CON4541 CONSTRUCTION CONTRACT MANAGEMENT

4. Contract Administration (refer Private Standard Form with Quantities for HK)
Contd

J. Contractors Claims

General Background

The construction industry covers a complex field of activity involving many operative skills
and conditions that vary considerably from one project to another. Site and climatic
conditions, market conditions, project characteristics and available resources are some of
the variables, each of which can have a significant effect on the operation of the contract.

Most construction contracts make provision for these complexities and uncertainties by the
inclusion of clauses permitting the contractor to claim for loss or expense resulting from
specific occasions. The standard forms of building contract attempt to clarify the contractual
requirements and remove any ambiguities as far as possible. In the absence of these
provisions, contractors would have to include in their tenders for many more uncertainties
than they do now, which would result in a significant increase in tender figures. However,
under the standard forms of contract, the employer will only have to meet the cost of such
contingencies () if they arise and have been duly verified.()

The term CLAIM () as used in this context is a request by the contractor for

recompense for some loss or expense that he has suffered or,

an attempt to avoid the requirement to pay liquidated damages.

A claim to be successful must be (1) well prepared, (2) based on the appropriate contract
clauses and (3) founded on facts that are clearly recorded, presented and provable.

It is the responsibility of the contractor to formulate his claim in detail and to furnish the
evidence on which the claim is based. For example it should identify :

which clauses of the contract apply and how they are to be interpreted
what is the estimate time of delay
what are the causes of delay
what are the additional costs and expenses involved
what is the monetary entitlement by the main contractor

Broad Categories of Claims

Contractual claims
Ex-contractual claims

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Common Law claims

A. Contractual claims

These are claims that are founded on specific clauses within the terms of the
contract. Contractual claims may be classed as either "negative" or "positive" in character.

A.1 Negative claims

Negative claims are those where the contractor seeks to avoid a payment, such as
liquidated damages.

Claims within this classification include those seeking an extension of the contract period,
which in consequence the contractor can avoid payment of some or all of the liquidated
damages.

A.2 Positive claims

Positive claim, if successful, can result in an addition to the contract sum. For example, a
claim may be submitted to recompense for the loss or expense due to disruption of the
progress of the work under Clause 27.

B. Ex-contractual claims

These claims are not based on clauses within the terms of a contract, although the
basis of the claim may be circumstances that have arisen out of the project and have
resulted in loss or expense to the contractor for example, taking acceleration work on site by
the contractor to expedite the progress. On occasions a sympathetic employer may settle
an ex-contractual claim, because the contract was finished on time and the contractor has
taken effort to achieve it.

C. Common law claims

They are the claims going through the legal action under the law of contract. Many of
the clauses in the standard forms are stated to be 'without prejudice to any other rights and
remedies. Such rights are established by taking action through the court for damages
arisen in the contract matters under the Law of Contract.

D. Delay

Delay in the completion of the Works is one of the most common causes of dispute between
the two parties, and of subsequent claims. Delays may be considered under three headings:

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D.1 Delays caused by the Contractor

Delays caused by the Contractor due to bad management in executing the Works, such as
insufficient labour on Site, late ordering of materials, insufficient or unsuitable plant.

If the delay is caused by a Domestic Sub-Contractor, then this is treated as a delay caused
by the Contractor.

If the delay is caused by a Nominated Sub-Contractor and the Contractor has done all he
can to prevent the delay, this is treated as a delay caused by neither party to the Contract.
The Contractor is entitled to be granted an extension of time and the Employer cannot claim
liquidated damages for the period of delay caused.

D.2 Delays caused by the Employer

Where delays are caused by the Employer, the Architect has an obligation to issue an
Architects Instruction awarding an extension of time under Clause 25. If delays from these
causes involve the Contractor in direct loss and/or expense for which he would not otherwise
be reimbursed, the Contractor will be entitled to recover such direct loss and/or expense
under Clause 27.

Examples of Delays Caused by the Employer:

An Architects Instruction to resolve an ambiguity, discrepancy in or divergence

between the contract documents.

Issue of Architects Instructions which requires Variations

Issue of Architects Instructions which requires the Contractor to complete substantial

extra work; involves the Contractor executing substantial amounts of work out of
sequence; or is concerned with a postponement of the works.

Late issue of drawings, details or levels which the Architect has either failed to supply or
is late in supplying, which the Contractor has specifically requested in writing.

Delay on the part of artists, tradesmen, Specialist Contractor or others engaged by the
Employer to carry out work which delays the Contractor.

Delays caused by the Architect requiring completed work to be opened up or materials

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tested, provided such work or materials are found to be in accordance with the Contract.
D.3 Delays caused by neither party to the Contract (neutral event)

There are occasions when delays arise due to circumstances over which neither party to the
Contract have any control, for example, force majeure (), inclement weather, the
Excepted Risks, loss or damage caused by a Specified Peril; delay on the part of Nominated
Sub-Contractors or Nominated Suppliers, delay caused by statutory undertaker or utility
company, etc.

For any of these matters, the Contractor is entitled to an extension of time, but not for the
reimbursement of the direct loss and/or expense due to disruption of the progress of the
works.

E. Claims for Extension of Time (Clause 25)

The Contractor must take the initial action by giving notice of delay the first notice within 28
days of the commencement of the event likely to cause delay to the completion of the Works
beyond the Completion Date becoming apparent and stating the causes of delay as referred
to the listed events (Clause 25.1(3) (a) to (v)). The second notice of claim should be
submitted within 28 days from the first notice with detail substantiation. The Contractor shall
estimate the length of delay and the Architect will make the final decision.

