REDRAFT 1

PURPOSE: To give guidance to the Engineer and his Representative on dealing with claims made by the Contractor or Employer in terms of GCC 1990, with reference to relevant clauses, plus suggested good practice to minimise and resolve claims KEY WORDS: Contracts, Claims, GCC 1990, Disputes, Engineer, Engineers Representative, Mediation, Arbitration.

ADVISORY NOTE 93/12 (Reviewed Dec 2003)

GUIDELINE TO ENGINEERS FOR DEALING WITH CONTRACTORS' CLAIMS ON CIVIL ENGINEERING CONTRACTS UNDER GENERAL CONDITIONS OF CONTRACT 1990 INTRODUCTION This guideline is specifically applicable to the Sixth Edition 1990 of the General Conditions of Contract for Civil Engineering Construction prepared under the auspices of the South African Institution of Civil Engineers, Consulting Engineers South Africa and the South African Federation of Civil Engineering Contractors. It is hoped this Advisory Note will be of value and assistance in dealing with claims and in the avoidance of disputes. The guidance given in this document is of a general nature which may not be applicable to claims where the local conditions are the ruling factors. It is important for clients to know about claims and to be kept informed of their progress and likely outcome - for budgeting purposes if nothing else; clients also need to know that not all claims are accepted. The Engineer must be conscious of the probable cost effects of design changes and/or extra work and he must be constantly watchful of cost over-runs and contingency expenditure. It is recommended that the Advisory Note be used in conjunction with Guidelines for Resident Engineers/Engineers Representatives on Engineering Projects" and cognisance should be taken of the applicable sections of the "Pocket Guide to S.A. General Conditions of Contract for Works of Civil Engineering Construction (Sixth Edition 1990)" by Benchmark Consultants. Reference should also be made to "Engineering Construction Contracts" by A Hyman (Butterworths Durban). Further references are suggested at the end of this Advisory Note. 1. SCOPE

The Advisory Note sets out the factors which are significant in the Engineer's dealing with Contractor's claims on a project governed by the terms of GCC 1990. Its purpose is to assist in dealing with claims in an efficient and effective manner from the time a claim arises to the time the Engineer has given his decision. Mention is made of the further factors involved if the Employer or the Contractor or both do not accept the Engineer's decision. It must be noted however that there are General Conditions of Contract other than the GCC 1990 in use for civil engineering projects and that Special Conditions of Contract (SCC) are also often issued alongside the General Conditions. These could well require different methods of handling claims from those dealt with in this guideline. In particular it should be noted that GCC 1990 is different from GCC 1982 in respect of terminology, the role of the

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Engineer and claims procedures. The guideline deals with the normal types of claims which may be encountered where one or more contractors and subcontractors are employed on a site. It is the Engineer's function and duty to evaluate and adjudicate all claims fairly and without bias towards the Employer or the Contractor. 2. 2.1 THE CONTRACT AND THE CLAIM Contract The Contract is an agreement between the Employer and the Contractor which is set out in various documents of which the GCC and possibly the SCC are essential to the way in which claims must be handled. Special Conditions alter the GCC in accordance with the requirements of the Employer in order to clarify procedures and/or ambiguities. Special Conditions which add to, delete from or change the GCC may in fact introduce ambiguities and have unintended consequences and interpretations which can result in claims. Special Conditions are generally undesirable and should be introduced only where the standard documents do not fully cover the conditions required under the particular Contract. 2.1.1 Authority of Engineer The Engineer has no contract with the Contractor, but the Engineer has a contract with the Employer the terms of which are generally not known to the Contractor. The Contract between the Employer and the Contractor sets out the duties and powers of the Engineer mainly in the General Conditions of Contract but also possibly in the Special Conditions of Contract, on the Drawings or in the Specification. The function of the Engineer is to administer the Contract as an agent of the Employer and his normal duties and functions are stated in GCC 1990 Clause 2. Should the Engineer's powers be limited in any way, such as the Employer reserving some matters for his own decision, this must be clearly spelt out in the Special Conditions of Contract. The Engineer's Representative has authority to act in terms of Clause 2(3) and in addition the Engineer may delegate some of his authority to him or other persons in terms of Clause 2(5) but must inform the Contractor and the Employer in writing of such delegation. Any person to whom such authority is delegated then becomes the Engineer's Representative within the field delegated, and that person's decision in terms of such delegation will be binding on the Engineer. 2.1.2 Work and services included in the Tender Sum In the Contract Agreement, the Employer undertakes to pay the Contractor the Contract Price, which is defined as the Tender Sum subject to additions thereto or deductions therefrom as may be made from time to time under the provisions of the Contract. Some of these adjustments are reflected automatically in the priced Schedule of Quantities when increases or decreases in quantities are recorded. Other adjustments are represented by claims which, for some reason may justify payment.

