International Journal of Construction Management

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A process reference model for claims management

in construction supply chains: the contractors’
perspective

Dimitrios Robert I Stamatiou, Konstantinos A Kirytopoulos, Stavros T Ponis,

Sotiris Gayialis & Ilias Tatsiopoulos

To cite this article: Dimitrios Robert I Stamatiou, Konstantinos A Kirytopoulos, Stavros T Ponis,
Sotiris Gayialis & Ilias Tatsiopoulos (2019) A process reference model for claims management
in construction supply chains: the contractors’ perspective, International Journal of Construction
Management, 19:5, 382-400, DOI: 10.1080/15623599.2018.1452100

To link to this article: https://doi.org/10.1080/15623599.2018.1452100

Published online: 08 Apr 2018.

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INTERNATIONAL JOURNAL OF CONSTRUCTION MANAGEMENT
2019, VOL. 19, NO. 5, 382–400
https://doi.org/10.1080/15623599.2018.1452100

A process reference model for claims management in construction supply chains:

the contractors’ perspective
Dimitrios Robert I Stamatioua, Konstantinos A Kirytopoulosb, Stavros T Ponisa, Sotiris Gayialisa and Ilias Tatsiopoulosa
a
School of Mechanical Engineering, National Technical University of Athens, Athens, Greece; bSchool of Natural & Built Environments, University
of South Australia, Adelaide, Australia

ABSTRACT KEYWORDS
Claims are an unavoidable burden for every construction project. They stem from risks that have Claims management; supply
unfortunately been realized in a project and how they will be pursued is up to company strategy, chain management;
operational particularities and managers’ skills and experience. Claims, in general, have an adverse construction; process
effect on a project’s supply chain by compromising actors’ relationships, project implementation modelling; reference model
and project outcomes. It is imperative that all contractors follow a well-designed claims
management strategy that is guided by well-defined and accurately documented operational
processes outlined in detail. Process models related to claims management are scarcely found in
the literature. These models are evaluated and a new process reference model, that attempts to
improve the claims management process and rectify the identified shortcomings of existing
models, such as a lack of transactions between the contractor and other supply chain actors, is
proposed. In doing so, a number of process models are created. The objective of this paper is to
prescribe the claims management process as an integral process to the supply chain of a
construction project in an effort to raise awareness of this relationship and provide a holistic view
to claims management through a supply chain management lens.

Introduction and risk allocation. These contracts have clauses that

provide for specific events but, due to different limita-
The construction industry is project based and charac-
tions they cannot be exhaustive. As risks arise, they
terized by complex activities, tight schedules and a tuple
guide to project cost escalation and time overruns, which
of actors. This is an environment where risks are abun-
can lead to claims that can divert resources in form of
dant. It is common practice for every company to
both finances and staff time from on-going projects
attempt to mitigate as many risks as possible. Further-
(Sibanyama et al. 2012). According to Revay (1993: ‘The
more, the industry faces new types of risks that stem
larger and more complex the project, the greater the like-
from the fact that projects are becoming more complex
lihood of several major claim’. Claims are, thus, inevita-
due to new regulations, standards, technologies and
ble. Due to conflicts and differences over claims, the
owner-desired additions or variations (Abdul-Malak
construction industry is plagued by an antagonistic
et al. 2002). As the size and complexity of projects
atmosphere between clients and contractors (Harmon
increases, so does the frequency of claims (Mishmish
2003). Although successful completion of projects
and El-Sayegh 2016). These factors have an extremely
depends mainly on cooperation between the main actors
strong reflection upon projects’ supply chains.
of a project, namely the contractor, the consultant and
Cox and Thompson (1998) as cited in Ribeiro and
the owner, problems and disputes have always erupted
Lopes (2001) define the construction supply chain as fol-
due to conflicting opinions on various aspects of the
lows: ‘A supply chain in construction can be considered
project (Abdul-Malak et al. 2002). The root of these
as a process of series of activities transforming raw mate-
problems is misalignment of interests between the con-
rials into finish products (e.g. roads or buildings) and
tracting parties (Jensen and Meckling 2001). In cases of
services (e.g. design or budget) for use by a client irre-
back-to-back contracts, which are used broadly in the
spective of organization boundaries’. Relationships
construction industry, claims tend to propagate along
between actors of construction supply chains are mainly
the supply chain. Things are not made easier by the
determined and guided by contracts. Contracts describe
actors that behave opportunistically. As a fact, the idea
the obligations of each party, the reimbursement method

CONTACT Dimitrios Robert I Stamatiou [email protected]

© 2018 Informa UK Limited, trading as Taylor & Francis Group
 INTERNATIONAL JOURNAL OF CONSTRUCTION MANAGEMENT 383

