What are the common types of construction claim?
As those familiar with large construction projects will know, there are lots of moving parts as well as different stages and stakeholders. So, it stands to reason that there are different types of claim to suit the circumstance when things don’t go according to plan.
The type of claim affects how it’s handled and what the potential and appropriate resolutions may be. For example, a successful claim doesn’t always lead to financial compensation – it may mean the contractor has the right to more time, or it may mean the termination of the contract without completing the project.
These are important things to know before you embark upon a claim because if it turns out you pursued the wrong route for your circumstance, you can’t simply go back and try again. Some very recent legal cases have supported this unfortunate conclusion.
Here are some of the most common types of construction claim.
Cardinal change construction claim
This means a change to the main construction plans and relates to any change that makes the initial terms of the contract impossible to meet.
Impossibility is a very broad term in this day and age and generally has to be considered in terms of economics. These changes can cause significant cashflow problems for contractors, and often for project owners as well, and can easily lead to tensions running high. This could be a significant change that the client has requested.
However, they are sometimes caused by things beyond your control, like the weather, which is why thought needs to be given to the possible areas of issue before a project starts to mitigate wherever possible.
Potential outcome: The contractor may walk away from the project and claim compensation.
Suspension of works
If either the contractors or the project owners suspend works for a period of time, it’s more than likely to cause a claim. Understandably, halting a project in the middle has a serious knock on effect and associated costs. The initial contract is vital in discussions to resolve the issue.
Potential outcome: Compensation may be payable by the contract terms defining responsibility whoever caused the suspension of works.
Constructive change construction claim
Where a cardinal change is generally considered to be one that’s asked for by the client, a constructive change tends to be the knock-on effect of something else. Perhaps the engineering specifications were incorrect, the project schedule was accelerated, lots of small changes kept being made and have impacted the timeline – to name a few examples.
Potential outcome: The contractor may be compensated for additional costs.
This is fairly self-explanatory. It’s when a contract is brought to an end before completion. That can even mean before the project has actually begun. Often it is partial rather than complete. Often it may be triggered by shortage of funds. The stage the project is at will impact how complicated this is.
Potential outcome: Contractor may be able to claim expenses and loss of profit.
Defective or deficient contract
If a contract has incomplete or inaccurate information at the start of the project, it can have a variety of costly implications for all parties. In particular, it can make contractor quotes inaccurate and as a result is likely to lead to disagreements on the job.
Potential outcome: Contractor may be able to claim ‘rectification’ expenses.
Delays are not uncommon on construction projects, but the severity of the delay and the cause of the delay can turn it from a common project management issue to a much larger and costly concern. The cause will be the key point in discussions where a schedule delay has occurred.
Potential outcome: Relief from delay damages and compensation for the delay.
This is where the construction site conditions are different to those that had been specified in inspections and/or documents, in a manner that would affect the project.
Potential outcome: This may result in additional payments to cover the additional costs that the changed site conditions caused.
Mixed construction claims
Rarely is a claim about just one of these above matters. Often a change, or series of changes, leads to protracted delays, invoking additional costs through disruption, extension of time, prolongation, cash flow misery and more.
Often this is not clear until completion of the works, as the ultimate use or commissioning may be impacted. Notwithstanding that, most forms of contract now require the parties to have a brilliant crystal ball and notify these changes well in advance. There is a whole science to risk management as well as the dark art of early warnings.
With all claims, the burden of proof is on the claimant to show the link between cause and effect beyond reasonable doubt. A strong contract at the beginning of a project and having protocols in place for handling areas of concern or potential dispute in their early stages can make a significant difference to the way they are handled.
Understanding that a contract is paramount, it’s very important to make sure you get experienced and trusted advice when issuing a claims notice, or even a variation/suspension/termination, in order to make sure you’re pursuing the right avenue for you and your project.
This advice befits the whole industry, be you a client, engineer, project manager, construction manager, main contractor, subcontractor or specialist.
For impartial advice, contract reviews, contractual administration assistance or claims and settlement of those claims, contact Tungsten Capital claims consultancy.