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What the Contractor has to include for in his tender is to be found in GCC 1990 Clause 6(1). Tenderers have therefore to make provision for everything which they are required to allow for in the tender documents, for all that they themselves know is necessary and also for such sums as they wish to allow for contingencies that are the Contractor's risk. Under GCC 1990 Clause 3(4) the Contractor shall be deemed to have satisfied himself before tendering as to the correctness and sufficiency of his tender for the Works and of the rates and prices stated in the priced Schedule of Quantities or in the Specification, which rates and prices must collectively cover full payment for the discharge of all his obligations under the Contract and all matter and things necessary for the proper completion of the Works. 2.1.3 Budgets and Claims The Total Cost (Contract Price) which the Employer must eventually pay the Contractor amounts to the accepted Tender Sum as adjusted in terms of the Contract. Such adjustments include approved claims. Most of the money paid to the Contractor will in due course be passed on to suppliers of materials, to labourers and staff and also used to pay for plant and consumables necessary for the Works. Some of the money will contribute towards the Contractor's overheads which include interest on bank overdrafts. The difference between money received and money paid out by the Contractor is his profit, which hopefully will equal the amount allowed for in the Tender. Part of the Contractor's income will be payable as VAT, and a proportion of any profit is payable as tax. Early settlement of claims is very important to a Contractor. A claim represents an extra amount of money he has to pay out in respect of labour, plant and materials required for additional work and which he considers himself entitled to recover from the Employer. Claims will also possibly include profit. Early approval and early payment of justified claims will assist the Contractor financially and undue late settlement of claims could involve payment of interest by the Employer. 2.2 Claim Definition A claim is an "assessment of a right" and in this guideline a Contractor's claim will either be for an extension of time in terms of Clause 45 for the completion of the Permanent Works or (in terms of any clause making reference to Clause 51) for additional payment or compensation. Thus the Contractor's monthly statement in terms of Clause 47, covering the work executed during each month and the materials on Site not yet built into the Works, will not be dealt with as claims in this document. 2.2.1 Submission of Claims The essence of claims submission is to ensure that the Employer and the Engineer on the one side and the Contractor on the other are advised at an early stage of the full circumstances which have arisen, which the Contractor maintains have necessitated his submitting a claim for an extension of time and/or additional payment or compensation.

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If the claim is submitted strictly in accordance with Clause 51, the two parties to the Contract will be in the best position to reach a satisfactory settlement of the claim in the shortest possible time. Delays in settlement are usually caused by the parties, particularly the Engineer, lacking information and therefore being uncertain of the extent or details of the claim and in particular the basis of calculating the extension of time or the compensation required. The time periods set in Clause 51 or Clause 45 are in the interest of both parties and the provisions for the extensions of these periods should be handled with the greatest care and reasonableness. The Engineer should be aware that failure to rule timeously can result in the Contractor proceeding to mediation on claims that could otherwise have been resolved which in turn could lead to additional unnecessary costs. It is advisable for the Engineer to advise the Contractor at the commencement of the Contract that Clause 51 will be applied strictly and failure to comply will necessitate the application of Clause 51(4). It should however be noted that there are five provisions in the GCC which, in given circumstances, postpone the commencement of the running of the 28 days or extend the period allowed in Clause 51, viz Clauses 13(2), 16(10), 44, 51(l)(b) and 51(2). 2.2.2 Elements of Claims In a simple case, the Contractor submits a straight forward request for payment or extension of time of a specific amount. The Engineer either certifies the amount or fixes another amount which he certifies instead; alternatively, the Engineer may reject the claim. Usually, the claim is discussed between the Contractor and the Engineer. Two agreements are necessary: one in respect of the degree of validity of the claim and one concerning the amount claimed (merit and quantum). More generally and in the case of large or more complicated claims, the details of the claim need to be analysed carefully. For such analysis, it must be borne in mind that any claim has three elements all of which must be considered: these are contractual, technical and financial. Sometimes it is difficult to separate these elements completely, but that may be of little consequence for the validity of the claim. The following factors should be checked or scrutinised when a claim is analysed: 2.2.2.1 (a) (b) Contractual Elements The existence of a valid Contract between the Employer and the Contractor. A written instruction from the Engineer relating to the work or service claimed for by the Contractor. This may be found in the Contract itself or may have been issued in terms of the Contract. Changed circumstances for the execution of the Works. Questions of interpretation of the Contract or instructions. Availability of drawings/instructions in time for execution.

