Construction Technology and Project Management - Construction claims, disputes and project closure.

1. CONSTRUCTION CLAIMS, DISPUTES
AND PROJECT CLOSURE
By
T . Srinivasa Rao

2.  During the execution of a project, several issues
arise that cannot be resolved among project
participants.
 Such issues typically involve contractor requesting
for either time extension or reimbursement of an
additional cost, or sometimes both.
 Such requests by the contractor are referred to as
‘claim’.
 f the owner accedes to the claim of contractor and
grants him extension of time or reimbursement of
additional cost, or both, the issue is sorted out.

3.  if the owner does not agree to the claim put out by
contractor and there are differences in the
interpretations, the issue takes the form of a
dispute.
 Claims are becoming an inevitable and unavoidable
burden in modern projects involving new
technologies, specifications and high expectations
from the owner.
 The claim mentioned above can also be put up by
the owner.

4.  It is, therefore, imperative for all the parties to be
fully acquainted with the procedures and systems,
including recourse to certain preventive actions as
found necessary and required.

5. SOURCES OF CLAIMS
 As mentioned, the claim may arise due to the
owner or the contractor. The claim may be on
account of any one of the following causes:
 There may be defects and loopholes in the contract
document. For example, the contract document may not
be clear, may have dual meanings at different places, or
may not have sufficient details.
 There may be delay in release of areas as per contract.
Besides, site conditions differ to a large extent from
those described in the contract document.
 The owner may desire to get the work done at a faster
pace than is required by the contract document.

6.  There may be delay in supply of power, water and other
materials from the owner.
 There may be hold on works due to delay in release of
drawings and other inputs.
 There may be delay in release of payments to the
contractor.
 The scope of work may be substantially modified by the
owner.
 There may be levy of liquidated damages (LD) on the
contractor. Other recoveries from bills may also lead to
contractor raising the claim.

7.  There may be delay on the part of contractor in
completion of works due to inadequate mobilization of
labour, material and plant.
 There may be loss of profit and investment to the owner
due to delays caused by the contractor.
 Construction claims can also arise on account of
inclement weather.

8. CLAIM MANAGEMENT
 The major issues in claims and disputes are
identification of issues and the party responsible for
the claim, and ascertaining the time and cost
impact of the claim.
 The party raising the claim has to notify the claims once
they have been identified.
 it is the responsibility of the party raising the claim to
substantiate the facts.
 Depending on the decision of the other party against
which the claim is made, the claim may be settled
amicably or it may take the form of a dispute.

9. CLAIM NOTIFICATION
 After it is established by the contractor that it is an
extra work, the contractor is required to inform the
engineer within the time frame stipulated and clarify
his intention to claim extra rates for the same. This
is very important because failure on contractor’s
part regarding this shall entail its rejection by the
engineer.

10. CLAIM SUBSTANTIATION
 The contractor has to fully establish the claim including his
entitlement under the contract, giving reference to the
relevant clauses.
 The claim is supported by necessary backup calculations.
 Backup documents like letters, vouchers and drawings
are also enclosed.
 For period-related claims such as extended stay costs
and interest on delayed payments, it is required to
revalidate the claim at periodic intervals and submit the
same to the engineer until the end of the relevant period.

11. DECISION OF ENGINEER/OWNER
 The owner/engineer is supposed to convey his
decision on the claim to the contractor within a time
frame specified in the contract.
 If the claim is not allowed, the same needs to be
stated along with reasons.

12. FURTHER ACTION BY CONTRACTOR
 The contractor has to refer the claim for
adjudication if provided, within a specific time frame
after receiving the decision from the engineer, if the
same is being disallowed.
 The adjudication process is carried out as per the
provisions set out in the contract.

13. GUIDELINES TO PREPARE THE CLAIMS
 It is always preferable to link the claim to
contractual provisions.
 Prepare the base for its establishment.
 Indicate intention and submit it within the time
frame provided in the contract.
 Submit with all backup documents, calculations,
etc.
 Be fair in projecting the figures and do not inflate.

