PowerPoint Presentation

CONTRACTS & CLAIMS MANAGEMENTTRAINING WORKSHOPSESSION - II September 17, 2011 Conducted By:General Manager ContractsEngr. Tahir B. MirzaEmail: berlas.lhr@gmail.com

2Highlights of Previous Presentation:Following topics were discussed:1- Rules of Engagement for Project Execution & Construction Claims:Introduction. The Contractors Rule of Engagement. Read and know the Contract documents. Develop comprehensive schedule. Prepare daily construction progress reports. Notify the Owner of issues. Keep track of costs. Maintain inclusive documentation. The construction claims. Conclusion.

2-Construction Claim Identification & Record Keeping Guidelines:Introduction. Claim identification. Source of disputechanged conditions. Additional work. Delays. Extension of time. Claim notification. Reserving rights. Record keeping. Typical set of records. Site set A,B,C,D,E,F,G,H.I,J. Original records. Instant memos. Project diaries. Photographs. Managing records.

3-Construction Claims Documentation Guidelines:Purpose. How to establish entitlement & amount of claim. General format for a construction claim. Cover sheet. Executive summary sheet. Actual claim analysis. Summary of claims. Underlying facts. Entitlement analysis. Quantum. Factual support for claims. Attachments. Conclusion.

3Objectives of Training Workshop:Exchange of knowledge for practical purposes.Capacity building through exchange of knowledge to meet futuristic challenges.To evolve & implement strategic approach on all the projects across the organization.To prevent drain of hard earned revenues due to time barred claim cases.To implement proactive management practices rather than reactive responses.To achieve systematic data tracking & report generation on organizational basis.

4Guidelines for Effective Claim Resolution.Process Model for Systematic Claim Event Screening for Administering Construction Claims.Presentations Topics

5Topic - 01Guidelines for Effective Claim Resolution

6Purpose of Guidelines:6Guidelines for Effective Claim ResolutionWHAT IS A CLAIM?A claim may be defined as a legitimate request for additional compensation of cost and time as per terms of the contract and the relevant contract act. PARTIES INVOLVED IN A CLAIMThe EmployerDirectly InvolvedThe ContractorThe EngineerIndirectly InvolvedThe ArbitratorThe Contractor may make claims that addresses changes to work schedule/work methodology & default of the Employer.Alternatively the Employer claim may concern the Contractors failure to perform the work in accordance with contract or Contractors lack of performance.

77Guidelines for Effective Claim ResolutionCLAIM PROCESSThat Construction Claim is a process.This process begins with dispute among the parties involved.Claim is more complex process than a dispute over a monetary reliefClaim involves three things i.e. facts, contract wordings & applicable law.Topics of claim may include changes & delays, Impossibility of performance, defaults, etc.TYPES OF MOST PREVALENT CLAIMSDelays.Directed Changes.Constructive Changes.Project Crashing.Differing Site Conditions.

88OTHER CLAIM TYPES This may include:Defective & deficient contract Documents.Employer Furnished Items.Impossibility of performance.Interference with performance.Miss-Interpretation of contract.Superior Knowledge/Miss-Representation.Strikes.Weather.Suspension.Default/Non-Payments.Termination.Warranties.Guidelines for Effective Claim Resolution

99Guidelines for Effective Claim ResolutionDELAYS:Recognized as most common occurrence.Can upset project schedule.Delay becomes claim only when the activity is enacted by the other party.Items involved in delay which includes the following:Actual cause, specific work activities, impacted delay duration.Once delay occurs the delayed party should give notice to the other.Document the impact of delay.Contractor shall submit request for time extension and compensation of delay cost.Delay in any event may create confusion or disruption.

1010Guidelines for Effective Claim ResolutionDIRECTED CHANGES:Directed change includes any situation, when the Employer directs the Contractor to perform works i.e. different than works defined in contract & specifications of original scope of work.Thus directed change may include the following:Addition of work itemsDeletion of work itemsA change in method of constructionChange in material typeChange in designDirected changes are normally managed through variation orders.Directed change, dispute or claim for compensation may arise regarding the Contractor request for the compensation.The Contractor must notify the Employer in writing that the instruction issued is considered as a directed change.Accepting the directed change by the Contractor without Employers approval can jeopardize the Contractors ability for compensation.

