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Tuesday, May 21, 2024

Understanding a Bit About Construction Claims

In all honesty, management of construction claims is an indispensable process in modern day projects which involve a lot of resources and parties. One of the most effective techniques for averting claims in any project’s initial stages is stopping the root cause of all issues. Meaning, preventing these claims before they occur is one such method.

One such example is a well-defined technical specification for materials. This helps prevent disagreements related to materials quality during the execution phase.

Hence it is always easier and affordable to resolve issues between all parties involved in the initial stages. Once the construction project progresses, changes might become costly and difficult. Hence for such reasons, construction claims management requires effective methods and practices to be implemented for the complete project life cycle.

The phases of a construction project – what are they?

Industry experts reveal that there are four basic phases of a construction project which are:

  • The phase before tender creation: It involves making the concept design and documenting the contract.
  • Formulation of Contract: Preparing and submitting tenders and contract signing.
  • THe Construction: Making and executing the project.
  • Post COmpletion phase: Project’s completion.

Most of the disputes occur during the third phase. However, the root cause of most disputes stem from poorly managed tender and contract creation phases. Is it possible to prevent most claims through establishment of a proper contract management system? Yes indeed, industry experts agree with it.

The construction phase makes a lot of disputes unavoidable due to their nature. Clients, project teams, stakeholders and contractors each have their own particular set of expectations and needs for each project. This is why dispute avoidance in construction holds huge importance.

Hence the contract manager’s role is key towards documenting each important event regarding disputes and differences (in the third phase especially). Lets say, the process of handing over the land is complete. Thus all information related to the site, any dates plus agreements should be documented diligently.

A lot of people believe that construction claims stem from contractors’ needs, and they usually make claims against the client. Yet, claims might or might not originate from the client’s requirements.

Phases of managing construction claims

In the process of managing construction claims, there are two parties involved. One makes the claim and the other is preventing the claim at all costs. In construction, any additional work or anything extra in the contract is hence subject to a claim.

Here are the four categories of claim management phases:

  • Prevention.
  • Mitigation.
  • Pursuing Claims (Claim Identification and Quantification).
  • Resolution.

Prevention phase

The claim prevention phase begins with the initial documentation of the contract. The most effective way of preventing them is ensuring all documents, designs and plans are on the same route.

Mitigation phase

During the construction phase, it isn’t possible to avert all claims easily. But reducing their impact is possible. For instance, responsibilities which are properly defined, top-notch communication channels, effective risk management, and well placed decision-making can help project teams take the necessary actions.

The phase of claims pursuit

There are two key things in this phase namely identification of claims and their quantification. Identifying these factors helps claims get determined by analyzing contract documents. Among them are descriptions of extra work done, scope of work, contract terms and vice versa.

Claim quantification helps calculate the cost and time impact of claims. It does so by analyzing the schedule’s critical path and cost estimation documents as well.

Resolution phase

The resolution phase comes into action once the claim has been identified and quantified properly (with the assistance of quantum analysis). Negotiation between all parties is one of the best solutions towards claims being resolved. In case claims are not resolved through negotiations, the procedure will go to mediation, arbitration and litigation. 

Conclusion

Each construction company wishes to avoid construction claims. This is the reason they also wish to avoid bankruptcy. The industry is laden with risks and a lot of companies have often faced bankruptcy or gone bankrupt.

Construction standards are improving. Yet the demands of clientele are quite strenuous at times, and even construction companies often fall short of both expectations and project completion. Construction claims consultants hence have a hard job when it comes to not just analyzing the claims but also defending the rightful party.

Jack henry
Jack henry
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