What is a claim on a construction project?
What are some of the most important elements of managing a construction project, in regard to future claim development?
In many instances, a construction project is awarded based upon a competitive scenario called a bid process. This bid process involves the issuance of project plans and specifications, construction documents, that describe the construction project to be bid on.
In theory, the plans and specifications are developed to properly and accurately explain the construction project in an adequate and detailed fashion, allowing the bidders an equal and a level playing field when providing a price for the project.
Established within these documents is a bid date and a project schedule. Each bidder is instructed, via the instructions to bidders, when the project will be bid, as well as how long the project should require. Theoretically this gives each bidder the same amount of information and knowledge to provide the owner with a price or bid on their project.
One of the principal understandings, when discussing a claim issue, is the fact that the plans and specifications, together with all of the miscellaneous instructions and addendums that may or may not have been provided to the bidders, by the owner, make up the scope of work. This scope of work is the basis for the contract, as well as allows the contractor to determine the amount of money that must be spent to complete the work on the project.
This concept is very important to understand. The plans, specifications and all the miscellaneous information provided, prior to the submission of the bid for the job, make up the basis for the cost of the project.
What information does this specifically involve?
- Physical details of the project such as materials, size, construction details, number of doors, types of equipment, etc. that will be required to satisfactorily complete the project.
- Length of time allowed for the construction of the project. On some projects, there may be liquidated damage value per day, accessed if the project takes longer than allowed. What this does is penalize the contractor, if the schedule is not met. In some cases, there is a reward offered for early completion of the project, however, this is not as popular as the assessment of damages.
- Contract requirements for the project. The contract data addresses all other miscellaneous issues, such as allowed work times, if there are any established labor rates for the job, if there are any material suppliers that must be used, if there are any third party entities that cannot be used. This contract data will provide all of the formalities and legal requirements that will control the relationship between the contractor and the owner, during the duration of the project.
Once all of these parameters are understood, by both the contractor and the owner, the contract is signed and work will commence. This contract signing will establish a scope of work, cost for the project, as well as schedule that must be maintained. An easy method of clearly understanding a claim is to interpret anything costing the contractor money, that was not identified by the contract documents, as a claim, including any time delays due to the fact that
TIME IS MONEY!
This procedure of bidding, based on the contract documents, has provided the framing of the agreement between contractor and owner. A claim is anything that occurs during the execution of this construction project, that falls out of the limits of the framework, or pushes the framework out to include more than the contractor had bid upon.
Specifically what could be some of these issues?
- Additional scope of work. If the owner simply wants more for his money, than was described within the plans, specifications and miscellaneous documents issued, prior to the contract signing, this is considered additional scope of work. The plans, specifications and the signed contract will be referred to as the contract documents from this point forward. This could be the addition of another window or another floor of space, or even another building. A change in the scope of work can be anything that occurs physically that the owner requires that may cost the contractor time and money.
- Owner fails to provide items that the contract documents had indicated they would provide. An example of this, is the owner in accordance with the contract documents responsible to supply all of the door hardware for the project. The owner does not provide the hardware, either at all, or not within the schedule agreed to at the time of contract award and has stopped the contractor or delayed the contractor.
- Owner, architect, designer, engineer or another third party that is affiliated with the owner, fails to provide the information that they were contractually required to provide, or simply fails to adequately manage or communicate with the contractor, and causes either additional cost or a delay in the schedule.
- A site or project situation occurs that through no fault of the contractor causes additional expense or time to be allocated to the project to satisfactorily complete the work. This could be weather, lack of proper permitting or another situation that did not fall under the contractual requirement of the contractor but is delaying the project or costing money.
- Failure by the owner to pay the contractor. On almost any major construction project, there will be several monthly invoices that are issued by the contractor to the owner for payment. If for any reason, the owner has difficulty paying the invoice or simply refuses or runs out of money, this situation will be reason for a claim.
- A claim is any issue or situation that causes the contractor to expend additional money that they are not responsible for or spend additional time on the project without compensation.
