King Saud University

CE 614 Selected Topics in Construction

Construction Claims

Construction Contract Claims, Changes & Dispute Resolution

Chapters 2,3 & 8

Instructed By: Dr. Khalid Al- Gahtani

Done By: Soliman Alfaraidy

Contract TypesStandard Contract: Federal Government Construction Contract American Institute of Architect Contract Associated General Contractors Contract Engineers Joint Contract Document Committee Contract State Highway Department Contracts Saudi Government Contract Other Agency Contract One- of- a-Kind Contract

Private Contract: It is different from country to country and from owner to owner.

Each owner and contractor tries to draw up contract to suit its

own interest

Typical Document Comprising the Contract:

Bidding document consisting of the ‘Invitation to Bid’, ‘Instruction to Bidders’, and ‘Bid form’.

General Condition of Contract Supplementary Condition of Contract Specification Drawings Report of Investigation of physical conditions Any variance or change to these documents will

cause variation in time and cost and such, remedies are sought through contract claims and change order.

Definition of Claim: AS per AIA (American Institute of Architects):

“A claim is demand or assertion by one of the parties seeking, as a matter of right, adjustment or interpretation of:

I. Contract terms

II. Payment of money

III. Extension of time

IV. Other relief with respect to the terms of the contract.”

Payment of money and extension of time are the most common claims in Saudi Arabia.

When the administrative processes of claims and change order required?

It is required in case of: Change in the Contract condition Design Change (Common in Saudi Arabia) Defective Specification Quantity Variation (Common in Saudi Arabia) Delay (Common in Saudi Arabia) Disruptions Acceleration

Basic Procedures for Claims and Change Order Administration:

Contract Knowledge Notification Systematic and accurate documentation Analysis of time and cost impact Pricing Negotiation Dispute resolution and settlement

Some Contractors avoid an active aggressive policy for calms and change order administration. This is due to part to the history of construction contracts and public record for litigation and costly overruns.

Reasons of poor Claims Lack of experience in the processing of

claims. Lack of awareness of claim situation. Lack of legal and contractual rights. Lack of knowledge of common

problems.

Chapter 2 Identification

and Notification

Identification and NotificationClaims Consciousness

The contractor should be aware of the potential risks associated with claims and that one of his highest priorities should be proper management of these risks.

Most public and privet contracts contain clauses requiring notification of differing site condition, changes, and delays within a stated period of time before equitable adjustment can be pursued.

What if this clauses not in the contract?

Early Identification If the contractor dose not recognize a situation, or wait too

long to take actions, any and all right to claim can be lost.

Early identification is also important for the following

reasons:

1. It enable the owner to verify, confirm and possibly remedy the situation at the earliest opportunity

2. Sometimes new design, new material or equipment, or different construction methods my be required by changing condition

3. Early identification allows the contractor adequate time to study the problems

Identification of Claims and Change Orders Importance of Identification: Identification of a claims situation is the first and the most

important phase of

I. Claims process

II. And the claim situation

Claims must be recognized and identified as soon as it occurs.

First Requirement of Identification Knowledge of Contract:

The construction project staff must have a good working knowledge of the contract document and it is very important for them to be able to anticipate the flow of work and to predict potential problems.

Identification of Claims and Change Orders

Frame of Reference: It helps to recognize problems that are not

always obvious. frame of reference must be available to

measure job performance. Communication:

The project staff must be knowledgeable about expected field conditions, and to be aware of actual condition that differ from those expected.

Identification of Claims and Change Orders

Second Requirement of Identification is familiarity with legal Concepts and Right

The project staff must have a working familiarity with the legal concept and right that will affect the outcome of potential claim situations.

The Change Clause

The contractor should keep open the right to cost reimbursement and schedule adjustment via the Changes or Extra Work Clause

Warning Signs of Claim Situation: Additional work not specified in the

contract document Work different from that specified Work in a particular manner or method

that varies from the originally anticipated.

Work resulting from contract drawings or specifications that have been changed, amended, revised, amplified, or clarified.

Warning Signs of Claim Situation: Unanticipated work that results from

insufficient details in the plans and specifications.

Work required to be performed in one particular method when specifications allow two or more methods.

Work out of sequence. Stopped, disrupted, or interrupted work,

wholly or partially, directly or indirectly. Joint occupancy.

Warning Signs of Claim Situation: Owner furnishing equipment late, in poor

condition, or not suitable for the intended use.

Accelerated performance in any way, to regain schedule, to add men or materials, or to work over time or extra shifts.

Following any new, different, or shorter schedule.

Relocating existing work because of lack of

Warning Signs of Claim Situation: Coordination, information, or other factors. Differing site condition. Differences in contract interpretations. Defective specifications. Delays from the owner’s acts or failure to act. Unwarranted work rejections. Increased inspections requirements, tests or

quality control program. Owner’s failure to disclose information. Strikes. Forces of nature.

Notification of Claims and Change Order Identification of claims must be followed by

notification

The owner representative must be formally notified of claim or change order if the contractor intend to seek equitable adjustments for additional time or cost.

In written notice the contractor should always stress his urgency to resolve a dispute and should request acknowledgment of the situation

Notification- Time Requirements In Saudi Arabia there is no duration for the claims

and it is depend on the Contract type.

Late Notification: If the contractor dose not recognize a situation, or

wait too long to take actions, any and all right to claim can be lost.

