How To Avoid Claims On Your Construction Projects

Claims are an inevitable process on most construction projects – there will be changes and delays. Yet some projects seem to have multiple claims and delays. A recent study by KPMG found more than 70% of the respondents reported that their projects increased by more than 10%, and 75% experienced delays of more than 10% on their timeline.

But it isn’t just clients who receive delay and cost claims from their contractors, but also contractors who receive claims from their subcontractors.

Unfortunately many projects end in lengthy, acrimonious, legal disputes between owners and managing contractors, and between contractors and their subcontractors. Frequently there are no winners in these situations – except of course the lawyers.

The outcome of these variation claims is the inevitable increase in costs and delays in the project completion. But there are other impacts which include:

• The management time taken to put together and argue the variation claims. Time which could be better spent elsewhere on the project.
• Sometimes legal costs to fight the claims.
• Frequently the breakdown of the relationship between the contractor and their client, or between the contractor and subcontractor.
• The adverse impact on reputation.
• The negative impact on cash flows.
• The possibility that there won’t be money to pay the claims.

The obvious solution is to avoid the reasons for variation claims in the first place. When variation claims do arise these should be dealt with speedily and in a spirit of goodwill between the parties.
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How to avoid variation claims on construction projects

1. Have a sound contract document which doesn’t contain ambiguities, contradictions or loopholes. This document must clearly detail the duties, responsibilities, and obligations of the contracting parties.
2. Adjudicate the prices/quotations received to ensure that the contractor has priced all the work and hasn’t included any clauses which aren’t acceptable. Check that the contractor is capable of completing the work, that they understand the project and have the necessary resources. The wrong contractor or one that has submitted a price that’s too low will submit variation claims in an attempt to recoup their losses.
3. Ensure that the contractor or subcontractor pricing the work is provided pricing documentation that has a clear scope of work and that includes all the contract terms and conditions which will be included in the final contract documents.
4. Provide as much information as possible to the contractor before they submit their price. Remember any new information or changes after the contract is agreed may provide a reason for a variation claim.
5. Ensure that there is an agreed construction schedule with clear milestone dates.
6. Know when the contractor, or subcontractor, requires access and information, and ensure these are provided before the required date.
7. Monitor progress against the construction schedule and ensure that follow-on contractors won’t be delayed by the previous contractor.
8. Make sure that changes are limited.
9. Ensure all instructions of a contractual nature are in writing. Verbal instructions inevitably lead to misunderstandings and claims.
10. Understand the contract document, knowing what your obligations are in terms of the contract. Make sure that you and your team fulfil these obligations.
11. Foster a culture of open and honest communication. The parties should highlight problems, or potential problems, as soon as they are noticed. Solutions should be sought to mitigate the problem. Early intervention can often mitigate the variation claim.
12. Clients need to be aware of the consequences of their actions, or lack of action, on the project. Even small decisions can have ripple effects across the project causing a bigger problem elsewhere.

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Dealing with claims

1. Variation claims need to be dealt with promptly. Variation claims that aren’t promptly dealt with can cause resentment to the contractor, even impacting their cash flow and their ability to deliver the project. Dealing with claims immediately when they arise could provide the opportunity to mitigate some of the costs and delays, and avoid other similar variation claims in the future.
2. Ensure that you understand the reasons for the claim and the logic behind the time and cost calculations. Unfortunately many variation claims are wrongfully rejected because the client failed to understand the claim. If necessary ask for further reasons and backup.
3. Claim meetings can be useful to provide understanding to the claim, and they can be more productive than sending letters and emails backwards and forwards. They can short-cut the whole claims process.
4. ....Continue Reading.......

​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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