14. DISPUTE

15.  Because of the uncertainties involved in a
construction project and the magnitude of funds
involved, it is only natural to have disagreements
between parties.
 most of such day-to-day differences are resolved
in an amicable manner
 However, it is some times not possible to resolve
disputes in such fashion.
 In such situation construction and legal laws
become helpful for resolving disputes.

16. “Technically, a dispute implies assertion of a
claim by one party and repudiation thereof by
another.”
 Thus, neither a mere claim without repudiation, nor
a pair of claim and counterclaim, can be called a
dispute.

17. CAUSES OF DISPUTES
 The geneses of many disputes often lie in the contract
document itself.
 It is often observed that tenders are hastily made and
sufficient attention is not paid to ensure that
 all the required information and details are appropriately
incorporated in the tender document
 the documents are internally consistent, i.e., there is no
contradiction in the provisions of general conditions, special
conditions and drawings
 specifications, where required, are available
 incompleteness, inaccuracy and inconsistency of
information are only part of the reasons for disputes in a
construction project.

18. CAUSES OF DISPUTES
 Incorrect Ground Data:
 Such data includes information about ground conditions,
depth of groundwater table, rainfall and temperature
data, availability of power and water, etc.
 The estimates of a contractor are based on the ground
data provided with the tender documents
 Any difference between the ground reality during
execution and the conditions provided in the contract
could easily be the reason for disputes

19.  Use of Faulty and Ambiguous Provisions and/or
Language in Contracts:
 The language of the contract should be clear and such that
it is not open to different interpretations.
 Use of ambiguous language and/or provisions could open
a floodgate of avoidable litigation.
 It is also important that the contract clearly lays down
specific procedures that are to be adopted in the event of
contingencies.
 absence of appropriate provisions to handle technical
inspections by the client or owner, or third parties, could
become a source for litigation
 ill-defined or a vaguely defined hierarchy of documents
that will be deemed to prevail in the event of a dispute
could be a cause for dispute

20.  Deviations
 The contract should be so designed that there are as
few extra items and/or deviations as possible.
 the scope of work in any contract should be
unambiguously defined

21.  Unreasonable Attitudes
 It should be borne in mind that in order to complete the work
professionally, it is important that the parties involved resort
to unilateral action to preserve an environment of mutual
trust.
 both the client and the contractor need to have a
professional approach to the project, including areas where
there could be disagreement on interpretation, etc.
 Measures such as suspension of the contract or invoking of
clauses related to imposition of liquidated damages should
be resorted to only in the most extreme cases.
 Delays in payment of bills should also be avoided to ensure
that the contractor does not get cash-strapped, which will
obviously affect his ability to perform.

22.  Contractor Being of Poor Means
 It is important that the contractor identified to do a job
possesses the required human, financial and technical
resources.
 In the absence of any of these, it is very likely that the
contractor will look for an escape route for leaving the
project, and may try to force a suspension or
determination (termination) of the contract, or take the
matter into arbitration/litigation to cut his losses.

23.  Unfair Distribution of Risk
 This could be a major reason for not only avoidable
litigation but also increase in the cost of the project.
 Indian contracts typically are heavily loaded against the
contractor, who obviously tries to cover the risks he is
‘forced’ to take by either hiking the rates, or taking an
approach of ‘crossing the bridge when we come to it’,

24. DISPUTE AVOIDANCE VS DISPUTE
RESOLUTION
 an appropriate strategy for dispute avoidance and
dispute resolution needs to be drafted, and put in
place even before the onset of works in a project.
 Given that the client or the owner usually takes the
lead in drafting contracts, the onus is largely on him
to ensure that both dispute avoidance and
dispute resolution are adequately addressed in the
contract.
 the important reasons as listed above are
appropriately taken care of, the possibility of
disputes can be largely minimized.

