CIBER Guide to Construction Claims
Construction and risk go together. Construction project participants are constantly dealing with challenges that arise from budget, schedule, and staffing limitations. It is rare for all parties to see eye-to-eye during construction. Thus, even the best-planned Project can encounter disputes. Unexpected circumstances, disruptions, and delays — and the financial consequences — can damage reputations, drain project participants’ resources, place projects and businesses in jeopardy, and result in disputes. These disputes often evolve into monetary claims by the project participants against each other. CIBER’s contract solutions group has prepared this guide to overview the disputes and claims that frequently arise in construction contracts. This guide provides insight and practical advice to anyone involved in design and construction, whether an owner, designer, Contractor, supplier, construction manager or attorney.
Construction disputes can be resolvable before they become claims without ending up in a courtroom. The CIBER contract solutions group has more than 80 years of experience assisting our clients in making that happen. At CIBER, we gauge success not only by what we help you accomplish but also by what we help you avoid. Below, we discuss means and methods to effectively avoid construction disputes before construction and mitigate disputes during construction. The timely implementation of these means and methods minimises your exposure to the risks associated with these challenges and decreases threatsto your Project’s success.
Most construction contracts require that requests for additional costs or Time due to unanticipated circumstances or events must precede by written notice to the owner
within a specified time following the event. The purpose of the notice is to allow the owner time to decide on the reasonableness of the request, evaluate potential impacts, and participate in identifying solutions that may mitigate the impacts. Failure to give proper and timely notice can result in a waiver of a contractor’s rights, particularly if it prejudices the owner.
A differing site conditions clause allows the Contractor to receive a fair adjustment to its contract price if the Contractor encounters a differing site condition. This adjustment is typically contingent upon the Contractor providing the owner with timely notice of the condition to investigate it. From the owner’s perspective, the clause’s presence eliminates the risk of receiving higher contractor bids that include contingencies for encountering unanticipated, subsurface conditions.
Construction contracts usually state that “time is of the essence”. They may make the Contractor liable for delayed project completion, including paying the owner liquidated or actual damages. Consequently, a contractor must insist on the inclusion of an extension of time clause, providing that the Contractor’s Time of performance extended should
reasons beyond its control delay the Contractor.
Because of the likelihood of disputes on construction projects, a contractually mandated dispute resolution process can provide a timely and cost-effective resolution.
As alternatives to protracted and expensive litigation. A disputes clause will specify theadministrative claims procedureand detail the necessary processes (e.g., notice, alternate
Dispute resolution, Mediation, Arbitration, venue, andapplicable law).
Contractors usually have access to the public owner’srecords under various “sunshine” or “freedomof information” laws. However, often an owner can access acontractor’s records only during litigation. A well-draftedaudit or access to records clause provides the owner withthe contractual right to the Contractor’s project recordsduring construction, thereby giving the owner much moreinformation to utilise when assessing a request for change
order or a claim.
Most contentious and challenging to resolve constructionclaims involve a schedule or delay component. Therefore,if you have a high-quality schedule and manage it properly,
You have a greater chance of avoiding a claim. The creationand maintenance of a schedule is generally the Contractor’sresponsibility. To ensure that a contractor follows properscheduling procedures, an owner should include schedulingspecifications in the contract documents and developprocesses to ensure the Contractor adheres to theserequirements.
To avoid claims, owners need to verify that the schedulingprovision is appropriate for the Project. TheContractor adheres to contractually specified schedulingqualityparameters when preparing and submitting itsschedules. At a minimum, the following are covered in a scheduling specification:
- schedule format, specifying a critical path method(CPM) schedule or a less sophisticated schedule such asa bar chart.
- technical qualifications of the Contractor’s scheduler
- technical requirements and timeframes for the initialbaseline and update submissions(e.g., monthly)
- procedures and timeframes for the review andacceptance of submissions
- treatment of “early completion” schedules andownership of project “float.”
- the requirement to include submittal and procurementactivities in the schedule.
- Specified maximum activity durations that do notexceed the period duration betweenupdates.
- procedure for submitting requests for time extensions(e.g., time impact analysis)
- contractual remedies for failures to comply withscheduling requirements.
Scheduling specifications must be reviewed during the development of biddocuments to gather examples. An owner should consult aschedulingexpert to understand the benefits of specific scheduling requirements better. Owners should require contractors to submit all CPM schedules in the native CPM scheduling software format. A qualified individual is employed to analyse that schedule; thus, allparties can understand the broader view of the Contractor’s plan moving forward. TheContractor’s submittal should include printouts of theschedule in the summary and understandable formats and a narrative that summarises critical aspects of the schedule,such as critical activities and significant changes.
