Professional Documents
Culture Documents
Evaluation and Preparation of Claims in Construction Contracts
Evaluation and Preparation of Claims in Construction Contracts
Evaluation and Preparation of Claims in Construction Contracts
This essay has been submitted by a law student. This is not an example
of the work written by our professional essay writers.
1. INTRODUCTION
Claim is a request for a benefit for which the Claimant believes or contends he
is entitled, but agreement has not been reached. The construction industry is
witnessing an increased numbers of claims in both domestic and international
sectors and the claim presentation is important in claim related issues in
Project Management. The Project Management and Contract Management
Professional should have basic knowledge about the meaning, evaluation and
preparation of claim.
A well prepared claim presentation helps all the involved in settling the issues
in an early stages, before going to arbitration and litigation, which are
expensive and time consuming. A claim must be presented in a professional
manner with sufficient details including the basis, calculations and causations.
If the claim presentation is transparent and reasonable, it is easy for both
parties to reach in agreement in an early stage itself and this requires a
professional claim presentation, which is the rationale of this Paper.
2. MEANING OF ‘CLAIM’
A claim is a demand, request or application for a benefit for which the
Claimant believes or contends he is entitled, but agreement has not been
reached. In other words, claim may be defined as a failure to fulfill obligations
under the contract or law by either of the parties. Change order claims can be
defined as, written authorization provided to a Contractor that approves a
change from the original plans, specifications, or other contract documents, as
well as a change in the cost. A claim may be for money, for time, or both;
however it should be noted that a successful claim for time extension does
not automatically honor a valid claim for money, and vice versa.
When the liability of the discovered change is easily attributable and the
consequences of the change can be ascertained (cause and effect) by
evaluation; then a formalized variation orders will be the result. Sometimes
the liability of the change cannot be easily attributed or for which liability is
disputed, then it will lead to claims. Claim is usually caused by defects;
conflicts or ambiguities in the Scope or Schedule; Exclusion clauses; or
Endeavour to avoid un-quantified risk. In order to successfully justify such
claims, it is usually necessary to carefully analyze the scope and the schedule,
particularly the contract documents and the provisions of the law.
Evaluation
Evaluation is the process of assessing the quantum in money value and for the
extension of time. As Burden of Proof is on the claimant, the claimant must
show that there is a direct link (causal link) between the breach (cause) and
the loss (effect) thereby sustained. When there is more than one competing
causes, then it is necessary to ascertain and define such competing causes
and responsibility, the timing and effect, and losses actually and properly
sustained. Generally a claim can only comprehend the losses actually incurred,
possibly with the addition of an agreed or ascertained element for overheads
and profit.
Scope Schedule
Contract
Price
Conditions
4. EVALUATION PROCESS
Evaluation is the process of quantifying the amount or extent of the additional
costs sustained due to the breach, and establishing that the subject losses
were actually and properly sustained as a result of the breach. As the Contract
Price of the lumpsum contract is equated to the elements of ‘baseline’, each
of the three basic elements should be priced to aggregate to the ‘Contract
Price’.
The basis of the pricing is usually referred to as the ‘Price Analysis’, given that
the Contract Price usually aggregated from the total of a Bill of Quantity, the
rates which in turn are broken down or analyzed into the primary cost
elements of :
Labor
Material
Equipment
Subcontractors
The more detailed the price analysis the more accurately and quickly any
variance from the original contract price can be ascertained. Budget of a
project, which can be used as a benchmark for measuring any variation in
respective cost element coupled with proper cost monitoring and control
mechanism will enable to evaluate the claim adequately and effectively.
Records
While it is important to have an accurate and detailed make up of the contract
price it is equally important to keep accurate contemporary records of the
usage of key resources of labor, equipment and material. A brief list of the
more important records that should be properly and regularly updated for the
purpose of efficient project management, and particularly to claim
management, is as follows:
Drawings register
Site diaries
Site instructions
Variation orders
Contract program
Updates of contract program
As-built program
Delay notifications
Claim notifications
5. HEADS OF CLAIM
Most of the construction projects are unique by their very nature and have
varying characteristics; however certain heads of claim that occurs frequently,
can be grouped into three main categories as follows:
Loss due to carrying out work at a time of the year involving special factors
Telephone account for the delay period including rental and calls
Finance charges
Loss of profit.