25.  Contracts need to be drawn up with a professional
mindset, and a fair distribution of risk between the
contractor and the owner.
 Special care needs to be taken in drafting dispute-prone
clauses and identifying potential neutral agencies, which
could be called upon to mediate any dispute.
 It may be considered advisable to provide for a binding
mechanism for alternate dispute resolution (ADR), which
could include constitution of dispute review board (DRB),
comprising persons drawn from the contractor’s and the
owner’s sides, which should meet periodically to review
any pending or potential dispute.

26. MECHANISMS OF DISPUTE RESOLUTION
 Apart from the normal legal process, emphasis here
is on the alternative dispute resolution mechanisms
generally available in construction contracts.
 Such mechanisms could include
 Negotiation
 Mediation
 Conciliation
 Arbitration

27.  Negotiation
 This could refer to a focused discussion on the dispute
among the engineers from all interested parties, with the
intention of resolving differences without the
involvement of third parties,
 this is an informal process in the legal sense
 if an agreement is reached through the process, it may
have the usual legal significance
 The negotiation process is fast and does not involve
additional expenses
 The discussions are held between the parties across
the table in a cordial and peaceful atmosphere.

28.  Mediation and Conciliation
 Mediation and conciliation are essentially an informal
process in which the parties are assisted by one or more
neutral third parties in their efforts towards settlement.
 These mediators do not sit in judgement but try to advise
and consult impartially with the parties with the object of
assisting in bringing about a mutually agreeable solution to
the problem.
 They have no power to impose an outcome on disputing
parties.
 Mediation and conciliation are voluntary in the sense that
the parties participate of their own free will, and a neutral
third party simply assists them in reaching a settlement.

29.  The process is private, confidential and conducted
without prejudice to any legal proceedings.
 The process is non-binding unless an agreement is
reached
 once an agreement is reached, and the parties have
signed it, the document (or the understanding) is as
binding as any other agreement would be.
 Although the process is largely informal, the following
could be identified as parts or stages in a mediation
process.
 In the pre-mediation stage, there has to be a basic
agreement among the parties to the mediation process,
including the identification of a mediator

30.  Mediation could be direct or indirect, and could involve
meeting(s) with parties, presentation(s) being made by
them, putting together of facts, negotiations and a
settlement
 mediation is an informal process, it has certain inherent
advantages over the more formal and legal process.
 it could be a lot less time-consuming
 involve lesser costs
 the outcome could be more satisfying to the parties
 It also opens channels of communication, and could
contribute greatly to preserving or enhancing a
professional relationship.

31.  Arbitration
 Arbitration is perhaps the most commonly used
mechanism for settlement of technical disputes in a
construction project.
 It is a quasi-judicial process to the extent that legal
protocol is largely observed
 In India, the Arbitration and Conciliation Act, 1996,
provides the legal framework for the arbitration process.
 In principle, collection and interpretation of evidence,
examination and cross-examination of witnesses, etc.,
are some examples of essentially legal matters

32.  Arbitrator should be able to guide and provide a
direction to the proceedings.
 As far as the number of arbitrators is concerned, much
like the judicial system, technical disputes can also be
resolved by single arbitrators, or a panel of several
arbitrators, and though the parties are free to determine
the number of arbitrators, it should be ensured that the
number is odd, so that a situation of a ‘tie’ in an award is
preempted.
 Often, one arbitrator each is nominated by the
contractor and the owner, and these individuals together
choose a third colleague (brother) arbitrator, to complete
the constitution of a bench of arbitrators.

33. CAUSES LEADING TO ARBITRATION
 Incorrect ground data
 Contracts containing faulty and ambiguous provisions
 Faulty administration of contract
 Deviations
 Suspension of works
 Contractor being of poor means
 Default by contractor
 No publicity involved
 Unreasonable attitude adopted by contractor
 Overpayment
 Levy of compensation for delay
 Delay in payment of bills
 Observation arising out of technical examination of works

34. ADVANTAGES OF ADR OVER LEGAL PROCEEDINGS
IN A COURT
 Alternative dispute resolution (ADR) has clear merits over
formal legal proceedings in a court of law, and is often
preferred over the latter.
 the process is less formal and quasi judicial which allows a
certain degree of flexibility and ease to the parties
 the arbitrator works on a lesser number of cases at any given
time, the settlement of cases is quicker and less expensive.
 place of a hearing are fixed based on the mutual convenience
of parties.
 Since the hearings are not open to the public, the overall
relationships are less affected.
 This aspect is important considering the fact that the parties
often want to avoid needless publicity as it adversely affects
their professional standing and relationships.