Late and numerous changes are common causes ofconstruction claims. Thus, an effective strategy forminimising and managing change is a crucial aspect of claimsavoidance.High-quality bidding and construction documents set clearexpectations for the Contractor. They can prevent costlychanges and delays due to design errors and omissions.Thus, minimising changes starts with the selection of aqualified design professional. The owner should establisha realistic budget and contingencies (accounting for risks) and allow adequate design time and fee.A constructability review will also help identify problemswith thedesign early in the process, minimising the impactof changes issued later during construction to correctthe problems. Quality bidding and estimating are essential. The Contractor has a thorough understanding ofthe project scope and can identify problems early. TheContractor can use job costing from the bid as a changemanagement tool throughout the Project.If a change is necessary, the project team should minimisethe change order process’s Time to eliminate potentialdelays and cash flow problems. Contractors shouldadhere to the contract’s notice provisions and prepare todocument time extension requests if changes remain unresolved without impact to the schedule.It is essential to resolve changeorder requests before they become claims, wheneverpossible, to avoid costly claims.
Setting expectations and planning is a significant component of claims avoidance. Forward-thinking projectteams use risk assessments and quantitative modelling toproactively identify project factors that could impact project costs and schedules. This process facilitatesthe setting of realistic contingencies for the Project and
Potential schedule issues. With this information in hand,project teams are well-positioned tomanage project risksand avoid claims.Quantitative risk assessments involve identifying, analysing, quantifying, and mitigating risk factors atthe start of the Projectand periodically throughout theproject life. Knowing these factors and their probability andpotential impact on the project costs and schedule allowsthe project team to prioritise risksand justify measures(additional upfront costs) to mitigate or avoid these risks altogether.
A well-structured and -implemented documentmanagement plan, including organised project record-keeping, is an essential component of successful projectmanagement, claims avoidance, and cost-effective fact-baseddispute resolution. No matter the disputeresolution forum, documentation quality often playsa more significant role than the witness’s testimony or even thefacts themselves.Some basic guidelines for documentation include thefollowing:
- Record facts and not opinions.
- Ensure that what you write is what you mean and issomething you would not mind an independent third-partyreading three years into the future.
- Make sure all team members send a consistent message.Consider having one person be the “voice” for all claim-relatedcorrespondence.
- Ensure that you understand what you receive in reports, schedules, and other correspondenceand respond promptly if necessary.
- Minimise the use of personal files. Set up a well-organisedcentral filing system for bothhard-copy andelectronic documents, including e-mails.
- Address one topic per e-mail and accurately describethat topic in the “subject” line—print and file essential e-mails.
- Daily reports may ultimately carry as much or moreweight than the craftily drafted letter. Ensure these are prepared every day, completely and legibly.
- Track quantities of work delivered and productivity in asmuch detail as practically possible as the work is beingperformed.
- Accurately and concurrently track all costs associatedwith changes.
- Have a written document retention/destruction policy.
An organised system allows foreasier access tothe necessary information.
Having all the relevantdocumentation available supports a completeevaluation or preparation of change order requests, timeextension requests or claims. Maintainingthorough “issue files” with therelated documents cansignificantly assist in the construction’s claims resolution process.Project management databases are valuable tools fordocument management that can be shared among allparties. Keeping them up to date so that they maintain theirvalue is well worth the commitment and investment. Thebetter documents are managed during a project, and the moreefficient legal and expert analysis can proceed.If a dispute proceeds to litigation, it will be necessary toreview and produce each party’s documents to the—OtherSide as part of the discovery process. Discovery rules varyfrom jurisdiction to jurisdiction,and the process is differentfor the various resolution forums (e.g., litigation, Mediation,Arbitration, or negotiations).
Human relationships are often the cause of claims.Partnering is a formal process usually mandated bya contract to promote harmony and cooperation between andamongindividuals,the key to the Project’s success. Partneringis designed to make these individualsrecognise themotivations they have in common and thebenefits of workingtogether to make the Project a success.On partnered projects, everyone who can affect theProject’s success, particularly key decision-makers,attends workshops facilitated by an outside expert inpartnering. There is a workshop at the start of constructionand, sometimes, follow-up workshops periodically duringconstruction. Follow-up partnering workshops duringconstruction provide structured environments for theresolution of problems that jeopardise the project goals.Better communication always helps in the avoidance ofclaims. Partnering alone will not prevent claims, but itprovides an ideal forum for the parties to be educatedand reminded of the unnecessary risks they will face by not resolving disputes before they adversely affect theProject and become claims.
Many project-level disputes and significant issues affectingproject costs and Time ultimately evolve into costlyclaims if t not dealt with expediently.For this reason, it is recognised that project-levelpeople may not be able toresolve these issues; however, executives of the owner and Contractor often can.Therefore,contracts usually specify that the projectexecutives meet periodically (typically monthly orquarterly) or in a formal issue resolution process thatelevates the resolution to anincreasingly higher level ofauthority, from the project level to the executive level. Executive resolutioncan be a very effective way to promote the early resolutionof project issues and claims avoidance.
