Preventing Claims and Construction Claim Management Process
Construction claim management is an unavoidable process that you have to conduct successfully while managing a construction project. Many of the construction claims result in 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 the construction claim management process.
Construction Claims and Responses
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 provided 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.
Typically there are two main participants in a construction business: the owner and the contractor. The construction contract which is signed between the parties provides rights to both of them. The owner’s right is to issue change orders under the terms of the contract and the contractor’s 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 Project 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 a project. Because they give the right 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 a written form when there is a change in contractual terms or the when owner’s representative demands additional work for acceleration.
Contractors often use RFI (Request for Information) as a communication tool to get information regarding the status. Typically, RFI’s include a 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 arise from these RFI’s because contractors often create RFI’s to notify that their operations are stopped due to the incomplete plans and specifications or they became unproductive because 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 that 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 Project 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 project’s 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 project’s 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.
It is essential to manage claims by understanding the root causes and take actions such as the alignment of documents and keeping site records in an efficient way. It is often cheaper to resolve the disputes between parties by mutual understanding. It seems that most of the claims occur during the construction phase. However, poorly prepared contract documents are the breeding grounds. In other words, once tender documents are completed and the contract is awarded, you can only avoid claims during the construction phase.
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 the design and bidding phases.
Better planning, better management, better communication, and cooperation between the parties are key to manage construction claims.
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Victor Z Young is a Civil Engineer with 35 years of experience working alongside the executive team of various construction companies. Victor specializes in construction insurance, delay analysis, performance analysis and engineering. He holds a Doctor of Project Management from Northwestern University.