Tuesday, June 21, 2005

Construction Claim & Dispute Resolution


There are usually a large number of parties involved in a construction or engineering project with differing responsibilities. These differing responsibilities will inevitably lead to different priorities. It is in the nature of contracting that the parties to the contract will have conflicting interests. Contractors would normally want to be paid as much as possible and for as little risk as possible. Conversely, owners will want to pay as little and as late as possible and possibly and/or forcibly, transfer all risk, expenses and cost to the contractor.

In most construction and engineering contracts, some things may be overlooked, are wrongly perceived or wrongly interpreted by one party or another. For whatever reason they are overlooked or misinterpreted, the result is that time is taken up and costs are incurred. In the event that the party incurring those costs believes that he is not suppose to bear the cost, he will certainly look for reimbursement from the other parties and dispute then often ensues.

In projects such as building construction or civil engineering works, the contract document consist of a trade-off between the contractor’s price for undertaking the work and his willingness to accept a certain degree of risk. Who bears what risk and at what price is simply a matter of commercial negotiation with the outcome often depending upon the skill, influence and power of negotiation of the parties concerned. The methods by which the risks are distributed between the distributing parties will depend not only upon the procurement method but also the form of agreement under which the works are procured and the duration of the contract under which the risk is assumed.

Construction contract disputes and claims are a reality and every management must be prepared for this eventuality. Project directors must from project initiation develop his project team to include someone who has reasonable competency in the knowledge area of contract law and configuration management.

Therefore, project documentations and project reports must be prepared with an eye to building cases and documentary evidence to support contention. Delays, damages and acceleration are complex issues from an entitlement determination and cost quantification viewpoint.

Contract documents are the basic foundation of construction claims analysis that focuses on establishing entitlement and proving damages. Timely completion of the construction works by the contractor is of great importance because of income and profitability consideration. Given the complexity of proving such damages, it is highly probable that parties will incur expense and be in dispute in proving their loss or defending it.

Construction contracts contain clauses to facilitate the execution of changes to the intended scope of work. These clauses define the responsibilities of the parties, allow for changes to the work, provide evidence to support the reason for extension of time when project is delayed beyond completion date, define the methods for pricing the changes and claims for damages, provide for rescission of contract if necessary, and stipulate the means of for a resolution in the event of dispute.

The contract documents may be the source of major disputes centering on the responsibility of the specifications. Construction changes during the execution of the work often result in claims. These claims may result from contradictory or ambiguous language and specifications, errors or omissions, or work that is impossible to perform according to the documents.

Other issues resulting in claims include disputed change orders, varied site conditions as opposed to the time of tender, apparent authority, and overzealous or improper inspections and instructions.

Construction claims often result from misinterpretation and improper administration of the contract documents during project implementation. Construction claims also occur because of misunderstandings concerning the rights, obligations and responsibilities of parties to the contract. This often leads to the waiving of one’s rights as provided for by the contract.


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