Last Updated on June 29, 2022 by Admin
Get the inside scoop on the Construction Claims Manager in this article. Find out what the requirements are, how much you can expect to make, and whether or not it’s a good fit for you.
Due to the rise in the quantity and value of claims in construction projects, claim management is a crucial skill required of contract and project management professionals. To save both the claimant and the defendant time, money, and effort, a claim must be presented in a professional manner with sufficient details, including the premise, computations, and evidence.
A claim is a request for a benefit that the claimant asserts or feels he is entitled to, but there has been no mutual understanding. The number of claims in the domestic and foreign construction industries is rising, and project management claim-related difficulties depend on how claims are presented. Along with the head of a claim owing to change in conditions, delay, and disruption, the relationship between the contract basis lines, i.e., Contract Price, Scope, Schedule, and Conditions, is created here.
What is Claims Management in Construction?
A construction claim is the statement of a right that calls for extra time or payment as compensation for the effects of an activity. In any construction project, construction claims might be satisfied. Construction claims can be the result of a number of factors, including poor project planning, changes in the project’s scope, change orders, errors, and omissions, and contract speeding up or slowing.
In today’s projects that involve several resources and stakeholders, construction claims management is an essential procedure. Eliminating the source of problems before they arise is one of the best claims management strategies to prevent claims in the early stages of a project.
Early resolution of disputes between the parties is always simpler and less expensive. Changes may cost more money and be more challenging as the construction project moves forward. Because of this, claim management necessitates the adoption of efficient procedures throughout the course of the project.
To achieve the intended objectives, claim management is a necessary step in construction project management. The first prerequisite is to manage the breeding grounds with all diligence, align the paperwork, and ultimately entertain an entitlement in a timely and professional manner.
A thoughtful approach to early dispute resolution between parties is always more affordable and produces win-win outcomes. The construction project, which is typically a big undertaking, necessitates taking steps to avoid damaged party relationships, deadlocks, delays, disagreements, or loss of resources that could lead to or carry the threat of litigation and arbitration between the parties, with eventual resolution in a contract.
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Common Types of Construction Claims
Conflicts between the contractor and the client might have a variety of causes, which can lead to construction claims. The most typical categories of building claims are shown below.
Claims for Delays: When a project takes longer than anticipated, the client lodges a claim against the contractor for any damages brought on by the delay.
Acceleration Claims: The contractor allegedly spends additional money to expedite the work in order to catch up with the timetable and finish the project on time. The contractor lodges a claim against the customer for an additional payment, which leads to disputes between the parties on the acceleration cost.
Additionally, the client does not want to pay for the acceleration. Each side blames the other for the delays.
Change Order and Extra Work Claims: The customer may make unwritten requests for additional work to be completed during the project execution period. Arguments over whether the desired change is included in the scope of work or not lead to disputes. Sometimes disagreements over the cost per unit of the additional work come up.
Claims Regarding Differing Site Conditions: The contractor files a claim when the actual site condition
differs from the terms outlined in the contract. For instance, in a highway project, the type of soil stipulated in the contract is clay. The contractor, however, begins to look into the ground’s qualities and reports that it is rocky soil. The contractor then submits a claim to raise the excavation unit fee.
Damaged Claims: The contractor may cause damage to client-owned property while working on a project. The client then submits a claim to recover a loss.
The following are some additional types of building claims: (related to design and construction)
- Defect Claims
- Claims for Force Majeure
- Claims for Cost Overruns
- Claims for nonpayment (or Notice to Withhold Claims)
- Claims for Lost Labor Productivity
Construction Claims Management Phases
The four basic stages of a typical claim management procedure are as follows:
The claim prevention procedure is initiated at the project’s pre-tender and contract formulation phases. All project-related requirements should be included in the contract agreements, project plan, and scope of work because there is no more time to prevent claims once the contract has been awarded.
Construction work is typically done outside in very delicate circumstances. It is preferable to reduce the likelihood of a claim developing throughout the course of the contract. Claims are less likely to emerge if the scope, duties, and risks are well specified. Plans for risk management are also crucial throughout the claim mitigation stage.
Quantification and Claim Identification
Analysis of the contract’s clauses and the task scope can be used to identify claims. The contract conditions, the definition of additional work, and the definition of desired additional time are all inputs into the claim identification procedure.
