claims & dispute

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Construction Claims And Dispute

Resolutionby

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

[email protected]
http://www.wanferndconsulting.com/http://www.wanferndconsulting.com/


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CLAIMS ARISING OUT OF THE CONTRACT

These claims arises due to the breach ofexpressed 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


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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 aprovision 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.


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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 contractualcompletion 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 reasonabletime and more importantly the liquidated damages

clause will fall away.


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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) oftime ( EOT) is to allow the date or period for

completion to be adjusted in circumstance where

the Employer has caused a delay.


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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.


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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 excusabledelays.


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DELAY AND ASSESSMENT OF DELAYS

Delays contributed by the Engineer/theEmployer may impact the project in two ways;

Delay to the progress of workssuch delays areoccurring merely on a single activity ; these delaysmay not necessary affects the completion date of theproject.

Delay to Completion Datesome delay to theprogress will also result in a delay to the completionof 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.


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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. Programmegenerally provides the Contractors intention to go

about with his task of executing works.


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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.


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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


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The difference of Completion Dates ; i.e. CompletionDate without the Employer delay ( step 1 ) and the with

Employers delay (step 2) is the Contractors entitlement

for EOT.


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PROCEDURE TO CREATE AN EOT

CLAIMS

The Conditions of the Contract ( COC ) will states theprocedural 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 orEmployers 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


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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.


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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


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HOW TO EVALUATE EXTENDED

PRELIMNARIES

This can be derived by arriving the total actual cost of time related items inthe 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 oftime 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 datesHence day rate is =Rs.2,500,000.00

400

= Rs 6250.00

iii) Number of Days extended say 20 = Rs.6250.00 X 20 days

iv) Then the Amount of extended Preliminaries = Rs.


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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.


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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 officecosts. Such formulas are;

Hudson Formula

Emden Formula

Eichleay Formula

Hank Laan Formula

Modified Eichleay Formula


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Emstorm Formula

Manashl Formula

Cartert Formula

Allegheny Formula Samaratunga Formula


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EXAMPLE HUDSON FORMULA

If the Initial Contract Price is a

If the Overhead percentage is b(b/100)

If the original Contract Duration is c

Then the Amount of Day Rate is a x b =y

c

Hence the extended dates say z

Then the amount of extended head office costs is y x z

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


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PRESENTATION AND NEGOTIATION

He who asserts must prove ; the burden of proof rest with theperson who is claiming ( i.e. the Contractor ).

Following are the most important aspects when making an

extension of Time Claim;

Be mind fu l of the provis io ns of the contract ;theseprovision will first and foremost determine your entitlement,

so comply with them.

Remember what yo u need to establ ish;do not bring

irrelevant point to your claim. Stick to what you are claiming.

Commun icate effect ively ;the reader of your claim should

not struggle to understand what you are saying. Use clear

language and shorter sentences

Summaries clearly

Support w hat you state with evidence


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DISPUTE RESOLUTION

Introduction

From time to time quantity surveyors find

themselves involved in contractual disputes

either in litigation in the courts, in arbitration or inalternative dispute resolution cases (ADR)

cases.


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Litigation

Arbitration

Adjudication

Mini-trial* Mediation

* Conciliation


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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.


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LITIGATION

Litigation is a dispute procedure whichtakes place in the courts. It involves third

parties who are trained in the law, usually

solicitors and barristers, and a judge who isappointed by the courts. This method of

solving disputes is often expensive and can

be a very lengthy process before the matteris finally resolved, sometimes taking years

to arrive at a decision.


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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 toresolve 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.


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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


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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


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MINITRIAL

The minitrial is an alternative disputeresolution (ADR) procedure that is used by

businesses and the federal government to

resolve legal issues without incurring theexpense and delay associated with court

litigation.


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The mini-trial does not result in a formal

adjudication but is a vehicle for theparties to arrive at a solution through a

structured settlement process.


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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 agreat saving of time and money when

compared to litigation.

4. This method is not a trial at all andmaintains confidentiality.


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5. The business relationships ismaintained

6. Hostility is reduced.

7.Neutral advises assists managementin resolving dispute.


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Disadvantages of Mini Trial

1. If this method fails then it is lateradmissible in court for resolution.

2. This method will not succeed if the

parties have any doubt on his impartialityand 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.


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MEDIATION

This is an Alternate Dispute Resolution inwhich 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 non-

lawyer ,has no decision-making powersand cannot force the parties to accept a

settlement.


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Mediation is widely used in all sorts of

disputes, ranging from divorces to civil

lawsuits to very complex public policy

problems to international conflicts. Manydisputes that have not responded to an

initial attempt at negotiation can still be

settled through mediation.


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Mediation is of particular importance inlong-running, deep-rooted conflicts, as

this type of conflict is rarely resolved

without such outside assistance. Even ifthe 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


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One of the main advantages of mediationis 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 mediatorwas able to enhance the problem-solving

skills of both parties and help them steer

clear of further disputes or clashes ofopinions 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.


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One more disadvantage of mediation is

when one party is very passive and likely

to be bombarded by the other side. Theymay come up with an agreement yet it

may be lopsided to favour the more

prominent faction. Other manifestations ofa 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.


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Conciliation

Conciliation is an alternative dispute

resolution process whereby the parties toa dispute (including future interest

disputes) agree to utilize the services of a

conciliator, who then meets with theparties 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.
http://en.wikipedia.org/wiki/Alternative_dispute_resolutionhttp://en.wikipedia.org/wiki/Alternative_dispute_resolutionhttp://en.wikipedia.org/wiki/Alternative_dispute_resolutionhttp://en.wikipedia.org/wiki/Alternative_dispute_resolution


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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 eventualreport is expected to contain concrete

proposal for a settlement , which ,

however , the parties are under no legalobligation to accept.


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Advantages

- Both parties should compromisebecause of the great respect of the

neutral person.

- Faster than negotiation


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Their Disadvantages are as follows:

- Higher cost than negotiation because ofthe 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.


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