Claims Resolution and Settlement in Construction Projects
Construction projects are generally complex, with long gestation periods, and are often affected by risk & uncertainty. They involve various parties, bureaucratic procedures, and stake holdersand force majeure conditions resulting to multi level dependencies and dependencies in performing the works that frequently lead to construction delays and claims. At such times, effective claim management and settlement is the only way to maintain the financial viability of the project and amicable business relationships amongst the stakeholders. Today we try to answer some of the most asked questions about construct claims and claim management processes.
Why do Construction Claims Arise?
Construction claims tend to arise mainly when a project gets delayed due to various reasons. The delay may be due to several factors, both internal & external, that may affect the financial health of the project. In such cases, if the contract is not fair, and the obligations lean heavily against the contractor, claims are inevitable. Let us look at some of the reasons that lead to construction claims:
- Delay in availability of the site for construction.
- Unexpected ground and soil conditions.
- Insufficient drawing plans and specifications.
- Delay in delivery of material supplies.
- Lateral changes in the scope of the project.
- Poorly drafted contract leading to omissions and errors.
- Loss in construction productivity due to various internal, external, or force majeure factors.
- Delay in decision making on the part of the owners or inspecting the finished work, leading to productivity loss & inflated costs.
- Inflation in the cost of material supplies due to legal or market conditions.
- Project acceleration leading to increased costs.
- Wrongful termination of the contract.
- Discrepancies in plans & procedures beyond the scope of the contract.
- Failure of the owner, contractor, or sub-contractor to understand or comply with the terms of the contract.
What do Contractors Claim for?
Monetary Claims
This includes monetary compensation to keep up the financial viability of the project for the contractors.
Time Claims
Time claims usually ask for an extension of time to be granted for completion of the project or a part thereof.
What are Counter Claims?
Owners or employers may file counter claims for any negligence in the contract, delay in project, or for poor quality of construction. Such counter claims generally include the following:
Fines
Such penalties would include forfeiture of security deposit and imposition of monetary compensation.
Risk and Cost
In the case of substandard work, the owner may retract such work from the scope of the project and get it completed through another party at the risk & cost of the contractor.
Defect Liability
This contractual obligation ensures that any defects arising in the construction within the stipulated period are to be rectified by the contractor at his own expense.
Once the claims are filed, generally by the contractor, it is time for the claim management process to kick in.
What is Claim Management?
The Claim Management process focusses on the prevention & mitigation of construction claims at the contractual stage. In case the prevention strategies do not work, and the claims are filed, the process ensures efficient & speedy handling of such claims.
The Claim Management process is broadly divided into the following parts:
Prevention and Mitigation of Construction Claims
Claim prevention is the first step and happens at the time of preparation of the contract. A watertight contract with a fair distribution of liability between both the owner and the contractor is often the perfect formula to avoid future claims.
Claim Identification
This process includes studying project scope, analyzing contract documents, and reviewing construction site to identify and prepare the statement of claims and the justification for the same.
Claim Quantification
This includes assessing the claim in terms of time and money through a cause & effect process. This process is undertaken by claim management experts who aim at fixing the amount of time or money, or both, to be claimed as compensation for the losses incurred by the claimant.
Claim Resolution
Amicable claim resolution is the most important part of the claim management process. It aims at settling the claims through negotiation, mediation, conciliation, and arbitration. While negotiation is the best and the most economical approach, arbitration and litigation may also be resorted to in case of severe disagreement between the concerned parties. Litigation is the longest and the most expensive process and is best avoided to ensure the good financial health of all stakeholders in the project.
Best claim management practices ensure the prevention & mitigation of claims at the time of the contract. A fair, descriptive, and irrefutable contract thwarts claims and ensures smooth sailing for all. Claim management & litigation professionals at Contract Square warrant watertight contracts, swift claim management, and successful reward for our clients.
