Causes of Claims in Construction Projects

The construction industry is no stranger to claims, arising from a wide array of factors spanning from the client or Contract Administrator to the contractor, design teams, and external elements such as regulatory bodies or environmental conditions. Despite extensive discussions on the subject, the complexity of claims continues to challenge professionals across the field, indicating a persistent knowledge gap. In this article, I aim to consolidate and explore some of the most common causes of claims, shedding light on why this critical topic demands ongoing attention

Client/Contract Administrator Related Causes

1. Changes in Quantities, Work, or Scope:

- Changes to the original project scope, quantities of work, or additional work requests can lead to claims from contractors who were not prepared for these adjustments. Scope changes often involve cost and time adjustments that require formal variations to be agreed upon between the contractor and client.

2. Late Giving of Possession:

- Delays in giving the contractor possession of the site can severely impact project timelines, especially if construction milestones are dependent on early access to the worksite.

3. Acceleration/Suspension/Termination Commands:

- Commands from the client or contract administrator to accelerate, suspend, or terminate works can result in claims, particularly if these commands lead to increased resource usage or delays in resuming work.

4. Unrealistic Expectations:

- Unrealistic deadlines or quality expectations set by the client, without proper consideration of the project constraints, can lead to conflicts and claims. Contractors may need to request extensions or additional costs to meet these demands.

5. Payment Delays:

- Timely payment is critical to project cash flow. Delays in payments from the client can disrupt the contractor's ability to finance ongoing works, leading to claims for compensation or work slowdowns.

6. Increased Overheads Due to Time Extensions:

- When a project experiences time extensions, contractors may incur additional overhead costs. If these costs are not compensated through contract amendments, they may lead to claims.

7. Quantity Measurement Corrections:

- Errors or adjustments in quantity measurements can lead to disputes, especially if the quantities were miscalculated in the original contract.

Contractor Related Causes

1. Delays in Work Progress:

- Contractors may experience delays due to various internal factors such as inefficient resource allocation, poor management, or labor shortages. These delays can lead to disputes over who is responsible for the extended timeline.

2. Time Extensions:

- Contractors may request extensions due to unforeseen circumstances or changes in the project, but failure to follow proper procedures or inadequate justification can result in rejected claims.

3. Financial Failure of the Contractor:

- Financial instability of the contractor can lead to claims or project abandonment. Clients must vet contractors thoroughly before engagement to ensure they are financially capable of completing the project.

4. Contractor Technical Inadequacy:

- If a contractor is technically inadequate for the scope of the work, it can lead to defects, delays, and claims for rework or additional resources.

5. Insufficient Project Information During Tender:

- A lack of detailed information during the tendering phase can result in contractors underestimating the project requirements, which may lead to cost overruns and claims for compensation.

6. Contractor’s Inaccurate Cost Estimates During Tender:

- Incorrect cost estimates during the tender stage can lead to claims once the project is underway, particularly if the contractor finds the actual costs exceed their initial projections.

7. Contractor’s Internal Labor Problems:

- Issues such as labor strikes, poor workforce management, or internal conflicts can cause project delays and claims related to additional labor costs.

8. Construction Site Accidents:

- Accidents on site can lead to work stoppages, investigations, and claims for additional time or compensation due to safety measures.

9. Equipment Related Problems:

- Equipment failures or delays in equipment procurement can lead to claims if they affect the project schedule.

10. Quality of Works:

- Claims related to poor quality work can arise if contractors fail to meet the required specifications or industry standards, leading to rework and additional costs.

Design Related Causes

1. Design Quality Deficiencies or Errors:

- Errors in design can lead to claims for rework or delays. Accurate, detailed designs are critical to avoiding such disputes.

2. Inadequate/Incomplete Specifications:

- Incomplete design specifications can result in ambiguity during construction, leading to delays and claims as parties interpret the specifications differently.

3. Insufficient Availability of Information:

- Claims can arise when critical design information is unavailable or delayed, impacting the contractor’s ability to proceed with the works as scheduled.

Contract Related Causes

1. Ambiguity in Contract Documents:

- Poorly worded or ambiguous clauses in contract documents can lead to misinterpretations and claims. Clear, precise contract terms are necessary to avoid disputes.

2. Different Interpretation of Contract Provisions:

- Disagreements over how contract provisions are interpreted can lead to claims, especially if parties fail to resolve the differences through negotiation.

3. Risk Allocation:

- Inappropriate risk allocation in the contract can lead to claims. Contractors may request compensation if they feel risks beyond their control were unfairly assigned to them.

4. Other Contractual Problems:

- Any other contractual discrepancies or issues that arise during the project can lead to claims, such as variations or omissions.

5. Inadequate Contract Management:

- Poor contract management, such as failure to monitor compliance or respond to requests, can lead to claims from either the client or contractor.

Human Behavior Related Causes

1. Rivalry Culture Between Client and Contractor:

- A competitive or adversarial relationship between the client and contractor can lead to disputes and claims. Collaboration and open communication are essential to avoid such conflicts.

2. Lack of Communication Between Client and Contractor:

- Poor communication is a leading cause of claims. Misunderstandings about work requirements, progress, or changes can lead to disputes and delays.

3. Lack of Team Spirit Between Client and Contractor:

- If the client and contractor do not work as a team, it can lead to mistrust, delays, and claims. Successful projects require cooperation and a shared goal.

Project Related Causes

1. Unexpected Site Conditions:

- Unforeseen site conditions, such as differing soil compositions or hidden utilities, can lead to claims for additional time and costs as contractors need to adapt their plans.

2. Unforeseen Changes:

- Changes outside the contractor’s control, such as modifications to the project scope by regulatory bodies, can lead to claims for compensation.

External Factors

1. Weather/Force Majeure:

- Extreme weather events or force majeure situations can result in delays and claims for time extensions or additional costs.

2. External Legal and Economic Factors:

- Changes in laws, regulations, or economic conditions can impact the project, leading to claims for cost or time adjustments.

3. Inflation/Price Increases:

- Inflation or unexpected increases in material costs can lead to claims, particularly if the contract does not include price escalation clauses.

4. Change of Rules/Regulations on Legislation:

- Changes in legal requirements or safety regulations during the project can result in claims for additional compliance costs.

5. Conflicts with Third Parties:

- Disputes with third parties, such as local communities or subcontractors, can lead to project delays and claims.

6. Inadequate Supply of Materials:

- Material shortages or delays in supply can lead to claims for additional costs or time extensions.

7. External Risks:

- Any external risks not accounted for in the contract can result in claims, especially if they impact the project schedule or costs.

8. Environmental Problems:

- Environmental issues, such as pollution or the need to protect endangered species, can delay construction and lead to claims.

9. Problems with Local Community:

- Disputes or objections from the local community can cause project delays and claims if not handled proactively.

FOR CLAIMS ADVISORY

DM Ilamparithi BoologaSundaraVijayan