Construction Claims And Dispute Resolution

by
Upali Fernando MRICS, MCIOB, MAcostE, ACIArb, MASI, AIQS(SL) (Chartered Quantity Surveyor, Cost Consultant, Independent Adjudicator and Charted Builder) Managing Consultant WANFERND CONSULTING Construction Consultant Specialized in Quantity Surveying, Project Management and Claims and Contract Administration http://www.wanferndconsulting.com info@wanferndconsulting.com

CLAIMS ARISING OUT OF THE CONTRACT

These claims arises due to the breach of expressed and/or implied terms of the contract. Such claims may relate to any or all of the following; Claims related to extension of Time for Completion Fluctuation Claims Variation Claims Loss and Profit Claims

CLAIMS RELATED TO EXTENSION OF TIME FOR COMPLETION

Any properly drafted contract would entail two provisions ; a definite beginning ( Commencement Date ), and; a definite end ( Completion Date). To enforce the completion date the Contract provides a provision to the Employer to deduct a pre-determined sum ( generally per day ) from the Contractors entitlement ( payment ) if the Contractor fails to complete the works by the Completion Date. This charge is called Liquidated Damages(LD). However, this Liquidated Damages can only be applied for the delays where the Contractor is solely at fault.

CLAIMS RELATED TO EXTENSION OF TIME FOR COMPLETION ( Contd. )

But the completion of works may also get delayed due to employer faults as well. In a situation where the employer cause delay to the completion of the work, then the agreed contractual completion date will no longer become valid/binding upon the Contractor; hence time becomes at large. When time becomes at large, the Contractor will only be obliged to complete the Contract within a reasonable time and more importantly the liquidated damages clause will fall away.

If the liquidated damages falls away the Employer would not have any provision to penalize the Contractor for his subsequent defaults. Therefore the purpose of granting extension(s) of time ( EOT) is to allow the date or period for completion to be adjusted in circumstance where the Employer has caused a delay.

THE CONTRACTORS BENEFIT FOR SUBMITTING CLAIMS FOR EOT

To protect themselves against any potential Liquidated Damages, To recover the costs of Site Overheads (Preliminaries ) and Head Office Charges for the period extended from the original Completion Date.

Contractual Provisions to produce an EOT claim

When claiming for EOT the Contractor has to establish the following; that the Contractor is not responsible for the subject delay, and; that the reasons for the delay are the ones hold the Employer liable under the provisions of the Contract; these delays are known as excusable delays.

DELAY AND ASSESSMENT OF DELAYS

Delays contributed by the Engineer/the Employer may impact the project in two ways;
Delay to the progress of works such delays are occurring merely on a single activity ; these delays may not necessary affects the completion date of the project. Delay to Completion Date some delay to the progress will also result in a delay to the completion of the project. Importantly and often most difficult task therefore is to identify which delays to progress cause a delay to the completion and determine it extent.

KEY ELEMENTS IN PREPARATION OF AN EOT CLAIM

The role of the programme The programme or more specifically base-line programme is an essential tool for planning , managing of the control of a project. Programme generally provides the Contractors intention to go about with his task of executing works.

Following are the main objectives of a base-line programme; a) Determine the earliest date upon which the completion can be achieved b) What are the critical activities ( critical path ) in order to achieve the completion date on time c) Demonstrate the interrelationship/interdependancy among activities d) Presenting a logical sequence to the site operations. e) Identify the time constraint imposed by labour, plant and materials.

KEY ELEMENTS IN PREPARATION OF AN EOT CLAIM (Contd.)

The role of the programme for presenting EOT claims Base-line programme act as a yardstick when it comes to establishing the effect of a disruption on the progress of works thereupon the completion date. How you demonstrate a delay in a programme ?

Step1- use the base-line programme and update it just before the delay occurs. This will gives the reader an indication that if the subject Employers delay had not occurred the project would be finish by certain date.
Step 2- then you insert/include the Employers delay as an activity and show what has happened to the completion date due to the Employers delay. Step 3-Maintain all records (contemporary records) to substantiate the above both steps

The difference of Completion Dates ; i.e. Completion Date without the Employer delay ( step 1 ) and the with Employers delay (step 2) is the Contractors entitlement for EOT.