1111Guidelines for Effective Claim ResolutionCONSTRUCTIVE CHANGES:This type of change is caused by the factors other than Employers instructions.Method of constructive change includes:Differing site conditionsDeficient & defective contract documentsDefective inspectionsMiss-Interpretation of contractInterference or disruptionContractor's failure to recognize constructive change or to give timely notice to the Employer may lead to difficulties in resolving the claims.Vigilance is required by all parties to effectively manage the constructive changes.The challenge is to recognize the change in time to effectively lodge the claim.

1212Guidelines for Effective Claim ResolutionPROJECT CRASHING & CONSTRUCTIVE PROJECT CRASHING:It normally occurs when a Contractor must have to expedite the pace of project construction (academic buildings, manufacturing plants, stadiums, military installations etc.).It may occur when a delay occurs but the schedule end date isnt modified.If Contractor causes the delay the cost of acceleration is non-compensable.When Employer directs acceleration to offset delays that are not Contractors fault, then it is a directed change and Contractor is entitled for re-imbursement.The cost of such claim may include the following items:Cost of additional equipment.Premium payment for overtime work.Loss of efficiency due to excessive working hours.Loss of efficiency due to working hours in crowded work sites.

1313Guidelines for Effective Claim ResolutionPROJECT CRASHING & CONSTRUCTIVE PROJECT CRASHING (Contd.)Constructive project crashing occurs when;The Contractor is delayed for reason entitling him the time extension.The Contractor requests the time extension.The Employer refuses to grant time extension.The Employer directs the Contractor to complete the work as per original schedule.The Contractor accelerates & incurs cost.All of above reasons must occur from a Contractor to adopt project crashing techniques.

1414Guidelines for Effective Claim ResolutionDIFFERING SITE CONDITIONS:Commonly known as changed conditions, frequently involves variations from sub surface or under ground conditionsWhen the contract doesnt contain a differing site condition clause, the Contractor still have valid claim against the EmployerKnowledge of contract provisions & site conditions can provide considerable rewards to the Contractor & the EmployerIf differing site conditions are not dealt promptly expensive claims for constructive changes/delays are likely to follow.

1515Guidelines for Effective Claim ResolutionDEFECTIVE AND DEFFICIENT CONTRACT DOCUMENTS:When the Employer provides detailed plans and specifications for a construction contract, the Employer is considered to have given an implied warranty of those plans & specifications to be correct.Under this implied warranty the Contractor without making an independent investigation expects that project completed by time will produce the results desired by the EmployerIf the second assumption isnt true the Contractor is not at fault and may claim extra compensation for any corrective action requiredThis principle is known as the Spearin Doctrine after a decision by the US Supreme Court in 1980. It is widely accepted decision.

1616Guidelines for Effective Claim ResolutionIMPOSSIBILITY OF PERFORMANCE:It may entitle Contractor to relieve from performance of contract.The burden of proof of impossibility is on Contractor.It may arise from erroneous design, specifications describing a performance requirement i.e. beyond the capability of present technology.To prove absolute impossibility Contractor must show that no other Contractor have done the work & that no method would have worked regardless of cost.The commercial non-viability the Contractor must establish that the contract can be performed only at an excessive/unreasonable cost e.g. a tomb made of spotless marble.

1717Guidelines for Effective Claim ResolutionINTERFERENCE WITH PERFORMANCE:This type of claim can result from Employers actions/Inactions.May involve third party constraintsClaim of interference may arise when more then one Contractor share the site e.g. common in multi storey buildings and multi- faceted works.

1818Guidelines for Effective Claim ResolutionDEFECTIVE INSPECTIONS:Employer inspector may require a standard of the workmanship in excess of standard practices.If a Contractor feels that he is held to an in-correct and exceptional standard, he must refer to referenced standards/codes and especially to tolerance limits.The Contractor must be aware of implied industry standards before questioning inspection report.

1919Guidelines for Effective Claim ResolutionEMPLOYER FURNISHED ITEMS:The Employer may have sound economic reasons for making such purchases directly, however these items have the potential for causing claim situations.These claims arise when the Employer furnished items :Are delivered late.Are defective.Are different in nature from the items specified in the contract.Close coordination is imperative to prevent project schedule interruptions.The Contractor needs to notify the Employer about the situation encountered and his intention to claim for compensation.

2020Guidelines for Effective Claim ResolutionSUPERIOR KNOWLEDGE/MIS-REPRESENTATION:Such claims relate to allegations that Employer knew facts but were not disclosed at tender stage.These hidden facts could have significant effects on the Contractors bid or the Contractors performance.In other words there is duty on part of the Employer to abstain from inducing a party to enter into contract through use of fraudulent misrepresentation.Before proceeding to lodge claim on the pretext of superior knowledge, the Contractor must demonstrate that this failure to share knowledge had detrimental effects on the project cost & time.