that the industry has an opportunistic culture leads to win/win, and cooperative relationships between stake-
conflict and resistance to change which is a byword in holders in a systemic perspective.
construction (Rooke et al. 2003). This opportunistic The construction industry is characterized by temporary
behaviour does not allow construction companies to supply chains with fragmentation and instability as a
develop relationships that support efficient collaboration result (Persson et al. 2010). Construction markets are
at the supply chain level. The degree of collaboration often closed to international antagonism due to govern-
and coordination between supply chain actors affects the ment subsidies, regulations and culture (Segerstedt and
success of a project (Ronchi 2006). There are many pro- Olofsson 2010). Despite the locality of the construction
cess models that attempt to improve different organiza- markets, they are still highly fragmented with many
tional aspects available in the general literature, most of SMEs (small–medium enterprises) (Briscoe and Dainty
them based on best practices. 2005) performing unique activities (Ribeiro and Lopes
The existing claims management literature contains a 2001). Matthews et al. (2000) find that the increase in
few process models that illustrate a rather basic process. complexity, the over-supply of specialist firms and the
None of the existing process models makes a connection declining construction output (maturity of the market)
of claims to the implications for the management of a has aided the cultivation of an adversarial atmosphere
project’s supply chain. The relationship with other actors that has had a negative effect on main contractor–
of the supply chain (clients or suppliers) is highly subcontractor relationships. According to Rooke et al.
affected by claims. Contractors that want to improve (2003), ‘Competition results in a fragmented system of
their relationships with key-clients and key-suppliers economically independent units, each attempting to
could benefit from the use of documented best practices maximize its benefit, to the detriment of the co-opera-
and standardized sets of processes that allow for easier tion required of a technically interdependent system, if
monitoring. It is the aim of this paper to introduce a collective benefit is to be achieved’.
holistic claims management process reference model Buyer–supplier relationships in the construction
that enlightens how the contractor should handle claims industry can be characterized as a market exchange rela-
in a project-based supply chain. The rest of this paper is tionship, where, according to Bensaou (1999): ‘informa-
organized as follows. An analysis of claims in construc- tion exchange between two firms takes place mainly
tion and their effects on project supply chains is per- during bidding and contract negotiations’. The client–
formed, followed by a brief review of process models supplier relationship is portrayed by Saad et al. (2002)
related to claims management. The proposed reference and Fernie and Thorpe (2007) as critical in construction
model is presented and analysed thoroughly. A brief dis- supply chain management. A problem faced by the con-
cussion on the model and its characteristics, compared struction industry is the tendency of contractors to focus
to the existing models in the literature, is performed and explicitly on their clients’ needs (Saad et al. 2002) and
finally, the conclusions are presented. neglect their relationships with their suppliers. This leads
to low productivity, cost and time overruns, conflicts
Claims and construction supply chain caused by bad communication (Aloini et al. 2012) and
required reworks. Many subcontractors do not have the
Construction supply chain
expertise to undertake work reasonably which impacts
Supply chain management is a relatively new concept in their ability to give their clients the service they require,
construction, originating from manufacturing. It is a while, further up the supply chain, many of the undesir-
subject of intense research in the manufacturing disci- able traits common to the main contractor–subcontractor
pline since the 1960s. It was introduced to construction relationship are also common in the subcontractor–
through the ‘rethinking construction’ report (Egan sub-subcontractor relationship (Matthews et al. 2000).
1998) and research on the subject is on the rise. Despite The client–main contractor relationship is regarded as
the amount of research in manufacturing, the results do the main relationship in a construction supply chain
not readily translate to the construction supply chains. (Cox and Thompson 1997). As a result, supply chain
Aloini et al. (2012) define construction supply chain relationships distinguish one construction supply chain
management as: from another (Meng 2012). Supply chain relationships in
construction are very diverse, ranging from the tradition-
It is the coordination and the integration of key construc-
tion business, both processes and members involved in ally adversarial, to the short-term collaborative, and to
construction supply chain, extending traditional intra- the long-term collaborative relationships. The traditional
enterprise activities in a management philosophy by adversarial nature of construction is heavily criticized
bringing together partners who have the common goals in the literature and a proposal for collaboration in
of optimization and efficiency so establishing long-term,
384 D. R. I. STAMATIOU ET AL.

Figure 1. Construction supply chain. Adapted from Pryke 2009, p. 2.

many levels between supply chain actors is promoted. change in the planning phase and providing flexible con-
Meng (2012) states that ‘deterioration of supply chain tract mechanisms that enable an effective response’.
relationships is a major reason for the occurrence of Claims are highly affected by the intention and goodwill
poor performance such as time delays, cost overruns of the interpreter (the actor considering himself exposed
and quality defects’. This paper considers the client– to a realized risk) of the contractual terms. As Fenn et al.
contractor–subcontractor tiers (Pryke 2009) as the (1997) state, ‘it is worth noting that conflict can be man-
main construction supply chain under study as all aged, possibly to the point of preventing it from leading
other tiers upstream the subcontractor (e.g. chemicals to dispute’. Carmichael (2009) noticed that contractors
industry) can be described by other supply chain mod- kept claim rates low when clients behaved similarly. It is
els. Figure 1 presents this schematically. typical for contractors to submit claims for cost or time.
Not all claims submitted by contractors are accepted by
the other parties. Vidogah and Ndekugri (1998) identi-
Claims management
fied eight reasons for refusal of part or all of contractor’s
Claims are present and ever increasing in every con- claims, namely (in descending importance): ‘non-entitle-
struction project, regardless of scale, and they are recog- ment in principle, inadequate information, quantifica-
nized as a burden for the industry. There is no uniform tion of claim, lack of breakdown of claim by causes,
definition for claims although they may be best non-compliance with contractual procedures, inade-
described by Kululanga et al. (2001) as ‘an assertion of quate effort at mitigation, validity of architect/engineer’s
and a demand for compensation by way of evidence pro- instructions, and other grounds’. Different controls in
duced and arguments advanced by a party in support of various stages of the process for handling claims could
its case’. Ho and Liu (2004) point out that many project influence perceived lack of fairness and the potential for
participants consider them as the most disruptive and dispute (Aibinu 2006). Third parties are rarely addressed
unpleasant events of a project. Claims may start against in order to participate in the claims process and boost
one party but end up affecting multiple contractors the feeling of fairness due to the very small profit mar-
(Chester and Hendrickson 2005) even at different phases gins in construction projects.
of the project, especially in cases of back-to-back con- According to Banwo et al. (2015), events that cause
tracting. Research conducted by Zaneldin (2006) shows claims can be split into three categories, these being,
that the completion of projects is hindered by claims excusable, non-excusable and external. This categoriza-
that cause delays in project delivery. In fact, many part- tion allows for an examination of the validity of a claim
nership attempts in the construction industry have failed by the contractor. Non-excusable events are attributed
due to claims. According to Mbachu (2011), ‘The criti- to the other party and do not present a basis for claims,
cally risky aspects of the owners’ acts or omissions were so they are certain to be declined by the contractor and
associated with their contractual role, especially in rela- vice versa in the case the contractor submits such a
tion to disagreement over payment claims and on what claim. It is common practice for project owners to trans-
constituted variations’. Avoiding such situations is not fer as many risks as possible to other actors although
easy as it requires careful study of contract terms, a that does not mean that their exposure to them is neces-
cooperative spirit and a good understanding of the sarily eliminated (Revay 1993). In the case of supply
causes of claims (Semple et al. 1994). Demirel et al. chains, it is impossible to provide an exhaustive descrip-
(2016) state that ‘one way to achieve this is through tion of the rights and obligations of all contracting par-
clever contracting, by proactively anticipating potential ties for every possible contingency (Coltman et al. 2009).
 INTERNATIONAL JOURNAL OF CONSTRUCTION MANAGEMENT 385

