitted.
Managing claims
• Understanding
of the Contract
of the allocation of risks
of the obligations of the Parties.
• Recognize the notice periods and any other time
requirements
Presentation of claims
Claims – principles of presentation
• Cause
• Effect
• Justification
• Evaluation
• Substantiation
Presentation of claims
Vital contemporaneous supporting evidence might include :
Tender / Contract Information
• Works Records Sheets • Photographs (dating facility essential)
• Daily Record of labor and plant, • Agreed measurements of works
staff etc. • Delay Notices
• Materials received / issued records • Claim Notices
• Drawings Register • Material Orders / Invoice
• Correspondence and Meeting • Subcontract Accounts
Minutes • Cost Reports
• Site Diaries • Program Updates
• Site Instructions
• Variation Orders
• Day-work
 Presentation of claims
A well presented claim should fall conveniently into sections, each
one with its own important part to play in the overall presentation
An example format could be:
1. Introduction
2. Executive Summary
3. Contractual Terms
4. Planned Sequence of Construction
5. Actual Sequence of Construction
6. Events and their Affects upon the Sequence of Construction
7. Program Affects
8. Evaluation
Liquidated Damages &
Substantial Completion
 Liquidated Damages and Substantial
Completion
• Liquidated damages are paid by the contractor to the owner if the contractor
exceeds the allowed contract time period.
• A contract may require liquidated damages of a few hundred dollars per day
to many thousands of dollars per day. The amount is determined before the
contract is advertised, and it is based on an estimate of actual costs the
owner or the public would incur by the late comple­tion of the work.
• To avoid the imposition of liquidated damages, contractors must actively
manage the project schedule. The project manager must have a realistic
sched­ule to complete the work. In addition, change order work must always
include additional time for the added work as part of the negotiation
process.
 Liquidated Damages and
Substantial Completion
• Contractors must know the requirement of each contract and
the definition of substantial completion.
• The general rule (not a legal rule) is that the work must be
done. The facility must be ready for the owner to move into
and use. There can still be a "punch list" of items the con­
tractor needs to correct to reach final completion. Punch list
items can be any­thing from touching up paint to completing
the landscaping. Punch list items cannot be substantial items
of work such as installing the windows and doors, or
completing the air-conditioning system.
• If main items of work are complete, the facility may be
"substantially complete."
Final Inspection
 Final Inspection
• When project is substantially complete and the owner agrees
that the project is ready for acceptance, as defined in the
contract docu­ments, the "final inspection" will be scheduled.
• Contractors should treat the final inspection as a formal
contract requirement. It is the owner's last formal opportunity
to walk through the facility to identify remaining work items
and to formally accept ownership of the facility. The final
inspection is used to gen­erate the final punch list. The owner
and the contractor agree on the punch list items.
• When the punch list items are done, the contract requirements
are fulfilled.
• The contrac­tor should be required to return to the site only for
possible corrective work covered in the warranty.
Defect Liability Period
Defects liability period

• A defects liability period is a period of time following practical

completion during which a contractor remains liable under the
building contract for removing / correcting any defect which become
apparent.
• A defects liability period is usually a period from around six to 12
months but it can vary depending on the contract agreement.
• Higher the defect liability period, Client wants, the higher the bid
price he will receive.
 Contractual Disputes &
Alternate Dispute Resolution
 Contractual Disputes

• Contractual disputes typically arise when a party does not

comply with the terms of a contract or does not perform their
side of its obligations under a contract. In such an instance,
this may give rise to a claim for breach of contract.
Alternative Dispute Resolution
Common alternative dispute resolution methods are
i. Partnering
ii. Project Neutral
iii. Negotiation
iv. Mediation
v. Arbitration
vi. Mini Trials
i. Partnering
• Partnering has gained familiarity as a philosophy of
construction management. The basis of partnering is trust.
• Partnering meetings are held before the project starts in an
effort to develop a level of trust between the owner and con­
tractors. Common goals and objectives are identified.
• A charter, in which all par­ties resolve to operate in an
atmosphere of trust, is written and signed.
• A dispute resolution framework is put in place to require
problems to be solved in the field within a very limited
number of days, maybe only three days, or elevated to the
next level of management.
• Monthly partnering meetings are held. All meetings are
chaired by an outside facilitator to create a "level playing
field" for the contract partners. The move toward partnering
appears to be very successful.
ii. Project Neutral
• Project neutral is a new approach to dispute resolution that is being used
on very large, highly technical projects.
• The project neutral is a person (or team) that is hired before the contract
is awarded, and who participates in the project throughout the project
duration.
• The project neutral is technically knowledgeable, and extremely well
informed in matters of construction and the contract requirements. The
project neutral does not represent the position of any of the project
parties and does not advocate positions taken by any party.
• The project neutral is analogous to an official (third umpire), providing
expert on-the-spot decisions when they are needed. Typically the proj­ect
neutral visits the project often enough to remain well informed of the
status of work, and of the beginnings of any disputes or potential claims.
• The function of the project neutral is to reach a solution to disputes. The
finality of the deci­sions made by the project neutral depends on the
provisions of the contract.
 iii. Negotiation
Resolving a problem through negotiations, at the lowest level, is
the best possible scenario. Effective negotiations often take 6 steps
to resolution.
1. Statement of Position
2. Statement of difference
3. Suggestion of alternatives
4. Evaluation of alternatives
5. Reach an Agreement
6. Obtain commitment
 iv. Mediation
• Mediation is an alternatives that is less costly and time
consuming than arbitration.
• Mediation is a system of selecting a neutral third party to
assist the parties to reach a mutually acceptable
agreement.
• The mediator serves as facilitator to solve dispute. There
is nothing binding about a mediation process. It is
undertaken by mutual agreement of the parties involved,
in an attempt to resolve a dispute.
• Oftenly, it is the last step before arbitration or litigation,
and represents the efforts of both parties to avoid
litigation.
v. Arbitration
• Arbitration is slightly closer to litigation in philosophy than
mediation because the arbitrator imposes a solution on the
parties to the dispute, and the parties agree to accept the
arbitrator's solution. The process is less costly than a law­suit.
• Arbitration is not court, and findings of arbitration is not
binding except mentioned in the Contract Agreement.
• The arbitrator is selected by mutual agreement. The parties to
the dispute can make the arbitration process binding by
mutual agreement because both sides want to avoid the
expense of a litigation.
• The arbitrators are usually experts in the kind of construction
issue in dis­pute, providing a more informed decision than
might be obtained in court, where the judge cannot possibly
be an expert in every area of litigation presented. Most judges
are not as knowledgeable about construction matters as
arbitrators.
vi. Mini Trials
• Mini trials allow each side to present its position in the
dispute, and then a judge renders a decision.
• They are judicial proceedings. They have not proven
to be very successful because the opposing sides have a
tendency to escalate the proceedings into a normal
hearing, and leave the "mini" description behind. The
level of effort that goes into them tends to grow, and as
a result they fail to accomplish their intended purpose.
2022