Claims Mgt - Copy

8/12/2019 Claims Mgt - Copy

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Claims Management


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Claims in construction contracts are inevitable, To tackle the problem ofthe claims effectively it is necessary for both sides to have a betterunderstanding of the basis and principles of contract and therefore of therights and obligations of the two parties.

It is necessary for professional representatives of both sides to have anunderstanding of business side of industry so as to appreciate thecircumstances in which the contractor conducts the risks in which he canproperly and contractually be expected to undertake and the financial

consequences if things go wrong.


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Disputes arise and result into claims due to various reasons in a constructioncontract.

1. Due to an unbalanced contract.2. Due to causes for which owner/ employer is responsible.3. Due to causes for which contractor is responsible.4. Due to causes beyond the control of both sides.

Due to an Unbalanced ContractBasic structure of contract is in favor of client and loaded against the

contractor.Risk is unilaterally transferred to one side.

Absence of Neutralization mechanism.Progress of project is not the basis of contract.

Due to Causes for which owner/ employer is responsiblePoor site investigation by the owner at the pre-tender stage.Delay in acquisition of land and delay in handing over the site to contractors in

time, including non-availability of sufficient work-fronts during theexecution of the project.

Delay in issue of drawings by the owner.Delay in issue of owner issue materials by the client.Delay in releasing payments leading to cash-flow problems to the contractors.

Organizational problems of the owner.


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Non co-operation from the owner/project authorities due to poor earnestnessin the public owner system.Co-ordination and managerial problems of the owner.Deviations on the agreed terms and conditions of the agreements by the owneror non-fulfillment of contractual obligations.

Delay in settlement of rates for extra items, additional items and revision ofrates.Poor quantity surveying by the owner at the time of tender and heavy increasein the quantum/scope of work.Delay in settlement of claims.Delay in arbitration proceedings during the execution of project.

Forcing the contractor to appoint a particular sub contractor for certainspecific works.Delay in completion of earlier stage contracts and hence a delay in handingover the site.Paucity of funds with the owner, leading to non-payment of bills and dueswhich leads to cash-flow problems for the contractor.

Delay in giving decisions other than above by the owner.


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Due to Causes for which Contractor is ResponsiblePoor rates quoted for a few or several or all items.Managerial problems of the contractor.Strikes, militancy of the labour, and other labour related problems in thecontractors organization.

Lockout by contractors.Delay in mobilizing the required resources in time.

Due to Causes beyond the control of both sidesForce majeure conditions like heavy rains, floods, snow, landslides, earthquake, etc.

Political problems, riots, bandhs, etc.Health hazards and non-availability of medical facilities.Engineering and technical problems not previously understood.Inter-state disputes.Obstruction by mafia-gangs.Law and order problems

Local problems, obstruction by local population and not employment from the owneror the contractor.Non availability of construction materials (cement, steel pipes, CGI sheets) in themarket.Non-availability of appropriate and adequate labour.


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Different Types of Claims

i. Contractual Claimsii. Extra Contractual Claimsiii. Quantum Meruit Claims

iv. Ex-gratia Claimsv. Counter Claims


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Contractual ClaimsThese are the claims, which arise out of the express provision of the particularcontract, for extra cost, expense and direct loss specifically provided as a remedyin the contract for breach of contract on the part of the party concerned.

Extra Contractual ClaimsThese claim as also known as common law claims. These claims are for damages forbreach of contract at common law.

Quantum Merit ClaimsProvide remedy for a person who has carried out work under the instruction of the

owner but no price has been agreed or where a new one has replaced originalcontract and payment Is claimed for work done under the substituted contract.

Ex-Gratia ClaimEx-gratia claim is one where no legal remedy is available to the contractor but ariseout of hardship. On the ground of equity or favour the authority concerned may in

certain circumstances consider that hC1rdship calls for mercy or moral liability.These claims are also called sympathy claims. Wherever such claims are to be givenit will be better if these are given during the currency of the contract so that themoney paid helps in improving the progress of the work.