Despite the category the claim falls in, the way con- techniques in order to reduce or prevent claims. The
tractors treat claims is different. Two main trends can wealth generating action of production makes it possible
be observed in the literature regarding claims manage- to conceive of efficient solutions for all participants
ment. On the one hand, researchers propose that claims (Rooke et al. 2003).
should be pursued in order to increase contractors’ During a project, claims may be submitted by any
profitability. For example, Yang and Xu (2011) investi- party. Project stakeholders view claims management
gate the situation where contractors bid at low, even from different angles. Opportunistic bidding behaviour,
beneath cost, and aim at making a profit through as Mohamed et al. (2011) defined it, was analysed exten-
claims. Zhou and Tan (2012) go one step further sively in the current section. Banwo et al. (2015) state
exploring whether taking advantage of claims could that claims management, from the contractors’ perspec-
also benefit project management efficiency. He and tive, may be viewed through another lens, that of profit
Chen (2010) support that opportunities for claims exist maximization from a supply-chain perspective. This dis-
throughout the life cycle of a project. This is due to the tinguishes claims management as being principally
contract-based nature of projects. Opportunism stems driven by the need to reduce the company’s overheads
from contractual incompleteness (Yates 2002). As in an attempt to maximize profit and is analysed in the
Aibinu et al. (2011) concluded in their study, ‘when following section.
contingencies occur which are not fully, or only ambig-
uously, covered by the contract provisions, one or both
Claims management process models
of the parties to the transaction may behave opportu-
nistically by taking actions that increase the transaction In order to better understand the relationship of claims
cost’. Minimizing claim causal factors during earlier with supply chain management, a non-exhaustive analy-
phases would therefore reduce claims during the con- sis of the types of claims in construction was performed.
struction phase (Sibanyama et al. 2012). Opportunistic Table 1 presents the types of claims recorded in the
behaviour could either be attributed to cultural and/or literature.
financial factors. Ho and Liu (2004) find that economic Most of the types mentioned are in direct relationship
slowdowns and recessions encourage opportunistic with the supply chain of a project. For example, the
behaviour. On the contrary, Zaneldin (2006) identified increase of scope was the main cause of dispute that
that, in the UAE, construction claims are direct results Semple et al. (1994) identified and almost all other works
of the on-going growth in the construction industry in presented in Table 1 seem to ratify their find. Increase in
the country. Opportunistic behaviour may include a scope highly affects the supply chain of a project since
contractor’s intentional ignorance of possible risks new parameters are being added, schedules are shifted
involved that may significantly increase costs or and in some cases new subcontractors need to be con-
decrease profitability (Ho and Liu 2004). This kind of tracted. Banawi and Bilec (2014) analysed waste levels
opportunism is criticized when there is talk of changing through the amount of claims submitted and identified
culture for the better, but it bespeaks a perfectly rational design changes during construction as the largest source
and legal adaptation according to Rooke et al. (2003). of both claims and waste. Delays which can be directly
Opportunistic behaviour creates adversarial relation- related to the supply chain, according to Braimah and
ships, a problem that plagues the construction industry Ndekugri (2009), are the most often and involve many
worldwide, from a local level to an international one. actors which make it hard to justify and quantify the
On the other hand, authors propose claims as a last effect of each individual item of delay. Contractors must
resort and only if this is really necessary, as conflicts keep in mind that in some cases one type of claim may
caused by claims can have a damaging effect on inter- lead to other types in a later phase of the project (Chester
company relations. Claims are sought by these authors and Hendrickson 2005). Claims management is not easy
as a burden that must be avoided. In their work, Semple and therefore best practices need to be documented and
et al. (1994) advocate against the use of claims in con- adopted by companies in the sector in order to avoid
struction projects because of the adverse effects they long-term effects of bad claim management practices
have on the industry. Aibinu et al. (2011) propose that such as late claim identification, ineffective claim man-
prior to initiating the claim process actors should con- agement processes and financial losses. Many best prac-
sider the financial costs of pursuing claims that may lead tices are documented in the literature in the form of
to disputes and the impacts of the claims on future busi- process models.
ness prospects with existing or potential clients. Zanel- Process models are widespread in the general litera-
din (2006) stresses out that it is imperative for the ture. Usually they are based on state-of-the-art research
construction industry to develop methodologies and but, unfortunately, their adoption by industries is less
386 D. R. I. STAMATIOU ET AL.

Table 1. Claim typology in construction projects.

(Revay (Zack (Semple (Chester and (Zaneldin (Moura and (Hassanein and El (Banwo
Types 1993) 1993) et al. 1994) Hendrickson 2005) 2006) Teixeira 2007) Nemr 2008) et al. 2015)
Acceleration X X X X X X
Restricted access X X
Force majeure X X X X
Increase in scope X X X X X X X
Loss of productivity X X
Problematic bid documents X
Delays X X X X X
Measurements and payments X X
Suspension of works X
Beginning and ending acts X X
Contract termination X
Contract ambiguity X
Fluctuation X
Extension of time X X
Ex gratia X
Different site conditions X
Resequencing of work X
Defective work X
Total cost X

