8/12/2019 Warsaw Business Journal - Construction Claims

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CONSTRUCTION CLAIMS DURING THE FINANCIAL CRISIS WHAT DEVELOPERS NEED TO KNOWClaims During theFinancial CrisisThe construction industry is

experiencing one of the worst

downturns in history; a lot of

developers believe that the

market is favourable for reduc-

ing construction costs and, to

a certain extent, they are right.

However, during previous

downturns, some contractors

tendered for projects at nega-

tive margins i.e. from -5 to -20%. Why? Apart from the

obvious survival aspect, the

answer is simple, Construc-

tion Claims! The Contractors

try to convert negative mar-

gins into positive ones by pur-

suing an aggressive claims

strategy. It is true that most

projects have claims-related

problems anyway, however,

during an economic slump,

the situation becomes expo-

nentially worse.

Reasons for ClaimsUnfortunately, claims have

always been a part of the con-

struction industry and a lack of

awareness of these amongst

Project/Construction Managers

(PMs/CMs) has led to consider-

able financial losses for devel-

opers. In a lot of claims situa-

tions, the Contractors are enti-

tled to receive an extension of

time to their contract duration

and additional sums of money

for loss and/or expense, how-

ever, Contractors generally

tend to exaggerate the magni-

tude of their claims.

There are several issues

that give rise to claims, the pri-mary one being variations.

Contractors revel in raising

claims for variations and can

make a mountainous claim

out of a molehill variation.

Employer-related delays in the

delivery of design documenta-

tion, co-ordination errors in

drawings and discrepancies in

Contract Documentation

result in claims as well.

Whats the Solution?There are some key areas

that developers need to

focus on in order to minimize

their exposure to claims. The

project contracts should be

based on well-known ones

like FIDIC. The contracts

should not be amended sig-

nificantly and the project

team should be conversant

with the same.

In terms of choosing per-

sonnel, it is vital to ensure

that the potential PM/CM has

regional experience with

respect to the management

of claims. Among the main

issues that need to be

queried are details of the

PMs/CMs Claims Manage-ment Procedure. Most

PMs/CMs have reactive pro-

cedures, i.e. they wait until

the Contractor submits a

claim before reacting. This

procedure is ineffective; it

may well succeed in giving

cardiac arrests to the Devel-

opers team though!

Developers also need to

ask for details of the

PMs/CMs in-house Claims

Consultant; his CV should be

perused in order to ensure

that he is suitably quali-

fied/experienced. It is also

important to find out where

the consultant is based;

there is no point in having

somebody based in the UK

or the Middle-East for a proj-

ect in C&EE.

It is critical to choose con-

tractors/designers carefully

in order to keep post-con-

tract variations/errors to a

minimum. Do not employ

Contractors/Designers just

because their tender was the

lowest; companies must be

chosen based on their repu-

tation, experience, financial

stability and success in com-pleting projects.

Another common mistake

is the reduction of project

duration(s) by the Client for an

accelerated completion.

The project durations for all

the Contractors on the project

should be reasonable; a sig-

nificantly reduced time-frame

will result in more claims relat-

ed issues for the Client.

Above all, when it comes

to hiring professionals, it

should be borne in mind that

the cheapest option is usual-

ly not the best option; as a

wise man once said: Look

before you leap!Tex

t prov

ided by

Bovis Lend Le

ase

Raj Madh

av - Senior Commercial Ma

Claims Manager C&EE at Bovis Lend

B.E.(Ci

vil), MCIArb, Corporate Mem

Ch

ar

tered Institute of Arbitrator

Raj.Madhav@eu.bovislendleas