How do Construction Claims Arise?
Construction claims can be caused by a number of factors. Understanding what causes construction claims is the first step in avoiding them. In general, construction claims occur because of the following:
- Delays in construction and completion of the contract;
- Delays in the delivery and supply of materials;
- Weather which slows down or prevents construction from proceeding;
- Owner requested changes;
- Changes which occur not at the request of the owner;
- Poor management and administration of the construction site;
- Site conditions which differ from those expected;
- The work becomes impossible to perform;
- Insufficient plans and specifications;
- Failure of any one party to disclose information which is material to the construction;
- Conflicts between those involved in the construction of a project;
- Termination of the contract by the owner or the contractor;
- Acceleration of the work;
- Failure to adequately schedule and coordinate the work; and
- Failure of parties to cooperate with each other in the performance of the work.
General Recommendations for Avoiding Construction Claims
Those readers who have been involved in construction claims, and especially those which have resulted in arbitration or litigation, are aware that they are often a costly process. I encourage my clients to avoid such expenditures by performing effective risk management at the outset by trying to avoid construction claims in the first place.
12 Steps to Avoiding Construction Claims
- The best way to ensure that something occurs or does not occur is to put it in the contract. Obtain good legal advice before entering into the contract in order to ensure that your interests are properly and adequately reflected in the contract. The standard general conditions may not be adequate for your needs. This is particularly true of public entities which have special and diverse needs and interests.
- Owners should try to hire contractors and consultants with whom they have a good relationship and who have a good reputation in the industry. You may have to do some research in order to determine a party’s reputation in the industry.
- Owners should realize that the lowest bid is not always the best bid.
- Owners should ensure that the contract allows them to have some say in the general contractor’s selection of its subtrades.
Each party to a contract should ensure that they understand their duties and obligations under the contract and that they have the ability to perform these duties and obligations as required by the contract.
- Owners should ensure that a project is well planned from the outset to minimize the need for change orders or change directives. At least one study has shown that changes to the contract work increase the risk of construction claims and decrease productivity.
- Both owners and contractors should do what they can to ensure proper management and administration of the project, including proper and adequate staffing and co-ordination of the project and trades.
- All parties benefit from an atmosphere of mutual trust and respect and each party should do what they can to engender such an atmosphere.
- While it may be initially attractive to a party to shift all of the risk in the contract to the other party for matters such as insufficient plans and specifications and unexpected site conditions, a contract overly skewed in favour of one party over the other results in a higher chance of there being a dispute and hence, a construction claim. In my opinion, a contract that protects the interests of all parties and that does not include an overly unfair allocation of risk will result in a decreased likelihood of construction claims.
- Ensure proper and adequate documentation for the project.
- Acknowledge and settle claims which have merit at an early stage.
- Ensure that the contract has an adequate ADR process for dispute resolution.