Download - 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
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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