CLAIMS

Claim and Disputes

 Theterm claim applies to the differences that are developed during the life of the contract under protests and
potential claims, and that are not yet resolved at the time the contractor returns the proposed final estimate of the
amount of additional money or time asked for.

 Disagreements between the contractor and the owner, and sometimes including the architect/engineer, regarding
the following issues are increasing on construction projects
Interpretation of the plans and specifications
What should be considered as extra work to the contract
Payment for contract work and change orders
Extensions of time
Damages for delay caused by either the owner or the contractor
Changed or unforeseen conditions
Performance of subcontractors
Compliance with contractual requirements
Partial acceptance of a project by the owner
POTENTIAL CLAIMS ACCORDING TO FIDIC
POTENTIAL CLAIMS ACCORDING TO FIDIC
POTENTIAL CLAIMS ACCORDING TO FIDIC
POTENTIAL CLAIMS ACCORDING TO FIDIC
CHANGE ORDERS AND CLAIMS

Claim and Disputes

 Contractor Must Alert Owner
 Contracts normally require that any claim or dispute must be submitted to the
architect/engineer or owner’s representative as the first step in the claims-resolution
process
 Contracts often set forth an appeals procedure so that the contractor can proceed
with its claim or dispute if the architect/engineer’s decision is unfavorable
 When all administrative steps set forth in the contract documents have been
exhausted, the contractor may then, and only then, resort to the courts or arbitration,
if provided for under the contract
 Failure to follow these steps could in itself be considered as a breach of the contract
by the contractor
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Claim and Disputes

 Owner Must Have Opportunity to Correct
 Most contracts contain very specific requirements for “Notice of Claims” or “Notice of
Potential Claims” that set forth specific time frames within which a contractor must
notify the owner
 For example, if the owner’s actions in some way delay the contractor and the project, the
owner must be advised of the situation in order for the owner to have an opportunity to
correct or alleviate the problem
 Without proper notice, the contractor will have very little chance of recovering damages
incurred as a result of such delay after the project is complete
 The owner will argue, and rightfully that it was never made aware of the delay and never
had an opportunity to do anything about it
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Differences Between the Parties

 Ingeneral, most claims issues will fall into approximately 10 classifications, with numerous variations
possible within each category.

 Owner-caused delays in the work

 Owner-ordered scheduling changes

 Constructive changes

 Differing site conditions

 Unusually severe weather conditions

 Acceleration of the work

 loss of productivity

 Suspension of the work

 Termination

 Failure to agree on change order pricing

 Conflicts in plans and specifications

 Miscellaneous problems
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Differences Between the Parties
 In order to establish that a loss has occurred, the court system requires proof for any of
the following:
 The costs associated with the work of the contractor
 The cost for the owner or the contractor to complete the work
 If the owner delayed the contractor, the additional costs incurred by the contractor
 The amount of profit associated with the work performed and for the work not performed yet and
any other consequential damages
 The profit lost by the owner if the project is delayed or the contractor provides defective work

 In addition to filing a claim for damages, an owner or a contractor could file a claim for
consequential damages. These are damages that are beyond direct losses
 Owners might claim diminished or lost profits because of delays

 Contractors could claim they lost the opportunity for additional business or their
bonding capacity was diminished or canceled by the surety
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Construction Delay Claims
 In order to make sure that the projects are completed in time, a “time is of the
essence” clause is added to the contract
 In the absence of such a clause, courts evaluate whether a project was completed
within a reasonable amount of time
 In case the contractor delays a project, the owner can file a claim against the
contractor to recover damages
 Four types of delays occur on construction projects:

1) Noncompensable excusable
2) Compensable excusable
3) Nonexecusable
4) Concurrent
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Construction Delay Claims

 Noncompensable Excusable Delay

 These are not caused by either the owner or the contractor

 They are caused by acts of God, or other unforeseeable causes, that are beyond
the control of both parties
 Such delays entitle contractor to receive time extensions, but not damages for the
delay
 Contracts usually contain a clause, sometimes referred to as a Force Majeure
clause, that lists the causes of delays that are noncompensable excusable delays
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Construction Delay Claims

 Compensable Excusable Delays

 Are caused by owners and result in both a time extension and compensation being
provided to contractors. Compensable excusable delays result from circumstances such
as

