Claims mitigation and avoidance

Kristen Braden, P.E., Esq.

Construction Project Manager H.R. Gray Hilliard, Ohio

hile construction projects rarely progress in an ideal fashion, those in the construction industry can easily define a perfect 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 under 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.

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Claims avoidance

Claims avoidance begins with knowing your contract requirements. 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. 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.

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-today changes and events will help a firm identify potential claims and 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 prevail.

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

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up for lost time and money. Often, rescheduling or resequencing of work will help recover lost time.

Claims mitigation

Complete contract documents, accurate project documentation and a construction schedule are essential components to mitigating a claim. 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.

Evidence of damages includes 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. 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.

Beyond documentation, the construction schedule is another 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.

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

Kristen E. Braden provides construction management on public construction projects as well as construction claims management and resolution services for H.R. Gray, Inc. in Columbus, Ohio. Kristen has a Bachelor of Engineering degree in Civil Engineering from Vanderbilt University, a Master of Science degree in Engineering from the University of Texas and a Juris Doctor degree from the University of Cincinnati.

Kristen has been a guest speaker at the 2010 Ohio Parks and Recreation Association Annual Conference, 2008, 2010, and 2011 Kentucky/Tennessee Water Professional Conference as well as the 2008, 2011 and 2012 Ohio Parks and Recreation Association Annual Conference. Kristen also spoke in 2009 to the Lower Colorado River Authority as well as the Primavera: 2007 Annual Conference with the topic, “Claims: If I Can’t Avoid Them, How Do I Get Through Them Unscathed?” She can be reached at kbraden@hrgray.com.

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, Kentucky; and Austin, Texas.