Claims in construction projects are inevitable, but their proper management can be the difference between success and failure.
Construction projects are frequently complex and involve a wide range of specialties. In addition, they face terrain and weather conditions that can become quite challenging.
In an ideal world, a project would be designed without flaws or omissions, the site would offer no surprises, and the weather would not affect construction activities. Supplies would arrive as scheduled, and the client would not introduce changes—or if they did, they would request the contractor’s impact estimate in a timely manner and approve it before implementing the changes.
However, we do not live in an ideal world. The reality of the industry includes design errors, unforeseen site conditions, unexpected weather events, and poorly managed scope changes—among other issues that can generate impacts on the contractor. Based on the risk allocation and responsibilities defined in the contract, it is often the case that these impacts should be acknowledged by the client.
At that point, the contractor must submit a claim. Naturally, the contractor is responsible for preparing a document that is clear, consistent, well-founded, and capable of demonstrating two things to the reader: the concept and the impact.
The Concept
The concept is essential. If it is not clearly defined or cannot be presented effectively, obtaining recognition of the impacts—no matter how significant—will be extremely difficult, if not impossible.
To demonstrate the concept, the document must clearly present the events or causes and directly relate them to risks or obligations under the client’s responsibility. It must also show that the contractor has acted diligently. This includes timely notification to the client about the occurrence or discovery of a potentially adverse condition. See also the article Early Warning Notice: https://delgadoconsultores.pe/index.php/en/articles/early-warning.
Finally, it is essential to prove the causal link between the event or series of events claimed and the impact on the contractor’s operations, costs, or scheduled deadlines.
The Impact
Only once the concept has been properly developed can the document focus on demonstrating the impact. This may relate to cost, schedule, or—as is often the case—a combination of both.
To demonstrate cost impact, the best approach is to rely on the unit costs and productivity rates stated in the contractual documents from the awarded bid. High-level tenders commonly request unit price analyses (APUs). While preparing these may be demanding for proposal teams, they are a worthwhile investment when substantiating claims.
Another key source of support for impact calculation is project control data, such as daily reports and schedule updates.
In cases where this information is missing, industry standards may be used, though they will always be less valuable than the APUs submitted with the bid and official project records.
Schedule impacts must necessarily demonstrate an effect on the critical path. However, it is not uncommon for the impacted activities not to be on the original critical path. A delay in non-critical tasks can be of such magnitude that it consumes their float and shifts the critical path, ultimately affecting the project’s end date.
When that happens, the time extension requested by the contractor will typically include an increase in indirect costs.
Structure
A good strategy for presenting a claim is to use two documents:
- A simple cover letter summarizing the case and stating the impacts
- A detailed supporting report
The supporting report is the most important document. It is where the case is presented in full, the concept is explained, the causal relationship is demonstrated, and the impact calculations are detailed.
A typical supporting report includes the following sections:
- Background: Basic project information such as project description, award and contract dates, start and end of works, and applicable laws.
- Factual background: A clear, simple, and objective narrative of the events.
- Legal grounds: A demonstration of the contract clauses that assign responsibility or risk for the presented events to the client, or exempt the contractor. This section may also refer to applicable law, such as provisions from the Civil Code.
- Impact analysis: First, the causal relationship between the events and the impact on the contractor must be demonstrated; then the cost and schedule impacts are calculated.
The supporting report must be written objectively and clearly enough so that any reader unfamiliar with the project can understand it.
In the end, the goal is for the reader to reach, by their own reasoning, the inevitable conclusion that the claim is valid and the impact calculations are sound.
Annexes
Lastly, and no less important, the supporting report must be capable of proving everything it states.
It is essential that each event or action described in the factual background section refers to documented evidence: daily reports, site diary entries, letters, emails between parties, third-party notices (such as from authorities or suppliers), etc. The same applies to the supporting documents in the impact analysis section.
All such documents must be attached as annexes, organized in such a way that the reader following the event narrative can access the supporting evidence immediately and be convinced of the accuracy of the facts and the correctness of the impact evaluation.
If you want to ensure that your next construction project is prepared to face and resolve claims effectively, contact us. At DC&R, with more than 30 years of experience in demanding sectors such as mining, oil & gas, and infrastructure, we offer expert solutions in claim management and contractual defense.
📩
📞 +51 998 070 145