Construction Claims & Prevention and Resolution Tips
Claim Management is an unavoidable process in any construction project’s life cycle. The best practice to avoid construction claims such as defect and delay claims is to eliminate the root causes by the alignment of documents before starting a project. Establishing good communication channels between parties is an effective method that is key to resolve disputes at the early stages. However, construction projects especially the larger ones often include uncertainties that might trigger disagreements. Disagreements in construction projects affect both time and cost performance but it is possible to avoid them. Strategies and practices can be used to reduce the frequency of claims during the design, bidding, and execution phases. In this article, we will discuss common types of construction claims such as defect, delay, and extra work and give tips for prevention.
Let’s start by discussing the primary phases of a construction project.
Typically a construction project has four phases;
- Contract Formulation
- Post completion
Most claims occur during the construction phase. However, they are closely related to incomplete scope sentence, incompatible contract documents, and poor design.
In a construction project, once tender documents are completed and the contract is awarded by the contractor, the greatest occasion to prevent claims is missed. During the pre-tender and contract formulation phases, significant elements are under the control of the client. If all the project documentation, design packages, information, and scope are aligned to purpose, the risks will be minimized.
However, construction disputes are endemic in the industry and conflicts are inevitable especially in projects with various stakeholder expectations and requirements.
Basically, problems can be grouped into two categories within a construction project.
- Problems, which have their origin in the planning phase of the project.
- Problems, which are caused by issues and conflicts during the execution phase (construction phase)
Construction Claims Management
Construction claims management is a process that includes prevention and mitigation of construction claims and handling when they occur. Typically, there are two parties involved in the claim management processes.
- The party who makes the claim
- The party who defends against the claim
A claim is an assertion for “something” due or believed to be due which is usually the result of an action. In the construction industry, “something” is often related to additional time and cost result from additional work.
Contractors make claims against the client and subcontractors make claims against the contractors depending on the situations. However, clients make also claims against the contractors depending on the contractor’s low performance or obligations that are not performed.
Common Types of Construction Claims
The below figure illustrates claims settlement methods .
Common types of construction claims including but not limited to the following;
- Delay Claims
- Acceleration Claims
- Change Order and Extra Work Claims
- Differing Site Conditions Claims
- Damage and Defect Claims
- Loss of profit Claims
- Wrongful withholding of Deposits Claims
Claim Management Processes
There are four processes that are closely related to different phases of a project.
- Claim Prevention
- Claim Mitigation
- Pursuing Claims (Claim Identification and Quantification)
- Claim Resolution
Note that if the agreement between the parties is reached, then the claim is resolved and becomes a change.
If the agreement is not reached, the claim may proceed to negotiation, mediation, arbitration, and litigation before it is completely resolved. The below figure illustrates claims settlement methods .
Tips for Preventing Construction Claims During the Execution Phase
Construction claims may occur due to different objectives of parties, scope changes, performance issues, weather conditions, unexpected events, etc. The following recommendations can help you to prevent your project from claims during the execution phase.
1. Before accelerating a contractor, analyze the current status and determine the delays in the contractor’s schedule. If the contractor is not behind the schedule, acceleration may bring just additional cost to the project.
2. All change orders should be recorded from the beginning until the closing of the project. Your document control system should be well established.
3. Require contractors to support their change order cost proposals with updated work schedules. Determine the cost effects of delays or delay impacts of costs in order to avoid construction claims.
4. Prepare time impact analysis for all change orders and determine the activities that cause delays in the critical path. Analyze the activity relationships and calculate the floats to understand their roles on delays.
5. Establish procedures for RFI’s (Request For Information) and improve your RFI process.
6. Establish a register system and set up a SharePoint for all as build drawings, shop drawings, transmittals, submittals, approvals.
7. Establish a daily reporting system for the site. Each report must record labor and equipment numbers, performed work quantity, weather conditions, and idle hours.
8. Periodically evaluate your labor and equipment performance calculations. Such calculations are the principal source of evidence for verifying the contractor’s performance.
9. Prepare a schedule specification and determine the creating and updating processes. Work schedules should reflect the complete scope of work and updates should reflect the real site conditions. Enforce contractors to make updates at least monthly.
10. Require contractors to prepare a detailed breakdown of their bids. Each bid should at least involve material, labor, equipment, and overhead costs.
11. Make sure that the design team produced clear and complete drawings.
Claims are costly and time-consuming demands in construction projects. Claim management is an inevitable but manageable process. Best practice to avoid claims is to manage the breeding grounds by the alignment of documents before starting construction. A well-established change order management and schedule management system helps to avoid claims during the various phases of the project. Also, documentation, communication, and coordination systems should be well established to minimize the effects of claims.
In this article, we discuss construction defect, delay, and extra work claims, and tips for prevention during the execution phase. We hope that it will be useful for professionals and project managers working in the construction industry. If you want to add anything or share your experiences related to construction claims management, you can do by using the comments box below.
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.