Construction projects, no matter how well they are managed, will inevitably have delays, variations and changes which aren’t due to a fault of the contractor and couldn’t have been expected, allowed for or mitigated by the contractor. Most contract documents allow the contractor to claim the additional time and costs resulting from these events.
Unfortunately some clients take the approach of not responding to contractor’s variation claims. This is often because the person administering the contract doesn’t want to raise the claim with their manager as it may reflect poorly on their project management skills. Other clients hope that by leaving the claim it may just go away, or that they can take all of the claims at the end of the project, put them in one basket and negotiate a once-off settlement with the contractor – a contractor who at that stage of the contract will be desperate just to get some money from their claims. Sometimes clients don’t agree to the contractor’s claims because they, in the meantime, are preparing a claim against the contractor which they’ll then use to offset the contractor’s claims.
This approach is dishonest. Unfortunately most construction contracts specify a time for the contractor to issue a variation claim but very few specify a time by when the client has to respond to the contractor’s claims. This approach is unfair to the contractor since if the claim isn’t approved it won’t be paid, which disrupts the contractor’s cash flow. It also leaves them in limbo not knowing if they’ll be paid at all for the work, which means they could be facing a project loss, which could, in the case of large claims, have a devastating impact on the company.
Furthermore, unresolved extension of time claims may mean that the contractor doesn’t complete the project within the original approved time period, thus allowing the client to impose damages or penalties for the late completion. How unfair is that? The contractor has a legitimate extension of time claim and they not only aren’t paid for their costs they incurred as a result of this claim, but, they are further penalized by having to pay damages – all because the client hasn’t responded to their claim! This puts the contractor in a quandary and they aren’t sure if they should accelerate the work (if that’s possible), thus incurring additional costs, but possibly completing the project within the original time and thus avoiding penalties. Of course the contractor hasn’t been instructed to accelerate so they possibly won’t be paid these acceleration costs. It’s important if the contractor decides to accelerate to try and meet the original contract completion date that they advise the client in writing that they are accelerating because the client hasn’t responded to their extension of time claim and is still insisting that the contractor completes the project on the original completion date. This letter should clearly state that there will be additional costs. The contractor needs to keep note of all the additional costs for this acceleration and invoice the client monthly for them.
Also, as long as claims aren’t resolved there is a risk that the client’s budget may be overspent when the claims are finally resolved which could result in the contractor not being paid for the claims when they are finally agreed.
Furthermore, often later variations are dependent on attaining a resolution for an earlier claim. As long as the first claims aren’t resolved contractors have to base their later claims on the assumption that their first claims were unsuccessful. This becomes messy and when the first claims are eventually agreed it may require the later claims to be reworked taking the earlier claim into account, and resubmitted, which takes time and causes confusion.
Contractors need to make every effort to get their client to resolve their variation claims as soon as possible.
This article was first published on the ClockShark website. To visit this website and continue reading the article click on the link above.
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