De Beers 'Project Plus'

Management System

VOLUME I

DE BEERS PROJECT MANAGEMENT

GUIDELINES

Section 5.0 Part 1

PROJECT CONTRACT MANAGEMENT

January 2002

Technical Support Services

- Engineering
 SECTION 5.0 - PROJECT CONTRACT MANAGEMENT

CONTENTS PAGE

1.0 A GUIDELINE TO GOOD CONTROL AND MINIMISED CLAIMS.....................................3

2.0 CONTRACT / NO CONTRACT........................................................................................3

3.0 VARIATION CLAIMS....................................................................................................... 4

4.0 DELAY CLAIMS............................................................................................................... 5

5.0 DISRUPTION CLAIMS.....................................................................................................6

6.0 ACCELERATED CLAIMS................................................................................................7

7.0 NOTICES.......................................................................................................................... 8

8.0 CLAIMS............................................................................................................................ 9

9.0 DOCUMENTATION.......................................................................................................... 9

10.0 DOCUMENT MANAGEMENT........................................................................................10

11.0 NOTICES OF CLAIMS...................................................................................................11

12.0 WHAT IS A DISPUTE.....................................................................................................12

13.0 WHAT IS A CLAIM?.......................................................................................................12

14.0 COMMON-LAW RIGHTS...............................................................................................12

15.0 TIMEOUS COMPLETION OF THE WORKS..................................................................13

16.0 DAMAGES..................................................................................................................... 13

17.0 THE OBLIGATIONS OF THE CONTRACTOR...............................................................14

18.0 TIME-BARRING.............................................................................................................15

19.0 CONTENT OF THE CLAIM............................................................................................16

19.1 Delay statements...................................................................................................18
19.2 How to avoid claims...............................................................................................19

20.0 CLAIMS RESOLUTION..................................................................................................20

20.1 Consensual and Non-Binding ADR........................................................................20
20.2 Formal And Final Traditional Dispute Resolution...................................................21
20.2.1 Litigation..............................................................................................21
20.2.2 Arbitration............................................................................................21

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Section 5.0 (1) - Project Contract Management. 3rd ed. January 2002
1.0 A GUIDELINE TO GOOD CONTROL AND MINIMISED CLAIMS

The basis for a good contract administration process is:

 Competent team
 Early identification of scope
 Appropriate engineering
 Predictable start up
 Use of Quantity Surveyors
 Partnering with and trust in the Contractor
 Agreement on definitions
 Freezing outputs as soon as possible
 Administering claims and potential claims as they occur
 Effecting change through notices within time barring limits

Avoidance as a measure for success.

Precaution is the most appropriate way to avoid claims and is the least costly. These
prevention factors are:

 Document control: “He who owns the documents wins the case.”. “Records are
more important than the Law.”
 Ensuring that the wording of any contractual document is clear; loose language
costs money. Law is about language not justice.
 Listing exact terms - Do not allow for reasonable assumptions or implied terms.
 Being aware of specification creep.
 Engaging the contract immediately - A letter of intent is only a request.
 Knowing every intent of each clause in the contract. The “contract’ must be the
Project Manager’s “bible”.

2.0 CONTRACT / NO CONTRACT

At the heart of understanding of why claims arise lies an understanding of the bargain or
contract that the parties have made. Many claims arise from a lack of understanding of
the contract. Before entering into any contract all parties should be quite clear as to the
terms under which they are contracting. This may sound trite but very often in
construction contracts the devil is in the detail and the detail is hidden away in a
confusing mass of specifications and other documents that are appended to an “order”
and are said to comprise the contract. How often it is that within those documents one
party is assuming an obligation that he did not know he had.

For this reason, it is important to remind ourselves of the basic principles surrounding
the formation of a contract and why it matters whether or not a contract actually exists.

The problems caused by ignorance of the basic concepts are many. It is a fact that
many of the problems with which a firm deals, whether the project is large or small,
engineering or building, are often found to have been caused by a lack of appreciation
of basic legal principles.

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Section 5.0 (1) - Project Contract Management. 3rd ed. January 2002
 On projects involving thousands and sometimes millions of rands, when a dispute arises
about payment, the first issue very often is to decide whether there was a contract and,
if so, what the terms of the contract were, if any.” As Judge A. N. Other said in
Company A vs Company B “Was there a contract between the parties and if so, what
were its terms?” It is remarkable that this question is probably the most frequent issue
raised in the construction industry.

In summary:
 There must have been, at an identifiable point in time, an intention by both
parties to make a contract.
 At that point in time, the parties must have been in agreement (ad idem) on all
the terms they regarded as being required, in order that a contract should come
into existence.
 At that point in time there must have been no other terms to be agreed in order
to make the contract commercially workable.
 There must have been some manifestation expressed with sufficient clarity to
indicate the acceptance by one party of the offer (or counter-offer) put forward
by the other.

In general terms, if a contract does not exist, the consequences are worse for the
client than the contractor.

In the absence of a contract, the contractor will be under no obligation to complete the
work. If the contractor is under no obligation to complete, they cannot be held
responsible for a delay in completion. However, as the contractor has provided a
valuable service to the purchaser, the law of restitution says that the client should pay
the contractor for that service on a quantum meruit basis.

3.0 VARIATION CLAIMS

The starting point for any discussion regarding variations is to ascertain what the
original works are. This ought to be easy but, very often it is not. The confusing mass
of specifications, which are part and parcel of every major construction project, means
that there is great scope for argument about what original works are and what varied
work is. This indicates a need to follow the correct contractual procedures when faced
with a piece of work that might be a variation.