TYPES OF CLAIM
Differing site or changed conditions.
Most differing site or changed conditions clauses addresstwo types of conditions:
type 1 – subsurface or latent (hidden) physicalconditions at the site differing materially from thoseindicated in the contract documents.
type 2 – unknown physical conditions at the site, of anunusual nature, differing materially from those ordinarilyencountered in work of the character provided for in the contracttypically, to recover for the differing site or changed conditions,the Contractor generally must show the following:
- demonstrate that it encountered a material differenceand that the condition encounteredcaused it to expendadditional cost and Time.
- Establish that it reasonably relied upon therepresentations in the contract documentsconcerningthe site conditions.
- Provide notice to the owner when it encounters what theContractor believes to be differing site conditions.
Project delay is a common problem in construction. The financial consequences of finishing a project late can besignificant for all parties. As a result, contractor claims for Delay damages and the owner’s claims for liquidated damagesare expected.Delay, in many contracts, isgenerally defined as an eventor circumstance that delays the contract completiondate.
Depending on the causes and timing, delays canbe non-excusable(no time extension, andthe owner may beentitled to delay damages from the Contractor). Excusable andnon-compensable (time extension and no delay damagesfor either party), or excusableandcompensable (timeextension and Contractor entitled to delay damages fromtheowner).The existence of concurrent delays by the owner andContractor is often the mostcontentious aspect of resolvingdelay claims because concurrent delays affect the number of delay damages owed to the Contractor or liquidated damages due to the Contractor’s owner. There is nota consensus in the industry regarding the definition ofconcurrentdelay. Since the issue relates to damages, tworeasonable definitions of concurrent delay areas follows:
- Where there are periods of both contractor andowner delays, and it is not possible tomake a preciseapportionment of responsibility for the project delaybetween the Contractorand owner (where the ownerwill not be entitled to assess liquidated damages and the
- The Contractor will not be entitled to delay damages) Concurrent delays exist when it is possible to determinewith reasonable certainty that there were independentdelays by the owner and Contractor that would havecaused delays to project completion whose effect on theproject completion overlap.In this second circumstance, the award of delay damagesis based on the legal theory that damages are awarded toan injured party to place that party in the financial positionit would have been in before being harmed. Under thistheory, the Contractor’s entitlement to delay damages is Limited to the Time that owner-caused project delay exceeds an overlapping concurrent contractor delay. Similarly, theowner’s entitlement to liquidated damages is limited to the Time that a contractor delay to project completion exceeds overlapping concurrent delays by the owner.Sorting out the amount and causes of delay can be verycomplicated for constructing major capital projects, particularly on projects that finish late.
To Evaluate the validity of these claims, you should do the following:
- Obtain baseline and updated project schedules inelectronic format if possible.
- Consider developing an as-built schedule using dailyreports and another project document.
- Compare as-planned schedule updates and as-builtschedules to determine which activities were delayedand whether concurrent delays occurred.
- Identify periods of delay, disruption, or acceleration.
- Associate claims issues with the identified periods.
- Perform a detailed schedule analysis.
Many contemporaneous and after-the-fact CPMbasedand non-CPM-based schedule analysis methods are used to determine a contractor’s entitlement to timeextensions and apportion financial responsibility fordelays.These methods range from simple observationalapproaches to complex computer simulations. Whendeciding to use aparticular method, select one possible using the information available in your case and answer the question in disputein your situation. If the claim involves requestsfor delay damages, the analysis should consider concurrentdelays by all parties.Depending on the size of the Project, schedule analysiscan be very complex and labour-intensive. There are several schedule analysis methods, all with varyingdegrees of reliability and validity, depending upon thedelays’ actual circumstances and the documentationavailable. Competent professional advice should be soughtbefore conducting a complex delay analysis.
The owner may direct the Contractor to accelerate work, shorten the Time of performance, or overcome ownercauseddelays (i.e., to “buy back” delay time), akadirected acceleration. Typically, these directives are issuedin the form of a changeorder. So long as the Contractoris not mitigating its delays, the net increase in theContractor’s costs incurred in complying with this directive(e.g., added equipment or labour, overtime pay) is usuallyrecoverable.Constructive acceleration occurs whenthe owner doesnot grant an excusable time extension, thus requiring theContractor to accelerate and perform more work in thesame period of performance to avoid the assessment of
To recover on a claim of constructive acceleration, theContractor must generally show that:
A delay occurred for which a time extension should havebeen granted.
Notice of delay and time extension request was submitted correctly.
No time extension was granted, or part of the timeextension owed under the contract was denied.
The Contractor was required or directed to complete”on time” or threatened with theimposition of latecompletion damages.
The Contractor filed a separate notice of constructiveacceleration.
The Contractor accelerated its operation andincurred additional costs because of the acceleration.