35. SOME DOS AND DON’TS TO AVOID DISPUTE
 When contractors are faced with lack of work and idle
overheads, they tend to under-quote and take up jobs at
cutthroat rates, which often land them in a soup. Thus, it
may be said that ‘contractors are so afraid of dying that
they commit suicide.’
 Good claims-management practice means:
 eliminating risks to the extent possible before entering into
contract, and
 during the course of work, to have variation orders settled
without elevating them to the status of claims.
 ‘Be careful how the law of the land interprets ‘no
damages clause’ in favour of the owner.’
 ‘Don’t throw good money after bad money in pursuing
bad claims.’

36.  ‘Don’t set up ego barriers in settling disputes during the
course of work.’
 Negotiated contracts have fewer claims than lump-sum
contracts. Most owners’ engineers tend to assume that
the contractors have covered all risks while quoting.
Highlight the areas not covered in the quotation.
 Study contract conditions and local laws thoroughly.
 Educate and train staff to act early at the lower level so
that disputes do not escalate and rise to the highest
decision-making level.
 Do not pile up claims to the end, which result in the
owner’s engineer also getting hemmed in. Settle them
early, before the amount looks big.

37.  Provide analysis and documentation early, and not at the end.
 Relate every claim to the project schedule drawn up in the
beginning. The base plan should be prepared right at the
beginning of the contract, and this should not be lost sight of
either mentally or physically. Keep a copy of the original schedule
in your cash box or bank locker so that it is not lost.
 Concurrent delays cannot be seen from bar chart. It is better to
use CPM network so that the floats are known. Do the CPM
network right in the beginning of the project. ‘You can build a
project without CPM but you cannot build delay-claim without it.’
Update the CPM network through periodical monitoring so that
you can prove delays, as the onus of proof is on the contractor.
 Claim is a three-legged table:
 Liability, which means contractual facts
 Causation, which means connection
 Damages, which means claims presented

38.  Submission of claims should be subject to IRAC test as follows:
 Issue—Are you entitled to recovery?
 Review—Contractual and factual right to recover
 Analysis—If necessary, get expert opinion and judgements available
 Chronology—Perspective to be drawn up
 Submissions should be understandable by the arbitrator. If available,
enclose periodical progress photographs, which can speak volumes.
 Do not lose credibility by submitting untenable or exorbitant claims.
 Have the submissions examined by your own people, or experts. ‘You
never have a second chance to make the first impression.’
 Have your claims settled during the course of execution when you have
leverage.
 While negotiating international contracts, suggest a formula from outside
the country, preferably a neutral country, to settle the disputes.
 Suggest a mediator from a neutral country to advise during the course of
contract

39. PROJECT CLOSURE

40.  This is the last phase of a construction project and
is as important as any other phase in the project.
 This is a process of completing and documenting all
the construction tasks required to complete the
project.
 A poor project closure (or close-out, as it is referred
to sometimes) leaves the client unsatisfied and may
prove to be a cause for not getting repeat business.
 Thus, project closure should be meticulously
planned.

41.  Project closure consists of a number of tasks.
 the project closure phase can be divided into the
following broad headings:
 Construction closure
 Financial closure
 Contract closure
 Project manager’s closure
 Lessons learned from the project

42. CONSTRUCTION CLOSURE
 This involves preparation of the project punch list,
which is a list of deficiencies identified during the
combined inspection of constructed facilities by the
representatives of client, contractor, consultant and
architect.
 During the regular inspection also, deficiencies are
reported to the contractor by the architect, the
consultant, and the client’s representative.
 The punch list is prepared usually towards the end
of the project when all major construction activities
are completed.

