CLAIMS

INTRODUCTION
The word ‘claim’ when used in the context of civil engineering construction has traditionally
struck apprehension and sometimes dismay into the minds of clients undertaking civil
engineering works. Claims can produce an uncertainty of cost and timely completion that can
play havoc with carefully planned budgets and integrated programmes for major construction
works.

Large civil engineering works are almost always undertaken within the framework of a contract.
This contract will generally be subject to local and/or international contract law. It will usually
contain provisions for the contractor to ‘claim’ for genuine additional costs and/or delays
affecting completion. These genuine costs/delays can arise from him being instructed to carry out
various types of additional work or encountering circumstances or hindrances which are beyond
his control and that he could not reasonably have foreseen in the course of preparing his bid for
the job.

For the purpose of this paper, a ‘claim’ is any notification or request by the contractor for
payment additional to that envisaged in the contract for measured work and other items which
comprise the contract sum; or for additional time to complete the contract.

BACKGROUND
As mentioned in the Introduction, the contract conditions under which large civil engineering
works are undertaken will usually be subject to local and/or international contract law. Such
contracts for civil engineering works, between a client and a contractor, will generally be within
the framework of standard, national or international conditions of contract for construction work.
The intention of the conditions of contract is usually to share the risks fairly between client and
contractor. Traditionally, the contractor has had to carry such risks as those of the weather and
working in an unfamiliar location, while the client carries the risks such as those associated with
unforeseeable conditions.

Civil engineering construction works tend by their nature to have a greater degree of uncertainty
to their progress and cost than other engineering works. The work may be carried out possibly
far from the home base of the construction company, working in conditions that are generally
less than ideal. At least initially, the work will be executed out-of-doors where it will be subject
to the vagaries of the weather. Protection from the weather is rarely available until towards the
end of construction. The majority of the workforce is likely to be locally recruited and employed
especially for the work to be undertaken. They will probably have no allegiance to the contractor
employing them and may benefit from the work being delayed, resulting in the extension of their
employment. Suppliers of goods and services are also likely to be arranged locally using
suppliers with whom the contractor will be unfamiliar. Local regulations may be another source
of uncertainty. Once the work is underway, the uncertainties of the conditions lying below the
ground surface have to be contended with. Water inflow and flooding of the working area are
possible threats and the variability of soil and rock conditions may be unpredictable.

The work will usually be designed by independent consulting engineers to a specification written
expressly for the work concerned and with which the contractor will probably be unfamiliar. His
appreciation of what may be important in the specification may be very different from that of
those responsible for supervising the construction. Furthermore, the tendering period is usually
short, giving the contractor limited time to fully comprehend a possibly complex specification
and contract details with which he is unfamiliar.

Inflation and Deflation

Inflation is the rate at which the general level of prices for goods and services is rising and,
consequently, the purchasing power of currency is falling.

Inflation occurs when the price of goods and services rise, while deflation occurs when those
prices decrease. The balance between the two economic conditions is delicate, and an economy
can quickly swing from one situation to the other.

Inflation is caused when goods and services are in high demand, creating a drop in availability.
Consumers are willing to pay more for the items they want, causing manufacturers and service
providers to charge more. Supplies can decrease for many reasons: A natural disaster can wipe
out a food crop or a housing boom can exhaust building supplies, among other situations.

Deflation occurs when too many goods are available or when there is not enough money
circulating to purchase those goods. For instance, if a particular type of car becomes highly
popular, other manufacturers start to make a similar vehicle to compete. Soon, car companies
have more of that vehicle style than they can sell, so they must drop the price to sell the cars.
Companies that find themselves stuck with too much inventory must cut costs somewhere, which
often leads to layoffs. Unemployed individuals do not have enough money available to purchase
expensive items, which continues the trend.
 Escalation
Increase in price, especially due to inflation.

Many building owners, developers, and public entities want to know what their project might
cost in the future. Cost escalation is the study of providing an educated percentage to be added to
the base cost of a project estimated at today’s market value to know what its future value might
be.

Cost escalation is defined as changes in the cost or price of specific goods or services in a given
economy over a period. This is similar to the concepts of inflation and deflation except that
escalation is specific to an item or class of items (not as general in nature)

Arbitration and Litigation

The Arbitration Process vs. the Litigation Process

You may have encountered an arbitration clause in a contract and wondered what it is and
whether you should be happy or upset about this clause. Some contracts may contain amandatory
arbitration clause, which states that all disputes must be handled by arbitration.
Or a colleague may have suggested to you that you include an arbitration clause in a contract,
and you are wondering why this would benefit you.

Arbitration as a process is very different from the process oflitigation (trying cases in court), for
business disputes. You are probably familiar with the litigation process, but you may not be
familiar with arbitration.

Differences Between Arbitration and Litigation

Litigation is a very old process that involves determining issues through a court, with a judge or
jury. In this case, we're talking about civil litigation - disputes between two parties (as opposed
to criminal litigation, which involves breaking laws.

Arbitration, on the other hand, involves two parties in a dispute who agree to work with a
disinterested third party in an attempt to resolve the dispute.

Public/Private, Formality
The arbitration process is private, between the two parties and informal, while litigation is a
formal process conducted in a public courtroom.
Speed of Process
The arbitration process is fairly quick. Once an arbitrator is selected, the case can be heard
immediately. In a civil litigation, on the other hand, a case must wait until the court has time to
hear it; this can mean many months, even years, before the case is heard.
Cost of the Process
The costs for the arbitration process are limited to the fee of the arbitrator(depending on the size
of the claim, expertise of the arbitrator, and expenses), and attorney fees. Costs for litigation
include attorney fees and court costs, which can be very high.
Selection of Arbitrator/Judge
The parties in the arbitration process decide jointly on the arbitrator; in a litigation, the judge is
appointed and the parties have little or no say in the selection. The parties may have some say in
whether a case is heard by a judge or a jury.

Use of Attorneys
Attorneys may represent the parties in an arbitration, but their role is limited; in civil litigation,
attorneys spend much time gathering evidence, making motions, and presenting their cases;
attorney costs in a litigation can be very high.

Evidence Allowed
The arbitration process has a limited evidence process, and the arbitrator controls what evidence
is allowed, while litigation requires full disclosure of evidence to both parties. The rules of
evidence do not apply in arbitration, so there are no interrogatories, no discovery process.

Availability of Appeal
In binding arbitration, the parties usually have no appeal option, unless an appeal has been
included in an arbitration clause. Some arbitration decisions may be reviewed by a judge and
may be vacated (removed), if you can prove that the arbitrator was biased. Litigation allows
multiple appeals at various levels.