Constructive changes are project circumstances thatrequire the Contractor to perform extra work or contractwork different from what was implied by the contractdocuments and are changes that the owner did not want formally direct. That is, some action or inaction of
The owner or the owner’s agents causes the Contractor toperform work beyond the contract documents’ terms.
In situations involving constructive changes, the owners may become responsible for their representatives’ actions (e.g., architects, engineers, andconstruction managers) even if they do not intend to directchanges.
Examples of such unintended changes are:
- comments on shop drawing submittals that require theContractor to perform extra work
- unclear contract requirements necessitating theContractor to perform extra work to comply with theowner’s interpretation
- Typically, to recover for a constructive change, theContractor must show the following:
- The work performed was not required within the originalscope of the contract.
- Appropriate notice of change was given to the owner.
- The change was required by the owner, notvolunteered by the Contractor.
- Additional costs and Time were incurred inperforming the changed work.
Cumulative impact or disruption is the effect of aseries of changes, design clarifications, requests forinformation (RFIs), schedule re-sequencing, unpredictablefield conditions, or other project circumstances onthe Contractor’s productivity. The events need not beindividually significant. However, the existence of an unreasonable amount of them can result in a total disruptiveimpact that exceeds the sum of the individual impacts.
Circumstances and changes caused it.However, the fact that a project experiences many changes does not validate the cumulative impactClaim. Due to this type of claim’s general nature, itis difficult to establish the necessary causation that linksspecific issues and responsibilities to these damages.
Also, the Contractor must show that it negotiated the changes; it could not haveanticipated these inefficiencies.Detailed documentation of the original plan, reasonableness, and examples of the impacts arerequired to establish cumulative impact claims. Othermethodologies that can better demonstrate a contractor’slost productivity should be considered before resortingto a more-general “total cost” type of claim.
Suppose the Contractor fails to perform following the contract substantially or materially breaches the contract. In that case, the owner may, undercertain circumstances, terminate the Contractor’s rightto continue the work. Consistently failing to providesufficient labour, materials, or equipment, failingto maintain required quality, or consistently refusing tocomply with laws and codes are situations that may giverise to a termination for default.
If the Contractor has provided the owner with a performancebond, the owner can usually look to the Contractor’s suretyto fulfil its obligations if the default was justifiable and
Proper. The bond specifies the obligations of the surety inthe event of a default by the Contractor.Performance bonds often give the surety that completing the remaining work using a contractor of its choice (which can be the original Contractor) pays the owner.
A negotiated settlement up to the bond’s total value ordo nothing if it believes that theowner’s termination actionwas wrongful. Owners must follow the contract’s stepsbefore terminating the Contractor forthe cause. Typically, these steps usually include providingthe Contractor with a”cure notice” setting forth specificconditions that the Contractor must remedy and by when.
Default terminations ( repudiation) have severe consequences for theContractor and their sureties and usually lead to disputesand legal actions. Thus, owners considering defaultinga contractor for cause should anticipate litigation andprepare for it. For this reason, owners should read thebond and seek legal advice before making this significant
Decision.In the event of a termination for cause, an owner shouldalso consider the following actions:
- secure the project site immediately because the Contractor is typically not entitled to remove materials,equipment, or records from the site.
- document on-site conditions (e.g., with inspection records, photographs, or videotape).
- inventory on-site equipment, materials, and supplies not yet incorporated into the Project.
- work cooperatively with the bonding company.
Many contractor claims against owners arise from thedeficient performance of the architect/engineer,including design defects, tardy shop drawing review,
Untimely response to RFIs, or inadequate inspections. Inthese situations, some owners seek recovery from thea/e for the damages the Contractor may recover from theowner.
To recover against the professional team, the owner must typically showthat the professional team did not exercise the standard of care in its duties of care as a design professional. In most
The standard of care is defined as the degreeof skill and care ordinarily exercised by other similarlyqualified professionals, practising at the same time andlocation and under similar circumstances when owners make claims against their professional team; the measure
of damages are the costs the owner incurred that it wouldnot have incurred if the professional performed its work to thestandard of care. These costs typically include reworkand any premiums the owner may have paid by addingomitted work by change order instead ofworkcompetitively bid in the original bid documents.
Direct costs include labour, equipment, material, andother costs for specific aspects of the work that makeup the finished Project. They are “harddollar costs” or costs incurred in performing “extra work.”Contractors typically track these costs by Project and workactivity.Contractors commonly claim entitlement to increased labourand equipment costs due to productivity losses that theContractor asserts resulted from issues such as disruptions,acceleration, or cumulative impact of changes. Impact/lostproductivity claims assume that theseissues caused the Contractor to incuradditional crew costsbecause it took more effort to accomplish a specificquantity of work.
Proof of loss of productivity damages requires thedemonstration of contractual and legal entitlement and acredible connection between causation and damages to asufficient degree of reliability.There are several accepted methods commonly usedto quantify impact costs. The reliability of these methodsdepends on their underlying data and how they are applied.Generally, methods that rely on project-specific data such as (negative productivity) measured mile studies are more reliable than those thatrely on general industry studies or research on the impactof specific issues, such as overtime or weather.