PROCEDURE TO CREATE AN EOT CLAIMS

The Conditions of the Contract ( COC ) will states the procedural requirement that the Contractor need to fulfill to submit a EOT claim. Step 1- If the Contractor believes that any potential delay have occurred due to the Engineer or Employers fault, he is required to promptly notify ( see the COC to know the time frame ) of his intention to claim for extension of Time for Completion and receive additional costs in that regard. Step 2- Following the notice , the Contractor is required to provide particulars with proper substantiation by using the Programme (programme may be based on software such as Microsoft or more advance Primavera )and any other evidence to prove

The Engineer may determine/quantify the extent of extension of time which the Contractor is entitled to. However keep in mind that the when assessing your entitlement , the Engineer will assess delay contributed by you to the completion of the project. So while claiming for your entitlements make sure to keep your house in order always.

Claiming for additional cost associated with EOT claims

Due to the delay to the progress of works, the Contractor may incur two types of additional costs; Extended preliminaries Extended Head Office costs

HOW TO EVALUATE EXTENDED PRELIMNARIES

This can be derived by arriving the total actual cost of time related items in the Preliminaries and dividing by the Contract Duration and multiply by the number of dates extended.
Example i) The amount of time related preliminaries including Overheads = Rs. 3,000,000.00 & Profits. ii)The amount of time related preliminaries excluding Overheads and Profits (Assumed 20% as the Overheads & Profits) = Rs.3,000,000.00 x 100 120 =Rs.2,500,000.00 ii) Contract Duration say 400 calendar dates Hence day rate is

=Rs.2,500,000.00
400 = Rs 6250.00 = Rs.6250.00 X 20 days

iii) Number of Days extended say 20

iv) Then the Amount of extended Preliminaries

= Rs.

Some time this preliminary based method may not be accepted by the Engineer. In such events the Contractor has to substantiated with actual cost incurred within this extended period.

HOW TO EVALUATE EXTENDED HEAD OFFICE COSTS

It is very difficult to find out exact additional costs to the head office due to the extended period of a single project. Accordingly various formulas being used to calculate , if the Engineer is willing to accept , head office costs. Such formulas are; Hudson Formula Emden Formula Eichleay Formula Hank Laan Formula Modified Eichleay Formula

Emstorm Formula Manashl Formula Cartert Formula Allegheny Formula Samaratunga Formula

EXAMPLE HUDSON FORMULA

If the Initial Contract Price is

If the Overhead percentage is (b/100)

If the original Contract Duration is c

Then the Amount of Day Rate is y

Hence the extended dates say

a x b =
c z

Then the amount of extended head office costs is

y x z

Total E.O.T claim = extended preliminaries + extended head office cost

PRESENTATION AND NEGOTIATION

He who asserts must prove ; the burden of proof rest with the person who is claiming ( i.e. the Contractor ). Following are the most important aspects when making an extension of Time Claim; Be mindful of the provisions of the contract ; these provision will first and foremost determine your entitlement, so comply with them. Remember what you need to establish; do not bring irrelevant point to your claim. Stick to what you are claiming. Communicate effectively ; the reader of your claim should not struggle to understand what you are saying. Use clear language and shorter sentences Summaries clearly Support what you state with evidence

DISPUTE RESOLUTION
Introduction From time to time quantity surveyors find themselves involved in contractual disputes either in litigation in the courts, in arbitration or in alternative dispute resolution cases (ADR) cases.

 Litigation Arbitration Adjudication Mini-trial * Mediation * Conciliation

WHY DISPUTE ARISE

Adversarial nature of construction contracts Poor communication between the parties concerned Proliferation of forms of contract and warranties Fragmentation in the industry Tendering policies and procedures.

LITIGATION Litigation is a dispute procedure which takes place in the courts. It involves third parties who are trained in the law, usually solicitors and barristers, and a judge who is appointed by the courts. This method of solving disputes is often expensive and can be a very lengthy process before the matter is finally resolved, sometimes taking years to arrive at a decision.