common. This is also the truth in the case of the con- connection between claims and construction supply
struction industry where the effective and widespread chain management. This is the gap that the following
adoption and use of process models has been limited, model attempts to fill.
and the benefits span from ambiguous at best to non-
existent at worst according to Tzortzopoulos et al.
Methodology
(2005). Numerous reports, for example, Egan (1998)
and Fairclough (2002), have found that there is a lack of The research presented in this paper involves the devel-
innovation and change in process management practices opment and validation of a new model. It is a process
throughout the industry. This could be due to the fact reference model which can be adopted by construction
that there is a lack of effective knowledge management companies in order to design or redesign their claims
tools and the one-off nature of construction projects. A management process and sub-processes, within the
way to overcome these complex problems is the develop- whole construction supply chain. The validation of the
ment and implementation of process reference models, model is achieved through interviews with experts from
which would allow for a consistent and integrated design the construction industry.
and construction process (Kagioglou et al. 2000). The methodology for the development of the process
Cheung and Yiu (2006) state that an efficient claims reference model for claims management in construction
management approach is essential to prevent disputes supply chain, followed a hybrid top-down and bottom-
from occurring. up approach (Figure 2). This approach is an adoption of
The most prominent models found in the construc- the methodology described in ODYSSEUS framework,
tion claims management literature are those of Kulu- presented by Ponis et al. (2013) and Gayialis et al.
langa et al. (2001) and Abdul-Malak et al. (2002). The (2013), for the development of generic and partial
prior proposes a typical, oversimplified sequence of tasks (industry specific) supply chain reference models. This
for claim management but introduces total quality man- framework introduces nine main processes divided into
agement tools in order to prevent the occurrence of new management processes, core processes and support pro-
claims. The latter describes a more detailed and complex cesses according to Porter (1985), and claims manage-
process for claims management that is also accompanied ment is classified as a core process because of the role it
by a related software. Other notable models include has on the contractors’ profitability. Elaborating on that,
works by Moura and Teixeira (2007), a rather simple this paper enhances and details the processes related to
approach, and by Banwo et al. (2015), an interesting claims management, enlightening them from the con-
approach that introduces phases during which certain tractors’ perspective.
tasks are performed. Finally, in contrast to the previous The methodology followed in this paper, includes
authors, He and Chen (2010) present a process model three phases and it is presented in Figure 2. The first
for opportunistic claim management, a tactic that is not phase is the study and critical review of contemporary
adopted in the model presented in this paper. None of theories and practices for claims management in con-
the aforementioned process models make a direct struction supply chain. Existing claims management
 INTERNATIONAL JOURNAL OF CONSTRUCTION MANAGEMENT 387

Figure 2. Methodological approach.

process models documented in the literature were ana- Claims management process model
lysed. Best practices and IT trends in the construction
According to Hofman et al. (2009), ‘construction proj-
industry were also studied. This step resulted in the
ects can be seen as temporary organizations between
identification of basic directions and requirements for
and within organizations, and therefore standardization
the creation of the reference model (top-down
at the multi-project level is difficult as project teams and
approach). The outcome of this phase is summarized in
product designs change from project to project’. The
the literature review section.
authors argue that standardization can be achieved
The second phase includes the creation of the process
through common processes among project participants.
reference model for construction supply chains. This is
The model contains five processes (Figure 3), divided
achieved through the adaptation and customization of
into strategic (long-term) and operational (short-term)
existing models and practices identified in the first
based on the classification presented by Croxton et al.
phase. Specific business process modelling methods were
(2001) in the Global Supply Chain Framework reference
used, mainly adopting the business process model and
model. On one hand, strategic processes are executed at
notation (BPMN) modelling technique. This step
the beginning of a project and are updated in case of
resulted in the creation of the process reference model
major changes in strategy or legislation. This ensures
for claims management in construction supply chains.
that there is certain continuity in the way claims and
The process perspective is graphically represented
contract terminations are handled. On the other hand,
through the use of the value chain diagram, function
operational processes are executed as often as needed.
trees, process charts for processes and (when required)
The processes of the ‘Claims management’ function
sub-process representation. The outcome of this phase is
have interfaces with other supply chain model functions
summarized in the next section of the paper which
but these interfaces are out of the scope of this paper.
describes the claims management process model.
As seen in the previous sections, literature treats claims
The third phase of the methodological approach is the
as mainly having a negative hue. Interestingly, the inter-
validation phase of the reference model through inter-
views conducted corroborate that relationships are
views. Semi-structured interviews were performed, one
damaged by claims and projects may be delayed. Inter-
with an expert from a Greek large contractor from the
estingly, the interviews revealed that claims could also
construction industry and one with an expert in dispute
have a positive effect on the project, for example, the
resolution in the UK. The interviews aimed to validate
contractors or subcontractors may identify an opportu-
the processes created based on the literature and to
nity in the plunge of the price of a stock product that
uncover practices and shortcomings that are not docu-
may be required at a later stage of the project and submit
mented in the literature. The outcome of the interviews
a claim for its advanced purchase. The model, with its
was embedded in the process reference model leading to
supply chain background, presupposes that behaviours
the enhanced version presented in this paper (bottom-
in the construction supply chain are based on mutual
up approach). The outcome of this phase is also summa-
cooperation and trust stemming from a partnership
rized in the next section of the paper which describes the
environment. It has been proven in cases from the
claims management process model.
388 D. R. I. STAMATIOU ET AL.