Delays can result in the Contractor incurring additionaldirect costs for idle equipment, labour and materialescalation, and increased indirect costs.Indirect costs are for services or project support necessaryfor the Project but not incorporated in the Project’s finished labour, material, and equipment. Many indirect costsare also time-related costs; that is, they continue or increaseas the project performance period is extended. There aregenerally two basic types of indirect costs: field overheadand head officeoverhead.
Examples of field (Project) overhead costs include superintendent(Site management) salaries, temporary offices, fencing, utilities,and signage; contractors track these costs on a project-by-project basis in contract cost reports. Fieldoverhead costs often increase when the project duration of thecontract extends due to delays.Head office(Head Office or Fixed Overhead) costs are general and administrative costs thattypically include executives, support (e.g.estimating, accounting) and administrative staff, office rent, and other office costs. While these costs areusually necessary to support the Contractor’s projects, mostcontractors pool these expenses. They do not allocate themto specific projects in their accounting records.Contractors may also incur additional head office costs.
Due to delays. This is particularly true when there is asuspension of work on the Project of uncertain durationthat prevents the Contractor from securing other work to provide cash flow to pay head office expenses.Because contractors do not typically track head office costs by Project, several formulas have evolved to estimate head office overhead resulting from delays on a project. The Eichleay, Manshul, Hudson and Emden formulas are examples of head office overheadsoften controversial in the claim’s arena. Court decisions vary widely as to their allowability.
Liquidated damages are provided for in the contract at aspecific and agreed-upon dollar amount that the Contractormust pay the owner for each day of contractor-caused (i.e.,
Non-excusable) delay.Liquidated damages should be a reasonable forecast ofcosts that the owner may incur for late completion forsuch things as lost use of the facility, lost rental income,lost profits, delayed proceeds of the sale of the facility,increased or extended financing costs, extended generalconditions and personnel costs, storage costs, holdover.
Penalties and extended professional fees. If the liquidateddamages amount is construed as a penalty and nota reasonable forecast, it may be unenforceable.Suppose liquidated damages are not specified in the contract or deemed a penalty. In that case, the owner is entitled to recover provableactual damages for contractor-caused delays. Actualdamages are effectively unlimited; thus, a contractor mayprefer a liquidated damages clause’s fixed value.
Alitigated resolution of a claim is usually the worstoutcome for everyone involved in a construction dispute.As a result, the construction industry now has availableto itsmany alternative dispute resolution (adr)approaches that have evolved to promote the quickest andmost cost-effective resolution.
Parties can often settle even the most complex disputesabout Time and money by agreeing to thought-outstructured settlement negotiations. Structured settlementnegotiations between the parties usually result in theparties being in a better financial position than after Arbitration or litigation due to the Time andexpenses associated with these formal dispute resolutionforums.Structured negotiations require an agreed-upon processand may take time; furthermore, both parties take a dedicated good-faith effort to work. This is usuallypossible when principals within the organisations agree onthe benefit of seeking a timely resolution of the dispute asan alternative to post-construction Arbitration or litigation.
The owner must convince the Contractor that its claims willreceive a fair evaluation by the owner and that there is awillingness to recognise and pay costs legitimately due the
Contractor. Similarly, the Contractor must take consistentpositions that make a contract- and fact-based argumentsand recognise legitimate owner arguments by reducing the
Claim when appropriate.The negotiating teams on both sides must have the
Authority to compromise with the confidence that they willnot be second-guessed later. If the negotiation teamscannot compromise and are forced to take rigid positions,
Structured negotiations will not be successful.
Mediation is a formal process that utilises a trainedfacilitator to achieve a negotiated settlement of the dispute.Mediation is private and gives the parties complete control.
Over the outcome. Successful mediation saves Time and money and enables those involved to preserve valuablebusiness relationships. Mediation is often an antecedent to Arbitration or litigation, and it can be mandated by contractor by a court.In non-court-mandated mediations, the parties usuallyjointly chose a mediator utilising referrals or lists provided by dispute resolution organisations such as the American Arbitration Association. The parties typically split the mediator’s costs, which can be substantial depending on themediator’s reputation. However, good mediators are Generally worth their cost. Each mediator structures the mediation differently but Always requires individuals with sufficient settlement authority to attend the mediation. During the mediationitself, the mediator guides the parties toward an agreement. That all parties find mutually acceptable rather than imposing a settlement upon them.Attendance at the mediation is often the first Time that keydecision-makers hear the “other side of the story” ratherthan the biased one told by their subordinates. This otherside of the story can be particularly compelling when told by the mediator. It generally goes a long way towardachieving compromise.