But in some cases low has waived the notice clause due to:

1. The owner was aware of the situation

2. The owner was not prejudiced by the late notice

3. The contractor was not immediately a ware of the facts

Chapter 3 Differing

Site Condition

Chapter 3 Differing Site Condition Differing site conditions are usually thought to be

subsurface physical conditions such as:

I. geological configurations

II. water levels

III. suitability of soils that differ from those promised or implied by the contract document.

However, differing site conditions can also include: man-made site conditions from previous or concurrent construction activities.

Differing Site Condition TypesType One Type Two ‘’Sub surface or latent

physical condition at the site differing materially from those indicated in this contract’’

‘’Are unknown physical at the site of an usual nature, which differ materially from those ordinarily encountered and generally recognized as inhering in work of the character provided for the contract ‘’

Differing Site Condition Clause All contractors must be sure that every contract

contains a differing site conditions clause.

In general courts denied differing site conditions claims when the following are found:

1. An absence of positive misrepresentation upon which the contractor responsibility relied.

2. A clause in the contract that clearly relieves the owner of extra costs resulting from differing site conditions.

3. An opportunity to conduct a site investigation and to inspect the plans and specifications before submitting a bid.

Forces of Nature

In general forces of nature are not usually considered to qualify as a differing site condition in that they create physical changes after award of the contract

However in some cases it might be considered as a differing site condition for example rain and flooding.

Site Investigations

Usually bidders do not have access to make detailed studies regarding the site condition.

Even if the bidder did have access, time and

money present a major obstacle to perform a detailed site condition analysis.

The contractor has no right to claim costs due to the fact that originally there was no adequate investigation done.

Site Investigations The contractor should approach the site investigation in

the early stages of the project and it should be recorded including:

I. sketches

II. photographs

III. job sites The site investigation is important when preparing bids,

and planning the work. Also, it can play a critical role in claims situations.

In preparing bids contractors need not make a scientific and skeptical analysis of the conditions.

In preparing bids contractors need not make a scientific and skeptical analysis of the conditions.

Design features may indicate expected conditions. Design changes may confirm a changed conditions

Chapter 8 Subcontract

ors and Suppliers

Introduction Subcontractor have a dual problem – guarding

their interests against the general contractor as well as the owner.

General contractor sometimes rank subcontractors on the lower half of their list of priorities.

Subcontractors work items are often placed off the critical path, and the general contractor will alter subcontractor schedule to suit his convenience

General Contractors Performance The general contractor must be very careful to act as

a two- way conduit between the subcontractor and the owner.

Good relations with subcontractors goes a long way toward enhancing mutual reinforcement in claim situations

All contact and correspondence between the subcontractor and the general contractor should be well documented

Contractor- Subcontractor Relationship By having the subcontractors participate in drawings

up the CPM schedule, in updating the schedule and in meaningful coordination meetings, the general contractor creates an atmosphere of cooperation.

Such cooperation works toward mutual resolution of job problems as well as the elimination of schedule conflicts and misunderstandings situations.

If the general contractor offers no cooperation, the subcontractor should proceed as best he can with frequent notice to the general contractor.

Subcontractor- Owner Claims The general contractor should attempt in all

subcontractor- owner problems to protect his own interest and also to make sure the subcontractor is acting to resolve these problem expeditiously.

It is important to resolve any problem between the owners and subcontractors as early as possible to avoid any delay or additional const to all parties.

SuppliersDelay, Drawing Approval

Since shop drawings are involved, it is important that the contractor allow sufficient time for approval of drawings, and that he maintain accurate records of all transaction and transmittals involving the supplier.

Contract delay caused by a supplier can possibly be excused when it is shown to be beyond his control.

Delayed approval of drawings by the owner can also contribute to contract delays, and may result in excusable and compensable delay.

SuppliersSupplier Purchase Orders

The contractor should do everything possible to avoid supplier problems by writing explicit purchase order (with appropriate lead times) keeping adequate inventory of parts and supplies, and actively monitoring the suppliers activities

Acknowledgments and other documents received from supplier should be scrutinized to insure they do not create terms that are inconsistent with the purchase order

SuppliersSupplier Purchase Orders Disclaimer of express and implied warranties.

I. Express: are representation made in published specification, sales catalogues and other promotion.

II. An implied warranty: is a warranty that exists when a seller is aware of the intended use of his product and the product is suitable for that particular purpose.

SuppliersSupplier Purchase Orders

Any attempt by a supplier to limit or disclaim prior express warranties is cause for concern.

Contractor must be extremely cautious about the acceptance of:

I. supplier terms

II. supplier condition

III. qualification condition contained in purchase order acknowledgments.

SuppliersProprietary Specification- Contractors right to substitute On private construction contracts, owners have a right

to specify and insist on proprietary specification.

The situation is different on public contracts and may lead to number of different issues:

I. The contract usually authorizes the substitution of ‘’equal’’ products.

II. Public project owners need to avoid even the appearance of favoritism toward particular manufacturers or suppliers.

SuppliersSupplier Schedules Suppliers and subcontractors should be aware

of aware where they fit in the CPM schedule.

Suppliers and subcontractors should be obligated to show their own schedule for accomplishing work

Schedules should contain check points for monitoring supplier activities and the supplier should produce periodic updates or status reports.

Documentation of General Contractor Subcontractor/ Supplier Transaction

For claims arising from contractor- supplier problems, detailed records are very beneficial for tracing delay due to:

I. Working or shop drawings.

II. Difficulties with design.

III. Production Problems.

IV. Nonresponsive activities by the owner or engineer.