The theory is simple. A client under a construction contract has no authority to instruct a
variation unless there is a specific provision in the contract permitting him to do so. If
he were to order varied work without a specific provision, he would be in breach of
contract. Similarly, the contractor’s primary obligation is to “carry out and complete the
Works” (or some such similar words). If he does anything other than the “Works” without
an instruction of the client, he will be in breach of contract. Furthermore if, without a
request from the client, or without the client’s knowledge, the contractor carries out extra
work, the client might not be under an obligation to pay for that extra work.

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Section 5.0 (1) - Project Contract Management. 3rd ed. January 2002
 If the works are, by their nature, defined clearly, the issue of whether there has been a
variation is likely to be less of a problem. It follows from this that certain types of
procurement are more likely to lead to disputes than others. A contract based on a
specification and drawings is more likely to give rise to a dispute as to whether the
works have been varied than is a contract based upon a fully measured bill of
quantities.

In general terms, it will usually be necessary for the contractor to show that there has
been a change to the client’s requirements to enable him to establish that there has
been a variation. If the contractor’s proposals change but the client’s requirements do
not, the client is likely to be able to argue that he has not changed his requirements.
Thus, from the contractor’s perspective, the more specific the client’s requirements, the
easier it ought to be to establish that there has been a variation. In contrast, the client
may wish to keep his requirements as wide as possible to make it difficult to argue that
there has been any change to them.

4.0 DELAY CLAIMS

Delay claims give rise to two key considerations. The first relates to what the
completion obligation is and whether it can be extended. The second relates to the
consequence of a failure to complete by the completion date. Typically, this gives rise
to the payment of liquidated damages. In concession-based contracts where the risk of
delays in completion will be passed as far as is practical to the concessionaire, the rates
of liquidated damages can be high and the mechanism for warning of potential delays
can be excessive. Higher rates of liquidated damages derive from the fact that the
concession is likely to be for a finite period and the consortia’s income stream will only
start to flow once construction has been completed. The liquidated damages will be
designed to compensate for the loss of income stream.

In the absence of an extension of time being awarded, there are two ways in which
contractors can look to attack an attempt to deduct liquidated damages. The first is to
establish that the liquidated damages provision is unworkable in some way. The
second is to demonstrate that the liquidated damages provision should be struck down
as a penalty.

It follows that if a contractor is unable to comply with his completion obligations because
of an act by the client e.g. through delays in issuing information or by issuing variations,
the client will have breached the implied term. Should this happen, in the absence of
an ability to extend time, the time for completion will fall and will instead be replaced by
an obligation on the contractor to complete within reasonable time. This is known as
time being “at large”. In addition, if the time for completion has lapsed, then usually the
liquidated damages provisions will become unworkable, as they will commonly depend
on a fixed completion date for their existence.

It follows that the best way to demonstrate that the liquidated damages provision has
become unworkable is to establish that the contractor has been delayed by a default of
the client and that the contractor has no power to extend time in respect of that default.
Consequently, instead of a narrow extension of time provision transferring the risk of
delay to the contractor, the opposite can be the effect. Thus, the best extension of time
provisions are those which are widely drafted.

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Section 5.0 (1) - Project Contract Management. 3rd ed. January 2002
 They should include a provision entitling the client to extend time in respect of delay
caused by any act or default on his part. In this way, it can be seen that extension of
time provisions exist for the protection of both the client and the contractor. The
contractor is protected against the imposition of liquidated damages. The client is
protected against the possibility that the entire liquidated damages provision might fall
away because he has caused delay to the contractor in circumstances where he cannot
extend time because there is no applicable extension of time provision.

5.0 DISRUPTION CLAIMS

Disruption claims are usually monetary claims which arise in circumstances where part
of the works has been disrupted without affecting the ultimate completion date of the
project. The issue which arises most commonly in relation to such claims is how
disruption is proven? In such claims a contractor’s costs will have “thickened” rather
then prolonged and it is notoriously difficult to demonstrate the link between cause and
effect.

These difficulties are compounded where there have been a number of disruptive
events and the precise individual effect of each cannot be ascertained. In such
circumstances it may be that a Plaintiff may be permitted in law to make a ‘global’ (or
rolled up, or composite) claim which incorporates all the disruptive events and uses
them to justify a quantum claim. The difficulty is what happens if it can be shown that
one or some of the disruptive events had no effect?

Even in a global claim the claimant must establish a link between breach of contract and
loss, i.e. he must demonstrate a link between the disruptive events and progress. If
this can be done the challenge will then be to demonstrate that the level of disruptive
events justifies the quantum claimed. In practice, how well the claimant meets this
challenge will depend largely on the quality of records. Very often in such cases
witnesses will remember the incidence of disruptive events but will not remember the
effect. By way of example, a witness will probably remember why the absence of a
particular piece of information stopped work in Area A. That is evidence of a disruptive
event but it is not evidence of the effect of that event. The effect might be felt
elsewhere on the site away from the event that stopped work, i.e. in Area B to where the
gang was moved when it was discovered that they could not work as planned because
of the absence of information. There will be no cost in Area A because no work was
done. However, there might be inefficient working in area B; it is that inefficient working
that is evidence of disruption.

In such incidences, the accuracy and quality of records becomes extremely important.
Not only must there be an effective means of recording the incidence of disruptive
events but records must be kept of what was the effect of those events, i.e. what they
meant in terms of disruption. Site diaries are plainly terribly important, although in a
heavily disrupted site they are often understandably overlooked. Allocation sheets for
sub-contractors are also vitally important. They should show the work a sub-contractor
was undertaking and the whereabouts of that work on site. If done properly a useful
comparison can be undertaken between actual resources and planned resources,
assuming there is a resourced master program with which the as built can be
compared.