The Architect is under an obligation to give an extension of time within 60 days from receipt
of any particulars submitted with the second notice. The intention is that the Contractor is not
left in doubt as to the required completion date. Otherwise, the Employer may loss his right
to liquidated damages.

In order to assist in his assessment of a claim for an extension of time, the Architect should
check the progress of the works compared with existing programmes, and seek the opinion
of the clerk of works. The Contractor is obliged to co-operate with the Architect to reduce the
effects of any delay which is not his fault, and for which he is claiming an extension of time.

However, the Contractor is not obliged under the Contract, to work overtime or bring an extra
plan or take other expensive steps to regain lost time. If the Architect requests the
Contractor to take special measures to catch up the lost time, i.e. delay recovery
measures as specified under Clause 26, and the Contractor submitted the delay recovery
proposal and the Architect agrees, then the Employer must pay for the cost of such
measures.

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F. Claims for Direct loss and/or expense (Clause 27)

Causes of delay for which the Contractor may claim direct loss and/or expense are listed
under clause 27.1(2) (a)-(l); these are some of the conditions:

(a) Opening up for inspection of work and the work is proved to be in order.
(b) Issue of Architects Instructions which requires Variations
(c) Issue of Architects Instructions which requires the Contractor to complete substantial
extra work; involves the Contractor executing substantial amounts of work out of
sequence
(d) The Contractor not having received in time, instructions, drawings, details or levels.
(e) Discrepancy in or divergence between the Contract Drawings and/or Contract Bills.
(f) Delay on the part of artists, tradesmen, Specialist Contractor or others engaged by the
Employer.
(g) Architects instructions issued in regard to postponement of any work.

Loss may be defined as where the Contractor will not recover what he could have expected
to as a direct result of disruption, variation, or the discovery of antiquities. Expense may be
defined as where the main contractor has had to increase his expected expenditure on an
item of work to produce the same result, as a direct result of disruption, variation or the
discovery of antiquities.

The process of arriving at a monetary figure which will accurately reflect the true direct loss
and/or expense suffered by the main contractor is difficult. In order to facilitate the process of
evaluation, claims may be considered under the following headings (possible claim heads

):

Materials
The common elements of a claim for the reimbursement of the extra cost of materials are:
Surplus materials due to a variation order requiring a smaller quantity of a particular
material.
Materials having to be replaced due to deterioration during the prolongation of the
contract.

Labour disruption
Loss of output due to disruption of the regular progress of the works.

Preliminaries and supervision

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Some preliminaries items are time related thus more expense might be incurred due to
prolongation of contract period.
Head office overheads and profit
The prolongation of contract period might hold up the resources of the construction company
and thus lower the ability to tender for other jobs and affect the total turnover figures for the
company.

Finance charges
The longer contract period would increase the cost of finance for the project by the
construction company.

G. Preparation of Claims

Claims are submitted principally to cover the extra cost and/or expense resulting from
disruption of the work or prolongation of the contract. In either case a large amount of
supporting information is needed. One useful approach is for the contractor to require site
agents and foremen to insert daily comments against a numbered list of topics to avoid
significant omissions. It is also wise to keep two sets of important records in different offices
to guard against possible loss.

In compiling a claim, a contractor may need to refer to any of the following

documents/records:

Correspondence - (seems straightforward at first sight but it can have important

implications);
Approved minutes of meetings - (can contain instructions, variations and additional
requirements);
Architect's instructions - (could be the most important single item);
Contract and working drawings and other contract documents - (identify divergence and
inconsistencies between them);
Site diary - (must contain accurate and comprehensive entries and will often highlight
problems);
Progress photographs, dated.
Materials schedule - (quantities received and delivery dates);
Programmes and progress charts - (showing contractor's anticipated programme and
actual performance);
Method statement - (identify the extent to which disruption has occurred and its effect on
the actual progress);

1. One of the main criteria in establishing the validity of claims is good and accurate
record.
2. Probably the next most important step is to inform the Architect and quantity surveyor

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that claim situations are arising.

3. A major problem can be the confidentiality aspect of much of the cost information that
the contractor guards jealously and some of which may be needed to satisfy the
Architect or quantity surveyor of the validity of the claim.
4. Every claim should be produced as if it is to become evidence in court and should be
carefully detailed and presented, preferably in a bound cover. An untidy and carelessly
prepared claim is unlikely to receive very serious consideration.

The claim could conveniently be broken down into the following logical sequence:

1. Contract particulars ():

Details of the site (as contained in the preliminaries) and details of the contract (as
contained in the articles of agreement and appendix).

2. Claim particulars ():

A summary of the bases or heads of claim, stating all facts and details, together with full
particulars of the specific contract clauses on which the claim is based.

3. Evaluation of the claim ():

A summary of the contractor's financial loss and/or expense.

4. Appendices ():
A section that collates all the back-up information described in claims particulars and
evaluation of the claim.

Important points to be noted in submission of claims

(1) it is important for the contractor to determine the extent of his obligations under the
contract and (2) then to obtain details of the matters that hindered or prevented him from
executing the work with expedition and economy. (3) Facts are to be stated with the utmost
precision and clarity and (4) to calculate the amount of the additional expense incurred.

It is a bad policy for the Contractor to submit inflated claims using the argument that he does
not expect to receive the whole of his entitlement. It is far better if realistic claims are
submitted and that a truly professional attitude is adopted by all the disciplines concerned.

The claim will be assessed by the client QS who will negotiate with the main contractors QS
until an amount acceptable to both is arrived at.

Once approved by the Architect, the claim should be included in the next Interim Certificate

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and not await final settlement. All payments for loss and/or expense claims are subject to
retention.