(c) (d) (e)

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(f) (g)

Questions of validity/merit of claim in principle. Confirmation of timeous notification from the Contractor to the Engineer of the Contractor's intention to claim, followed by estimates (see GCC 1990-CL.51). Questions about the basis for the claim: the relevant GCC clause or other clauses and relevant paragraphs/sentences within the clause.

(h)

2.2.2.2 Technical Elements (a) Drawings issued to the Contractor: differences between the Tender and the Drawings issued subsequently. Specifications issued to the Contractor: discrepancies within the documents, additions (not allowed for in the Tender), deletions (items already purchased, possible compensation) and alterations. Priced Schedule of Quantities: descriptions, quantities, intended contents of any rate/lump sum or item, omissions. Programme for construction as specified and/or accepted/approved. Confirmation that the work or service has been performed before certification of the claim or part of the claim. Contemporary records of events, actions, omissions, documents exchanged, daywork quantities and time.

(b)

(c)

(d) (e)

(f)

2.2.2.3 Financial Elements (a) Confirmation/agreement that the work or service claimed for was not included in the Tender Sum - or should have been so included. Agreement on the basis for payment for the work or service: rates or lump sums, including rates for daywork and standing time. Agreement on the amount of the claim. Any other factor applicable to a particular claim and not listed above.

(b)

(c) (d)

2.2.2.4 General To assist in reaching a speedy settlement, the Contractor and the Engineer should seek to establish agreement on: (a) Facts, references, figures and amounts which should be recorded (if possible) at the time the claim arises or shortly afterwards and be signed for by both parties when an agreement on all or some of them has been reached. See GCC 1990 Clause 51(3). As an aide-memoire each party could prepare a report on the references, figures and amounts which it considers correct. Such reports will be useful if the claim proceeds further and a third party has to be called in to assist in reaching a settlement.

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(b)

The documentation required for the substantiation of any part of the claim so that this may be located and kept available for future use. Sub-clause 51 (3)(e) would appear to be contrary to the requirement of subclause 51 (3)(c) to record facts and circumstances and for the two parties to sign such record. In the book "Engineering Construction Contracts" Mr A Hyman (author of book and co-author of GCC 1990) suggests that in the context of Clause 51 as a whole and from the use of the word "technical" it would seem that sub-clause 3(e) only excludes deductions made or opinions formed on the basis of investigation or analysis taking place after the event concerned". This view is supported and hence facts resulting from the technical investigation or analysis shall form part of the signed record under Sub-clause 51(3)(c).