 Failure of the owner to provide site access in time

 Owner initiated changes in the work

 Defective design/specifications

 Owner not providing owner furnished equipment/material in a timely manner

 Owner interfering with the work of the contractor

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Construction Delay Claims

 Nonexcusable Delays

 Are attributed to actions or inactions of contractors

 When contractor cause delays to the completion of projects, such delays prevent
contractors from obtaining time extensions for delays; therefore, the contractor might
have to pay damages to the owners. Examples include:
 Failing to the start the work in a timely manner
 Failure to submit shop drawings and related materials to the owner for approval in a timely

manner
 Poor workmanship

 Lack of resources

 Lack of coordination of tradesman and subcontractors

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Construction Delay Claims

 Concurrent Delays

 When more than one event delays a project, it is said to have been delayed by concurrent delays
 Concurrent delays are delays that occur, at least to some degree, during the same time period and
that impact the critical path of a planned sequence of events
 The term “ concurrent delay ” refers to the situation that arises when an excusable compensable
delay and a nonexcusable delay occur during overlapping time periods
 One example of a concurrent delay would be when a contractor cannot commence work on the
second phase of a project because the owner has failed to obtain a necessary right-of-way, and
simultaneously, the contractor is prevented from commencing the second phase by its own
failure to timely complete antecedent first - phase work
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Exculpatory Clause – No damages for Delay

 In an effort to relieve owners from liability for delay damages on construction projects,
many contracts now contain a ‘no damages for delay’ clause
 This is an exculpatory clause (clears someone from an alleged fault)

 It purports (claims) to excuse an owner from contractual liability for damages due to delays
caused by the owner
 Such clauses are not always enforceable by law

 To make this clause more enforceable, the owner should specifically list various types of
delays for which damages will not be paid
 To counter this clause, the contractor can try and convince the court that enforcing this
clause will result in unconscionable (unreasonable) result and that the delays were not
foreseeable and claim that active interference, fraud and unreasonable delays occurred on
the project
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Exculpatory Clause – No damages for Delay

 Advantages
 Fiscalstability in terms of confirmed bid prices
 Eliminates the need for lengthy delay claim litigation
 Contractors would not try to delay the project willfully

 Disadvantages
 High cost of delay contingencies in bids
 Less contractor turnout on bidding
 Enforcement can cause contractor losses/defaults
 Litigation might increase
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Evaluation of partial suspension or partial delays

 Owners can result in delaying a project by creating hindrances from time to time on a project
 Contractor can use the CPM schedule to demonstrate the involvement of the owner in causing
this delay on the project
 In order to establish that the entire project was delayed by partial delays, it need to be shown
that:
 Evidence that original duration and person loading estimates were accurate
 Evidence that partial delay impacted the project
 Evidence that the resources that were present on the project were capable of completing the work in
accordance with the original schedule
 Float in a CPM schedule is considered as a resource and depending upon the type of contract,
can be used by any of the parties to a contract
 A delay to the activities on the critical path amounts to a claim for damages
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Baseline for delay claim analysis

 There are three different times to consider for analyzing a delay claim

 Evaluating delays when the events that are causing subsequent delays occur (estimate or
project forward to assess delay)
 Evaluating delays concurrently with ongoing delays or just after they are completed
 Evaluating delays after projects are completed

 Evaluating delays concurrently is more favored in the industry

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Use of Critical Path Method Schedules to Establish Early Completion Claims

 If a contractor submits a schedule to finish a project earlier than the duration

called for in the contract and that schedule is approved by the owner, then this is
the original duration of the project

 Any delays (intentional) by the owner beyond this agreed completion date will
entitle the contractor to recover damages provided the contractor can prove the
adequacy of his performance plan

 An owner is under no obligation to assist the contractor in achieving early

completion
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Acceleration

 An owner may explicitly or implicitly require a contractor to expedite the schedule

completion date required by the formal contract
 The contractor should recover additional costs based on the theory of directed, or
constructive, acceleration
 The elements that should be present to justify an act of constructive acceleration are
 Excusable delay
 Notice by the contractor to the owner of such delay
 An order by the owner to accelerate (could occur as a threat to terminate for default)
 Notice by the contractor that such an “order” is regarded as a constructive damage
 Incurring cost as a result of acceleration
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Quantification of Contractor Delay Claims

 The types of delay damages that are awarded will vary from project to project
 The categories of damages that could be recovered when a delay occurs are
 Labor and/or material escalation
 Increased engineering and supervision
 Loss of productivity and loss of efficiency
 Interests
 Equipment costs
 Impact costs
 Field and/or main office overhead
 Insurance
 Bonding/Loss of Bonding
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Owner Damages for Delay

 When delays are caused by contractor, owner is entitled to damages for such delays
 These damages may consist of actual damages for the losses incurred, or liquidated
damages.
 The following are damages for delays that could be awarded to owners:
 Loss of use
 Additional damages related to loss of use (increased financing cost, additional fees)
 Increased Interest
 Additional professional fees for architects and engineers
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Minimizing Delay Claims – Appropriate Clauses in Specifications

 Contract completion date – should be reasonable

 Excusable Delay – Weather conditions (daily severities) must be specifically

defined for each stage of work or material used

 Liquidated damages – must be reasonable and the contract should provide the
mechanism on how these would be calculated