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Claims: If I Can’t Avoid Them,
How Can I Get Through Them Unscathed?

By Kristen Braden, Esq., Construction Project Manager at H.R. Gray

While construction projects rarely progress in an ideal fashion, those in the construction industry easily can define a perfect project. First, work always begins on time. The contractor performs its work on schedule and within budget. No unexpected or unforeseen events arise, so the contractor does not ask the owner for additional money. The owner does not ask the contractor to perform additional work, and the architect provided a perfect design. The contractor completes the project on time and precisely according to plan. What’s more, the contractor makes its expected profit, and all parties walk away from the project happy.

However, projects aren’t always ideal. Weather conditions, changes in plans and specifications, and unforeseen site conditions are just a few of the challenges that can throw a project off course – and lead to claims.

What Is a Claim?
A claim is a request for additional compensation of either cost or time due to a change in the terms of the contract. The party asserting a claim must show entitlement and damages. For entitlement, the party must show it is entitled to the additional time or money under the terms of the contract documents. To prove damages, the party must show the amount in dollars or days that it was injured as a result of the underlying claim. Fortunately, claims do not always result in a lawsuit.

Claims can arise from a variety of situations. If site conditions are different from those represented in the contract documents, or what could have been reasonably expected from the information available, this change may affect a project’s schedule. What’s more, any additions, deletions or revisions to the work that are still within the original scope of the contract also may cause a time impact. Time impacts may be represented by delays, disruptions, acceleration, lost productivity, or a stoppage or suspension of work.

When these conditions arise, many owners begin to ask, “How did my project get out of hand?” The answers are as numerous as the factors that can disrupt a project’s course. Projects can get unmanageable when an unrealistic contract schedule is established, misunderstandings or miscommunications arise among parties, one party has a rigid interpretation of the contract, the contractor is losing money, an adversarial relationship exists between the parties, incomplete or incorrect design documents are present, or when pride gets in the way. Above all, when any party holds unrealistic expectations, the ground is ripe for producing a wayward project.

Proactively Deal with Claims
When dealing with claims, it is important to take proactive measures. By doing so, an organization will save both time and money. To save time in the claims process, an organization must have continuous review of the schedule. Knowledge of the day-to-day changes and events will help a firm identify potential claims. Also, the firm will be able to identify the activities or events that have caused a delay or acceleration. Identifying claims early will help an organization collect and create the proper documentation to win the claim. Early identification also allows timely and proper notice pursuant to the contract requirements.

Saving time means saving money. To ensure money is saved in the claims process, an organization must identify and document a claim in order to effectively recover from, or defend against, the claim. Researching the claim and recreating the documentation after the fact is costly. In addition, numerous factors related to time can wreak havoc on a project’s bottom line. These issues may include overhead costs, equipment rental, price escalation, labor costs, lost profit, lost productivity, impacts incurred by subcontractors and other third parties, lost profits to businesses, and fines from governmental agencies.

To mitigate or minimize impacts on a project, identify ways the project can make up for lost time and money. Often, rescheduling or re-sequencing of work will help recover lost time.

Claims Avoidance
Claims avoidance begins with knowing your contract requirements. The contract can help you avoid problems. Know your responsibilities, other parties’ responsibilities and the ramifications of any party’s failure to fulfill its responsibilities. Understanding the contract can allow you to prepare a strategy to deal with problems before they actually arise. Identify the vague areas, and develop a plan to deal with potential problems not addressed by the contract. Such knowledge and understanding of the contract will help you address the everyday problems that occur. Next, it is critical to follow the contract.

If problems or issues occur, document these as they arise. Ongoing documentation has numerous benefits. First, it allows you to remain aware of continuing problems in order to follow up on a regular basis. You will be able to identify problems in the early stages before they have a significant impact on the schedule and budget. Finally, you will be able to obtain (or provide) authorization before performing any work outside the scope of the contract.

In addition to documentation, communication is key in avoiding claims. Effective written communication must include both formal and informal methods. Communication keeps all parties aware of the status of important activities and issues.

Claims Mitigation Process
Typical components of a claims mitigation process include: contract documents; project documentation; construction schedule; and maintenance and updating. For mitigation of the issue or issues at hand to occur, the first step is identifying there is an impact. The next step is identifying the underlying cause of the impact. Finally, it is important to identify methods to minimize, eliminate or correct the effect to the project.

Contract documents make note of general conditions, such as responsibilities for notices, requirements for changes to the work, scheduling requirements, and payment requirements. Other contract records might include plans and specifications and ground or soils reports.

Proper documentation is necessary to show both entitlement and damages. Evidence of entitlement may come in many forms. For instance, correspondence may document that there was notice and when notice was provided. Daily reports may document what work was performed on any given date. Meeting minutes document that the parties knew of potential claim issues. Finally, testing results document whether the work performed met the specifications.

Proper documentation is also important to showing damages. Examples include daily reports that quantify who worked on what activities on any given day, while payroll records may verify the number of hours any person was working on a given day. In addition, an analysis of project documentation also can show: causation, avoidability, mitigation and responsibility. If issues arise, it is necessary to keep certain guidelines in mind. First, document problems and their resolutions contemporaneously. Such documentation may include daily logs, payroll records, job logs, geological data, correspondence, time-stamped photographs and video. Keep records of problems encountered and methods used to resolve the issues. Identify problems and request that the contractor or supplier rectify the issue. Follow up on problems or issues. Next, set action dates and deadlines. Finally, use correspondence effectively, intelligently and respectfully. Remember, documentation should be maintained regardless of whether you foresee a claim on the project.

Beyond documentation, the construction schedule is one crucial aspect of the claims mitigation process. In fact, the construction schedule is perhaps the most important tool for claims avoidance and mitigation. The schedule allows you to identify time impacts before they occur. Regular updates and reviews allow you to identify delays and impacts more quickly. What’s more, knowledge of the schedule allows you to identify relationships, which may allow a delay to affect seemingly unrelated activities. The schedule is a useful tool for assisting in identifying ways to mitigate the impacts. Further, the schedule allows you to analyze cost impacts through the schedule of values.

Updating and maintenance of the project documents may be the most important component for the mitigation of any claim. For this component to be successful, an organization must commit to reviewing and updating its files on a daily or weekly basis. Keep in mind that you will not be able to identify potential claims or issues if you do not maintain and update all project records regularly.

Communicate, Document
In the end, mitigating claims relies on two items: communication and documentation. Communication keeps all parties up to date on the status of issues and problems arising on the project. Successful communication must be timely, clear and effective. Likewise, complete and accurate documentation of all aspects of the project is critical to mitigating claims. Contemporaneous documentation is the key.

About H.R. Gray
Founded in 1979, H.R. Gray is a unique management and consulting firm that provides public agencies with responsive, cost-effective, quality, construction consulting, management and claim resolution services for complex projects. By utilizing its unique skill set and proactive approach, H.R. Gray’s mission is to help each client successfully manage its construction project from conception to completion. H.R. Gray has offices in Columbus and Akron, Ohio; Lexington, KY and Austin, Texas.
 


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