Chapter 27

Overview of Construction Claims

and Disputes
Learning Objectives

1 - Introduction 6 - Owner/Employer Claims

2 - Definitions 7 - Claims Life Cycle

3 - Causes of Construction Claims 8 - Burden of Proof

4 - Types of Construction Claims

9 - Monetary damages
according to contract subject

5 - Extension of Time claims (EOT) 10 - Other Contractor Damages

Learning Objectives

11 - Other Owner/Employer Damages

12 - Claims and Project Delivery Methods

13- Dispute Resolution

 1 – Introduction

• Lets assume that during execution phase , you found some issues - not under

your responsibility - in your project ,that will hinder your progress or incurring

you extra costs , but don't know how to claim your rights , in that case you may

loose your rights or may the work stopped completely .

• In addition , you may have some rights , but may you don’t know that you should ask for it , for

example if you found some issues in the project design , and you informed the owner (or consultant)

with these issues , but he asked you to make the redesign or to suggest a proposal , although , your

contract does not include design works , So , if you are not aware of claim management you will do

that and carry this responsibility for free , Hence the importance of Claims Management
 2 – Definitions

1 - Claim

• A written demand or assertion by one of the contracting parties, seeking, as a matter of legal

right, payment of additional money, adjustment to the time of performance and/or some

other change/variation to the terms of the contract, arising under or related to the contract

2 - Change/Variation Order

• Directive from the owner/employer, or their representative, to the contractor directing him

or her to perform work differently or perform different work than contracted

3 - Damages

• Costs or time incurred by a party as a result of one or more of the claims

 3 – Causes of Construction Claims

Owner/Employer
Directed Constructive
Directed
Acceleration Acceleration
Change/Variation

Constructive Termination for

Delays
Changes/Variations Convenience

Differing Site Termination for

Force Majeure
Conditions Default

Directed Suspension Constructive

of Work Suspension of Work
 4 - Extension of Time claims (EOT)

• Major types of construction delays that lead to claims are :

1 – Critical Delay • If the delay was in the critical activities so you can issue EOT

claim asking for time extension and financial compensation

2 – Non -Critical Delay • If the delay wasn't in the critical activities and no impact on

project end date , In this case you can issue Disruption claim

Question Now : Can we compensate the contractor for any critical delay ?
 Types of critical delays

• We can divide critical delays as follow

1 – Compensable Delay • If the critical delay was from the client side , so contractor can ask

for time extension and recovery of associated costs , such as scope

change , adding extra work , differing site conditions

2 – Excusable Delay • A critical delay outside both owner or contractor responsibilities ,

such as unusually severe weather , that gives the contractor the

right only to ask about time extension with no additional cost from

owner side
 Types of critical delays

3 – Inexcusable Delay • A critical delay from the contractor's side , so the contractor has no

rights to ask for time extension or even additional cost .

4 – Concurrent Delay • If two (or more) critical delays arise at the same time .

5 – Pacing Delay(Deceleration) • Deceleration of the project work, by one of contract parties, due to a

delay or potential delay to the end date of the project caused by the

other party, so as to maintain steady progress with the revised

overall project schedule.

 Conclusion

Delay Types

1 – Critical Delay 2 – Non -Critical Delay

1 – Compensable Delay

2 – Excusable Delay

3 – Inexcusable Delay

4 – Concurrent Delay
1 – Direct Pacing

5 – Pacing Delay(Deceleration)
2 – Indirect Pacing
6 - Owner/Employer Claims

Late Completion Damages 01

False or Fraudulent Claims 02
Design Deficiency or
Standard of Care Claims 03
Consequential Damages
(Special Damages)
04
 8– Burden of Proof

Liability/Entitlement

• An event or circumstance has occurred during project

performance, which gives rise to a legal right to an

adjustment under the contract. For example, a

change/variation, delay or differing site condition

Causation

• The event or circumstance causes the contractor to do something or take some action which

otherwise would not have occurred were it not for the event.