2.3

Attitude to Claims It is the intention with all disruption or delay claims that the Contractor should be placed in the same financial position as he would have been had there been no disruption or delay. In the case of larger projects, such as power stations, industrial plants, main roads and/or where many contractors are employed, it is hardly possible or even desirable to design everything in detail before tenders are invited. Detail design usually proceeds during the construction period. Quantities and requirements are therefore subject to change, variations have to be introduced and new rates agreed. The Tender Sum will more than likely not equal the Final Contract Price (excluding contract price adjustment/escalation). Some Engineers have in the past tended to regard a Contractor's claims as something to be avoided, eliminated or reduced to a bare minimum. They have seen claims as something which reflected badly on their professional standing with the Employer, irrespective of the basis for such claims. When Engineers have had experience of excessive, spurious or even fraudulent claims from contractors, they may look on all claims with suspicion and be uncertain how to deal with claims in a manner fair to both the Employer and the Contractor. Engineers should not however take the view that claims always reflect badly on their ability to design or administer Contract Works as these are often unavoidable. GCC 1990 Clause 51 is intended to give good financial control of claims. Sub-clause (l)(c) requires the Contractor to deliver updated particulars while Sub-clause (5) requires the Engineer to reply within 56 days and Sub-clause (5)(b) allows "on account payments" to be included in payment certificates. Note in the case of extension of time claims the Engineer shall reply in 28 days in accordance with Clause 45.

2.3.1

Administration of Claims The method of handling claims in the Engineer's organisation will depend on the type of Works being constructed, its location, its magnitude, its duration, the number of contractors working on the site and the likely number of claims that must be handled. Normally the Engineer will hold site meetings with the Contractor at regular intervals. A normal agenda for such meetings would include an item called claims" and the

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minutes of the meeting should record the receipt, progress and finalisation of individual claims. As time passes and claims multiply, it will be found helpful to have special claims meetings, where representatives from the interested parties discuss the claims, make recommendations or decisions, exchange and/or explain letters (sometimes as unofficial drafts) and elucidate relevant documents. Minutes must be kept and circulated to those concerned for information and, where required, for a signature confirming the correctness of such minutes. 2.3.2 Handling of Claims generally Claims must be handled in accordance with the GCC, which is the document that should ensure fair and reasonable decisions when used by fair and reasonable contractors and engineers. It must not be overlooked, however, that in all claim situations there is a human element and that the mutual confidence which should exist between the Contractor and the Engineer can play a significant part when claims are discussed. Influences unrelated to the Contract, such as past and expected future relationships between the parties as well as commitments the parties may have to other parties, should not affect the decisions which have to be taken. Most claims are usually settled without too much difficulty between the Contractor and the Engineer's Representative on the site with the Engineer being fully informed for his approval. Difficult and/or controversial claims will however in some cases have to be referred within the Contractor and Engineer organisations to seniors and/or specialists during the negotiations. This may in any case be preferable, as it relieves the site staff from such time-consuming work and may serve to reduce heated arguments over claims and friction within the group whose first task is administering and supervising the Works. A claim should be agreed as early as possible, while the events leading to the claim are still remembered. It must be obvious however that the quantum of certain claims cannot be established before the Works has been completed. According to GCC 1990 all claims must be finalised before the Final Payment Certificate can be issued by the Engineer. The only exceptions are claims actually in dispute and not yet resolved. The resolution or settlement of such claims may take some time after the completion of the Works. Record keeping is essential for adjudication of claims. Daily agreements should be made between the Contractor and Engineer if practical. Photographic records of the progress of construction of the Works should be encouraged as they can be of great value in revealing details (indisputable) which were not recorded during construction. Comprehensive photographs or videos of the site of works prior to construction in built up areas (sewers, water mains and the like) can also be of great value. In the case of large and/or controversial claims, which eventually may have to be settled by mediation, arbitration or litigation, it is advisable to place on record the names of all persons dealing with the work and/or the claim. Their knowledge of contemporary conditions and facts may well be needed later, as may the identity of the persons who write (sometimes unreadable) signatures on important documents which include day work sheets and delivery notes and acknowledgements of notifications received. 2.3.3 Claims from Employer to Contractor - counterclaims

