Claims Management

Claims in construction contracts are inevitable, To tackle the problem of the claims effectively it is necessary for both sides to have a better understanding of the basis and principles of contract and therefore of the rights and obligations of the two parties. It is necessary for professional representatives of both sides to have an understanding of business side of industry so as to appreciate the circumstances in which the contractor conducts the risks in which he can properly and contractually be expected to undertake and the financial consequences if things go wrong.

Disputes arise and result into claims due to various reasons in a construction contract.

1. 2. 3. 4.

Due Due Due Due

to to to to

an unbalanced contract. causes for which owner/ employer is responsible. causes for which contractor is responsible. causes beyond the control of both sides.

Due to an Unbalanced Contract

Basic structure of contract is in favor of client and loaded against the contractor. Risk is unilaterally transferred to one side. Absence of Neutralization mechanism. Progress of project is not the basis of contract.

Due to Causes for which owner/ employer is responsible

Poor site investigation by the owner at the pre-tender stage. Delay in acquisition of land and delay in handing over the site to contractors in time, including non-availability of sufficient work-fronts during the execution of the project. Delay in issue of drawings by the owner. Delay in issue of owner issue materials by the client. Delay in releasing payments leading to cash-flow problems to the contractors. Organizational problems of the owner.

Non co-operation from the owner/project authorities due to poor earnestness in the public owner system. Co-ordination and managerial problems of the owner. Deviations on the agreed terms and conditions of the agreements by the owner or non-fulfillment of contractual obligations. Delay in settlement of rates for extra items, additional items and revision of rates. Poor quantity surveying by the owner at the time of tender and heavy increase in the quantum/scope of work. Delay in settlement of claims. Delay in arbitration proceedings during the execution of project. Forcing the contractor to appoint a particular sub contractor for certain specific works. Delay in completion of earlier stage contracts and hence a delay in handing over the site. Paucity of funds with the owner, leading to non-payment of bills and dues which leads to cash-flow problems for the contractor. Delay in giving decisions other than above by the owner.

Due to Causes for which Contractor is Responsible Poor rates quoted for a few or several or all items. Managerial problems of the contractor. Strikes, militancy of the labour, and other labour related problems in the contractors organization. Lockout by contractors. Delay in mobilizing the required resources in time. Due to Causes beyond the control of both sides Force majeure conditions like heavy rains, floods, snow, landslides, earthquake, etc. Political problems, riots, bandhs, etc. Health hazards and non-availability of medical facilities. Engineering and technical problems not previously understood. Inter-state disputes. Obstruction by mafia-gangs. Law and order problems Local problems, obstruction by local population and not employment from the owner or the contractor. Non availability of construction materials (cement, steel pipes, CGI sheets) in the market. Non-availability of appropriate and adequate labour.

Different Types of Claims

i. ii. iii. iv. v.

Contractual Claims Extra Contractual Claims Quantum Meruit Claims Ex-gratia Claims Counter Claims

Contractual Claims These are the claims, which arise out of the express provision of the particular contract, for extra cost, expense and direct loss specifically provided as a remedy in the contract for breach of contract on the part of the party concerned. Extra Contractual Claims These claim as also known as common law claims. These claims are for damages for breach of contract at common law. Quantum Merit Claims Provide remedy for a person who has carried out work under the instruction of the owner but no price has been agreed or where a new one has replaced original contract and payment Is claimed for work done under the substituted contract. Ex-Gratia Claim Ex-gratia claim is one where no legal remedy is available to the contractor but arise out of hardship. On the ground of equity or favour the authority concerned may in certain circumstances consider that hC1rdship calls for mercy or moral liability. These claims are also called sympathy claims. Wherever such claims are to be given it will be better if these are given during the currency of the contract so that the money paid helps in improving the progress of the work.

Counter Claims The claims raised by the opposite party to counter the of the claimant is called as counter claims.

Potential Heads of Claims In different claim

i. ii.
iii. iv. v. vi.

Late handing over of site Variation in data/information supplied and that actually encountered during execution. Late supply of drawing and required Information Disruption/disturbance caused due to untimely instructions. Consequences of delays in decision on progress as well as cost to the contractor. Delay caused and extra expenditure incurred/loss suffered on account of non-fulfilment of various other obligations on part of employer as well as contractors.

PREPARATION AND PRESENTATION OF CLAIMS

Preparation Of the Claim

Burden of proof Basis of claim Importance of facts Supporting Evidence Site records Correspondence Record of site meetings Site diaries Programmes and progress schedules Payments claimed and made

In a situation where a claim is lost for direct loss and/or expense the in respect of a variation it will be necessary that It is supported cal by the following : 1. 2. 3. 4. 5. 6. 7. 8. Copy of an instruction for variation validly issued and acted upon. The date of issue and receipt of instruction relating to variation Brief on the nature of variation. The time at which it was necessary to carryout the work pursuant to the variation instructions. Justification that carrying out of the variation instructions certainly affected progress of the work. The extent of work, which got affected by implementing the variation instructions. Proof that the contractor made a proper and timely application to the engineer in respect of the direct loss and/or expense. Substance supporting particulars and proof of direct loss and/ or expenses suffered or incurred.

Drafting of a claim

The claim should be written under the following three headings: a. Introduction b. Ground of Claim c. Substantiation of Claim.
Introduction In the introduction, brief contract particulars relevant to the claim and brief description of the situation leading to the claim" and reference of the relevant correspondence/notices shall be covered. Ground of Claim Reference of the relevant contract clauses which entitles the contractor for the claim and where the contract clauses do not provide any remedy, reference of the contract law section where the claim can be legally justifiable and admissible.

Substantiation of Claim Many contractors generally follow the approach in substantiation of claims the same way as the claimants in Bruno Law v. US sand in Merton v. Leach, and many a potentially valid claim founders because of lack of proper substantiating evidence and the contractor's inability to (a) establish the direct link between cause and effect with regard to delays, and (b) provide sufficient particulars of the resulting loss and/or expense. PROVING DAMAGES NEGOTIATING SETTLEMENT i. Preparation before start of negotiation ii. Timing the negotiation. iii. Strategy of negotiation and tactical check list. iv. Communication and bargaining position

Strategy of negotiation and tactical check list.

The party best prepared can discuss its position with full confidence and know where its stands as the negotiation if progress.
You must appreciate that negotiation are held in strange environments, so there is a greater likelihood of unexpected occurring. Therefore preplanning reduces these risks. A checklist will help in evolving steps to be taken if problems develop during negotiations.

The following may be included in the check list:

Absorb all formalities to get the negotiations off in the right direction. Establish good feelings and trust among the parties before getting down to business.
All the issues should be covered in a planned manner during your presentations; otherwise if you forget to raise an issue after negotiation this will destroy your integrity and good faith. Prepare a list of items in advance which you can give away) as well as a list of important items on which more concentration is necessary. Always anticipate trouble spots by planning for alternative strategies.

Negotiation is itself an art. As learned from various authors, the gambits suggested are: to make the other party appear unreasonable to place the other -party on the defence side blame the third party where necessary temporarily walk out of the negotiations pose that you have little time to settle and would like to clear up things so that you can catch your flight Don't give the impression that you are fully satisfied with the outcome, and Quit when you are ahead.