43.  The punch list is formally handed over to the
contractor, who takes steps to rectify the
deficiencies thus pointed out.
 There may be a situation in which some of the
deficiencies pointed out in the punch list may not be
part of the contract, and the contractor in such
cases usually asks the owner for extra payment.

44.  Certificate of Substantial Completion
 For a contractor, obtaining the certificate of substantial
completion is an important milestone event as it ends
the contractor’s liability for liquidated damages (LD).
 Substantial completion refers to a situation in which
the project is sufficiently completed.
 In other words, even though some minor deficiencies
may be present (all the deficiencies pointed out in the
punch list may not have been attended to), the
constructed facility can now be used for its intended
function.

45.  Certificate of Occupancy
 This is usually issued by the municipality under whose
jurisdiction the project location falls.
 It indicates that the constructed facility complies with the
entire codal requirement and is safe to be occupied.
 Fire- and elevator-related inspection by municipal
authorities is required before the certificate of
occupancy is issued.

46.  Demobilization or Release of Resources
 This consists of demobilization (release) of resources
such as staff and workers, and is as important as their
mobilization.
 The closure of office, removal of unused materials lying
in store, and disconnecting water, electricity and
sewerage lines are all part of the demobilization process

47. FINANCIAL CLOSURE
 Financial closure consists of writing applications for final
payment, release of various bank guarantees, and
settlement of any change order issued by the client.
 Final Payment
 The contractor has to apply for the release of final payment
after he has attended to all the deficiencies pointed out in the
punch list. The request for release of retention money is also
made.
 Release of Various Bank Guarantees
 During the course of execution of project, the contractor
submits a number of bank guarantees to the owner. A written
request is made to the client to release the bank guarantees.

48. CONTRACT CLOSURE
 Construction contract usually specifies the
requirement of contract closure and, thus, the
contractor should prepare a list of requirements for
contract closure as per the contract between him
and the owner.
 Submission of As-built Drawings
 During the project execution process, due to site
constraint there might be some changes in the as-built
facility from that as specified in the contract drawings.
 it is very important to prepare the as-built drawings by
estimating the actual dimension and condition of the
constructed facility.

49.  The as-built drawings of all the trades such as civil,
electrical and mechanical disciplines should be
compiled and submitted to the owner.
 Submission of Operation and Maintenance
Manual
 Modern projects involve a number of mechanical and
electrical appliances—for example, elevator, cooling
tower, air-handling unit and diesel-generator set.
 The manufacturers of these appliances provide
operation and maintenance manual associated with
these appliances
 These should be handed over to the owner.

50.  Submission of Warranties
 It is the duty of the contractor to collect all the
warranties and guarantees from vendors,
subcontractors and suppliers, and submit these to the
owner.
 Submission of Test Reports
 During the execution of project, a number of tests are
conducted on materials, appliances and systems that
are installed in the project.
 The test records need to be compiled and submitted to
the owner for future reference.

51. PROJECT MANAGER’S CLOSURE
 This includes tasks such as preparation of an as-
built estimate, analysis of actual cost versus
estimated cost, analysis of items where cost
overrun was high etc.
 conduct of meetings with external agencies such as
client, architect and consultants for understanding
their feedback on various project management
aspects.
 Meetings with own staff and subcontractor should
also be held to get their feedback on various
issues.

52. LESSONS LEARNED FROM THE PROJECT
 This involves collection and compilation of all records
associated with the project, and preparing archives of
important project records.
 It also involves documenting the important issues faced in the
project and their resolution.
 This helps in planning for such type of issues in the early
stages of other projects.
 This helps in planning for such type of issues in the early
stages of other projects.
 Did the project meet its requirements and objectives?
 Was the customer satisfied?
 Was the project schedule met? Was the project completed within
the stipulated cost?
 Was the level of achieved quality acceptable?
 Were the risks identified and appropriately mitigated?
 What better ways can be employed to improve project execution
and its management?

53.  THANKYOU