Once an activity has been classified as a claim, it will be valued in terms of an extra payment or a delay in the contract’s end date or another milestone. To estimate the project’s delay at this phase, scheduling and critical path analyses should be done. Additional direct and indirect expenses that resulted from the claimed activity should also be calculated.
Claim Resolution is a methodical procedure for resolving claim-related concerns. Negotiation, mediation, arbitration, and litigation processes will be used, depending on the contract’s settlement clauses.
Claims Management Process
The parties involved in the claims should set up effective construction claim management systems in their companies in order to deal with or handle the claims in an efficient manner. Identification of the problems and the party accountable for the claims, as well as determining the claim’s impact on time and costs, are the main problems in claims and disputes.
Once the claims have been identified, the party bringing the claim is required to notify the claims. The party making the claim also has a duty to support their claims with facts. The claim may be resolved amicably or it may take the shape of a dispute depending on the choice taken by the other party against whom the claim is made. The claim management procedure has been described in the following passages from the contractor’s perspective:
The contractor carefully reviews any written or verbal directions, as well as any drawings that the owner or engineer provides. If it includes additional works, those are interpreted in opposition to the terms of the contract.
Once the contractor has determined that the work is additional, he is expected to notify the engineer within the allotted time period and make clear his plan to charge more for it. This is crucial because the engineer will reject the contractor’s work if they fail to comply with this.
The contractor must adequately substantiate the claim, as well as his contractual entitlements, by making reference to the pertinent clauses. The necessary backup computations back up the claim. Additionally included are backup documents including letters, vouchers, and drawings. It is necessary to revalidate period-related claims, like those for longer stay expenses and interest on postponed payments, at regular intervals and submit them to the engineer until the end of the applicable time.
Analysis of the change’s time and financial effects
This sub-goal process is to evaluate the effects of the change that has taken place. While breaking down the cost into different cost components to compute the cost impact, the analyst must undertake a schedule analysis to determine the time impact.
Changes in change pricing
This sub-goal process is to provide the other party in the contract with a thorough description and breakdown of the additional expenses incurred so far or that will be incurred as a result of a contract change. This thorough cost breakdown is required to comprehend, bargain for, and defend additional contract costs. Forward pricing and post pricing are the two different types of claim pricing.
Negotiation of the claim
This sub-process deals with the steps involved in presenting the claim to the employer and jointly resolving it. Any party who feels that their viewpoint is correct and there is no way to come to an agreement should suggest an alternate conflict settlement procedure. If that doesn’t work, you can either use the contractor’s “disputes” process or file a lawsuit.
Within a time, range stipulated in the contract, the Owner/Engineer is required to inform the contractor of his decision about the claim. If the claim is rejected, that fact must be explained along with the reasons. It must also provide the claim’s value.
Further Work by the Contractor
If the claim is being denied, the contractor must, within a certain amount of time after receiving the engineer’s conclusion, refer it for adjudication. The adjudication procedure is carried out in accordance with the contract’s stipulations.
How to Prepare Effective Construction Claims?
“The gathering of information and the accompanying evidence to substantiate the delay and the costs incurred depends on the preparation and making of a successful claim.”
Claim prevention measures can be successfully used in a building project during the pretender and contract formulation phases. An excellent possibility for preventing construction claims is provided by well-written contract contracts and design files. Claim prevention becomes challenging once the construction phase starts.
Claims may result from conflicts, even if their impact can be reduced by good project and contract management. Effective construction claims management must be done in the event of a claim in order to minimize potential losses.
The suggestions listed below can be used to create an efficient management system for construction claims.
- Examine the claim file and any supporting paperwork created by the contractor, and state the claim’s legal foundation.
- Conduct a site investigation and gather data regarding utilities, subsurface conditions, general site conditions, labor, weather, material, equipment, and other relevant objects.
- Examine the evidence provided by the contractor and determine if it supports the allegation or not.
Examine the contractor’s bid breakdown.
- Highlight the contract’s claim preparation requirements and assess the contractor’s submitted documents to see if they are enough.
- Review the site reports, records, and documents in order to fully grasp the facts. Make a list of the facts that can be confirmed or denied, and decide what additional evidence is needed to substantiate the Contractor’s statements.
- Evaluate the present timetable in comparison to the one the contractor submitted in the claim file.
- Determine the similarities and differences between the activities by analyzing them.
Schedule a meeting with the contractor and highlight the quotes that corroborate the examination of the facts.
- Analyze the Contractor’s supporting documents for productivity and contrast it with the actual performance records. In the administration of construction claims, the supporting documentation analysis is crucial.