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The following clauses may be noted in respect of possible counterclaims: 6(2) - 22(2) - 31 - 43(2) - 46 - 52(7)(a) - 56(4) - 57 - 58 - 59 - 60 - 61. Clause 52(7)(a) provides that the Employer may deduct from payments to the Contractor any amounts which he is entitled by law to set off against such payment. The Employer is entitled to deduct penalties due. Clause 9(6) allows the Employer to pay nominated subcontractors directly under certain circumstances. Counterclaims can be handled as any other claim, but the proof of validity and quantum is now for the Employer to provide, normally assisted by the Engineer, and acceptance has to be obtained from the Contractor. 3. 3.1 PRESENTATION OF CLAIMS First presentation When the Contractor recognises the possibility of a claim, he may introduce the fact to the Engineer in some oral informal manner, which may be at a site meeting or on some other occasion, and the Engineer's reaction is invited. It is strongly recommended that the Engineer should exercise extreme care in reacting to such an unofficial approach as only when the claim is set out in full in accordance with the Contract can a meaningful assessment be made. The only valid presentation of a claim is a written claim in terms of GCC 1990 Clause 51 and even the recording of advice by the Contractor of an intended claim in the minutes of a site meeting will not set the clock running for such claim. 3.2 Purpose of presentation A claim signifies that the Contractor wants some payment and/or extra time to complete the Contract. The Contractor can only achieve this by convincing the Engineer and/or the Employer and/or the Mediator/ Arbitrator/Court that he is so entitled in terms of the Contract. It is sometimes assumed that a Contractor will try to claim as much as he can and that the Employer will pay as little as possible, but this is not necessarily true. When the Contractor's early claims are treated fairly, his later claims are less likely to be inflated, or to contain built-in "discounts", to be given if the Contractor is obliged to do so during negotiations. A first principle, which applies to the presentation of any claim, is to present it in such a manner that it is easy for the Engineer to understand and to check before he can certify the claim for settlement. The person dealing with the Contractor's claim may do so in the capacity of the Engineer's Representative and must therefore report to the Engineer in order to ensure the correctness of the claim. Furthermore, the Engineer is obliged to study the claim himself before he finally accepts, rejects or changes it. The following sections deal with aspects of a claim which the Engineer may expect to receive from the Contractor in order to make the whole handling of the claim as easy as possible, together with suggestions for action by the Engineer. 3.3 Identification of documents All claims should be marked by the Contractor with the Contract number, the Contract title, a claim number and a claim title. This is essential for reference and filing.

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In large claims all pages should be numbered for individual identification and if documents are collected in bundles, an index must accompany each bundle with a general index covering all the documents submitted. 3.4 Documents supporting a claim All documents must be readable and complete. The Contractor should mark clearly the paragraphs and sentences of importance to the claim. The Engineer should date stamp all documents as he receives them, check that the documents are complete and that the contents of a bundle are as stated in the index. Hence the necessity for the Contractor to number all the pages. As the date of receipt of certain documents or notifications can be crucial, it is wise to keep, date stamp and file not only documents but also the envelopes in which they arrive. A date on a letter may bear little relation to the day it was posted. In critical situations mail should be sent by registered post or delivered by hand and signed for by the receiving party. Copies of facsimile communications should be posted as confirmation of the contents. 3.5 Introduction to the claim The introduction should briefly relate the particulars of the circumstances, event, act or omission giving rise to the claim, the provisions of the Contract on which the Contractor relies in making the claim, the length of the extension of time, if any, claimed and the amount of money, if any, claimed. The Contractor may also enter a date on which he asserts that the time and/or money claimed should have been or should be certified by the Engineer. 3.6 Motivation for the claim Here the Contractor may elaborate on his reference to the relevant GCC clauses or other parts of the Contract. The references should be to individual paragraphs and sentences and be accompanied by the Contractor's explanation as to why they apply to the claim. It may be necessary to state why the work or service claimed for could not or should not have been included in the Tender Sum. Claims arising from discrepancies found in the Contract documents, in later instructions or in the interpretations of words or of drawings must be explained. Claims arising from omissions in the Contract documents, for something not known (or merely forgotten) at the time of tender, will need proof and a proposal as how to deal with the matter concerned. 3.7 Historical list of events This section should provide the reader with information on what has happened on site (and elsewhere) in connection with the work or service for which the claim is made, as well as on what has happened regarding the claim from the date of written notification to the date that the claim has been formulated in terms of money/time, including any amendments made to the claim.