2121Guidelines for Effective Claim ResolutionSTRIKES:Labor strikes are treated as situations beyond the control of both parties (excluding project site) and are considered as FORCE MAJEURE events.Such strikes entitle the Contractor to the extension of time but rarely grant additional compensation.Contractor is bound to inform the Employer of the project disruptions resulting from labor strikes.

2222Guidelines for Effective Claim ResolutionWEATHER:Coverage of weather varies from contract to contract.The working days are defined as day in which Contractor has ability to work during major part of the day.When rain or Inclement weather prevents the Contractor from working a full day, the day isnt counted as working day.Carefully written contracts defines the contract duration in calendar days, and contain a table of weather days (non-working days), anticipated for each calendar month.And provides for time extension if these extends weather days.In routine contract documents risk of weather is placed simply on the Contractor and in such a case the Contractor may obtain time extension only for extra ordinary weather such as tsunamis, floods, torrential rains, etc.

2323Guidelines for Effective Claim ResolutionSUSPENSION:It is generally self-evidentRights of parties in case of suspension are typically established by contract conditions.Contractor can claim a constructive suspension when work is stopped because of action/inaction of Employer, which is not an explicit suspension.Constructive suspension occurs where Contractor is totally prevented from continuing its work.Should the constructive suspension occurs the Contractor must notify the Employer immediately to preserve its rights.Work suspension clause is normally included in all the construction work contracts.

2424Guidelines for Effective Claim ResolutionDEFAULT/NON-PAYMENT/MATERAIL BREACH OF CONTRACT:Default occurs when either party fails or refuses to perform to a contract.Employer written contracts, this coverage is typically restricted to default by Contractor.In PEC/FIDIC supported contracts, Contractor can claim default when payment isnt made in accordance with contract.As with suspension of contract, the Contractor must provide timely notification to allow Employer to cure the cause of default & vice versa.There are remedies available in the contract Act of 1872 to deal with the breach of contract and its remedies.

2525Guidelines for Effective Claim ResolutionTERMINATION:Contracts may be terminated for cause in the case of default of Contractor or Employer.Contracts may be terminated for convenience as when an Employer decides that facility is no longer needed.In either case contract document should address party rights in event of termination.If contracts are terminated by the Employer by default of the Contractor. Generally the Employer can recover cost to repair defective works, discovered after default as well as cost to complete original works.If cost to complete balance works is more than the balance amount of the contract, defaulted Contractor is usually liable to the Employer for additional cost or vice versa.If the project is bonded, then language stipulated in the bond governs the provisions to complete the works.

2626Guidelines for Effective Claim ResolutionTERMINATION (Contd.):In termination for Employer convenience, the Contractor is entitled to:Payments for the executed works.Cost of works associated with Demobilization.Cancellation of purchase orders.Closing out sub-contracts.Retrenching of manpower.

2727Guidelines for Effective Claim ResolutionWARRANTY:Warranty claims are made by the Employer and are typically governed by the conditions of contract.During defects liability period which is a sort of contingent contract, Contractor is bound to repair and remedy all the defects and replacements of parts. However, if nothing happens the Contractor will not return the sum allocated for this purpose to the Employer.

2828Guidelines for Effective Claim ResolutionCLAIMS FROM EMPLOYERS PRESPECTIVE:Employers have contractual rights to claim damages against Contractor and it includes the following:Failure to pay for labor wagesLabor, material & equipment utilized at projectCompletion & repair of defective worksLiquidated damages for delay in completion of projectCost associated with suspension of worksFailure to perform works in accordance with contract i.e. specifications.

2929Guidelines for Effective Claim ResolutionDOCUMENTING CLAIMS:Documentation is vital construction management function.If the claimant has no authentic records, the worlds best consultants & lawyers cant create them for defense purposes.Likewise if claimant has the record but the documentation, organization, quality are poor , the cost of compiling suitable information for the purpose of claim may be too high.Most important point to remember about documentation is that it must be created at the time of disruption e.g.Letter must be written to record compliance with COC.Confirm verbal requests in writing.Record disagreements with statements written by others.Serve timely notice of request for additional time & compensation.It is imperative to maintain sound record keeping & project documentation system.Proving of the events & consequences of events and causes of problems are essential in resolving change order, issues to avoid construction claims.It is crucial for Contractors to maintain all documentation as historic record of the project.Courts & Arbitrators tends to give greater credence to written documentation than testimonials.

