Construction Claims 101

A "Construction Claim" is defined as a written request for time and/or money submitted under the terms of the contract or law. Claims may be filed by the contractor, the owner, or others. The formal submittal of a written claim is typically an administrative requirement of the contract documents and may be required by law. The formal claim submissions is intended as a mechanism to obtain relief related to some action or inaction of the other party to the contract.

 

Construction claims can be categorized as either:

  1. Directed Changes - virtually all contracts have a "change clause" - a contract provision allowing the owner to change the scope of the work during the project by directive. Decisions to make changes to the work are typically evidenced by the issuance of a written directive (e.g. change order). When change orders are forward priced and bilaterally executed, there is joint agreement on the scope, time and cost of the change before the work is performed. In such a case, there is little likelyhood of a claim arising from such an agreement. The risk of performing the changed work is assumed by the contractor. However, when work is performed before the owner and contractor can agree on time and cost, disagreements may arise concerning the fairness of the time and costs incurred. Such disagreements can turn into claims.
     

  2. Constructive Changes - Constructive changes are unintended changes. Some action or inaction of the owner or the owner's agents causes the contractor to perform work beyond that required by the terms of the contract documents. Constructive changes may also arise from:

    • Defective contract documents (e.g. errors, omissions, ambiguities)

    • Inspection actions

    • Non-disclosure of relevant information

      To recover for a constructive change, the contractor generally must show that:

      • The work performed was not required within the original scope of the contract

      • Appropriate notice of change was given to the owner

      • The change was actually required by the owner

      • Additional costs and/or time were actually incurred in performing the changed work
         

  3. Differing Site or Changed Conditions - Public works contracts usually have a clause that addresses unanticipated or hidden physical conditions at the site that differ from those represented in the contract. These differing site conditions can usually be broken down into 2 types:

    • Type 1 - Subsurface or hidden physical conditions at the site differing materially from those indicated in the contract documents. Examples include rock where none is shown, subsurface water where none is indicated, and buried pipes and utilities.

    • Type II - These are conditions that are so unpredictable that the contractor could not have reasonably foreseen their existence at the time of bidding. Examples include subsurface hazardous or toxic waste materials in a previously undisturbed area or buried construction debris in an area where no previous construction was known.
       

  4. Types of Damages

    • Direct Costs - These are "hard dollar costs" incurred in performing extra work. These include labor (include fringe benefits), materials, equipment, subcontractors, and mobilization/demolition costs. 

    • Indirect Costs - There are generally two basic types of indirect costs: Field overhead and Home Office overhead. Examples of field overhead include any project management staff, superintendents, project office expenses and temporary utilities and security. Examples of home office overhead include engineering, estimating, corporate management, computers and office equipment, etc.

General Action: 

 

When filing an actual claim the contractor should take the following actions:

  • Provide the claim notice in writing

  • Obtain statements of the facts relating to the claim

  • Identify clauses of the contract that relate to the claim

  • Identify how the claim has or will affect the project schedule

  • Obtain an estimate or actual cost backup

  • Make a record of the claim from the project record and assemble all relevant correspondence, meeting minutes, memos, and schedules

  • Seek legal and professional claims assistance to settle the claim

  • Determine whether any attempt was made to mitigate damages

     

     

     

     

     

     

     

     

     

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