Figure 3. Claims management function tree.

manufacturing industry such as Wal-Mart (Scott et al. cannot exclude the human factor from the organiza-
2011) that mutual cooperation is key to successful sup- tional operations, it is imperative that organizational jus-
ply chains. Although construction supply chains are tice is enhanced through project processes and a
temporary, the interviews conducted revealed that good cooperative attitude is promoted in order to reduce con-
relationships do exist and in fact claims are less likely to tracting inefficiencies (Aibinu et al. 2011). Finally, con-
escalate to disputes when contracted parties share previ- tractors must keep in mind that contract cancellations
ous good experiences. The interviews also supported the may irreversibly harm relationships between supply
literature as far as financial climates are regarded, con- chain parties.
firming that in times of economic downturns project The ‘Develop guidelines for claims management’ pro-
participants tend to be more distrustful. It is imperative cess (Figure 4) should, in an ideal scenario, start before
to maintain trusting relationships with other parties the tendering phase of a new project. As the interviews
since trust enhances the value of the total service pro- revealed, some construction companies have strategic
vided by the construction supply chain (Xu and Smyth guidelines in place for managing claims but they are usu-
2015). Thus, opportunistic behaviour is discredited. The ally not described in a clear process fashion. As men-
processes presented in this paper were designed using tioned in Stamatiou et al. (2016), the clients and
the Adonis Community Edition (BOC-Group 2016) suppliers of a contractor should be categorized according
software. to the sort of relationship the contractor wants to main-
tain with each one of them. Based on this categorization
and relative to the specifics of a certain project, the con-
Strategic processes
tractor should ‘Set claim strategy for different groups of
There are two strategic processes in the model, namely supply chain parties’. The signed contracts with those
‘Develop guidelines for claims management’ and parties provide most of the input related to this task.
‘Develop guidelines for contract termination’. These pro- Other participants of the project should be evaluated
cesses can be executed simultaneously or not and the and decisions on how claims against them or from them
outcome of each process is independent of the other. should be handled. The interviews revealed that supply
Each process describes the tasks to be executed in order chain parties are indeed treated differently, depending
to develop guidelines that will allow for seamless claim on the expectations the contractor has for future collabo-
management and contract termination respectively. ration. Next, the contractor should ‘Identify possible
Strategic processes are of a proactive nature since claims in each phase of the project’. The major phases of
claims/disputes are unavoidable as Cheung and Yiu a project are: pre-tender, contract formulation, construc-
(2006) proved in their work using a probabilistic model. tion and post-construction. According to Sibanyama
The possibility that all potential risks will be foreseen or et al. (2012), claims result from omissions and actions
even mitigated to another party is practically nought. during the former two phases but manifest during the
The interviews conducted revealed that there are always latter two phases. It would be easier to identify possible
claims in construction projects. External factors such as claims if the contractor consulted a database of claims
regulations and client requirements (expressed in the that have appeared in previous projects, although an
contracts) interfere with strategic processes. Since one exhaustive list would be impossible to be created. At this
 INTERNATIONAL JOURNAL OF CONSTRUCTION MANAGEMENT 389

Figure 4. Develop guidelines for claims management.

strategic level, it is advisable to ‘Formalize rules to man- contract, existence of substitutes, contract termination
age claims’ during the project life span based on the penalties and relationship with the other contracting
results of the previous tasks. This task, according to the parties are just some of these. Contracts may be ter-
interviews, involves the decision to submit each claim as minated halfway through execution or even before
a standalone claim or to bundle the claims in order to they start. The ‘Determine guidelines for credit/debit
resolve them collectively in the final phase of the project. approval’ task describes how credit/debit for services
Finally, through the ‘Determine rules and mechanisms or products that have been partially offered or remu-
to minimize incoming claims’ task, the contractor pre- nerated by/to the contractor should be handled
pares a strategy to defend itself from incoming claims. depending on the factors mentioned previously. The
This could include contract provisions that allow only ‘Determine guidelines for contract termination man-
for a short time frame since an event occurs till the other agement’ task aims at providing an outline of duties
party submits a claim or mitigating risks upstream the that staff in specific organizational positions need to
supply chain. The way people are treated (quality of perform in order to have a smooth termination on
treatment) and the way claims are administered (quality the contractors side. In addition, these guidelines
of decision-making) have a large impact on the amount may be shared with other supply chain parties.
of claims that escalate to disputes (Aibinu et al. 2011). ‘Determine rules and mechanisms to diminish con-
The ‘Develop guidelines for contract termination’ tract terminations’ is a proactive task that aims to
process (Figure 5) starts when a new project is initi- provide a toolbox in order to minimize costly con-
ated. The first task is to ‘Determine guidelines for tract terminations at the expense of the contractor.
assessing contracts’. Each contract is unique and, Finally, ‘Determine rules that will be included in
although there may be standard contract types, the product/service agreements’ is a task that is based on
contracting parties may add clauses to their suiting the lessons learned from previous contract termina-
(as long as they are lawful). There are plenty of fac- tions. It aims to provide clauses that should be pro-
tors that should be considered during the assessment posed for inclusion by the contractor during the
of a candidate contract for termination. Sizes of negotiation phase.
390 D. R. I. STAMATIOU ET AL.

Figure 5. Develop guidelines for contract termination.

Operational processes events. Either the contractor initiates a claim against

another party in the supply chain, or another party
There are three operational processes in the model,
initiates a claim against the contractor. In the first
namely ‘Manage claims’, ‘Contract termination’ and
case, the contractor initiates the claim process when
‘Analysis of claims and contract termination data and
it is perceived that a triggering event on the part of
performance measurement’. These processes are not
the owner has taken place (Abdul-Malak et al. 2002).
independent of each other and their typical sequence
The first sub-process is to ‘Identify the claim’. As the
would be the one seen in Figure 6. Each process
interviews revealed, the contractor executes three
describes the sequence of steps that are executed reac-
tasks simultaneously, namely ‘Monitor contract speci-
tively to the occurrence of disruptive events. In the
fications’ that includes careful analysis of designs and
‘Manage claims’ and ‘Contract termination’ processes,
verbal specifications included in the contract, ‘Moni-
attention must be paid to exaggerated costs that attempt
tor market conditions’ that includes value engineering
to bring settlement costs up (Chester and Hendrickson
and ‘Monitor project outcome’ that includes quantity
2005).
surveying (based on the bill of quantities) and quality
The first process, ‘Manage claims’, as seen in Fig-
assurance, as seen in Figure 9. Through this continu-
ures 7 and 8, may be initiated by two different
ous monitoring, the contractor may ‘Identify claim-
able deviations’. These deviations may include
differences in the project outcome compared to the
contract specifications, opportunities for cost reduc-
tions, speedier depreciation with the instalment of
systems that did not exist during the design phase, or
schedule related issues.
Next, it is necessary to ‘Determine the effect of the
claim’. As Abdul-Malak et al. (2002) state:
…if the effect on the program and budget can be directly
assessed after the occurrence of the cause for a claim,
there will then be no continuous effect. On the other
hand, if the consequences resulting from the claim are
not foreseeable or cannot be measured at the time the
contractor notifies the owner, the claim in this case has
Figure 6. Interdependencies of operational processes. a continuous effect.
 INTERNATIONAL JOURNAL OF CONSTRUCTION MANAGEMENT 391

Figure 7. Identify claim sub-process.

