Claims: If I Can’t Avoid Them,
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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
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
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
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 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
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
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