3030Guidelines for Effective Claim ResolutionEFFECTIVE DOCUMENTATION GUIDELINES:Effective documentation result from the following guidelines & maintaining organizational discipline,Project manager must establish a minimum checklist of records for retentionIn best scenario organizing the documentation is the rule not the exceptionThe benefits of documentation are multi faceted,Effective documentation provides data for future project planning;Provides inputs for estimating similar projects.Produces systematic record retention policy.Provides documentation necessary to obtain resolution when dispute arisesA standardized format for organizing the files is beneficial for maintaining effective documentation & was discussed in 1st training session under title of Construction claim identification & Record keeping guidelinesIt is important to remember that the ability to retrieve documentation is almost as important as creating & retaining records.Documentation management can produce a document that is worth substantially more than its weight in Gold.

3131Guidelines for Effective Claim ResolutionCONCLUSION REMARKS:Knowing the types of claims and how to document, prepare & present, and evaluate them is of paramount importance to Effective Claim Resolution.

3232Topic - 02Process Model for Systematic Claim Event Screening for Administering Construction Claims

33Purpose of Guidelines:This process identifies the major information-gathering and decision-making milestones as well as the notice and substantiation compliance checkpoints, which are critical to the development of defense arguments as claims are addressed. It further emphasizes the use of tools such as scheduling, productivity, and economic analysis and other modeling techniques in judging the level of justifications and reasonableness of submitted claims.Claims for additional costs and time extensions result from a variety of events occurring during the course of construction. To enhance the chances of success, Contractors submitting claims must closely follow the steps stipulated in the contract conditions, provide a breakdown of alleged additional costs and time, and present sufficient documentation. On the other hand, project owners need to follow an overall comprehensive step-by-step procedure for tracking and managing the claims submitted by Contractors. 33Process Model for Systematic Claim Event Screening for Administering Construction Claims

34Introduction:Construction projects are becoming more and more complex due to new standards, advanced technologies, and owner desired additions and changes. Problems and disputes have always erupted due to conflicting opinions as to the various aspects of design and construction. With the introduction and widespread application of contemporaneous period analysis CPM scheduling, it became easier to point out where the delays are occurring and how delays in one activity affect others, and possibly the project as a whole, thus allowing objective judgments as to whether Contractors should be entitled to time extensions. On the other hand, the increased complexity of construction processes, documents, and conditions of contracts has been contributing to higher possibilities of disputes, conflicting interpretations, and adverse attitudes. The exhausting and expensive process of litigation has not been making things easier, as unsettled claims that have developed into disputes can take a very long time to be resolved. All the above factors have made claims an inevitable burden in implementing todays construction projects. 34Process Model for Systematic Claim Event Screening for Administering Construction Claims

35Difficulties with Claims :In the construction industry, where contract documents define rights, obligations, and procedures, a claim is a request by the Contractor for an extension of time and/or additional cost and can evolve into a disagreement that may not be amicably resolved by the parties concerned.In any construction project, signicant additional costs can be experienced by the Contractor, the Owner, or both, due to the actions of the other party or parties involved.Disputes over the right to a compensation as well as over the amount of time and/or money to be given often necessitate a resort to litigation, arbitration, or other forms of dispute-resolution methods for settlement.35Process Model for Systematic Claim Event Screening for Administering Construction Claims

36Analyzing a claim presented by the Contractor based upon following highlights:Were the contract requirements met?Did the Contractor refer to the proper clauses in the contract? Does the Owner or Consultant bear part of the responsibility? Was the situation predictable at the time the contract was signed?Were the specications defective? Was the contract misinterpreted? and, if so, which competing interpretation will rule?36Process Model for Systematic Claim Event Screening for Administering Construction Claims

37Claims-Tracking Process Model :A need for an overall step-by-step procedure for claims analysis and administration is therefore crucial for achieving proper resolutions and for preventing claims from developing into disputes. Figure No. 1 shows the sequence of events and procedures that any claim would have to pass through before being resolved. Fig.1. Claims administration model37Process Model for Systematic Claim Event Screening for Administering Construction Claims