Damages /Quantum

• The work costs more and/or takes longer than planned

 Damages

Time Damages Monetary Damages

3 - As‐planned versus As‐built

7 - Time Impact Analysis

1 - Global impact
4 - Impacted As‐planned

8 - Windows Analysis

2 – Net impact 5 - As‐planned But for

9 - Snapshot Technique
6 - Collapsed As-Built
(AS Built But For)
 9– Monetary damages

 Direct Cost : Cost incurred as a direct result of the claim situation

 Indirect Cost : Cost not allocable to any specific item of direct work

Direct Costs
Indirect Costs Delay Costs

Laborers' wages Consequential (Impacted) Costs

Field Office Overhead

Used Material

O&M costs

Consumable supplies

Home office overhead

Cost of rework
 Indirect Costs

Field Office Overhead Home Office Overhead

● Project management staff ● Corporate management

● Superintendents ● Accounting and payroll staff
● Project office ● Other personnel costs
● Temporary utilities and security ● Engineering
● Maintenance and clean-up ● Estimating
● Communications ● Computers and office equipment
● Project vehicles ● Corporate insurance
● Laydown and maintenance area costs ● Home office space rent
● Office equipment ● Central equipment yard
 9– Monetary damages

3 - Delay Costs

• Idle equipment

• Idle personnel

• Additional or extended storage costs

• Escalation costs of labor, materials, and equipment attributable solely to the delay

4 - Impacted Costs

 Activity total costs (planned vs. actual)

 Measured Mile Analysis (un-impacted productivity vs. impacted productivity)

 Industry standard (actual vs. industry standard)

 9– Monetary damages

4 - Impacted Costs
 9 – Monetary damages

4 - Impacted Costs
 10 – Other Contractor Damages

Bond and insurance costs

Loss of early completion bonus or completed plant performance (“name plate”) bonus

Lost profits as a result of restricted bonding capacity

Interest cost

Legal and consultant fees

Claim preparation costs

 11 – Other Owner/Employer Damages

Defective work―repair or replacement costs

Costs to complete the project

Re-procurement costs―in the event of termination for default

Extended warranty costs

Third-party claim costs

Legal and consultant fees

12 – Claims and Project Delivery Methods
 13 – Dispute Resolution
• After submitting your claim , you should expect that you will face one of the following stages before

getting your target goal

1 – Negotiation

 You should expect that owner will invite you to meet him , in order to discuss your submitted claim ,

and may he will try to reduce some of your requirement , so you should be a professional negotiator

2 – Standing Neutral

 If there was no agreement between you and the owner , claim will be a dispute , then dispute should

be submitted to third party called Dispute Adjudication Board (DAB)

Note that  Difference between claim and dispute that dispute is unsolved claim
 13 – Dispute Resolution

3 – Amicable settlement (Non Binding Resolution )

 If parties faced a failure of agree for the dispute adjudication board, and before going to

court , you should try amicable settlement , such as

Mediation Conciliation

4 – Binding Resolution (arbitration )

 If the dispute continued , so there will be only one solution , before going to court .

 A binding resolution is the result of arbitration where the parties agree in advance to abide

by the arbitrator's decision

 13 – Dispute Resolution

5 – Litigation

 If all attempts to claim settlement fail to reach an agreement , the disputes parties may be

forced into Litigation

 Negotiation

 Negotiation is a kind of problem solving techniques , in which people attempt to reach a joint decision in

matters of common concern in situations where there are in disagreement

 Here are some helpful tips during claim negotiation

1 - Always tell the truth. Once a contractor loses its credibility, it will

have difficulty regaining it, not only for this particular claim, but for years to

come

2 - Include visuals in the presentation of the claim. Any time a contractor can represent a point

visually, the chances are greater that the point will be comprehended and remembered
 Negotiation

3 - Be prepared. A contractor must know the terms of the contract and the contract plans

in great detail. In addition, it should be able to explain its plan of building the project and

how that plan was upset by the claimed events. Finally, a contractor should be prepared

to explain and visually demonstrate the effect of those events on costs and time to

construct the project.

4 - Do not negotiate against yourself. Most negotiations between private parties involve some sort

of stair-step approach, with each side giving a little until an agreement is reached. Some public

owners don’t negotiate that way. They expect the contractor to guess what number they have in mind

to resolve the matter. That approach puts the contractor in a difficult negotiating position
 Engineer’s Response

Red Book

 Owner should response within 42 days (or agreed period) of receiving claim (or particulars supporting

a previous claim)

Gold Book

 If the owner does not respond within 42 days (or agreed period) of receiving claim , contractor may

consider that , the claim has been rejected by the owner , and , he can go to the second step (Dispute

Adjudication Board - DAP - )

 Dispute Adjudication Board (DAB)

Purpose  The DAB is the first step in the dispute resolution process for these contracts, and aims

to resolve disputes before they go on to more formal arbitration. If it does its job well, a

DAB can help both sides to see the truth of a situation and to accept its decision, so that

arbitration is no longer needed.