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Section 5.0 (1) - Project Contract Management. 3rd ed. January 2002
6.0 ACCELERATED CLAIMS

Accelerated claims are one of the most problematic areas. This is particularly the case
if the contract between the parties does not provide for acceleration and they have
instead entered into their own ad hoc arrangement. In projects where the contractor is
in contract with a concessionaire whose income depends upon the completion of
construction, the pressure to accelerate can be immense. The problems arising from a
badly thought out acceleration agreement can be equally immense.

Acceleration is an expression used to describe a situation where a project is in delay

and efforts are made by a contractor to regain lost time. Acceleration arises in a
number of ways. It may be voluntary, i.e. a product of the contractor’s own initiative or
directed by the client pursuant to either an express provision of the contract or an ad
hoc arrangement. Typically, acceleration involves the contractor incurring additional
costs above those which he would ordinarily be expected to expend in satisfying an
expressed or implied obligation to mitigate the effects of delay.

Whether entering into an ad hoc arrangement or agreeing a provision for inclusion in a

contract, provision should be made for the following issues:
 date by when completion is required;
 the standard required for the works on completion. Sometimes the client will be
more concerned with completion of one aspect than another;
 the resources to be expended in the acceleration;
 the payments to be made and on what conditions;
 the consequences if the accelerated completion date is not achieved;
 whether there needs to be “back to back” arrangements with sub-contractors
and/or members of the professional team.

Additionally and most importantly of all consideration MUST be given to how the
acceleration agreement interfaces with the existing contractual obligations and what
happens if disruptive/delaying events occur AFTER the date of the acceleration
agreement. There must be clarity as to what is included within the acceleration
agreement.

Sometimes it will be plain that there is an acceleration agreement and that the
contractor should put forward any claim that he has on that basis. However, there may
be an alternative argument in circumstances where the existence of an acceleration
agreement is not so clear. The contractor’s primary obligation is to complete the Works
by the completion date as defined in the contract. In the absence of an extension of
time, the contractor’s obligation remains to complete by the date in the original contract.
That being the so, it is quite proper for the contractor to engage such resources as are
necessary to achieve that date. If the completion date is achieved, then the contractor
has a claim for disruption in relation to the extra resources expended. In such
circumstances there is, arguably, no need to establish the existence of an acceleration
agreement.

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Section 5.0 (1) - Project Contract Management. 3rd ed. January 2002
7.0 NOTICES

The following questions arise when considering notices:

 What constitutes a notice?
 To whom (and where) should the notice be sent?
 What information should the notice contain?
 When should the notice be sent?
 Is the notice a condition precedent to an entitlement?

It is the fifth question which taxes claiming parties the most. All too often the notice
provision are scrutinized only when the project has overrun or gone over budget and the
contractor is trying to back fit the documents that exist to the notice provisions. In
projects where the client is anxious to transfer the construction risk as far as he can to
the contractor, it is to be expected that the contract will contain harsh notice provisions
the purpose of which is to ensure that the client is protected against surprises. It is to
be expected that the client will rely on those provisions. For example:

 “Notification under sub-clause 15.2 shall be made within 14 days of the

commencement of the relevant event constituting the cause of the delay.
Failure by the Contractor to give the requisite notice shall preclude him from
claiming at any subsequent stage an extension of time on account of that
event.”
 “Upon it becoming reasonably apparent that the progress of the works is
delayed, the Contractor shall forthwith give written notice of the cause of the
delay to the Architect, and if in the opinion of the Architect the completion of the
Works is likely to be or has been delayed beyond the Date of Completion …”

Company C vs Company D (1941)

In this case, the contract specified that the contractor would not be re-imbursed for
extras unless they were requested in writing. The contractor performed extra work
pursuant to a verbal request as opposed to a written one. The court held the contractor
was not entitled to payment for extras, as written request had not been obtained.

Alpha vs Beta (1978)

The contract required that notice of an intention to claim additional payment in respect
of extra work had to be given as soon as reasonably practicable. Notice was not given
in time. The court held that the contractor had no right to claim additional payment.

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Section 5.0 (1) - Project Contract Management. 3rd ed. January 2002
8.0 CLAIMS

Claims are inevitable on construction contracts of any magnitude and must be

approached from a purely objective point of view.

A claim is the preparation and submission of a formal request under the provisions of
the contract or under common law for additional time or money arising out of
circumstances or events concerning the execution of the contract. Such requests must
be based upon the terms of the contract or upon the Contractor’s common-law rights.

It is important to remember that the onus of proof is on the claimant and all evidence
should be relevant and supportable.

Requests for ex gratia payments made for reasons of business policy are beyond the
scope of this discussion but should not be totally disregarded.

Most claims arise out of the Contractor being required, obliged or compelled to do work
which he had not tendered to do, or under changed conditions or circumstances, and of
which the Engineer or Architect (the Consultant) will not recommend or certify an
extension of time and/or reimbursement to the Contractor within the terms of the
contract, or to the extent to which the law provides.

The reasons for the Consultant’s refusal to recommend or certify reimbursement to the
Contractor as the contract provides are usually because of:
 his refusal to accept the work is other than what the Contractor tendered to do;
 his refusal to accept that the circumstances in which work was carried out are
other than the circumstances in which they were to be carried out;
 the fact that the Contractor’s interpretation of the contract is not accepted.

Claims also arise from the Consultant’s failure or refusal to recognise the Contractor’s
common-law rights.