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Reference should be made to past correspondence, minutes of meetings, reports, photos, diaries, Engineer's instructions and other documents and matters of relevance to the claim. Copies of relevant documents should be enclosed with the claim and any paragraphs referred to in the text should be marked on the copies. 3.8 Basis for payment/time calculation This section should show how the amount of money/time claimed has been calculated. GCC 1990 Clause 40 gives the basic principles which apply to such calculations: use existing rates where applicable, agree on new rates based on the existing rates where possible and calculate new rates and lump sums for the rest. If day work has been ordered, payment is made in accordance with Clause 40(4). If extra work and/or special tasks (e.g. acceleration of work) have been executed for prices agreed prior to such execution, such prices must be used in the claim. For convenience most claims should be subdivided into separate sections covering materials, labour, plant, preliminary and general (P&G), overheads, contractor's profit, interest and contract price adjustment/escalation. The Contractor should prepare the amount he wishes to claim on the figures he used for his tender; alternatively, he has to make a new estimate. No cost estimate can be precisely accurate, because averages that include for waste of materials, human error, inefficiency of labour and breakdown of plant are generally used. The Engineer should not attempt to extract rates from other contracts and try to impose these on the applicable Contract. It is well known that tenders for different civil engineering contracts can vary greatly and studies show that the rates used by different contractors for the same item can differ considerably. The Engineer may however make his own evaluation of the work from his own experience and/or observations on the site. During negotiations on rates, it may happen that the Contractor will postulate that some of the existing rates are far too low for the new work or as a basis for a new rate. Similarly the Engineer may note rates that he considers too high. Both parties may have problems with missing rates, e.g. where the P&G in the priced schedule of quantities was not filled in as intended, or not all items were priced, or large sums were quoted against a few items or zero-rated items were put into the tender. The problems with unrealistic, tactical, front-end loaded rates must be dealt with from case to case. The provision by the Contractor of a breakdown of his tendered rates will greatly assist in ensuring agreement on negotiated rates. 4. CALCULATION OF THE QUANTUM OF CLAIMS This section deals with the detailed calculation of the quantum of claims. The quantum in a claim has to be calculated by the Contractor and is subject to the approval of the Engineer. Therefore the Engineer must be able to measure the work and to check the Contractor's calculations. He must also be able to calculate these

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for himself in all cases when he does not agree with the Contractor's figures or method. In the sections below, the most common groups of rates and prices are commented on. 4.1 Existing rates and prices The Contract rates/prices were originally calculated by the Contractor as his "selling rates/prices" from direct cost rates for labour, materials and plant to which was added a mark up. The mark-up may be a fixed amount or more usually it is a percentage of the direct cost rates. The mark-up is intended to cover what is not covered by the direct cost rates, e.g. overheads, profit and risks, but the mark-up need not be the same for all rates/prices. The total amount of mark-up can also include P&G amounts not entered in the P&G part of the priced schedule of quantities. 4.2 New rates New rates should normally be based on a breakdown of existing rates. If a 30 MPa concrete rate is to be calculated from a 25 MPa rate, a new material direct cost rate should be used, while the direct cost rates for labour and plant, as well as the markup percentage should normally remain as before. The method described is merely a guide on how such adjustment may be made. Its application would depend on any agreement between the Contractor and the Engineer. 4.3 New rates not based on existing rates New rates can also be built up from the best obtainable direct cost rates in the same way as a Contractor would build up rates for a tender. The mark-up percentage can be taken as the Contractor's general mark-up percentage for the tender sum. Alternatively, a reasonable mark-up percentage must be negotiated and, failing agreement, fixed by the Engineer. 4.4 Lump sum prices Lump sum prices are difficult to adjust or to use for new lump sums as their actual contents may be uncertain. New lump sums are ideal for certain extra work such as where the Employer requires a firm quote before he decides to proceed with the new work or require some new service from the Contractor. Lump sums for ordered acceleration can be dangerous if the required completion date is not achieved despite acceleration.

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4.5

Day work GCC 1990 Clause 40(4) prescribes how Day work should be ordered and paid for. Because Day work requires careful monitoring by both the Contractor and the Engineer, and can get out of control if this is not done, it is generally recommended that Day work should be avoided if some other way of payment can be used.