Figure 8. Manage claims (part B).

their claim. Once the claim documentation has been col-

During this task, the contractor must also estimate the
lected and the case has been supported as best as possi-
potential recovery. The contractor must ‘Notify third
ble, the task ‘Present claim to third party’ can be
party of claim intention’, preferably in a non-adversarial
executed. The claim file is presented to the other party in
manner (Kululanga et al. 2001), in order to abide by the
order to allow time for study before it is discussed. In an
usual contract provisions that require such action. It is
attempt to escape adversarial practices of the past, the
to the contractors’ benefit, in order to increase the chan-
contractor should ‘Examine alternative solution for
ces of a successful claim, to be thorough during the ‘Col-
claim management’. In the second case, the contractor
lect appropriate claim documentation’ task. Poor
will ‘Receive claim notification’ from another party. The
documentation can cause the loss of a favourable posi-
contractor has to wait until the other party compiles the
tion in the claim and lead to legitimate claims being
claim documentation in order to ‘Examine claim docu-
denied. This documentation, according to Yang and Xu
mentation’ and rule its veritableness. This may be a
(2011), must include general parts, contract citations,
claim for compensation from the client or a claim for
calculations of financial claims and time claims, and
extra time or payment by the subcontractor. The con-
claim evidence. The interviews revealed that the most
tractor has to ascertain what kind of event, according to
important document to support a claim is the worksite
the categorization by Banwo et al. (2015), leads to the
diary. The importance of keeping good site records,
claim. The rejection may occur due to poor documenta-
especially for delay-related claims was highlighted by
tion by the other party and in some cases the claim may
Scott (1990). The interviews also revealed that dated and
be resubmitted if the contract conditions allow it. In the
signed correspondence between project participants can
case of a non-excusable event, the contractor performs
also provide backup to any claim. Other items that may
the task ‘Reject claim’ which includes composing the
be used as documentation, such as images, invoices and
reasoning of the rejection and the notification of the
impacted schedules, may be used by any party to support
392 D. R. I. STAMATIOU ET AL.

Figure 9. Manage claims (part A).

 INTERNATIONAL JOURNAL OF CONSTRUCTION MANAGEMENT 393

other party that no compensation will be repaid. In case even before the physical part of a project is initiated. The
of an excusable event, the contractor must ‘Examine next task is to ‘Check termination guidelines’. The guide-
alternative solutions to payoff’ in order to maintain his lines have been set in the second strategic process and
profit margins intact and his relationship with the other provide for many different cases. A contract termination
parties at a good level. In both previous scenarios, the affects many departments of a company; it is not solely
next steps are common. The contractor must ‘Prepare extra work for the legal department. This makes ‘Notify
negotiation’ in order to: interested departments of termination’ the next task.
Each department should check the termination guide-
(1) ascertain that all information is current and com-
plete; (2) minimize the scope of negotiation beforehand lines for the parts of the contract that concerns it and
so that insignificant points should not precipitate a vio- estimate the impact of the termination on its operations.
lent argument and disrupt progress; (3) know one’s A sum of these estimates would give an idea of the real
weaknesses and try to utilize weak points by conceding cost (not only monetary) of the contract termination.
them in return from the other party; (4) foresee prob- The ‘Check for contract termination clauses’ task aims
lems; and (5) anticipate the opposition’s next move.
(Kululanga et al. 2001)
at covering possibilities of remuneration for the lost
profits. The interviews revealed that the contractor
The next task, ‘Negotiate claim’, is probably the most should then ‘Provide “Make good” time’ to the other
important task in the whole process since it is of a make party (or may be provided with ‘Make good’ time by the
or break nature. During negotiation, there is a tuple of other party), in order to rectify misalignments with the
factors that may affect the outcome such as perceptions schedule or other unresolved major issues. In a spirit of
of the parties about their interactions (Aibinu et al. cultivating trust and improving relationships between
2011), the subjective nature of the existence of a claim supply chain actors, it is highly recommended to execute
right (Ho and Liu 2004) and the selection of a resolution the ‘Check for need for settlement’ task. This may lead
channel (negotiation, mediation, arbitration or liti- to new claims and the activation of specific contract
gation) (Zaneldin 2006). If negotiation fails, the next clauses. The need to maintain good relationships with
task is to ‘Manage dispute’. This includes the participa- specific parties could depend on the availability of ade-
tion of a third party (e.g. court of law, arbitration), quate competitors in the specific sub-market (Stamatiou
depending on what the contract prescribes. If negotia- et al. 2016). The final task, ‘Check course of termination’
tion leads to a resolution, the following task is ‘Resolve is procedural and is intended to create intermediate
claim’. It includes the procedural work to be completed reports on the progress of the contract termination.
once a negotiation has been concluded. Finally, in the The need for a tool for auditing construction contrac-
case that an alternative solution has been reached, the tors’ claim process for the purpose of reducing time and
two parties must ‘Update contract with alternative cost increases cannot be overemphasized (Kululanga
arrangement’. The interviews revealed that the chances et al. 2001). The ‘Claims and contract termination man-
of alternative solutions increase when there is mutual agement performance measurement’ process (Figure 11)
understanding, goodwill and a good relationship is the last operational process of the claims management
between project supply chain parties. In the case where function. It is in line with the directory for the construc-
an alternative solution has not been found, the contrac- tion industry composed by Egan (1998) that moves com-
tor must ‘Issue a mandate for claim payoff’ that either panies to the development of management measuring
regards a demand (monetary or time related) from the tools as a means towards modernizing the industry. The
other party or an obligation for the other party. interviews revealed that the majority of construction
The second process, ‘Contract termination’, as seen in companies do not use Key Performance Indicators
Figure 10, despite not being executed very often since it (KPIs) to monitor the claims-related processes. Effective
usually constitutes the last resort of a dispute, can also monitoring and registering of claims enables managers
be initiated by two different events. Either the contractor to identify opportunities for productivity improvement.
receives a request from a third party to terminate a con- The process can take place once either or both of the
tract or, the contractor initiates the contract termination previous operational processes have been completed.
through the ‘Issue mandate for contract termination’ The first task is to ‘Record and classify data from claims
task. In both cases, there is a single sequence of tasks and terminated contracts’. A unified grouping system
that follows, the first of which is ‘Determine contract ter- across projects will allow for knowledge generated in
mination causes’. Although contract terminations usu- any project to be concentrated and used whenever
ally occur after a claim that leads to litigation (which required. In an ideal case, this could be an international
means that the cause is already known), in some cases system (Moura and Teixeira 2007). Next, the ‘Monitor
unforeseen reasons may lead to contract terminations claims and contract termination management
394 D. R. I. STAMATIOU ET AL.