Appointment  Each party nominates a member for approval by the other party. Both parties

appoint chairman

 Standing DAB appointed within 28 days of Commencement Date

Activities:
 Regular site visits at the request of either party (not less than 3 to 4 times per year)

 Become acquainted with progress and potential problems

 Dispute Adjudication Board (DAB)

Fees  50% by the Employer & 50% by the Contractor

Time Frame  Within 84 days of reference of dispute to Board: Board issues decision

 Within 28 days of receiving decision, Party gives notice to other Party of its

Dissatisfaction – if any -

 Decision becomes final and binding upon both parties if no notice of dissatisfaction

given within 28 days

 Within 56 days: Attempt at amicable settlement or arbitration

 Dispute Adjudication Board (DAB)

Fees  50% by the Employer & 50% by the Contractor

Time Frame  Within 84 days of reference of dispute to Board: Board issues decision

 Within 28 days of receiving decision, Party gives notice to other Party of its

Dissatisfaction – if any -

 Decision becomes final and binding upon both parties if no notice of dissatisfaction

given within 28 days

 Within 56 days: Attempt at amicable settlement or arbitration

 Dispute Adjudication Board (DAB)
A dispute arises under Sub- Clause 20.1 or 2.5

The dispute is referred to the DAB for its decision under Sub-Clause 20.4

DAB provides its decision within 84 DAB fails to do so within 84 days

days under Sub-Clause 20.4 under Sub-Clause 20.4

YES Is either Party dissatisfied with the decision? NO

Does that Party give its notice of dissatisfaction Dispute is settled and the decision is final
NO
under 20.4 in the time allowed (28 days)? and binding, Sub-Clause 20.4

YES
Is the dispute
YES Dispute is settled
settled amicably?
The Parties have 56 days to resolve the
Dispute amicably, Sub-Clause 20.5
Dispute shall be finally settled by
NO
Arbitration, Sub-Clause 20.6
 Mediation

 A meeting between disputants and a third party called mediator to discuss settlement

• A mediator should be:

Impartial Neutral

Honest Independent

• A mediator should have:

Knowledge of the topic and of the law Ability to gain the trust of the parties

Cultural sensitivity (in international disputes) Good analytical and negotiation skills
 Conciliation

 It is the process of adjusting or settling disputes in a friendly manner through extra judicial means

 So we can say that , conciliation means bringing two opposing sides together

to reach a compromise in an attempt to avoid taking a case to trial

 In case of success of mediation , the mediator helps the disputing parties to finish the contract

and reach to conciliation

 Arbitration

 It is a technique for the resolution of disputes outside the courts. In this

technique the disputing parties submit the claim to an unbiased third party

designated by them in advance (in FIDIC , International Chamber of

Commerce) , with their prior pledge to on the third party decision. A third party

reviews the evidence in the case and imposes a decision that is legally binding

on both sides and enforceable in the courts

 A third party reviews the evidence in the case and imposes a decision that is legally binding on both sides

and enforceable in the courts

 Arbitration

Answer to Request Terms of Reference

Request for Constitution of
and Filing of and Procedural
Arbitration Arbitral Tribunal
Counterclaims Timetable

Exchange of Limited Discovery

Post-Hearing
Hearings Written (Exchange of
Submissions
Submissions Documents)

Final Award & Costs

 MEDIATION Vs. ARBITRATION

Mediation Arbitration

Voluntary, informal, & Flexible Formal, follows a set of rules

Non-binding Binding

Private/confidential Private. Might be less confidential than

Mediation
Parties control the outcome Parties do not control output

Concluded expeditiously Process is longer than mediation

Moderate Cost Higher cost than mediation

 Litigation

 If all attempts to claim settlement fail to reach an agreement , the disputes

parties may be forced into Litigation

 Litigation should be your last step , and you should think carefully before going to it , since it needs a lot

of money to cover lawyer and court expenses , in addition it also leads to bad relationship between the

two parties . In fact , Litigation shouldn't be your choice you must be forced to do it
 Conclusion

42 Days
No Repose
DAB
Reject
Submit the Claim to owner
42 Days
Owner response
You Agree
Claim is Settled

84 Days No objection within 28 days

Agreed Response

Submit the Claim to DAB

84 Days 56 Days
Rejected Response Amicable settlement

Litigation Arbitration