- Determine the contractor’s overhead expenses using daily reporting.
- Identify the claim’s advantages and disadvantages.
- Create a plan of action for handling and resolving the problem.
Binding and Non-binding Resolution in Claims Management
Here, the focus is on alternative dispute resolution procedures that are typically included in construction contracts, in addition to the regular legal procedure. In general, there are two categories of dispute resolution procedures used in claims management: binding and non-binding resolutions. Negotiation, mediation, conciliation, adjudication, and arbitration are a few examples of such processes
“The process of working out an agreement by direct dialogue” is negotiation. It is optional and not legally binding. The procedure could be multilateral or bilateral (between two parties) (many parties). This is frequently referred to as “assisted bargaining,” and each party is free to use any kind of outside expertise that it deems appropriate.
This could relate to an in-depth discussion of the disagreement between the engineers from all parties involved with the goal of settling conflicts without the intervention of third parties, as is the case with mediation and arbitration. In a legal sense, this is a completely informal process, but if a decision is made as a result, it could still have a significant legal impact. It takes little time and doesn’t cost extra money to negotiate. It is a friendly and calm environment where the conversations between the parties across the table take place.
Perhaps the most popular method for resolving technical disagreements in a building project is arbitration. Insofar as the legal protocol is mainly followed, it is a quasi-judicial process, so it is crucial that the arbitrator, who essentially serves as a judge, is aware of the relevant rules. The Arbitration and Conciliation Act, 1996 establishes the legal foundation for the arbitration procedure in India. In essence, legal concerns require an arbitrator to have a solid grasp, and some instances include gathering and interpreting evidence, questioning and cross-examining witnesses, etc.
However, a good arbitrator must have a fundamental faith in the ideas of natural justice as well as a pragmatic outlook. He should be able to direct and steer the processes, which could be challenging, particularly if the parties to the dispute are both represented by experienced attorneys. The ability of the arbitrators to mediate and assist the parties in reaching a just compromise or an equitable settlement of the dispute at hand has actually given arbitration a new dimension.
In terms of the number of arbitrators, technical disputes may be settled by a single arbitrator or a panel of several arbitrators, much like the judicial system. Although the parties are free to choose the number of arbitrators, it is recommended that the number be odd in order to prevent a “tie” in the award. The contractor and the owner frequently each designate one arbitrator, and these two parties jointly select a third arbitrator to complete the composition of a bench of arbitrators.
Mediation and Conciliation
In essence, mediation and conciliation are informal processes in which the parties seek a resolution with the assistance of one or more impartial third parties. These mediators attempt to counsel and confer with the parties impartially without passing judgment in order to help find a solution to the issue that is acceptable to both sides. Naturally, given the circumstances, they are powerless to force a resolution on disputing parties.
In the sense that the parties participate voluntarily and a neutral third party merely supports them in reaching a resolution, mediation and conciliation are voluntary. The procedure is private, secret, and carried out without endangering ongoing legal procedures. Until a consensus is formed, the process is not legally binding. Of course, once an agreement has been formed and signed by all parties, it becomes legally enforceable just like any other contract.
Adjudication can be a confusing term. In its broadest definition, it refers to the method a judge uses to resolve a case before them or the way a referee should decide the cases they are presented with. A more precise definition of adjudication is a procedure where a neutral third party renders a decision that, unless and until changed through arbitration or litigation, is binding on the parties to the dispute.
This specific meaning might be referring to the commercial usage of an arbitrator to resolve disputes between contracting parties. A number of the typical forms of contract used in the construction industry provide for the involvement of an adjudicator. A few traits have been present in an adjudication in the construction business up until recently. The adjudicator is a third party who is impartial and not involved in the day-to-day administration of the contract, to start. He or she is not a state-appointed judge or an arbitrator. Second, the agreement between the parties grants the adjudicator authority.
The act of locating and analyzing prospective claims is known as claims management. Construction conflicts differ from disagreements in other sectors in a number of ways. As a result, dispute resolution methods are different from those used in other fields. Even when all stakeholders participating in a building project share the same objectives, disputes can still arise. Project protection from damage depends on efficient claim analysis and prevention procedures.
Any contractual disputes that arise must be handled fairly by all parties involved, which requires an efficient claim management procedure. It might be argued that enhanced contract management training for professionals will greatly contribute to improving knowledge of the contract.