Figure 10. Contract termination.

 INTERNATIONAL JOURNAL OF CONSTRUCTION MANAGEMENT 395

Figure 11. Claims and termination management performance measurement.

performance indicators’ task is executed where strategi- Results

cally selected performance indicators are calculated.
Claims management is a critical process for all organiza-
These indicators are part of either a robust but concise
tions in the construction industry. It is important for all
measuring system that the company designs to meet
construction organizations to record, model and formal-
their exact needs, or is an adaptation of a verbose system
ize claims related processes in order to achieve effective
available by consulting firms. This measuring system
and efficient claims management. The development and
could, for example, contain indicators such as claim cost
application of process reference models can assist organ-
to earnings, claims successful to claims submitted and
izations in the development of effective processes in all
other useful ratios. As part of a knowledge management
functions, including claims management, but there is no
strategy, the ‘Analyse effects of claims and contract ter-
such reference model available in the concurrent litera-
mination’ task is critical in order to support future claim
ture. This paper describes the development of such a
decisions. The effect of a specific claim and claims in
model as well as the model’s building blocks in an
total on intercompany relationships and transactions,
attempt to cover the literature gap identified. The work
project performance and intra-company performance
conducted was based on the methodology developed
should be examined. As Kululanga et al. (2001) propose,
through a research program related to the development
a total quality management system could be imple-
of reference models in supply chains, after that method-
mented in order to support such an analysis. The task
ology was adapted appropriately. The process reference
‘Detect opportunities to avoid claims and contract termi-
model developed was validated through a semi-
nation’ aims at two things: primarily to use the knowl-
structured interview process with industry experts. The
edge base in order for the contractor to minimize claims
main characteristics of the reference model can be sum-
against him or precarious contract terminations and,
marized as:
secondarily, in the spirit of a cooperative and goodwill
stance towards other actors of the supply chain, to avoid
 It is the only available process reference model
making small-scale claims that only harm relationships
describing the claims management processes for
and do not necessarily add towards profitability. Finally,
contracting organizations in the construction
the last task to be executed is ‘Determine performance
industry.
improvement objectives’. In this task, managers compare
 The reference model provides a process for contract
performance indicators against strategically set targets in
termination management that is innovative as there
order to examine performance shortfalls, their causes
are no such processes described in the literature.
and areas for improvement. In some cases (e.g. partner-
 The reference model provides a process describing
ships), the relationship with the third party may lead to
the performance measurement process through the
the sharing of KPI data in order to satisfy jointly set
use of KPIs.
goals.
396 D. R. I. STAMATIOU ET AL.