3838Process Model for Systematic Claim Event Screening for Administering Construction ClaimsWhat is the list of possible claim causes?Occurrence of a cause for a claimWhat was the direct action causing the claim?Does the Contractor intend to submit a claim?Contractor informs Owner of his intention to file a claimThe Contractor uses established methods of analysis in substantiating his claimCostDirect LabourDirect EquipmentMaterialsSite and head-office overheadProductivity LossTime (CPM techniques)Contractor to update information and value of claim on a cumulative basisContractor may lose the right to claim any extra cost or extension.Does the Contractor accept?No RecoveryDoes the Subject of the claim have a continuous effect?Contractor submits final amount and time claimed with breakdown and details within the specified period.YesNoYesNoNoYes

Conditions to be respected

39Occurrence of Cause for Claim:This event is mainly affected by two things: Recognition of the possible categories of claims causes and directs actions on site that initiate the claim. That is, awareness on the part of the Contractor of work aspects that are susceptible to claim shall first exist.While the claim is only initiated when it is perceived by the Contractor that a triggering action on the part of the owner or Engineer has taken place. 39Process Model for Systematic Claim Event Screening for Administering Construction Claims

40Does Contractor Intend to Submit Claim? Following the occurrence of a claim triggering event, the Contractor makes a careful analysis of the situation and weighs its options.The Contractor may decide not to pursue the claim for following reasons: The grounds for the claim may be shaky. Contractor may want to preserve good relations with the Owner May feel that the subject of the claim is of little significance and can be managed informally. On the other hand, the Contractor may decide to go ahead with the claim.This decision requires that notification requirements be met. This is vital, although the Contractor may not have had a chance to assess the amount of time and/or money he intends to recover. The notication shall make a clear reference to the clause(s) of the contract under which time or cost recovery is sought. Failing to fulll the notice requirements, the Contractor may loose its right.40Process Model for Systematic Claim Event Screening for Administering Construction Claims

41Fig. 1. Continued41Process Model for Systematic Claim Event Screening for Administering Construction ClaimsAccording to the Contract, who is responsible for settling the claim?Does the Engineer bear part of the responsibility for the claim?The Engineer analysis the claim by its type and causesThe Owner is to decide on the extent of the Engineers responsibilityNotice Requirements SubmodelSuitable Claim SubmodelVariation OrdersDiffering Site ConditionsDefective Specs.Conflicting InterpretationsQuantification MethodsFinal Settlement is reachedResort to the method(s) of dispute resolution allowed under the ContractDoes the Contractor accept the decision?Resort to litigationIs the Contractor satisfied with the Engineers decision?The Engineer formally notifies the Contractor of his final decisionAccording to the Contract, is the decision binding?

EngineerOthersNoYesNoNoNoYesYesYesYes

42Methods of Analysis in Substantiating Claim:Generally speaking, the items claimed by the Contractor fall under two major categories:Time and Cost:In the first category, the Contractor requests a modication of contract delivery dates and milestones to offset the delays that it did not cause. In the second category, the Contractor asks for reimbursement to cover the following items:Premium time,Increased equipment cost (rental or ownership),Increased financing costs,Increased site overhead,Increased head office overhead,And decreased labor productivity.Time and Cost categories are very much interrelated. Any delays are apt to cause an increase in all cost items.Any productivity drop causes an increase in the duration required to complete the work. Hence, the Contractor may claim any combination of the above factors, or possibly all of them. 42Process Model for Systematic Claim Event Screening for Administering Construction Claims

43Productivity-Loss Estimation Methods:Claims for productivity losses are generally a cause of tension between the Contractor and the owner. This is due to the great difficulty involved in quantifying disruption effects. The situation is further complicated when the Contractors claim includes the RIPPLE EFFECT, that is, a request for compensation for activities whose productivity suffered indirectly due to the owners actions. The owner is usually reluctant to accept the existence of this ripple effect because it is not readily seen and because it may be used to cover up the inefficiency caused by the Contractors mismanagement. In order to quantify the loss in productivity, the Contractor can resort to any suitable method. Productivity loss estimation methods serve a dual purpose. Not only are they useful in claim analysis, but, if conducted in a timely manner, they also allow the Contractor to utilize the available oat to mitigate the effects of the disruption (by re-scheduling of activities, reassigning crews, and so on).43Process Model for Systematic Claim Event Screening for Administering Construction Claims

44Estimating Cost Items: Compared to delay analysis and productivity-loss estimation, the quantication of direct cost items is a relatively simple issue. By direct cost items, we mean those cost categories in which the increase in cost can be easily proved and valued. Increased equipment and financing costs are examples of such items. On the other hand, some items that are not so easily quantiable such as head office overhead. This section presents the different cost categories that may be the subjects of alleged claims and the means to substantiate such costs.44Process Model for Systematic Claim Event Screening for Administering Construction Claims

