Preventing Claims and Construction Claim Management
Construction claim management is an unavoidable process while managing a construction project. Many of the construction claims result with time extension and/or additional payment. Contractors make claims due to costs related to overtime, overhead, acceleration of the project, low efficiency, etc. It is possible to analyze the root causes of claims and take preventive actions in order to minimize the possibility of occurrence. In this article, we will discuss construction claims and construction claim management.
Before to start let’s take a glance at the history of construction claims. The number of construction claims has increased since the middle of the 1970s. Most of them were related to delay, schedule and performance issues. As a result of many construction cases (Chantilly, Pittman, etc.) in the 1980s, court decisions give a new point of view to both contractors and owners. Hence, this provides a common practice to the contractors for reserving their rights rather than agreeing on everything related to changes and delays.
There are two participants in the field of construction business who are the owner and the contractor. The construction contract which is signed provides rights to both parties. Owner’s right is to issue change orders under the terms of the contract and the contractors right is to reserve his rights for delay and cost impacts.
Since most of the claims are related to delay, acceleration, disruption, and performance, the issue of planning, scheduling and performance reporting became key issues for an effective construction claim management process.
The Importance of Documentation and Timely Response in Construction Claim Management
Project documentation is very important to store the project information. Daily logs, photographs, cost reports, schedules, minutes of meetings, RFI’s (Request for Informations), shop drawing logs are the contemporaneous documents that should be created and maintained through the life cycle of the project. Because they give the real answer to the question: “What has happened ?”.
Basically, the contractor’s documents can differ from the owner’s. Because of their bias and interpretation of project problems can often be different from each other. Therefore contemporaneous documentation is the best way to prevent construction claims.
Timely response is as important as documentation. A successful contractor notifies the owner in writing when there is a change or the owner’s representative demands additional work or acceleration. Contractors often use RFI (Request for Information) as a communication tool to obtain information regarding the status. Typically, RFI’s include question or comment section to be filled out by him and a response section to be filled out by the owner.
Reservation of right claims often arises from these RFI’s because contractors often create RFI’s to notify that his operations are stopped due to the incomplete plans and specifications or he became unproductive because of the owner’s engineers didn’t lead in a direction.
Timely response is also important for the owner to timely monitor the contractor’s schedule performance and responds to the submittals.
Types of Construction Claims
Contractors make claims against the owner to reserve their rights and owners make claims against the contractors considering the contractor’s low performance or obligations which are not performed.
Below are some of the typical construction claims that the contractors make ;
- Late issuance of the notice to proceed
- Delayed access to the site
- Late approval of the submittals
- Delayed payment
- Changed conditions
- Schedule changes
- Delay in answer to field questions
- Changes in the method of construction
- Owner directed changes
Tips for Preventing Claims and Construction Claim Management
The following recommendations can help you to prevent your project from construction claims during the design and bidding phases. In the construction industry, the most common claims against the clients are related to delays and time extensions that cause to make additional payments to the contractors.
1. Be aware of the contract documents because a construction contract is a legal agreement between the client and the contractor. Read and understand the scope of work, general and special conditions and analyze the work schedule, designs and bill of quantities.
2. Recognize the project delivery method (design-build, design-bid-build, design-build-operate, turnkey) being used.
3. Create a compatible organization chart for your project and determine the responsibilities clearly. Determine who should have the responsibility for work schedule, contracts, claims, payments, changes, submittals, transmittals, and approvals.
4. Prepare the technical specifications carefully and specify your projects needs and expectations from the contractor.
5. Prepare the work schedule specifications in order to clarify the milestone dates, project start and finish dates, site handover date, and constraints. The work schedule specifications should have adequate information about your projects time performance needs.
6. Enforce prime contractors to involve their subcontractors in schedule preparation and execution.
7. Create a library for original documents and revised documents used for design and bidding phases. Be aware of the importance of an effective document control system.
8. Assemble regular meetings with your team to identify the remarkable features of constructive changes and train them. Establish procedures for identification, documentation, and solution.
Effective construction claim management is very imperative for achieving the project’s goals. Avoiding or minimizing claims is a proactive action from the beginning until the closing of the project. If the project documents are prepared with adequate information in the early phases of the project and the project team is trained with effective coordination and communication, it will be easy to avoid claims during design and bidding phases.
Better planning, better management, better communication and cooperation between the parties are key to avoid construction claims.