Project Neutrals dispute review Boards
The use of a “project neutral” is evolving as one of themost effective ADR techniques. The Project neutral is usuallyan independent construction industry expert or teamof experts to facilitate the technically based resolution of disputes expeditiously. Dispute Review
Boards (DRBS) are one way of implementing the neutral project concept.Because lingering disputes can pollute the constructionprocess and escalate the everyday challenges and hasslespresent on all projects into significant problems, projectneutrals and DRBS are most effective if they take an activeapproach during construction in ensuring that disputes are.
Dealt with quickly.Decisions by Project neutrals and DRBS can be binding or
Non-binding by the parties’ prior agreement. If non-binding,the parties are likely to accept the decision as fair becausethey jointly chose the neutral. Furthermore, it can be.
Expected that the decision will carry substantial weightbefore formal triers-of-fact if the dispute is subsequentlylitigated.The Contractor and owner typically share the costs of
Project neutrals and work best when the owner and Contractor mutually select them before construction begins. It is also beneficial if they are trained in conflictresolution techniques, such as mediation.
Arbitration is a formal process that can be faster and lessexpensive than litigation. Arbitration is particularlyuseful in resolving more minor claims that the parties can not
resolve on their own. Parties may mutually agree to useArbitration to resolve disputes, or its use may be specifiedby contract.In Arbitration, the parties mutually agree to procedural.
Rules and submit the dispute to a jointly chosen impartial”arbitrator” or panel of arbitrators for a decision. Although the parties can agree to make it advisory and non-binding if they desire, this decision is generally binding. Typically,the parties split the administrative costs and the arbitratorfees.Your Arbitration is conducted following a particular arbitration institution; that institution’s rules will typically prescribe what should be in your notice to arbitrate. Usually, the notice includes at least a description of the issue in dispute. The arbitration association providesthe parties with lists of possible arbitrators to choosefrom. These lists typically include construction attorneys,owners, contractors, and design and other constructionprofessionals trained in the arbitration process.
Some of the advantages of Arbitration are as follows:
- The disputes are presented to and decided by industry Experts rather than judges and juries
- The arbitration process is designed to get the Parties into the Arbitration itself as soon as possible.
- The Parties set and jointly agree to each step’s dates, rather than judges and court timetables setting them.
- Discovery, particularly the costly taking of depositions, is usually limited, saving Time and makes Arbitration much less expensive than litigation.
- Arbitration is private and is not subject to public disclosure, as is most litigation.
Some of the disadvantages of Arbitration include the following:
- Arbitration proceedings, particularly the rules ofevidence, are much less formal and structured thanlitigation. As a result, it is possible for one party to”ambush” the other with new evidence in the hearings.
- The arbitrators may also allow evidence of questionable weight to be introduced: information that would not be introduced in court because it is hearsay or lacks proper foundation.
- Arbitrators sometimes decide on fairnessand sometimes do not strictly construe contractprovisions nor give much weight to legal precedents.
- most arbitrators also have full-time jobs as constructionindustry professionals, which they must considerwhen setting hearing dates. As a result, manyarbitrations, particularly long ones, are not continuousand can last a long time.if the dispute is considerable and requires a significant number
- Of hearing days, arbitrator fees and the administrativefees paid to the arbitration organisation can add up to ahighcost
- The arbitrator’s decision is generally final and non-appealable.
Abandonment: The surrender, relinquishment, disclaimer, or cession of property or rights. In construction contracting, where the Contractor fails to “substantially complete” the work, he has abandoned the work. An owner, however, cannot sue a contractor for abandoning the work where the job has been substantially completed.
Ambiguous Specification: The meaning of the provisions of a contract requirement, document, or specification is susceptible to multiple reasonable interpretations. If the plans and specifications are ambiguous, they will be construed against the drafter. On the contrary, if the ambiguity in the plans and specifications is patent or obvious, then the rule does not apply because the Contractor must inquire about the true meaning of the contract. Contra proferentem is the legal term for this concept.
Betterment: In the context of change orders required due to design professionals’ omissions, the work added by the change order would have cost had it been in the original bid documents and competitively bid rather than added later by change order.
Bond, Bid: A bond included with the submission of a bid that guarantees that the bidder will execute the contract if awarded the contract.
Bond, Payment: A bond that guarantees the Contractor’s subcontractors and suppliers’ payment on the Project.
Bond, Performance: A bond that guarantees the work of the contract under the circumstances described in the bond. 50
Breach of Contract: Failure by either the owner or the Contractor, without legal excuse, performs any work, obligations, or duty owed to the other.
The burden of Proof: The requirement to prove facts in dispute and alleged damages. In a claim, the burden of proof is on the party making a claim.
Change: Additions, deletions, or other revisions to the work as defined within the general scope of the contract. A change may be authorised by a written directive from the owner to the Contractor or arise informally by a constructive change.
Change, Bilateral: An agreement executed by the owner and the Contractor for a change to the contract requirements. The agreement includes the scope of the change, the cost, and the time impact (if any).