45Increased Labour Costs: These are divided into DIRECT and INDIRECT labor costs. An increase in direct labour costs usually refers to those activities directly inuenced by the owners disruption. This increase can be obtained from actual labor work records (which show the increase in work duration) by applying the labor rates used by the Contractor. The Contractor is also entitled to compensation to cover any increase in wage rates that may occur during the delay period. By indirect costs, we mean the costs associated with activities indirectly affected by the disruption i.e. ripple effect. These costs are estimated by using any of the productivity loss estimation techniques.45Process Model for Systematic Claim Event Screening for Administering Construction Claims

46Increased equipment and material costs: The increase in equipment cost is calculated from the delay period and the rates paid / charged by the Contractor for the use of different equipment. Equipment idle times are derived from equipment work records, which show the number, type, capacity, and usage of equipment on a daily basis. Estimating increases in material costs is also straightforward and can be done by comparing actual and revised drawings and by referring to materials records, which give the quantity and description of materials brought to site.46Process Model for Systematic Claim Event Screening for Administering Construction Claims

47Increased Financing Costs:Due to delays, the Contractor suffers increased nancing charges on the overdraft accounts secured to nance the construction process (as the case maybe).To justify its claim, the Contractor should disclose all its trading accounts, so that the quoted interest may be accepted. Otherwise, the current rate of borrowing is adopted (KIBOR +2% adopted by PEC). Also, the Contractor may claim ination costs if the delay period was of such length as to warrant it.47Process Model for Systematic Claim Event Screening for Administering Construction Claims

48Increased overhead costs: This includes both site overhead and head-ofce overhead. An increase in site overhead expenses is usually easier to quantify. It requires the Contractor to disclose its buildup of site preliminaries, showing detailed costs for all items considered as general site items (site infrastructure, cranes, and other general site equipment). Quantifying the head-office overhead, on the other hand, is a tedious business. There is no clear-cut method to quantify head-office overhead, but researchers have come up with many estimation formulas. In general, while pricing a tender, the overhead cost for head-office is assumed as a percentage of the project cost and in M/s.ICPL, a percentage of four to five (4 to 5) percent is considered as the norms.This matter has been discussed in detail in the instructions for overhead cost evaluation documents prepared by the Contracts department which has already been distributed to all the concerned for implementation.48Process Model for Systematic Claim Event Screening for Administering Construction Claims

49Continuous Claim Effect? It is necessary to note if the subject of the claim has a continuous effect. If the effect on the program and budget can be directly assessed after the occurrence of the cause for a claim, there will then be no continuous effect. On the other hand, if the consequences resulting from the claim are not foreseeable or cannot be measured at the time the Contractor notifies the owner, the claim in this case has a continuous effect. Here, the Contractor is asked to give an account with details of the amount claimed and the grounds upon which the claim is based. The Contractor shall at intervals, as the Engineer may reasonably require, send further interim accounts stating the accumulated amount of the claim and any further grounds upon which it is based.49Process Model for Systematic Claim Event Screening for Administering Construction Claims

5050Timely Substantiation Submittals:The Contractor has to submit the total amount of time and/or money claimed within a period specified in the contract from the end of the effects resulting from the occurrence of the cause for the claim. The claim should be presented in a clear and logical manner.An introduction providing details of the parties involved in the claim and all relevant dates and information; A description of the claim events as they occurred and their effects; A description and reference to the steps already taken by the Contractor, such as notices given; A calculation of the cost impact based on a breakdown of actual direct and indirect costs incurred; and A determination of the claimed extension of time based on an analysis of critical and noncritical delays; The documentation usually required for claim analysis has already been discussed in the Training Session-I under the title of Construction Claims Identification & Record Keeping Guidelines.Process Model for Systematic Claim Event Screening for Administering Construction Claims

5151

Fig. 2.Variation orders sub-modelProcess Model for Systematic Claim Event Screening for Administering Construction ClaimsWas the variation order issued due to default on the Contractors part?Does the changes clause cover the disputed work?Do regulations and law specifically require a written order?Was the Owner aware of the changes being performed?Did the Owner explicitly or implicitly agree to reimburse the Contractor?Did an authorized agent of the Owner issue the change order?Was the written change-order requirement waived?The Contractor is to submit a notice of additional price for varied works, with a breakdown of price?Owner is to continue his assessmentThe Contractor is to bear any additional time and costIs it a written or an oral change order?No recoveryN oYesOralWrittenYesYesYesYesYesYesNoN oN oN oN oA(a)YesN o