9.0 DOCUMENTATION

Documentation includes the tender make-up, method statement, resource schedule,

construction programme, correspondence, records, diaries, minutes of site meetings or
other evidence which supports the existence of the grounds of the claim, proves its
validity, and provides the facts upon which it can be evaluated.

The drawing register is usually also prepared and maintained by the Contractor’s
technical staff, identifying and recording the date of receipt of drawings, and where the
dispute involves delay arising from issue of information, it becomes a vital record.

In the normal day-to-day planning, organisation and execution of a contract, discussions

take place between staff of the Consultant and the Contractor respectively. Where
these discussion centre on the work being done, the effect may be an instruction, which,
in well-organised circumstances, is confirmed by an official instruction but is not
necessarily dealt with as such at the time of the discussion. These discussions,
whether by telephone, e-mail or otherwise, should be recorded in a file note pending

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Section 5.0 (1) - Project Contract Management. 3rd ed. January 2002
 receipt of the formal instruction from the consultant or formal confirmation of the
instruction from the Contractor. The authority of the person issuing any instruction
should be verified as to its nature and magnitude as a matter of routine.

The site diary is usually prepared and maintained by the Contractor’s Site Management.
It forms a daily record of events, such as resources employed, production achieved,
weather conditions, and any and all factors which have affected the day’s operations
and activities. The site diary is a very useful document, which can also be utilised to
record verbal instructions, etc., which are then confirmed.

Where claims are based upon time and entitlement to additional time, delay statements
are extremely important documents. They should be chronologically numbered, should
state the cause of the delay, evaluate the delay and record the effect on the planned
programme of completion; they should also refer to records or correspondence, drawing
receipts or other pertinent records for cross-reference purposes and substantiation.

Delay programmes should illustrate the anticipated planning of completion of the Works
(as set out on the contract programme) and each delay as set out in the delay
statements. Comparison of anticipated and delay programme planning demonstrates
the additional periods to which the Contractor is entitled, and further comparison with
actual progress will demonstrate the effectiveness of steps in mitigation of the delay or
measures to accelerate which have been adopted by the Contractor.

Fullest possible use of other forms of documentation should be explored. These may
comprise graphs, histograms, flow charts, or critical path diagrams, which are all
graphical methods aimed at illustrating the differences between the original planned
intention and the actual methods, resources, etc. utilised as a result of the events which
created the claim.

10.0 DOCUMENT MANAGEMENT

Any construction project generates vast quantities of original documentation, with the
inevitable number of copies.

The end result is numerous files and much duplication, all of which is of little practical
use.
Location of specific matters and documents is extremely difficult if not impossible, and
involves high man-hour input.

Perusal of the files to establish facts and formulate the claim, and preparation of
discovery schedules involves high costs. Access to this information is also necessary
for providing management information in the compilation of claims and in the conduct of
mediation, arbitration and/or litigation.

Various proprietary document management systems are designed to satisfy multi-

purpose user requirements and can be tailored to suit the individual needs of each
project. These should be discussed in depth and agreed with the client prior to any
work being undertaken.

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Section 5.0 (1) - Project Contract Management. 3rd ed. January 2002
 Briefly, the process involves systematic procession of the documentation, recording of
key data into a PC driven database, scanning of the documentation and filing of the
original hard copy in an easily retrievable sequence.

The process results in an indexed database which provides for the search of documents
relating to specific criteria, the listing of all such documents, a screen image of all
documents, a printout of any documents and creates specific purpose files.

The PC database can be put on to a network system so that all project personnel are
able to have access to the data. Such a network can be between two or more distant
points such as site office and project head office. Access can be restricted to a variety
of levels of use.

This obviates the necessity of numerous photocopies being held by all, the loss of
original documentation and excessive man-hours wasted on searching.

Quality assurance checks should take place throughout the process to ensure that all
pages are captured, readable on screen and that correct coding data is entered on the
database.

11.0 NOTICES OF CLAIMS

A ‘notice’ may be defined as the formal written documents required by the appropriate
Conditions of Contract to advise the Employer and/or its Consultant of the
circumstances giving rise to a claim.

The purpose of the notice is to enable the Employer’s Consultant to appraise the
situation and the problem concerned, to specify the form and nature of the records
required to be kept and to enable the evidence then available to be examined and
thereafter at the time it becomes available.

The timing of the notices required will be given in the Conditions of Contract and notice
of intention to claim is in most cases required as soon as the circumstances giving rise
to the claim occur. A claim may be disqualified if the necessary notification was not
given at the correct time.
It is good practice that regardless of acceptance or rejection, once the formal notice of
intention to claim has been submitted in accordance with the contract, estimates of the
amount due arising from the notified claim be included in each and every Interim
Valuation or Application for payment. As events or circumstances demand, these
estimates should be up-dated where and when necessary. The recognition of claims
as they occur during the contract and their treatment, as far as possible, as
measurement items will avoid defences such as time-barring, waiver and estoppel.

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Section 5.0 (1) - Project Contract Management. 3rd ed. January 2002
12.0 WHAT IS A DISPUTE

The notice of claim will, if rejected, form the basis of the dispute. There must, therefore,
be a proper claim before there can be a dispute.

13.0 WHAT IS A CLAIM?

In ABC Geo-Technical Engineering (Pty) Limited v Parastatal, the court stated that it
was obvious that it must be the same dispute that would be the subject of the
arbitration.