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Counter ClaimsThe claims raised by the opposite party to counter the of the claimant iscalled as counter claims.


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Potential Heads of Claims In different claim

i. Late handing over of siteii. Variation in data/information supplied and that actually

encountered during execution.iii. Late supply of drawing and required Informationiv. Disruption/disturbance caused due to untimely instructions.v. Consequences of delays in decision on progress as well as cost to

the contractor.vi. Delay caused and extra expenditure incurred/loss suffered on

account of non-fulfilment of various other obligations on part ofemployer as well as contractors.


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PREPARATION AND PRESENTATION OF CLAIMS

Preparation Of the Claim

Burden of proofBasis of claimImportance of factsSupporting Evidence

Site recordsCorrespondenceRecord of site meetingsSite diariesProgrammes and progress schedulesPayments claimed and made


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In a situation where a claim is lost for direct loss and/or expense thein respect of a variation it will be necessary that It is supported calby the following :

1. Copy of an instruction for variation validly issued and acted upon.2. The date of issue and receipt of instruction relating to variation3. Brief on the nature of variation.4. The time at which it was necessary to carryout the work pursuant to the

variation instructions.5. Justification that carrying out of the variation instructions certainly

affected progress of the work.6. The extent of work, which got affected by implementing the variation

instructions.7. Proof that the contractor made a proper and timely application to the

engineer in respect of the direct loss and/or expense.

8. Substance supporting particulars and proof of direct loss and/ orexpenses suffered or incurred.


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Drafting of a claim

The claim should be written under the following three headings:a. Introductionb. Ground of Claimc. Substantiation of Claim.

IntroductionIn the introduction, brief contract particulars relevant to the claimand brief description of the situation leading to the claim" and

reference of the relevant correspondence/notices shall be covered.

Ground of ClaimReference of the relevant contract clauses which entitles thecontractor for the claim and where the contract clauses do not provide

any remedy, reference of the contract law section where the claim canbe legally justifiable and admissible.

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Substantiation of ClaimMany contractors generally follow the approach in substantiation ofclaims the same way as the claimants in Bruno Law v. US sand inMerton v. Leach, and many a potentially valid claim founders becauseof lack of proper substantiating evidence and the contractor's inabilityto (a) establish the direct link between cause and effect with regardto delays, and (b) provide sufficient particulars of the resulting lossand/or expense.

PROVING DAMAGES

NEGOTIATING SETTLEMENTi. Preparation before start of negotiationii. Timing the negotiation.iii. Strategy of negotiation and tactical check list.iv. Communication and bargaining position

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Strategy of negotiation and tactical check list.

The party best prepared can discuss its position with full confidence andknow where its stands as the negotiation if progress.

You must appreciate that negotiation are held in strange environments, sothere is a greater likelihood of unexpected occurring. Thereforepreplanning reduces these risks.

A checklist will help in evolving steps to be taken if problemsdevelopduring negotiations.

Th f ll i b i l d d i h h k li


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The following may be included in the check list:

Absorb all formalities to get the negotiations off in the right direction.Establish good feelings and trust among the parties before getting downto business.

All the issues should be covered in a planned manner during yourpresentations; otherwise if you forget to raise an issue after negotiationthis will destroy your integrity and good faith.

Prepare a list of items in advance which you can give away) aswell as a list of important items on which more concentration isnecessary.

Always anticipate trouble spots by planning for alternative

strategies.

N ti ti i it lf t A l d f i th th bit


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Negotiation is itself an art. As learned from various authors, the gambitssuggested are:

to make the other party appear unreasonableto place the other -party on the defence sideblame the third partywhere necessary temporarily walk out of the negotiationspose that you have little time to settle and would like to clear up things so

that you can catch your flightDon't give the impression that you are fully satisfied with the outcome,

andQuit when you are ahead.


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Documents

Claims Mgt - Copy