 The reference model describes the execution of includes checks between phases and it is the first to
strategic processes related to the long-term plan- introduce invalid claims to the process. This is adopted
ning of claims management. in the proposed model with the belief that this feature
 The reference model adopts a supply chain man- helps to reduce the load of processing this type of claims
agement view that does not only describe intra- from the relative department in a company. Abdul-
organizational processes, but describes the interac- Malak et al. (2002) describe a process for claims manage-
tions of the claims management processes with ment that is very factual and analytical. It differs from
other parties of the supply chain. the previous models in another aspect too; it is IT (infor-
 The software selected for the development of the mation technology) oriented. The processes they have
reference model is free and accessible to anyone, described are a guideline to handling the software that
making the adoption of the processes easy for they have developed for claims management. This orien-
anyone. tation is crucial in order to identify low- and high-level
processes, find where gateways are positioned in the pro-
cesses and detail the company processes related to
Discussion
claims. All models mentioned in the literature have their
Claims are mainly a result of human factor influencing weaknesses and strengths. The resulting model of this
the construction process. They have a disruptive effect research effort retains as much strength as possible and
on projects and are very unpleasant for the implicated attempts to resolve as many weaknesses as possible. This
parties (Ho and Liu 2004). Even though they may start results in a process with unique characteristics. The ref-
against a single party, they tend to affect more than one erence model and its particular processes described in
party (Chester and Hendrickson 2005) and spread along this paper provide the reader with a unique holistic tool
the projects’ supply chain. Contractors still follow tactics for claims management. The claims management litera-
of global claims; they do not plan ahead and expect that ture lacks such an approach. In addition to the claims
through negotiation with clients their inefficiencies will management process, a contract cancellation manage-
be hidden. The temporary nature of construction supply ment process is proposed. Contract cancellations may
chains does not allow for these relationships to be lead to claims or derive from unresolved claims. Con-
treated and future cooperation is rife with prejudice. tract cancellations have not been studied previously and
Techniques of combatting adversities that are used in the process provided in this model is one of its innova-
other project-based industries, such as the one proposed tive characteristics. Contract cancellations and their
by Mysore et al. (2016) for the information and commu- management have to receive their place in the spotlight
nications technology (ICT) industry, could prove very of the claims management literature as their impact on
helpful. Adopting a holistic strategy for the entire supply the project supply chain is too large to ignore. Further-
chain should improve efficiency of contractors, improve more, a performance measurement process is proposed –
the relationships between supply chain actors and hope- that builds on the identification – by Kululanga et al.
fully lead to a less stressful claims process. A good strat- (2001), of a need for performance measurement and
egy would be to include claim management processes in improvement of intra-organizational processes and their
contracts in order to standardize this function along the interface with the company’s environment. Users may
supply chain of the project. select any measuring method that they feel is best suited
As Enshassi et al. (2009) underline, it is important to their needs. It is proposed that some of the perfor-
that claim management processes have to be clear and mance indicators should be common, or at least shared,
understandable by all parties, especially the contractor. with selected supply chain parties in order to allow for
Process models existing in the literature have specific better cooperation and assist the uniform development
characteristics. Moura and Teixeira (2007) and Kulu- of future relationships with these parties. Another inno-
langa et al. (2001) present a rather simplified process vation of the proposed reference model is the develop-
model for claims management with the only difference ment of strategic processes that describe the planning
between the models being that the latter authors include stages for developing a concise claims and contract can-
a total quality management related task in order to high- cellation management strategy. The existence of such
light the importance of improving the claims manage- strategies can provide managers with tools and guide-
ment process in each company. These processes, lines that allow faster and more effective decision-
however simplistic, provided the backbone to the model making. These processes, based on the literature, were
presented in this paper. Banwo et al. (2015) added the enhanced with information that was not previously
time parameter to the claims process through the phases documented (to the authors knowledge) and provide a
in which they are introduced. Additionally, their model better overview of industry practices. The reference
 INTERNATIONAL JOURNAL OF CONSTRUCTION MANAGEMENT 397

model builds on the work of the earlier process models the end, prolongs the image of construction as a prob-
but takes a whole new perspective to claims manage- lematic industry. Claims will always accompany con-
ment. It views claims from a supply chain standpoint. struction projects, but the way they are handled will
Furthermore, it is not a standalone set of processes, but make the difference. A win–win culture must be pro-
rather it is a part of a set of construction supply chain moted and, as is happening in other industries, the profit
functions that interact with each other by providing margins for the industry as a whole will grow. Competi-
input or other information to each of the other func- tion in the industry will eventually, as in other industries,
tions. These transactions will ensure that key processes move from completion between companies to competi-
in the company work in harmony, thus enhancing effi- tion between supply chains. The construction industry
ciency. What was interesting about the interviews was supply chain boundaries are different to other industries
that both interviewees, despite working in different and so is the final product. Process models are only a
countries, agreed that the processes described in this tool in order to achieve this coveted consensus. There
paper applied to both markets. This may imply that the are a few process models in the literature, but none offers
reference model can be applied as a reference model, not a view on how the claims management process interacts
only in a single company, but along the entire project with the other parties. The reference model presented in
supply chain. Before the application of such a model this paper treats claims management in an integrated
along the entire supply chain of a project though, the way regarding the supply chain actors, not only focusing
company has to make sure it has the managerial capacity on the convulsive handling of a claim per se, but propos-
to implement it successfully. Starting by intra-company ing a reference model that proactively, through the
processes, it should realize its own level of readiness. development of strategic processes, and reactively,
Lockamy III and McCormack (2004) present a thorough through the development of operational processes, man-
process discovery guide that will support the adoption of ages any such disruptive event. This is an innovative ref-
process reference models. Finally, the selection of a soft- erence model that builds on existing models in the
ware tool that can support the modelling process is a dif- literature, enhances these models with previously undoc-
ficult decision as there are many options available in the umented practices and connects claims to supply chain
market and the criteria for each organization differ. The management in construction projects.
reference model described in this paper is developed The reference model presented in this paper builds
using a free modelling tool that can be used by any orga- upon the existing literature and the models available. It
nization and this is one of its strengths as it is made avoids a rather simplistic take on the claims process,
available to virtually any manager looking to improve such as the one adopted by other available models, but
the claims management process. at the same time maintains a certain level of abstraction.
Process reference models offer their users a common Unlike other claims management models in the litera-
roadmap for their process management without dictat- ture, this model examines how contract terminations
ing how each low-level task should be executed or each implicate the claims processes. Total quality manage-
detail should be handled. The benefits of such models ment is not only advised in this model but supported
include the flexibility to adapt low-level processes to fully with an exclusive related process. The innovation
existing needs and systems in each company and the present in this reference model is the holistic examina-
provision of a common ground for navigating between tion of claims. The processes described on the one hand
inter-company processes. The process reference model mainly focus on the contractor, but on the other hand,
presented here has the advantage that it retains a certain present a tuple of interactions that take place between
level of abstraction, thus allowing it to bind well with the contractor and other supply chain parties.
any existing enterprise resource planning (ERP) or other In practice, the proposed reference model can pro-
IT solutions in any construction company or provide a vide a guideline for handling claims in actual proj-
framework for the adoption of such systems (Pajk et al. ects. The processes described can be used as
2011). contractual obligations that can be asserted on the
implicated parties by the contractor. This does not
necessarily carry an oppressive hue, but more likely
Conclusions
can provide a tool for process standardization across
Claims are highly affected by human behaviour. Omis- the construction industry. This mainly benefits the
sions and errors in contracts or projects may become the contractor because of the amount of parties it comes
playground for managers with opportunistic behaviour. in contact with during a construction project, but it
This behaviour harms the relationships between the two also provides a knowledge transfer opportunity for
actors, disrupts the supply chain of the project, and in small and medium companies that do not have the
398 D. R. I. STAMATIOU ET AL.

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