What is a Claim
If we explain it simply, it is a demand for something due. Similarly, in construction contracts, it may be a request, demand, and application for payment or notification of entitlement given from one party to the other party, rightly or wrongly at that stage.
Types of Construction Claims
There are three types of claims in construction. Those are named as Contractual Claims, Extra-Contractual Claims, and Ex-gratia Claims.
Claims made in accordance with provisions in the contract come under this category. Examples are the payments for work done, changes in costs due to fluctuation of materials, labour or plant, subsequent legislature, variation orders, etc.
Extra contractual claims
These claims have no basis in the contract. But entitlement originates from common law. Damages due to breach of contract, loss of profit due to suspension of work by the consultant are few examples.
This is where a contractor is seeking something more tangible than sympathy. However, there are no contractual provisions to rely upon. These situations arise when a contractor underestimated the cost, execution of work proved more difficult than expected, and the risk is higher than he allowed for. Simply we can say contractor’s costs are higher than the payment due.
Foundation for a successful claim
The first thing for a successful claim is the contractor’s entitlement within the contract. In other words, the contractor has to clearly show his entitlement with necessary proof. Additionally, it is necessary to state the clause or clauses under which the claim is based.
Another important thing is the reason for the claim situation. Most contract conditions require it to be a client’s responsibility. That includes action or inaction of the consultant and others.
Notification of the claim
In some contracts, terms of the contract say to show the notification of intention of claiming. In those situations, the contractor has to submit necessary notifications within the time requirements.
Extension of time
The contractor must request an extension of time when needed. Extension of time is not always, a must to a cost-claim. The claim may be for an item not on the critical path. Therefore, under those situations, extra time is not involved.
If any event falls in the category of “acts of prevention” by the client, it will entitle the contractor with both an extension of time and cost. Generally, for events beyond the control of both parties, the contractor will entitle to an extension of time only.
When the consultant is notified of a claim, he has to inform the contractor what records the contractor requires to be maintained. In some situations, the consultant will take initiative to maintain records, himself.
Records must be accurate and consistent.
Selecting the correct and right clause
In Sri Lanka, most of the medium-scale contracts follow CIDA (ICTAD) conditions of contracts ICTAD / SBD / 01. Under these conditions, many claims will be based on the clause “Compensation Events” in Clause 44.1. One example is the client not allowing access to the site by the site possession date. If the consultant orders delay or not issuing drawings, specifications, or instruction on time, it will also become a compensation event. In addition, there are more situations mentioned, such as delaying advance payments, delays in recommending monthly payment certificates by the consultant, etc.
ICTAD / SBD / 01, Clause 44.2 says if the compensation event would cause additional cost or would prevent the work being completed before the Intended Completion Date, the Contract Price shall be increased and/or the Intended Completion Date shall be extended. The Engineer shall decide whether and by how much the Contract Price shall be increased and by how the Intended Completion Date shall be extended.
ICTAD / SBD / 01, Clause 44.3 says as soon as the Engineer receives information about the effect of each Compensation Event on which the contractor’s forecast is based, the Engineer shall assess it. Then, if necessary the Contract Price has to be changed accordingly. If Engineer thinks Contractor’s forecast is unreasonable, the Engineer can adjust the Contract price based on his own forecast. Normally, the Engineer assumes that the contractor’s reaction is competent and prompt to the event.
Extension of time
The Contractor is bound to complete the works by the intended date of completion stated in the contract. If he fails to do so, he will be liable for Liquidated Damages to the client.
If the delay is from the client’s part, and if it is beyond the contractor’s control, and if this delay affects the Completion Date of the Works, the Contractor can have an entitlement to receive an Extension of Time (EOT). In other words, this will effectively result in an extended Time for Completion. In addition, it will relieve the Contractor from having to pay Delay Damages or Liquidated Damages.
There may be delay cost or prolongation cost to the contractor due to delays of the client. For recovery of these costs, the contractor must prove that there has been no other delay, which is under his own control. And there are no delays by the contractor, which are equally (or partly) contributing to delaying the Time for Completion.
Concurrent delays are delays for which the contractor is responsible comes in parallel with the client’s delay. If the contractor needs to win a Delay Costs Claim, the Contractor must prove that there are no Concurrent Delays to the Time for Completion for which he is responsible for. However, if any contractor’s delay to completion occurs concurrently with the client’s delay, still the contractor can claim an extension of time (EOT).
Disruption can be explained as is a loss of productivity, disturbance, hindrance, or interruption to a contractor’s normal working methods. As a result, there may be lower efficiency. Accordingly, in the construction field, if any work is carried out with lesser efficiency due to some reason, it comes under disrupted work. If the cause for disruption is due to the client’s action, the contractor has the right to claim either under the contract or as a breach of contract.
The possible causes of disruption:
|Internal Causes||External Causes|
|Technical issues – changes in design, design errors, construction errors. |
Economic issues – difficulty in accessing materials, labor .
Financial issues – the shortfall in paying costs, unplanned cost increases in labor or materials costs
|Force majeure – acts of gods (earthquakes, hurricanes) – can be insured against. |
Social or political events – outbreak of war, rebellions, protests, general strikes.
The implications of disruption
Loss of possibility for early completion (may be countered by an acceleration of the work),
Alternation of the sequence of the work,
Loss in efficiency,
Extra overheads which reduces potential profits of the contractor,
Administrative costs associated with rescheduling and planning.
How to counteract the impact of disruption
Accelerate the work – Acceleration can be used when there is no delay, either to counteract possible future delays, but in many cases acceleration will be used to try and compensate for already experienced delays.
The impact of delay will be more severe when the issue causing the disruption lies on the project’s critical path. However, disruption can cause significant cost increases for the contractor even it does not delay the project completion date. It may be due to the additional measures taken by the contractor, such as acceleration, for the completion of the project on time. Sometimes, the contractor may recover these additional costs by submitting a claim.
- Excusable / Compensable – Time given / Cost given
- Excusable / Non compensable – Time given / Cost not given
- Non-Excusable (Culpable) – Somebody in fault
Consequence of Delay – Excusable and/or Compensable