Preparing and evidencing contractual claims – minimizing surprises

Preparing and evidencing contractual claims –MINIMIZING SURPRISES

Contractual agreements typically lay out the obligations of the owner and the contractor,

as well as remedies to address points of disagreement, which can ultimately evolve into disputes. Such remedies are aimed at specifi c circumstances arising that may affect the eventual outcome of a project (Events). These Events are usually a function of the owner’s expectations in terms of the scope, quality, cost and the schedule required to complete a project - these being captured by the contractual agreement being ‘entire,’ i.e. the whole agreement between the owner and the contractor.

Contractual agreements are often explicit in requiring notices to be provided for Events in terms of form, substance and timing. For example, on the internationally acclaimed multi-billion dollar Hong Kong International Airport Core Project, the contractor was required to provide written notices within a stated period following the occurrence of Events. The contractual agreement stated that if notices were not provided to a prescribed form and within a stated time period, then the contractor would be precluded from advancing claims. These conditions precedent to entitlement are becoming increasingly common.

There are many defi nitions of claims, however, one that is generally recognized is “an assertion of a right to money, property, or a remedy and can be made under the Contract itself; for breach of the Contract, for breach of a duty in common law; or on a quasi-Contractual basis” (PowellSmith, 1989). Therefore, the impact of Events on a project

that become claims can be represented in terms of scope, quality or schedule.

Due to the potential negative impact resulting from claims, it is essential that those entrusted with managing projects ensure that prior to entering into contractual agreements, they clearly understand the obligations to identify Events and provide notice of claims in accordance with the prevailing particular provisions of the contractual agreement. This includes having an understanding of the requirements to issue notices and regular updates to the owner, such that both parties maintain clear communication and provide the opportunity to address and resolve resulting differences early on.

The objective is to prepare the contractor and the owner for occurrences by fostering awareness and allowing the use of appropriate remedies available, under the contractual agreement. Whilst the contractor should not lose focus on its role and obligation to deliver projects professionally, it must be attentive to the requirements of the contractual agreement that allow the contractor to notify the owner of claims in a manner that is aimed at early identifi cation and resolution, as opposed to engaging in protracted disputes which often consume much cost and management resource.

There is a thought process by some owners that the onus of preparing and evidencing claims lies with the contractor. On the other hand, contractors often assert that claims are a result of an act or omission of the owner and this excludes them from any obligation to evidence claims to a high level of detail – both parties often having a difference as to what is reasonable from an evidential viewpoint.

What is clear is that the surprise factor of claims being un-particularized or untimely does not help the owner or the contractor, as it often minimizes the opportunity to address differences and resolve disputes sooner rather than later. In countless proceedings, parties have cited a lack of timely communication by the other party as a primary reason for their inability to overcome their differences in a more effi cient manner and prevent escalation into time and cost consuming disputes.

In preparing and evaluating claims, it is important to understand the requirements of the contractual agreement to ensure that all claim submissions are in accordance with the contractual relationship established between the contractor and the owner. For example, a consolidated claim that seeks remedy for additional time and cost may identify the following which are provided for illustration purposes: • Conditions of contract: The conditions of the contract (by specifi c reference) that are being relied upon in submitting the claim. • Statement of claim: A statement that clearly explains the basis and rationale of the claim considering item 1 above. • Additional time: A summary and quantifi cation of the time implication i.e. what was originally expected vs. entitlement vs. actual, with reference to the conditions of the contract. • Additional cost: A summary and quantifi cation of the fi nancial reimbursement sought, with reference to the conditions of the contract. • Supporting documents: Documents that support the assertions made in items 1 to 4 above. There are often distinct requirements and nuances with respect to contractual agreements in the public and private sector and the particular terms and conditions entered into for individual projects may differ. However, recognizing that to issue a claim is a right under contractual agreement, articulation of claims in a clear and concise manner not only assists the contractor, but also the owner.

Identifying Events, providing notifi cations, particularizing entitlement, attaching cost and submitting detailed claims, coupled with timely communication, are recognized precursors to the satisfactory resolution of contractual claims. The aim is to overcome the surprises that emerge during the different phases of a project, recognizing that lessons learned from completed projects has shown that for contractors and owners to play the ‘wait-and-see’ game often has a negative effect on their ability to arrive at a satisfactory, timely and cost effective conclusion of claims.

Mr. Arif Ghaffur, B.Sc (Hons.), PQS, FRICS, MCIArb, is the founder and President of Lakeland Consulting Inc which is a professional services consultancy practice supporting the engineering and construction industries, providing Commercial Management, Staff Augmentation and Dispute Resolution services. Mr. Ghaffur has experience in providing advice on claim strategy, claim preparation, claim defence and resolution for over 15 years in the United Kingdom, Hong Kong and North America. See www.lakelandconsulting.com.

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