‘Seen from a different angle, an arbitration presupposes an enquiry in the

nature of a judicial enquiry. It furthermore assumes that the arbitrator will make
an award and that the award will be definitive of the rights and duties of the
parties. In other words, the ‘dispute’ which the engineer is required to adjudicate
upon must be a dispute as understood in legal parlance: it must have legal
consequences. It is not a dispute in the air. It requires a formulation of some
exactitude, consisting more or less of a cause of action or, in Lord Denning’s
words, a ‘claim’ .’

ABC’s claim failed because, in spite of ABC’s denial in its affidavits, it was cleart to the
court that the dispute or claim presented to the engineer for adjudication was not the
same as that upon which its application to court was based.

Essential issues such as causation had not been placed before the Engineer. The
court states that ‘in the axils of such adjudication the application is doomed’’.

14.0 COMMON-LAW RIGHTS

In A Building Ltd v Ministry Department B, it was stated by the Appellate Division that:

“A contractor who did not wish to cancel the contract and who applied for an
extension of time on the grounds of the client’s breach of contract would not, of
course, be precluded from resorting to his other common-law remedies, more
especially his claim for damages.”

Unless expressly excluded, the Contractor’s common-law rights therefore remain, in

addition to the remedies granted to him under the contract. A claim may accordingly be
based upon a common-law right and the absence of a clause upon which to base a
claim does not necessarily invalidate the claim.

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Section 5.0 (1) - Project Contract Management. 3rd ed. January 2002
15.0 TIMEOUS COMPLETION OF THE WORKS

If the contract has not stipulated a completion date, the works have to be completed
within a reasonable time. If the Contractor fails to fulfil his obligation timeously the
Employer is entitled to recover damages caused by delay. Such damages may
comprise of loss of profit or expenditure incurred in securing other accommodation. In
the absence of a forfeiture clause or special circumstances (time being of the essence),
making the delay a fundamental breach coupled with a notice of recession delay in
completing the works timeously does not simply entitle the Employer to cancel the
contract. If a Contractor sues an Employer for payment of the contract price and it
appears that the Contractor failed to complete the works on time, the Contractor does
not have to prove that the Employer suffered no damages on account of such late
performance. It is for the Employer to prove such damage. The Contractor will,
however, not be liable for damages if he was prevented from completing on time due to
vis major or causus fortuitus or delay caused by the Employer himself.

16.0 DAMAGES

In South African Law an innocent contracting party is entitled to claim damages from the
defaulting party so as to be put in the position in which he would have been if the
contract had been properly performed (his “positive interest”). This rule is however
subject to the limitation that the defaulting party is not liable for special circumstances
which would not have been contemplated or reasonably foreseen by the parties at the
time the contract was made.

The amount of damages that the innocent Contractor is entitled to recover will be the
unpaid balance of the contract price less the amount it would have cost him to complete
the contract or in other words, his loss of profit.

The Contractor will not be entitled to his loss of profit, or the full amount thereof, if he
could and should have mitigated his damages.

Should the Contractor accept the Employer’s repudiation of his obligations, and should
the Employer thereafter request the Contractor to complete the work he will ordinarily
have to do so in order to mitigate his damages.

The onus to prove that the Contractor did not mitigate his damages will rest upon
the Client.

If at any time of cancellation the Contractor has not been paid for certain work which
has already been executed, payment of such work can be claimed in terms of the
contract since those rights accrued prior to the cancellation.

In cases where a breach by the Employer does not amount to repudiation of the
contract, or where, even though it does amount to a repudiation, the Contractor does
not elect to cancel the contract, the Contractor is nevertheless entitled to claim
damages which he suffered. This position would frequently arise where the Contractor
has been delayed in proceeding with the contract work. He would then be entitled to
an award for damages so as to place him in a position as if the delay had not occurred.
Some of the categories of damages that he would be entitled to claim are as follows:

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Section 5.0 (1) - Project Contract Management. 3rd ed. January 2002
  Additional On-Site Expenses: For example, extra supervision and security
expenses, extra expenses in connection with all plant including scaffolding,
extra water and electricity charges and extra costs incurred in providing on-site
accommodation, storage and screening. Most of these items would fall within
the preliminary and general section of the bill of quantities;
 Rises in Costs of Labour and Materials: This may be claimed when there is no
suitable price adjustment or escalation clause incorporated in the contract;
 Standing Time of Labour and Plant It would depend upon whether the
Contractor would be able to mitigate this loss by re-organising his labour force
and equipment;
 Additional Financing and Insurance Costs; This could be part of the preliminary
and general items. It can also include interest on the late payment of retention
monies and extra expenses for insurance and sureties over a longer period of
time;
 Loss of Profit and Off-site overheads: The Contractor’s resources could have
earned profit elsewhere. Once again this claim may be mitigated by re-
organisation;
 Sub-Contractors: In certain cases where an Employer’s delay has caused loss
to a Sub-Contractor for which the Contractor is liable, the Contractor may claim
from the Employer the amount he has to pay to the Sub-Contractor as an
element of his damages;
 Claims of Disruption and Acceleration:
o Claims of these types are not easy to quantify. The difficulty arises
when there are concurrent delays, some due to the Contractor’s own
deficiencies and some due to the Employer’s breach. If the Contractor
cannot prove which of the several causes were responsible for the delay,
having failed to discharge the burden of proving loss due to the action of
the Employer, he may be disentitled to recover damages. See
Abrahamson, (4th Ed) p.370.
o Damages for delay arising out of the Employer’s breach of contract
should be distinguished from contractual claims for extension of time and
claims for additional payment once such extensions have been granted.
The latter will be dealt with hereinafter.