4.6

Standing time Standing time occurs when the Contractor cannot proceed as planned for some sound reason which he is required to notify the Engineer, e.g. lack of instructions. The Contractor is expected to give the Engineer advance notice of not having enough work to do and to spell out the reasons for and the probable effects of any such delay. Standing time must be signed for as for Day work. Therefore, the Contractor must make the "standing" resources, usually labour and plant, available to the Engineer for other work before the Engineer can accept any charges for standing. When standing time rates have not been included in the Contract, these have to be negotiated. They are usually lower than Day work rates, particularly for plant, when consumables have to be included in the Day work rates.

4.7

Materials costs Materials costs can normally be substantiated from quotations, invoices and supplier's receipts and statements. The quantity (percentage) of waste should be checked and agreed on site. Any surplus materials belong to the Employer, provided that he agrees to pay for them in full and he wants to keep them.

4.8

Labour costs Labour costs are based on rates per hour, week or month for various classes of employees and differ for normal time, overtime and Sunday time. The rates may be nett or average, or include fringe benefits (holiday pay, sick pay, insurance premiums, etc). The rates may also include for transport, accommodation and food as well as tools, protective clothing, superintendence, overheads and profit. What is included in labour rates should be clearly understood so that no costs can be claimed for more than once in any one claim.

4.9

Plant costs Plant costs are normally based on hire rates per hour, day, week or month, which can be substantiated through invoices from Plant Hire companies or information on the Contractor's internal plant charges. Plant suppliers have tables giving the output of each machine under differing operating conditions. In practice it is normally impossible to arrange the programme in such a manner that any piece of plant can be fully utilised during the whole time it must stay on the site. Hence plant rates must include for estimated standing time which cannot be avoided.

4.10

Preliminary and General (P&G)

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The P&G part of the priced schedule of quantities is normally divided into fixed and time-related sections. Occasionally a third section with value-related items is found. Each of these sections has a number of items which have to be priced. Some items are rated items using units of time or number but most of the items require a lump sum to be entered. Where the P&G Schedules are not completed as intended by the compiler of the schedule (provided such items are quite clear in their meaning) any items not priced or inadequately priced are deemed covered by other rates and prices in the Schedule. The SABS standardised P&G Specifications make this quite clear. If the Contractor elects to put his cost elsewhere he must accept the consequences of his actions. In the event that the Contractor is granted an extension of time the time related P&G items should be applied as they stand unless the Contractor can show some good reason otherwise, such as a significant change in the scope of work. The Engineer is entitled to apply the priced P&G Schedule as it stands and regard costs for zero priced items as included in other rates and lump sums in the priced Schedule of Quantities. The Engineer is however not obliged to use, for purposes of a claim calculation, a large sum entered against "time-related Contractor superintendence" without being given a breakdown of such sum or without relating it to reality on site during the specific period of delay claimed for. In such circumstances, the Contractor and the Engineer should agree a method for the calculation of delay claims or other P&G claims, which adequately compensates the Contractor for delay and cost but does not overcharge the Employer, bearing in mind that P&G expenditure has a run-up period, a peak period and a run-down period. 4.11 Quantities and Time (a) Quantities can be agreed on the basis of measurements taken on the site by the Engineer or his Representative and the Contractor at the same time, or on the basis of drawings showing the Works as constructed. Work to be covered up must be agreed before it is lost to sight. Quantities need not however be calculated in detail when payment is agreed as a lump sum. In claims where time is charged, the time period and relevant date must be noted and agreed and certified by the Engineer so that the periods charged can be substantiated later from contemporary records. The parties should be aware of the difference between calendar days and contractual "working days".

(b)

(c)

5. 5.1

SETTLEMENT OF CLAIMS Disagreements on Claims Should the parties not be able to agree on a claim, they should endeavour to establish exactly the points on which they disagree and also why they disagree, having first defined the claim clearly however difficult this may be. Sometimes such clarification helps towards a settlement.