5252Process Model for Systematic Claim Event Screening for Administering Construction ClaimsDoes the Contract include rates or prices applicable for the varied works?Does the percentage change in total contract price affect the existing rates in the contract?The Engineer is to agree with the Contractor on new rates / pricesThe Engineer fixes new rates/prices for on-account paymentsThe variation order is to be valuedThe Contractor is notified of the valuation resultQuantification TechniquesA(b)Failed to agreeYesNoAgreement reachedYesFig. 2.Variation orders sub-model

5353MethodMajor participantsHow it worksDirect negotiation Representatives of parties Representatives negotiate a settlement to the dispute .Mediation Disputing parties, mediator Mediator goes back and forth between parties in order to bridge differences .Nonbinding arbitration Disputing parties, arbitration board Parties present their cases, arbitration board makes nonbinding recommendations .Mini-trial Top managers of disputing parties, neutral member (three-member panel)Managers present their cases and engage in negotiation, neutral panel member acts as advisor Hire-a-judge Dispute resolution boards Disputing parties, judge One representative for each side, third member chosen by other two(three-member panel)Judge (active or retired) presides over informal trial where parties present their cases Panel is formed at onset of project and is thus familiar with project details and work progress. Panel looks into all arising disputes and passes nonbinding judgment .

Table 1. Alternative Dispute Resolution Methods:Process Model for Systematic Claim Event Screening for Administering Construction Claims

5454According to Contract, Who is Responsible for Settling Claim? The party responsible for giving the final decision should be clearly specified in the contract. Usually the Engineer or a Consultant designated by the Owner is responsible for deciding the outcome of the claim. Often, it is stated in the contract that if amicable settlements are not achieved, other dispute resolution methods can be used, such as arbitration, mediation, dispute resolution boards, and litigation. In Pakistan, the Contract Act of 1872, Law of Arbitration 1940, Code of Civil Procedures 1908 are the applicable legal documents for reference purposes.Process Model for Systematic Claim Event Screening for Administering Construction Claims

5555Does Engineer Bear Part of Responsibility for Claim? The owner has to address the following questions carefully: Was the cause of the claim linked to the part of the Engineer? Was the design defective or incomplete? The owner is usually bound by the actions of the Engineer on site. That is why the Engineer has to make sure that any action he takes is consistent with the terms of the contract. If any of the Engineers actions prove inconsistent with the contract terms, the Contractor may become entitled to the appropriate compensation, which will then have to be paid by the Owner.The Owner, however, has to decide if the Engineer was responsible. Ultimately, it is the Owner who will pay any extra amount.If the Engineer turns out to bear part of the blame, the owner can make the Engineer pay for any mistakes he made. In extreme cases, the Owner can even relieve the Engineer of its obligations and call upon the Engineers professional liability insurance provider to pay for damages resulting from the Engineers default.Process Model for Systematic Claim Event Screening for Administering Construction Claims

5656Engineer Analyzes Claim by Its Type and Causes:In all cases, the Engineer is expected to make an independent, objective judgment of the situation. The Engineer should act impartially, whatever the outcome of the claim may be, and he or she is obliged to recommend that the Contractor be given whatever it is rightfully entitled to under the contract. Once the Engineer has the claim, he will proceed with the analysis based on the claims type and its causes. The tools used for the analysis are the notice requirements sub-model, sub-processes for analysis of the most common types of claims, such as differing site conditions, defective specications, conicting interpretations, and variation orders, and quantication methods for estimating cost and time entitlements.Process Model for Systematic Claim Event Screening for Administering Construction Claims

5757Notice Requirements, Sub model:This model stipulates that the Contractor loses the right to claim if any of the following conditions is met:The Engineer was not formally notied of the occurrence of the cause for a claim; The Contractor did not submit its notice within the allowed duration; The Contractor did not state that its expects extra time or money; and The Owner was biased (unfair) due to lack of notice.Process Model for Systematic Claim Event Screening for Administering Construction Claims

5858Differing Site Conditions, Sub-model:Any of the following conditions, if satised, would negate recovery of cost and time. The contract documents were fairly accurate in representing site conditions.The contract documents do not portray site conditions, but those site conditions do not differ materially from conditions ordinarily encountered in work of similar character.The Contractor relied blindly on the described conditions when a simple site visit would have shown discrepancies between actual and depicted conditions. Process Model for Systematic Claim Event Screening for Administering Construction Claims