17.0 THE OBLIGATIONS OF THE CONTRACTOR

In deciding whether the Contractor is in breach of this obligation much will depend on
the type of contract that the parties entered into. If it is an entire contract, then unless
the contractor completes the work as defined, he will be in breach and not entitled to
payment. This harsh rule has been modified to a certain extent in the South African
law by the well-known Appeal Court case Alpha Tooling v Beta Precision Engineering.
A Contractor would be entitled in instances where he failed to comply with or complete
the contract to claim a “reduced contract price” provided he can prove:

 that the Employer has utilised the work which he has executed;
 that circumstances exist which would allow the court to exercise a discretion in
his favour to permit him to recover; and
 the amount which he should so recover taking into account the costs which it will
require to rectify his defective performance.

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 The practical effect would be that the Employer who utilised the work as done would be
placing himself in a position of having to tender a reasonable amount when sued by the
Contractor with the risk of being held liable for litigation costs if the tender proved
insufficient. The Appeal court specifically decided that terminology such as “quantum
meruit” and “unjust enrichment” should be avoided in the future and reference should
only be made to this aforesaid ‘reduced contractual price” claim. It is often difficult to
establish whether work which the Contractor objects to execute, forms part of the
original contract or not. If the contract is a schedule of rates contract then the mere
increase of quantities will not justify the Contractor’s refusal to execute such work on the
basis that such work is extra or outside the original scope of works.

Indispensably necessary work expressly or impliedly included in the contract and work,
which is contingently necessary to achieve completion, will be part of the original
contract.

In principle if the contract is a pure bill of quantities contract then quantities beyond a
reasonable limit ought to be outside of the contract and the Contractor would be entitled
to refuse to execute such works without a variation order or agreement as to extra
payment.

18.0 TIME-BARRING

The general purpose behind time-barring clauses is to compel the parties to give notice
of the possibility of claims for additional costs timeously in order to make it possible for
the parties to investigate the matter at the time when matters are still fresh in the minds
of the people concerned and the records and documentation are available for inspection
and adjudication.

In regard to many of the time-barring provisions in the extension of time clauses it is to

be noted that these clauses stipulate that a claim is to be submitted within [28] days
after the occurrence or “as soon thereafter as is reasonable”. In regard to inclement
weather, it is not difficult to understand that notice can be easily given within the period
of [28] days after occurrence. However, in regard to extra work or where latent defects
exist in free-issue materials, it is not always easy or possible to determine whether
additional time is to be required or not. In this regard, the parties should adopt a
reasonable attitude as published.

“Certainly an Architect, Engineer or Quantity Surveyor would be in some

difficulty in rejecting a claim known to have substance and good cause solely on
the ground that it was one day late or two days or a week perhaps. Of course
he would have to comply with such conditions but he might feel obliged to report
to the Employer what he considered the position to be and the legal and
commercial considerations involved in rejecting it, and possibly recommend that
legal advice be sought.”

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 In regard to time-barring provisions for claims in terms of the variation clauses it should
be noted that it has been decided that this type of clause is often worded in such a way
as to refer to the timeous submission of such claims for interim payment certificate
purposes only. This time-barring provision would not preclude the Contractor entirely
from claiming at the end of the contract for certain extras only an indication of an
intention to claim with a brief statement of the nature thereof without going into details.

Where the terms of the contract are explicit, they cannot otherwise be ignored because
they will be strictly enforced by the contracts and the burden of proving its case, rests
upon the plaintiff. In A Ltd v B Projects (Pty) Limited, both parties had concluded a
building contract in which clause 5 provided, inter alia that:
 A Ltd could increase the scope of the work by giving written notice of changes;
 B Projects was obliged to submit to A Ltd a detailed take-off with supporting
calculations and pricing for such changes together with the extra or reduced
time required for the performance of the work as changed;
 B Projects was not to perform such changes until A Ltd had approved in writing
the pricing and time adjustments for such changes;
 Where A Ltd had not yet approved in writing, the pricing and time adjustments
for such changes submitted by B Projects but had nonetheless instructed B
Projects to perform the changes prior to such approval, B Projects was obliged
to comply strictly with the requirements of clause 23 of the contract, which
provided, inter alia, that, ‘subject to clause 5’ the ‘contractor shall give (A) notice
within seven days after the happening of any event which the contractor
believes may give rise to a claim by the contractor for an increase in the contract
price and/or in the time for completion ..’.
 B Projects instituted action in Provincial Division for various sums of money
allegedly due under the contract by reason of the scope of work having been
increased. It did not allege in its particular of claim that it had duly complied
with the above provisions of clauses 5 and 23 of the contract. The Transvaal
Provincial Division held that B Projects had no claim arising from changes to the
scope of the works unless it was brought within the provisions of clauses 5 and
23 (at 137F); that, in order to disclose a cause of action, it was necessary for B
Projects to allege in its particular of claim that those provisions had been
complied with; that there was no basis for the argument that the onus was on A
Ltd to plead and prove non-compliance with clause 23 (at 139J); and, as B
Projects had not pleaded that it had complied with clauses 5 and 23, the
exception raised informally had to be upheld and the relevant paragraphs of the
particulars of claim struck out.

19.0 CONTENT OF THE CLAIM

The linkage between cause and effect must be shown and quantification must flow from
the effect so the submissions should be as complete as possible, covering all the facts
and circumstances and all the consequences which give rise to the claim.
Notwithstanding this requirement for completeness, however, a series of submissions
may be prepared and submitted from time to time, covering all the facts related to a
single event or series of events and circumstances or setting out findings as
investigations unfold, provided care is taken to make it clear to the Employer and/or his
consultant what the submission covers and where (and why) it is incomplete. Where a
submission covers a consequence which increases due to the passage of time before

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settlement (e.g. a dispute related to recovery of increased costs on outstanding money
claimed) the evaluation should be up-dated until such time as the circumstances giving
rise to the claim cease to exist and/or the claim is settled.