What are the basic management requirements, that must be understood and maintained by the contractor, to ensure that they have properly managed any changes that could result in a claim? In addition what are the proper documents to ensure that any claim, is properly documented and identified with all the data required for submission of this claim for additional compensation.
- Immediately upon the final signing of the contract, the contractor must issue a baseline schedule indicating, in a detailed fashion, every item of the project, and how it will interact with its successor as well as its predecessor. This initial schedule is very important and must be very carefully thought out by the contractor with activity durations and manpower requirements.
- All contracts, purchase orders and other agreements must be generated and properly managed, to ensure that there are no delays with material, equipment or the hiring of subcontractors. This is very important to eliminate any push back from the owner, if the claim is based upon time or material receipt, etc. It is important that the contractor does not provide any reason for the owner to accurately identify delivery or accessibility issues, as an excuse for rejecting a delay or compensation claim.
- All manpower must be properly managed and supervised to ensure that the manpower requirements indicated on the project schedule are maintained. This is very important, to eliminate any push back from the owner, if the claim is based upon time andt the contractor did not provide adequate manpower when the schedule demanded it.
- It is essential that all supervisory personnel on the project make out a general daily report. All the supervisory personnel inclusive of any superintendent or foreman, that has been moved into the role of management or supervision document all activities. There are specific articles within this website that address what is required to be documented in a daily report. Please, this is important.
- The contract must be fully and completely understood by all supervisory personnel on the project. This is mandatory! In many contracts the specific details are identified regarding how and when any claims are contractually obligated to be reported, and to whom. Failure of the contractors to follow all the rules and regulations, will be the first items checked by opposing counsel. Follow all the rules and regulations, no matter how ridiculous they may appear.
- Issue the proper documentation, with the proper requirements, to the proper individual that is named within the contract, for any claim that you may have or can anticipate. Once again, failure to properly notify the legally established contractual individual of the claim, or potential for the claim, could be immediately used to defend the claim by the opposing party.
- It is always better to notify too many times, than not enough. We strongly suggest that all important notifications be emailed and then emailed again, accompanied by an official transmittal that identifies the document being submitted. Too many times is much better than not enough!
- Set up a management schedule that will continually remind you of the notifications of claims and issues that you have submitted to the owner. Repeatedly notify the owner of these issues and these notifications, and repeatedly seek a response on a consistent and continuous basis.
- Always keep a detailed daily log, this is very important as we have already addressed. The importance of establishing a consistent documentation of project data regarding important information is invaluable to the establishment of a claim, whether it is for additional compensation or time. But, as already noted, Time is Money, so a time delay is a money issue.
- Attempt to manage and supervise the project always on the defensive. What I mean by this, is that all correspondence, daily reports, etc. must be coordinated and managed to the best of your ability to be accurate and timely. The best defense and foundation for a claim, is an honest, consistent trail of accurate information and documentation. Accuracy and truth should be the foundation of all construction documentation.
- It is essential that the project be financially managed and historically evaluated. Adequate cost reports are absolutely necessary in an effort to clearly predict any and all cost issues that may be hurting the project. The earlier you identify a cost issue, the easier it will be to properly manage any losses. Allowing yourself to sink too deep into a financial issue, will not allow you the time, nor the money to resurrect a solution.
- The importance of understanding the rationale for ensuring that all claims are presented, calculated and continually advanced, is to allow your company to collect any and all of the financial support that they deserve. The practice of competitive bidding, must be acknowledged as a two way street, that is promoted to ensure the owner obtains the best competitive pricing, but on the other hand, the contractor is awarded, for any deviation from the contract documents.
It is important to remember, on a competitively bid project, there is no ability by the contractor to absorb any additional costs. The owner has expected you, the contractor, to have presented a competent and competitive price structure that represents the contract documents only. No more, no less. Therefore when something changes it is always a change in value.
There is never, nor should there be, any money left over to absorb any legitimate changes, etc.
As a contractor, you need to obtain all of the compensation that you are entitled to !