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Most contracts contain a condition that must be complied with strictly in the case of a disagreement. In GCC 1990 the relevant conditions are found in Clauses 60 and 61. 5.2 Claims in dispute The GCC 1990 specifies that disputes should be resolved in the first case by mediation, followed by a reference to arbitration or to court if the mediator's opinion is not accepted by either party. It should be noted that, having agreed the form of contract, the Contractor and the Employer can also agree to change it. The parties can therefore enter into an agreement to omit mediation and proceed immediately to arbitration, or to submit some parts of the dispute to arbitration and others to court. Such amended agreement must however be in writing and all formalities complied with.

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An award following an arbitration or court order is legally binding and may be enforced by a court at the request of either party. An opinion given by a mediator is not legally binding unless the parties agree that it should be. Before a particular claim is referred to mediation/arbitration/litigation, it is advisable for the parties to give some thought to the work, time and cost involved and the potential gain or loss from such action. The parties may need different kinds of outside advisors to assist them with their case. In litigation and arbitration the parties will usually need an attorney and also a counsel or two (senior and junior). For mediation, a legal advisor may be consulted but may not represent either party at any mediation proceedings. In all cases, a Consulting Engineer may be called upon to assist with the claim or to become an expert witness. It is very important that the professional people called in are not just simply attorneys, counsels or engineers. To be of any real benefit they must be experienced in mediation/arbitration/litigation for construction work and construction contracts. Not many have ever had the opportunity to become experienced in this field. The costs of these professionals are difficult, if not impossible, to assess in advance because few will or can agree a fixed fee, except in the case of very minor claims. In arbitration and court proceedings the successful party will usually be awarded "costs", but that does not mean all costs, not even all the cost of attorneys and counsels. The proportion depends on the circumstances, but two thirds has been suggested as a rough estimate in such cases. The cost of expert witnesses is allowable provided they become qualified witnesses by giving evidence. It is not possible to make general recommendations as to the procedure any particular party should follow to reach his goal, which is normally to win, quickly and cheaply, without too much trouble. Certain parties will always prefer mediation, particularly against an opponent with whom they are on good terms and wish to remain so. Reluctant parties can obstruct mediation and arbitration and thereby delay decisions on the day of settlement. Parties who want to avoid publicity generally avoid the courts, as do parties who do not want to wait until a court can handle their case. The waiting time is usually more than a year. However that may be, GCC 1990 prescribes mediation as the first step towards a resolution of a declared dispute. The respondent therefore has only two choices: either he must pay the claim straight away or he must proceed with the mediation which he agreed to when he entered the Contract. The S.A Institution of Civil Engineers and Consulting Engineers South Africa have both published Guidelines for Mediation. These were originally written for GCC 1982, but have since been amended to suit the different type of mediation found in GCC 1990. Mediation is considered a good type of "Alternative Dispute Resolution" (ADR), i.e. as an alternative to arbitration and litigation. "Notes on Mediation" (1990) by L Dison Pr Eng, available from the S.A Federation of Civil Engineering Contractors, can also usefully be consulted in this connection together with the Advisory Note on Guideline for the Use of Mediators and Parties Concerned with Mediation. 6. CONCLUSION

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It is recommended that the staff members of the Contractor and the Engineer should make themselves familiar with the General and Special Conditions of Contract applicable to the Works and they should consider claims to be something which naturally arise from the Contract requiring to be negotiated and settled by themselves. As the GCC has a clear Dispute Resolution Clause and no one can foretell how an individual claim will be settled when it arises, it is further recommended that all claims and all relevant documents and records should be prepared as though all claims may have to be settled by third parties and particularly by arbitration or in court. 7 FURTHER READING Dealing effectively with claims on construction contracts is a crucial aspect of good contract administration, no matter what General Conditions may be applicable, and the risks of disputes and disagreement are always present. It is recommended that to gain further insight into the ramifications of claims and disputes against the background of the law, references such as the following should be consulted:Engineering Construction Contracts by A. Hyman (Butterworths) 1992. Construction Law and Related Issues by P.C. Loots (Juta) 1995. The Law of Building and Engineering Contracts by H.S. McKenzie (Juta) 5th Ed. 1994. The Law of Contract in South Africa by R.H. Christie (Butterworth) 3rd Ed. 1996.

The contents herein are published for general information only and are not intended as specific professional advice, legal or otherwise. The merits of every situation should be considered separately and specific professional advice in relation thereto should be sought.

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