The law of evidence is part of the law of procedure in its widest sense;, that is, the law
governing litigation and the rules of evidence relating to and regulating the manner of
proof of facts in a court of law. What has to be proven in any given issue and by whom
is laid down by substantive law. The burden of proof is on the claimant, in that he must
show, on a balance of probabilities, that the facts which he alleges have resulted in the
effects for which he claims re-imbursement.

The cause-effect matrix is a useful analytical tool for demonstrating graphically a

hierarchical analysis of the multiple cause/effect relationships between primary causes
and final results in a number of different scenarios. Typically, when people think of
organizational matrices, they think of a chart with one variable along the x-axis and
another along the y-axis. However, such a simple two-sided matrix cannot deal
effectively with even the simplest relationship in construction. Take for example the
simple relationship between an event and whether it is excusable, excusable and
compensable or neither. In Figure 1 (below) there are three sides, but the figure could
easily have been expanded to use more if the various conditional cases had been taken
into account.

The quantification of the re-imbursement must also be particularized by pricing each

effect individually, that is, cost must be attributed to individual items. Where particular
quantification is not possible, the courts have allowed “global claims”, but only under
very limited circumstances. A clear distinction must be drawn between not being able
to separate the costs of a specific delay for which liability has been proved, and not
proving liability for the various causes of delay. “Global claims” are permissible only
where it is impossible to quantify each effect individually. The linkage between each
cause and each effect and liability for each cause must always be proved. “A
competent presentation requires a well thought out, comprehensive, accurate and
quality assured system of recording events in a time frame, as well as an accurate cost
analysis”. In preparing a claim, the claimant must put in a concerted effort at the
beginning of his claim to identify each breach of contract and each allegation for
negligence, the effect of such breach of contract or negligence, and its quantification in
money or time or both. The Contractor must constantly appraise the progress of the
work in relation to the planned progress and, once there is a deviation, he must go
through the same logical procedure that is required for the presentation of a pleading.
He must
describe clearly the change in work or performance for which compensation or relief
from penalties or damages is required;
identify with precision when that change became apparent;
establish the effect of the change on a duration of all affected activities by reference to
the resources planned in relation to the resources used or expected to be used; he must
establish the financial effect of the change and provide documentary evidence to
substantiate the calculations of both time and money.

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In presenting a claim, it is equally important for the Contractor to be able to distinguish
clearly between the effects of disruption which delay progress or cause loss of
productivity, and delays in progress which result in delays in completion, extensions of
time and/or extended overheads. Disrupting events and delay events are often
confused. To demonstrate that a disrupting event is also a delaying event, there must
be evidence that the disruption extended the period of completion of an activity that is
on the critical path. Nothing less will suffice for a claim in respect of extended
completion.

To support an allegation that a change in an activity’s planned completion date has

resulted in delay to completion, calculated durations and logical links attributed to the
activities in Critical Path Method (CPM) form must be shown before any activity on the
bar chart. Where claims for disruption are involved, the claim either revolves around
compensation for increased site preliminaries (in which case the Contractor must be
able to show that the cost of specific site preliminaries or head-office overheads has
been increased directly as a result of the events specified), or it revolves around loss of
productivity (in which case the Contractor must be able to show that the degree of
productivity that he expected to achieve, based on the contract specifications, was
reasonable in the first place, and be able to compare that with the productivity actually
achieved in the light of the disruption which he claims has caused the difference).
Clearly the proof required in relation to the different types of relief claimed is quite
different. It is therefore evident that a clear understanding of the nature of the loss, or
expense, or delaying event which gives rise to the damage suffered is crucial in being
able to clearly explain, with appropriate documentary evidence the nature of the
compensation being claimed as a result of the event alleged.

Where the Contractor is required to prepare a quotation for the probable effect in time
and cost of an event which has not yet occurred or which has not fully run its course,
special difficulties may be encountered. The purpose of the quotation for the time and
cost of such an event is to shift risk of the outcome from the Employer to the Contractor.
Unless the Contractor can do so with some confidence, then the Contractor should
qualify his estimates with an appropriate proviso.

19.1 Delay statements

As stated above, where a claim is time-based and comprises a formal request for
an extension of time for completion, delay statements are essential documents.
Where there is more than a single cause of delay, each cause must be covered
on a separate delay statement. Where there is any question of contention as to
liability for delay or where separate causes of delay are concurrent, the delay
statement should be endorsed and the issue of concurrency dealt with.

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Section 5.0 (1) - Project Contract Management. 3rd ed. January 2002
 Figure 1 – Simple cause and effect matrix

Design errors 
D’s changes 
Bill errors 
Bad weather 
Defective work 

Neutral event

D’s default

CA’s default
C’s default

QS’s default
caused by result in

  compensation

  no compensation
    extension of time
 no extension of time
Key to Diagram: C: Contractor
CA: Contract Administrator
D: Developer / Client
QS: Quality Surveyor

19.2 How to avoid claims

What is meant by document management?

 Documents are defined as all letters, faxes, e-mails, programmes,
drawings, designs, calculations, minutes of meetings, notes of telephone
conversations and so on produced during the life of the project.
 Control of all documentation produced on a project in a manner that gives
instant access by all relevant personnel while

What is the output of a document management system?