5959Defective Specications, Sub-model:Depending on the way the specications were written, two cases arise: Where the specications describe the performance for the work to be achieved, the specications are said to be of the performance type. In this case the Contractor has the choice of the method it wants to use and bears a great risk in producing the desired end result. If the Contractor can show that the described performance was impossible to achieve by any reasonable method and that it did not assume the risk of achieving the specified performance, either through a clause in the contract or through its own actions, then the Contractor is likely to recover any additional cost for the correction of the work. On the other hand if the specications clearly stated the method to be used in performing the work, the specications are said to be of the method type. If the failure occurred before the completion of construction, then the Contractor is unlikely to recover any costs since it is usually responsible for protecting the works during the construction phase. In this case, where the defect was obvious, the Contractor should have brought it to the owners attention. If not, recovery of cost by the Contractor is unlikely. If the Contractor deviated from the specications due to an observed defect, then he or she should have secured the owners approval of such deviation. Finally, the Contractor might not recover if it assumed the risk of defective specications under the contract conditions. Process Model for Systematic Claim Event Screening for Administering Construction Claims

6060Conicting Interpretations, Sub model:Four issues are checked: If the terms used have a plain meaning or a trade meaning, then that meaning is adopted; If the documents were so vague and ambiguous that the Contractor should have inquired about their true purpose, then the owners interpretation prevails; If the past actions of the parties convey a mutual understanding, then this mutual agreement prevails over the written requirements; If the contract is read as a whole, so as to understand the purpose of each section and the interrelationship between different sections, and more than one logical interpretation can be reached, then the order-of-precedence clause is checked to determine which of the conicting documents govern. Otherwise, the construed against the drafter rule applies; that is, the Contractors interpretation governs. Process Model for Systematic Claim Event Screening for Administering Construction Claims

6161Variation Orders Sub-model:Variation orders are formal requests by the owner to change the scope, quantity and/or the quality of part(s) of the works constituting the contract. The claim in this case will result from two possibilities: Disagreement over whether an extension of time is due for performing the varied works; Disagreement on the rates to be applied to the varied works.Process Model for Systematic Claim Event Screening for Administering Construction Claims

6262Quantication Methods:If the analysis shows that the Contractor has valid grounds for a claim, the Engineer now has the task of quantifying the amount of compensation, in terms of cost and time that the Contractor is entitled to. To achieve this purpose, the Engineer has to resort to the quantication methods proposed earlier for the use by the Contractor to substantiate the claim. Process Model for Systematic Claim Event Screening for Administering Construction Claims

6363Engineer Formally Noties Contractor of Final Decision:The Contractor, however, is not ultimately bound by the Engineers decision.Usually, the Contractor can dispute the Engineers decision and has the right to resort to arbitration, litigation, or other dispute resolution methods, as stipulated by the Contract / the Contract Law.Process Model for Systematic Claim Event Screening for Administering Construction Claims

6464Resort to Alternative Dispute Resolution Methods allowed under the Contract:It is useful at this stage to present the alternatives that the Contractor may resort to in order to challenge an Engineers decision. Traditionally, Contractors used to take their grievances directly to court.Litigation is beneficial in that it is not a hasty process.. However, the increasing legal fees and inordinate long trial periods, coupled with the Contractors desire to maintain good relations with the Owner, have made this alternative considerably less desirable.Binding arbitration presented itself as a cheaper and faster means of resolving claims; however; it suffers many disadvantages, most notably the slowness of the process ,due to the busy schedules of the arbitrators.Alternative dispute resolution (ADR) methods are means of resolving claim cases quickly and painlessly. They enjoy a number of advantages over litigation and binding arbitration, informal atmosphere, easier communications, less cost and time, maintaining a working relationship among the parties, condentiality of proceedings, and nonbinding decision. Process Model for Systematic Claim Event Screening for Administering Construction Claims

6565Concluding Remarks:This guideline has presented a process model aimed at addressing the stages through which construction claims evolve. The outcomes from such a systematic claim event-screening exercises are likely to be more acceptable to all parties involved and thus reduce the likelihood of claims eventually developing into disputes, which can be costly to resolve. The model is characterized by a number of major stations of tracking and analysis. These include satisfying notice requirements, claims degree of substantiation and adopted methods of analysis and documentation, and the integration of developed, structured approaches for achieving decisions along technical grounds.Process Model for Systematic Claim Event Screening for Administering Construction Claims

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