Change, Cardinal: A change or combination of changes to the work beyond the general scope of the contract. The primary legal test for a cardinal change is whether the work is within the scope established when the parties entered the contract and whether the Project as modified is fundamentally different from the bid’s Project.
Change, Constructive: An act or failure to act by the owner or its agents is not a directed change, but that has the effect of requiring the Contractor to perform work beyond that required under the terms of the contract.
Change, Unilateral: A change to the contract issued by the owner without the Contractor’s agreement as to the scope, cost, and time impact. 51
Contract Completion Date: The date established in the contract documents for completing the work or specified portions of the work. This date may be expressed as a calendar date or several calendar or workdays after issuing the Notice to Proceed or other defined point in time.
Critical Path Method (CPM): CPM scheduling is a mathematics-based scheduling technique that establishes the significant work activities and the relationships between these activities to create a network of activities used in planning, scheduling, and controlling the work. The most prolonged duration of continuous and dependent work activities is identified as the critical path through the schedule network. It is the minimum amount of time required to build the Project as depicted by that schedule.
No-Damages-for-Delay: A contract clause providing, in the event the Contractor is delayed in completing the project by the owner’s fault or the owner’s agents, the Contractor may be entitled to an extension of time but not to additional compensation.
Defect or Condition, Latent: A site condition or defect in the work cannot be observed by reasonable inspection.
Defect or Condition, Patent: A site condition or defect in the work can be observed by reasonable inspection.
Delay: An unanticipated event or interference with the progress of a critical path work activity being performed at the Time causes the Project’s end date to be extended.
Delay, Excusable and Compensable: Delay that results solely from the owner’s actions or inactions that entitles the Contractor to both a time extension and delay damages. Examples are directed or constructive suspensions of the work by the owner or the issuance of change orders that delay the Project’s end date.
Delay, Excusable and Non-Compensable: An unforeseeable delay caused by an event beyond the control and without the fault or negligence of the Contractor (including their suppliers or subcontractors). Examples typically include acts of God, unusual weather, strikes, fires, floods, government acts in its sovereign capacity, and so forth. In such situations, the Contractor is generally entitled to a time extension and relief from liquidated damages but no compensation for delay costs.
Delay, Non-Excusable: Delay within the Contractor’s control, its subcontractors, or suppliers, or a delay resulting from a risk allocated to the Contractor under the terms of the contract. Examples include a lack of workers or late delivery of contractor-furnished equipment or materials. The Contractor is generally not entitled to relief for such a delay and must either make up the lost Time or be contractually liable to the owner for late completion or liquidated damages.
Delay, Pacing: A delay in acting, making decisions, and starting or completing non-critical path activities due to knowledge of delays on critical path work. For example, owners may delay issuing change orders on non-critical paths. The Contractor may slow down non-critical work due to delays on the critical path to keep pace with the overall schedule delays. Pacing delays are typically not considered concurrent delays. 53
Discovery: The pre-trial phase in a lawsuit or Arbitration in which each party can obtain evidence from the opposing party through requests for answers to written questions (interrogatories), requests for production of documents, and requests for admissions and depositions of parties and potential witnesses. Through this process, all parties go to trial with as much knowledge as possible, and neither party should keep secrets from the other.
Disruption: An event that hinders a party from proceeding with construction as it was planned. Examples include labour inefficiencies because of frequent work stoppages, work performed out of sequence, or work performed concurrently with other activities, causing a crowded work site.
Eichleay Formula: The Eichleay Formula is a method used for the calculation of Extended Head office overhead. The formula has its origins in a case against the federal government brought by a company named Eichleay. The formula is generally applicable in federal work and many states, depending on local law.
Entitlement: The legal, contractual, and factual bases of claims by owners, contractors, and other parties to construction contracts.
Equipment Costs, Idle: The cost of equipment that remains on site ready for use, but on a stand-by basis.
Equipment Costsowned: Expenses incurred in owning and maintaining equipment, such as depreciation, replacement cost, repairs, maintenance, taxes, and insurance. 54
Errors or Omissions: Generally,design deficiencies in the plans or specifications must be corrected for the Project to function or be built as intended. Errors are typically design aspects that are shown incorrectly. Omissions are design aspects that are not included in the documents but should have been.
Exculpatory Language: Clauses and phrases in the contract that are intended to release or limit the liability of one party for specific actions that may occur during the work’s performance. Specific exculpatory language may be unenforceable or prohibited by law.
Float: A term used in CPM scheduling is the measurement of Time, indicating how late any activity or group of activities in a schedule can be completed without impacting the critical path and the Project’s scheduled end date.
Implied Duties and Obligations: Principles of general contract law imposed upon both parties even if not stated in the contract. Examples include the duties of non-interference and cooperation that exist between the parties to the contract.