ARBITRATION Disputes between parties to a contract are traditionally heard in the courts, but in building contracts the chosen method has more often been arbitration. Arbitration to resolve disputes in building contracts comes about following the agreement of the parties, either when the dispute arises, or more often as a term of the original contract.

The traditional advantages of arbitration over the courts are four-fold: Arbitration proceedings are quicker than the courts

Arbitration is cheaper than litigating in the courts

 The parties get a judge of their choosing, a person knowledgeable about the subject matter in dispute, but with no knowledge of the actual case, rather than a judge imposed on them Unlike proceedings in the courts, arbitration proceedings are confidential

MINITRIAL
The minitrial is an alternative dispute resolution (ADR) procedure that is used by businesses and the federal government to resolve legal issues without incurring the expense and delay associated with court litigation.

The mini-trial does not result in a formal adjudication but is a vehicle for the parties to arrive at a solution through a structured settlement process.

Advantages of Mini Trial 1. Mini-trial is more structured than mediation 2. In this method strengths and weaknesses of the parties are assessed by the independent facilitator. 3.There is a great saving of time and money when compared to litigation. 4. This method is not a trial at all and maintains confidentiality.

5. The business relationships is maintained 6. Hostility is reduced. 7.Neutral advises assists management in resolving dispute.

Disadvantages of Mini Trial

1. If this method fails then it is later admissible in court for resolution. 2. This method will not succeed if the parties have any doubt on his impartiality and independence 3. This method provides the parties a freedom to withdraw from this method at any point of time. 4. This system is not cost effective.

MEDIATION
This is an Alternate Dispute Resolution in which an independent third party (mediator) assists the parties involved in a dispute or negotiation to achieve a mutually acceptable resolution of the points of conflict .The mediator who may be a lawyer or a specially trained nonlawyer ,has no decision-making powers and cannot force the parties to accept a settlement.

Mediation is widely used in all sorts of disputes, ranging from divorces to civil lawsuits to very complex public policy problems to international conflicts. Many disputes that have not responded to an initial attempt at negotiation can still be settled through mediation.

Mediation is of particular importance in long-running, deep-rooted conflicts, as this type of conflict is rarely resolved without such outside assistance. Even if the full range of grievances cannot be resolved, mediation is often useful for dealing with particular limited aspects of the wider conflict

One of the main advantages of mediation is that it is often less costly than filing a lawsuit and taking that case to court before a judge or a full jury. When the mediator was able to enhance the problem-solving skills of both parties and help them steer clear of further disputes or clashes of opinions and of whims, then that mediator is quite good. Many of those who have gone through and settled disagreements via mediation usually end up feeling much better and lighter than when they came out of an acrimonious court fight, even if they won that case.

One more disadvantage of mediation is when one party is very passive and likely to be bombarded by the other side. They may come up with an agreement yet it may be lopsided to favour the more prominent faction. Other manifestations of a great mediator in this scenario are when he/she ensures that both party's needs are equally articulated and safeguarded, and when he/she would cease to continue with the mediation if one faction would unjustly take advantage of the other.

Conciliation Conciliation is an alternative dispute resolution process whereby the parties to a dispute (including future interest disputes) agree to utilize the services of a conciliator, who then meets with the parties separately in an attempt to resolve their differences. He does this by lowering tensions, improving communications, interpreting issues, providing technical assistance, exploring potential solutions and bringing about a negotiated settlement.

Procedure of peaceful settlement of international disputes . The matter of dispute is referred to a standing or ad-hoc commission of conciliation ,appointed with the parties agreement. The eventual report is expected to contain concrete proposal for a settlement , which , however , the parties are under no legal obligation to accept.

Advantages
- Both parties should compromise because of the great respect of the neutral person. - Faster than negotiation

Their Disadvantages are as follows:

- Higher cost than negotiation because of the expense for the third person. - Less confidential. Because it involved with the third person. - There are not binding the parties and third person as same as in negotiation unless enforcing by the Courts order.