Costs of Disruption
In order to make claim for the costs of disruption, it must be evident that
some planned or orderly sequence of work had been affected by an act of the
Employer, of the Engineer, and/or by a variation or variations. It is often the
case that individual sections of work may be affected in a way, which does not
cause prolongation by themselves. Idle time of plant, tools and equipment;
and Loss of Productivity are the two main heads of costs of disruption.
Security
The majority of the above items are of a time-related nature, but there are a
few with lumpsum nature. The latter must be excluded when calculating the
weekly site on cost, which may be calculated separately.
Head-Office Overheads
Head Office Overheads are the costs incurred by the Contractor in
maintaining his head office establishment, and include the cost such as, head
office staff, rent of head office premises, Contractor’s all risk insurance,
tendering for new projects etc., together with all other global costs. From
historical data a Contractor can identify the cost of Head Office Overheads,
and his gross turnover (revenue) for the same period. Head Office Overheads
can be allocated at the same percentage of historical data in estimation.
Profit
The percentage included for profit in a tender is entirely a management policy
decision of a Contractor only. The profit is a function of revenue, where Head
Office Overheads is a function of time. ‘Lost opportunity’ is the philosophy
behind claims for profit because the Contractor has been denied the
opportunity to generate further revenue and profit from other projects by
utilizing the resources for the additional time. To claim for this item, the
Contractor will show that he would have probably undertaken other contracts
by utilizing these resources.
Different Formulae for calculating the Head Office Overheads and Profit, as
follows:
Ernstrom Formula
Manshul Formula
Carteret Formula
Allegheny Formula
The Hudson Formula
The Hudson formula states that the loss suffered by the Contractor as a
consequence of additional time spent on Site is equivalent to:
CV – Contract Value
Emden’s Formula
Emden’s Formula is similar to the Hudson formula except that instead of using
the percentage included in the Contract for Head Office Overheads and Profit
the percentage used is for the company identified from audited accounts,
generally the average of the percentage for overheads and profit for the
previous 2 – 3 years is used.
Eichleay’s Formula
The Eichleay Formula, although once again following a similar concept to both
the Hudson formula and Emden’s formula, is a more sophisticated formula
and amount claimed are calculated on the basis of a number of calculations.
LawTeacher
TO – Turnover of the company during the contract
7. GLOBAL CLAIMS
The correct way of presenting a claim to the Engineer or before a Court or
Arbitrator is by using causation, i.e., rational and logical linking of the effect
with the cause. If the Engineer is 14 days late in issuing the drawings for the
foundations and as a result the completion of the work is delayed by 14 days,
will illustrate cause and effect linkage.
The absence of other explanations for the delay and disruption suffered.
Coupled with evidence of a change or breach, and evidence that at least some
damage or expenditure must have been incurred as a result of the change or
breach, it is not evidence as to what that damage is, since there are so many
other possible explanations of the cost over-run
Appendices
Introduction
As the person, who is responsible for the final assessment may not be totally
familiar with the contract, it is important to give background details in order
to make the document a complete entity in itself. The minimum required
details should be as follows:
A claim for loss and expense or extra costs or expense flowing from a remedy
contained within the conditions themselves
A claim for damages resultant upon a breach of the express or implied terms
of the contract or the law
Appendices
A well prepared claim usually has a large volume of backup documentation to
substantiate the case such as correspondence, records, photographs, video
and programs. Inclusion of all the details in the main body will make the
presentation bulky and distract the reader. Hence it is advisable to attach as
appendices.
Wikipedia
COPY TO CLIPBOARD
Marking Service
Our Marking Service will help you pick out the areas of your
work that need improvement.
All Writing Services
Request Removal
If you are the original writer of this essay and no longer wish to have the
essay published on the Law Teacher website then please click on the link
below to request removal:
SERVICES
USEFUL RESOURCES
Law Essays
Case Summaries
Act Summaries
Problem Questions
LLM Resources
Law Help
Study Modules
COMPANY
About
Complaints
Help Centre
Become a Researcher
Copyright © 2003 - 2019 - LawTeacher is a trading name of All Answers Ltd, a company
registered in England and Wales. Company Registration No: 4964706. VAT Registration No:
842417633. Registered Data Controller No: Z1821391. Registered office: Venture House, Cross
Street, Arnold, Nottingham, Nottinghamshire, NG5 7PJ.
Privacy Policy
Cookies