 An electronic or searchable database with links to electronic copies of all
documents
 Immediate access by all relevant personnel
 Safely stored but easily retrievable original documentation
 Improved communications between personnel
 Improved use of the body of knowledge
 Avoidance of duplication
 Minimal photocopying
 Access to individual documents (down to page level) controllable retaining
originals and without creating multitudinous file copies

How is this achieved?

 Computer network between office & site, and maybe to main contractors
 Electronic capture of all documents
 Building of a database & where necessary scanning of documents as the
documents are generated or produced
 Archiving of originals as soon as possible
 Frequent update of database to all network servers

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Section 5.0 (1) - Project Contract Management. 3rd ed. January 2002
  Managed efficiently & rigorously
 Consistency and quality maintained
 Control and timely passage of information
 Decisions based on fact rather than fiction
 Logistics
 Claim proof or dispute capability

How does this prevent claims or assist in proving/repudiating claims?

 More effective and easier management of the project
 Easier to prevent situations arising due to better document control
 Pertinent history is easy to find and document
 Case is built on substantiated facts
 Documentation is available to substantiate a case

20.0 CLAIMS RESOLUTION

Claims resolution can be divided into three distinct areas:

 Consensual and Non-Binding Dispute Resolution: “Alternative Dispute
Resolution (ADR)” i.e. where the parties come to their own resolution of a
dispute, perhaps with the aid of a neutral third party. This resolution is not
binding until set out in an executed settlement agreement.
 Mandatory and Temporarily Binding: i.e. where disputing parties are obliged
to take their disputes to a third party who performs a quasi-judicial role under
a power given to him in a contract or perhaps by statute. The finding of the
third party is binding on the disputing parties until reviewed by a higher
authority e.g. statutory adjudication.
 Formal and final: i.e. where a dispute is referred to a tribunal under a term
in the contract for a binding award (arbitration); or where the parties have
recourse to the Courts seeking a binding judgement (litigation).

20.1 Consensual and Non-Binding ADR

ADR is a generic term, which is used to cover a variety of different methods of

claim resolution. The common theme of such methods is that the resolution
arrived at is consensual between the disputing parties and is non-binding.
Neither party will have a right of redress should the other back out of any
proposed resolution unless the resolution has been formalised in a binding
settlement agreement signed by both parties.

ADR is frequently employed by disputing parties prior to and as an alternative to

more traditional methods of dispute resolution. If it proves to be unsuccessful, it
is likely the parties will be forced to employ more formal, adversarial methods of
dispute resolution.

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20.2 Formal And Final Traditional Dispute Resolution

20.2.1 Litigation
The most traditional way of resolving disputes is by recourse to judicial or
quasi-judicial tribunals. Quasi-judicial dispute resolution is normally
taken to mean arbitration, whereas litigation is recourse to the Courts.

Litigation involves the issuing of a Writ and Statement of Claim and the
serving of these documents by the Plaintiff on the Defendant. This
service begins a process of “pleading’. The Defendant must then enter
a Defence to the Claim made against it.

After close of pleadings, the often lengthy Discovery process is begun.

This would usually involve the exchange of all the parties’ documentary
evidence etc. which is relevant the material facts. The Court itself
issues “directions” to the parties so as to attempt to structure the
exchange of evidence between the parties and to smooth the way for
preparation for trial.

20.2.2 Arbitration

Arbitration is a process subject to statutory control whereby formal

disputes are determined by a private tribunal of the disputing parties’
choosing. Many commercial contracts now include an arbitration clause
which states that any dispute arising under the contract shall be referred
to arbitration. If a party then issues Court proceedings the matter can be
“stayed” to arbitration on application by the Defendant/Respondent.

Arbitration awards are final and enforceable by law.

Advantages of arbitration over litigation include the fact that arbitration

can be flexible and fast as there are no Court listing delays. The
contract may provide for the choosing and identification of the arbitrator,
and will very often provide that an expert in the particular field deals with
the dispute. This may mean that an arbitrator struggles less with any
technical difficulties than may be experienced by a judge.

Arbitrations and arbitration awards are also private and hence the
disputing parties can avoid any unwanted and adverse publicity. As with
litigation the costs will follow the event. However, any cost award made
by tribunal will be subject to an agreement reached between the parties.

“Sealed offers” in Arbitrations are a very similar technique to payments

into Court in litigation. If the Applicant fails to recover more than an
amount offered by a way of sealed offer, the tribunal will be made aware
of the amount of the sealed offer and split costs order will be made
whereby the Applicant will be responsible for the Respondent’s costs
from the date of expiry of the sealed offer.

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INDEX SECTION 5

Accelerated Claims.......................................................................................................... 7
ADR................................................................................................................................ 20
Alternative Dispute Resolution (ADR).............................................................................19
Avoiding Claims.............................................................................................................. 19
Cause & effect matrix.....................................................................................................18
Claim - definition............................................................................................................. 11
Claims.............................................................................................................. 3, 8, 11, 19
Claims Resolution.......................................................................................................... 19
Common-law Rights.......................................................................................................12
Content of the claim....................................................................................................... 16
Contract Conditions..........................................................................................................3
Contract Variations........................................................................................................... 3
Control.............................................................................................................................. 3
Damages........................................................................................................................ 13
Delay Claims.................................................................................................................... 5
Delay statements............................................................................................................ 18
Dispute........................................................................................................................... 11
Disruption Claims.............................................................................................................6
Document Management.................................................................................................10
Documentation.................................................................................................................9
Notices....................................................................................................................... 8, 11
Obligations of the contractor...........................................................................................14
Time-barring................................................................................................................... 15
Timeous Completion......................................................................................................12
Traditional dispute resolution..........................................................................................20
Variation Claims...............................................................................................................4

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