CONTRACTING FOR CAPITAL PROJECTS
• Delays—Delay is a term of art in that there are numerous
ways to define the term. In the broadest sense, a delay
may be defined as any event that causes the project to
complete later than planned and beyond the current con-
tract completion date. Most contracts identify and deal
with four generic causes of delay—owner, contractor,
third-party and concurrent delay. Many contracts also
deal, in general terms, with seven types of delay—float
consumption, inexcusable, excusable, compensable, con-
current, pacing, and early completion delays [2].
• Acceleration – Acceleration is a directive from the owner
to the contractor to complete work earlier than required
under the contract or earlier than scheduled.
• Constructive Acceleration—This is an inadvertent
owner action or failure to act, which results in a contrac-
tor being required to complete work earlier than
required under the contract and causes a cost impact.
For example, issuing change orders while refusing to
examine delay related issues may bring about construc-
tive acceleration.
• Termination for Convenience—This is an action on the
part of the owner to end, in whole or in part, the work of
the contract prior to completion through no fault of the
contractor.
• Termination for Default—This is an action to end the
work of the contract prior to completion due to a materi-
al breach of the contract. Failing to mobilized to the site
to commence work after the notice to proceed was issued
constitutes such a material breach, for example.
For each of the above eleven types of claims there are a myr-
iad of rules and case law. Each particular situation is quite
fact-intensive and is highly dependent upon the exact word-
ing of the contract clause being relied upon. Additionally,
there is normally written notice requirement, which must be
fulfilled or the contractor may risk losing their legal right to
an equitable adjustment. It is, therefore, important for a cost
engineer to study the field of claims to learn the basics of
each type of claim and then examine carefully the terms and
conditions of each contract.
The basic equation of a successful claim is summarized below:
• Liability—An event or circumstance has occurred dur-
ing project performance, which gives rise to a legal right
to an adjustment to the contract. For example, a change,
delay or differing condition.
• Causation – The event or circumstance causes something
which otherwise would not occur. For example some
portion of the work is revised and performed differently
than originally planned and work has to be resequenced
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as a result.
• Damages—The work costs more and/or takes longer
than planned.
The burden of proof of all three elements of a claim rests
squarely on the shoulders of the party making the claim. That
is, the claimant bears the burden of affirmatively proving all
three elements of the claim based upon a preponderance of the
evidence. To successfully recover in a claim situation, the
claimant must document and prove all three parts before
becoming eligible to recover any damages at all. Thus, notice
of claim, clear documentation of facts (including both liability
and causation), and concise tracking of damages (both cost
and time) are a necessary prerequisite to a successful claim.
Dispute Resolution
A contract traditionally includes a disputes clause. This is the
clause that details, to a greater or lesser degree, the process by
which all contract disputes will be prosecuted. While there are
numerous variations on the theme, there are four basic meth-
ods of resolving disputes on project, as follows.
• Negotiation—Face-to-face negotiation may be accom-
plished in the field between project teams or elevated in
both the owner’s and the contractor’s organizations. In
either case, the concept is for the project participants to
discuss the disputed issue and mutually arrive at an
acceptable business solution to the problem. Outsiders
are rarely involved in negotiation. The process and the
outcome are entirely under the control of the parties to
the dispute and the outcome is confidential.
• Mediation—Mediation is a form of a structured negotia-
tion between the parties utilizing the services of an out-
side, neutral facilitator—the mediator. It is a voluntary
submission of the dispute to a process, which is largely
controlled by the parties. The mediator’s only power is
the power of persuasion, and the mediator’s role is gen-
erally to help bring the parties closer together until
agreement on a solution can be reached. The parties, not
the mediator, control both the process and the outcome
of the mediation.
• Arbitration—Arbitration is a more formalized and legal-
istic proceeding, whereby the dispute is heard by an out-
side organization typically operating under a national or
international set of rules, such as the American
Arbitration Association (AAA), the Judicial Arbitration
and Mediation Service (JAMS), or the International
Chamber of Commerce (ICC). There may be a single
arbitrator or a panel appointed by one of these organiza-
tions. Formal hearings are generally held with testimony,
examination, cross examination, submittal of evidence,
etc. At the end of the hearing(s) the arbitrator “rules” on
the outcome of the dispute. In most arbitration proceed-