Claim Management in the Construction Industry
Construction claim management is an important part of managing a construction project. Especially if you want to bring the project in on time and on budget. There are a number of claim management processes that you can put in place to support dispute prevention and mitigation, should disputes arise. When disputes do occur it is ideal to have processes in place, that look for quicker settlements to keep the project on track and don’t distract from the day to day running of the project.
Here we briefly look at the different phases of a project and the role of claim management.
Claim Management – Prevention
The claim prevention process is a vital component of the pre-tender and contract formation phases of the project. The documentation and project planning needs to be as specific and detailed as it can be. You should be looking to align the contract documents with the defined purpose of the contract as precisely as possible. Identify logical and inclusive risk distribution.
Your process for claim prevention should include:
- Scope Assessment: An assessment that identifies all contractor requirements to satisfy the purpose of the contract.
- Required Distribution of Information: Have a detailed plan for the distribution of information for project players and stakeholders.
- Management Scheme of Project: Define the responsibilities of parties and stakeholders.
- Risk Sharing: Identify risk and risk mitigation assigned to the various players and stakeholders.
- The timeframe for project completion with potential delays factored in.
- Conflicts Of Interest: identify potential conflicts of interest.
Claim Management – Mitigation
Most construction projects are complex, with a variety of stakeholders and often difficult and changing physical and economic environments. This is one of the reasons you should look to mitigate potential disputes at the tendering and contract phases. Parties should play their role with timely and effective communication, geared towards the resolution of disputes. There are some general principles of claim mitigation that when followed will eliminate and minimize potential dispute claims.
The principles to claim mitigation include:
The project plan. The fundamental parts of the plan are the most important. A clear and carefully described scope of work, a reasonable schedule and an appropriate methodology of project execution tailored to the type of project and the degree of risk involved all go a long way to the goal of mitigating claims.
Contract terms. Fairly drawn contract terms that provide logical sharing of risk for possible changes and unknown site conditions, force majeure type delays, periodic reporting, fair notice provisions and approval times also provide a basis for minimizing claims.
Risk management plan. Claims are mitigated by the use of a risk management plan that allocates the risk between the parties on the basis of which one has the most control over the risk involved.
Ensure that the contract is written in clear language, remove any potential for ambiguity. The schedule should also be realistic, clear and agreed by all parties. Finally, have a clear RFI procedure (Request For Information) with specific timelines agreed for answers.
Claim Management – Pursuance
If the situation arises where no party is prepared to take responsibility for the extra financial burden, omission, absorption of costs and any other factors that are the reason for the dispute. When looking to pursue a claim, you should focus your two major areas:
The identification of a claim starts with sufficient knowledge of the scope and responsibilities stated in contract terms. It’s the identification of the difference, if any, between those terms and the actual terms of the project that will determine whether a claim should be pursued.
Once a potential claim has been identified, the next step is to quantify the claim in terms of financial compensation and/or time extension. It’s not unusual for claimants to inflate their financial compensation claims. Expect negotiations and a detailed claim to be produced with evidence that supports the financial compensation being claimed. Once you have identified the facts behind the claim and quantified the value of the compensation, you are better positioned to be able to negotiate the dispute, fully understanding the financial burden of the claim.