Introduction
Construction projects are inherently complex, involving numerous parties, intricate contracts, and unforeseen challenges. Claims can arise for various reasons, including delays, changes in work scope, unforeseen site conditions, and breaches of contract. These claims often involve substantial sums of money and can significantly impact a project's timeline and budget. Understanding how to prepare, submit, and defend claims is crucial in influencing the outcome of construction disputes and ensuring that our clients' interests are adequately protected.
Types of Construction Claims
Construction claims cover a wide range of issues, including delay claims by the contractor for extended overhead costs, and by the owner for liquidated or actual damages. Disruption or loss of productivity claims arise from reduced efficiency, while acceleration claims address costs incurred to expedite work. Other claims can result from differing site conditions, significant scope alterations (cardinal change claims), or changes implied by the project owner’s actions (constructive change claims). Additional claims may involve defective or inadequate contract documents, project termination or suspension, variations between estimated and actual quantities, gross negligence or willful misconduct, lost profits, misrepresentation, substandard work quality, failure to meet industry standards, adverse weather conditions, impossibility of performance, unjust enrichment, superior knowledge, and breaches of implied warranties.
Strategies to Detect Claim Situations
Early detection of potential claim situations is crucial for effective claim management. Strategies include:
Project Meetings and Site Visits: Regular meetings and visits to identify potential issues and deviations.
Ongoing Review of Project Documentation: Continuous reviews to identify discrepancies or changes necessitating a claim.
Construction Scheduling: Detailed scheduling and progress monitoring to identify delays or disruptions.
Project Cost and Payment Forecasting: Accurate tracking to spot cost overruns that may result in claims.
Project Timeline Monitoring: Close observation of timelines to detect deviations from the planned schedule.
Claim Presentation Formats
Effective claim presentations typically include the following elements:
Detailed Introduction: A thorough description of the event or circumstances leading to the claim.
Contractual and Legal Bases: An explanation of the contractual and legal foundations of the claim.
Executive Summary: A concise overview of the key points of the claim.
Contract Assertion vs. Actual Condition: Highlighting discrepancies between contractual obligations and actual events.
Required Records and Documents
Successful claim preparation relies on robust documentation, which can be categorized into six main groups:
Pre-contract Documents: Contracts, specifications, and pre-contract correspondence.
Communication: All related communication, including emails, letters, and meeting minutes.
Programme/Progress Information: Project schedules, progress reports, and timeline changes.
Post-contract Documents: Amendments, change orders, and post-contract correspondence.
Site Records: Daily logs, site photos, inspection reports, and other on-site records.
Cost Information: Invoices, receipts, cost estimates, and financial reports.
Contemporary Records
Contemporary records, created at or near the time of the relevant events, are essential for substantiating claims and demonstrating cause-and-effect relationships between events and cost impacts. Maintaining and updating these records regularly throughout the project is crucial for ensuring their accuracy and relevance.
Detailed and Extensive Records
Detailed records should cover a wide range of project-related documents concerning schedules, costs, risks, and quality. This includes correspondence between stakeholders, meeting minutes, site instructions, drawings, variation orders, and other project documents that provide insights into the project's progress, changes, and challenges.
Structure of a Claim Submission
The preparation and submission of a construction claim require meticulous documentation and a well-structured presentation. A professionally presented claim increases the likelihood of a favourable settlement. By following a structured approach, contractors and subcontractors can enhance the clarity and persuasiveness of their claims. A well-organized claim document, supported by extensive and relevant appendices, improves the chances of reaching a fair and timely resolution in construction disputes.
A well-structured claim submission should begin with an introduction, providing a concise yet comprehensive overview of the claim. This section should name all parties involved, such as the contractor, subcontractors, employer, consultants, and other relevant stakeholders. It should detail the specific contract conditions governing the claim and mention key contract-related dates, including the tender date, possession and completion dates, and any significant milestones.
Next, the contractual basis of the claim must be clearly defined to establish its legal foundation. Claims can be categorized as either a claim for loss and expense or extra costs incurred under the contract's remedies, or a claim for damages due to a breach of the contract's express or implied terms or a violation of legal obligations. Relevant notifications, such as notices of delay, disruption, or change orders, should also be referenced.
The details of the claim should then be provided in a comprehensive manner. This section must describe all delays, their causes, and their impact on project progress. It should identify the responsible parties and explain how these delays or disruptions affected the project’s timeline and cost. Project management tools like the Critical Path Method (CPM) or other graphical methods can be used to illustrate cause-and-effect relationships.
The evaluation of the claim should be divided into two parts:
Costs Associated with Prolongation: A breakdown of costs related to extending the project timeline.
Costs Associated with Disruption: An outline of the costs incurred due to project disruptions. The methodology used to calculate and justify these costs should be explained, referencing contract terms, industry standards, or expert opinions.
Substantial supporting documentation should be attached as appendices to avoid overloading the main document. Examples include correspondence related to the claim, records of project events, visual aids, project schedules, programs, critical path analyses, and any other documentation supporting the validity of the claim.
Conclusion
Efficient and accurate claim evaluation relies on thorough analysis and robust documentation. A well-documented record-keeping system makes it easier to establish the extent of additional costs and losses, providing compelling evidence to support the claim. This process is vital for demonstrating that the claim is based on solid and justifiable grounds, particularly important in disputes and negotiations within the construction industry.
Somya Priyadarshini
Senior Associate - Arbitration
NHB LEGAL