Eight Approaches to Minimize Claims in the Construction Sector

Claims Management

Claim, in general, is used for affirmation of rights to money, property or any asset.  Construction Claim is the request put forward by either party to the specified in the contract, usually the Contractor, for compensation for damages caused by failure of the other party to fulfil his part of obligations as specified in the contract.

If a claim is not approved or if there exists a difference of opinion between two or more existing arties, then it leads to dispute.

The modern construction industry is burdened by the number of claims. Claims significantly impact the cost, timeline and opportunity cost of the project.

While most of the claims are usually resolved amicably or by negotiation between the participants, it is observed that few claims often turn into disputes. Some of these claims are listed below:

  1. Payment related claims: Most of the disputes in the industry arise due to non-payment or delayed payment.
  2. Delay claims: Delay claims usually occur due to unanticipated project events that leads to delay or disruption of work and thus lead to deflection from the scheduled timeline.
  3. Extra work: Extra work refers to any work that is assigned to the contractor apart from the work that is already mentioned in the contract.
  4. Contractual Claims:  This leads to any disagreement or liability that is mentioned in the contract.
  5. Difference in pricing and measurement: These claims often arise from the difference in pricing of the materials that were bought and that mentioned in the contract. It also includes the difference in the measurement in the final stage construction from that mentioned in the contract. It must be noted that extra work can lead to differences in pricing.
  6. Different site condition claims: This claim occurs when the site described in the document is different from the actual site.
  7. Acceleration Claims: This claim occurs when the owner pressurizes   the contractor to accelerate the work and deliver the results at an earlier date than that mentioned in the contract.

8 Steps to Reduce Claims:

  1. Devote Adequate Time To Plan The Project Upfront: Ensure you devote ample time to do your research and plan the construction project. Utilize qualified professionals and develop a proper understanding of the construction site.
  2. Functionally Integrate All Your Teams : Make sure you utilize functionally integrated teams even before you enter the contract so that all the teams and participants are on the same page throughout the project timeline.
  3. Clear and Descriptive Contract – Define the scope of your project unambiguously to enable accurate bidding, cost and time estimates.
  4. Utilize legal expertise: Use legal expertise for key contract clauses for your construction page. Changes to the contract, schedule of the project and the key dates, dispute resolution process are few of the important clauses that need to be clearly drafted as they vary from project to project.
  5. Proper assignment and delegation of duties and responsibilities: Clearly outline and define the roles and responsibilities of the parties involved including the details like who approves decisions and who has the authority to issue reimbursements and extension of time.
  6. Detailed Reports from Contractors: Establish a framework where the contractors regularly submit reports on details such as who is working on the site, what are materials used, progress of the project, estimated time of delivery of the project.
  7. Use of construction schedule: Actively manage and monitor if the work is happening in accordance to the schedule. It is recommended to prepare one unified schedule for all parties for consistent source of information
  8. Timely Payment: Ensure you submit accurate and detailed payment related information or invoices on time.

Contract Administration

Ultimately having a proactive approach and unambiguous communication reduces the likelihood of claims. Clearly defining everyone’s roles and responsibilities and clearly establishing a line of authority with frequent communication in the development of the project is a good place to start.

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