Implied Warranty: The legal theory that when an owner requires a contractor to build the project according to plans and specifications, the owner is responsible for the design and additional costs to the Contractor associated with design defects in the plans specifications. The owner, therefore, impliedly warrants that the plans and specifications furnished are adequate to accomplish the work. 55
Impossibility: A contract requirement that is physically impossible to perform. It generally must be shown that no contractor could perform the work required for a requirement to be impossible, not that just a particular contractor cannot perform it.
Impracticability: Inability to perform work called for under a contract due to unforeseeable extreme and excessive cost — an economic impossibility even though the work requirement may be physically possible to perform.
Manshul Formula: The Manshul Formula is a method used for the calculation of Extended Head office overhead. A New York court created the formula in a case involving Manshul Construction. The formula is generally applicable in the State of New York.
Material Difference: A change of condition that will significantly impact the work’s performance in terms of means and methods, Time, and cost.
MCAA Studies: The Mechanical Contractors Association of America has publications on various issues, including labour productivity for mechanical tasks. These publications include tables listing the labour productivity losses that occur due to many typical causes.
Measured Mile: A methodology to calculate lost productivity by comparing the productivity of the impacted work with the productivity of the same or similar work that was not impacted or delayed.
Mechanics’ Liens: A lien on real property, created by statute, favours persons supplying labour or materials for a building or structure for the value of labour or materials supplied by them. 56
Misrepresentation: Information that is false or misleading, even if unintentional, would have made a difference in the work’s performance if known at the time of contract formation.
Mitigation of Damages: Both parties’ responsibility to a contract to minimise costs or Time when encountering a potential or actual claim situation.
NECA Studies: The National Electrical Contractors Association has publications on various issues, including labour productivity for electrical tasks. These publications include tables listing the labour productivity losses that occur due to many typical causes.
Order of Precedence: When two or more provisions within a contract conflict, the rules of contract interpretation establish an order of precedence to resolve the conflict.
Reservation of Rights: A statement that one is intentionally retaining one’s full legal rights to warn others of those rights. This notice avoids later claims that one “waived” legal rights held under a contract.
Schedule, Cost-Loaded: A cost-loaded CPM schedule includes project costs (to the owner) allocated to the schedule’s activities. Costs are loaded into the schedule based on a code or chart of accounts that correspond to a schedule of values, contract item, or other accounting identification system. The schedule is updated to reflect modifications to the budget (change orders), actual utilisation of cost elements, and estimates of remaining costs for work to be completed. This type of schedule provides historical cost records and future projections of cash flow. In some cases, owners evaluate progress for payment based solely on cost-loaded CPM schedules. 57
Schedule, Resource-Loaded: A resource-loaded schedule is a schedule with resources (labour, equipment, and materials) allocated to the schedule’s activities. Resources loaded into the schedule may include those belonging to the prime Contractor, subcontractors, owner, or any other stakeholder. The schedule is updated to reflect changes to budgeted resources, resource limitations, actual utilisation of resources, and estimated resources to be utilised on remaining work activities. Resource loading is the basis for resource levelling. Various scheduling software programs load, allocate, and level resources differently and potentially impact the CPM schedule.
Schedule Compression: This results from delays that force more work to be done in each duration of time than planned. It can result in the utilisation of more personnel than initially planned or can be effectively managed. Schedule compression also usually reduces float in the schedule, making it more likely that future delays to specific activities will delay the project’s completion.
Spearin Doctrine: In U.S. v. Spearin (1918), the U.S. Supreme Court held that the owner impliedly warrants that the plans and specifications it issues are free from defects. Moreover, the Contractor has a right to recover its additional costs when defective plans and specifications necessitate extra or remedial work.
Standard of Care: In the law of negligence, that degree of care that a reasonably prudent person should exercise in the same or similar circumstances. 58
Statute of Limitations: Statutes of the federal and state governments set maximum periods during which specific actions can be brought or rights enforced. After the Time set out in the statute has expired, no legal action can be brought, regardless of whether any cause of action ever existed.
Subpoena: A command to appear at a specific time and place to give testimony on a specific matter or produce evidence under a penalty for failure.
Substantial Completion: Generally, when the Project or a portion of the work is sufficiently complete following the contract documents, the owner can use the Project for its intended purpose. The contract often defines conditions precedent to Substantial Completion.
Superior Knowledge: Information known or available to one party but not made known to the other party (either intentionally or unintentionally) before submitting the bid or entering the contract.
Surety: A bonding company licensed to conduct business in the state where the Project is located and authorised by appropriate government agencies to issue bonds. Sureties issue bonds that, under certain circumstances, obligate the surety to complete a contractor’s work if the Contractor fails in that regard (performance bond) and that subcontractors and suppliers will be paid by the Contractor (payment bond).
Suspension of Work, Constructive: An act or failure to act by the owner is not a directed suspension of work, but that has the effect of suspending or interrupting all or a portion of the work.