Fundamentals of Construction Claims. William J. McConnell
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Inspection Issues: When one party maladministers the inspection process and this impacts the other party's costs and/or time on the project.
Subcontractor Issues: When one party maladministers the process of submitting or approving subcontractors and this impacts the other party's costs and/or time on the project.
Project Management Team Issues: When one party maladministers the process of submitting or approving project management team members and this impacts the other party's costs and/or time on the project.
QA/QC Issues: When one party maladministers the quality assurance/quality control process and this impacts the other party's costs and/or time on the project.
Safety Administration Issues: When one party maladministers the safety process and this impacts the other party's costs and/or time on the project.
Certain maladministration claims are easy to pinpoint, such as delinquent payments or lack of proof of funding. For these issues, contracts typically allow the claimant to halt work if respondent payments or proof of funding are not completed within a certain number of days after the claimant's notice to respondent. For other maladministration issues, it can be challenging to point to a single event as resultant impacts are often cumulative in nature. Cumulative impacts are analogous to death by a thousand cuts. Cumulative impacts might involve the excessive turnaround time of requests for information (RFIs), submittals, or change orders. Another example of a cumulative impact claim would be inspection delays or over-inspection issues.
C. Performance Issues
Performance issues involve claims made by one party to the contract that assert that the performance of the other party (or third parties that the other party is responsible for, such as subcontractors and vendors) is noncompliant with the contract requirements. However, there are instances when the paying party to a contract takes on performance obligations, such as furnishing materials to the performing party or completing work that is a predecessor to the performing party's work. When a party fails to perform its physical work in accordance with the contract terms, and this failure affects the other party's cost and/or time on a project, the affected party can assert an affirmative claim to seek recovery per the contract terms. Typical performance issues involve:
Quality Issues: When the physical work of one party is noncompliant with the contract requirements and it impacts the other party's costs and/or time on the project.
Schedule Issues: When the work of one party is not performed per the contract schedule and this impacts the other party's costs and/or time on the project.
Separate Contractor Issues: When the physical work of one of the party's subcontractors, vendors, or separate contractors is noncompliant with the contract requirements and the contract makes this party responsible for its entities, and one of these entities impacts the other party's costs and/or time on the project.
D. Third-Party Issues
Third-party issues typically fall into one of two groups. First, when a party to an agreement, such as a subcontractor in a contractor–subcontractor agreement, is impacted by an owner–designer issue, most contracts allow the subcontractor to submit a claim to the contractor and then the contractor is obligated to pass the claim through to the owner for attempted recovery. Standard contract agreements have strict procedural requirements for this type of claim. Second, when one or both parties to an agreement are impacted for reasons that are out of the control of both parties to the contract, such as a hurricane, certain contract forms allow additional time as the exclusive remedy for the claimant, while others keep the door open for the recovery of both cost and time impacts related to the impact. For this second group of impacts, standard contract forms also have strict procedural requirements such as the source for weather data, etc. Examples of third-party issues include:
Pass Through Issues: When the agreement between two parties contemplates pass through claims and when the performing party that is able to submit a pass through claim has cost and/or time impacts due to a pass through issue, such as a design error.
Abnormal Weather Issues: When the agreement between the parties contemplates average weather conditions and when the performing party has cost and/or time impacts due to abnormal weather conditions.
Force Majeure Issues: When an event that is beyond the control of the parties to a contract either precludes or postpones performance under the contract and this impacts one or both of the parties' costs and/or time on the project.
E. Change Order Negotiation Issues
When both parties to an agreement relating to a construction project agree that the claimant is entitled to a change order or backcharge under the agreement but the parties cannot agree to the cost and/or time impacts sought by the claimant, dispute resolution provisions are often triggered by the claimant to resolve time and/or cost impacts.
Summary
Most claimants wait until the end of the project to move forward with a dispute resolution even though most contract forms consider that such issues will be resolved during the project. Claimants generally take this position to help keep the peace while work is underway; however, this strategy simply kicks the proverbial can down the road and often leads to a nuclear conclusion of the project. Moreover, many standard contract forms allow the paying party to direct the performing party to complete change order work while the cost and time impacts are resolved—this type of direction can place cash flow strains on the performing party and again cause large disputes at the tail end of projects.
4 Step 3: Fulfill Pre-Claim Requirements and Notice Requirements
Construction contracts often prescribe both pre-claim requirements and formal claim notice requirements. In addition, most contracts require that notice be issued in writing and transmitted via an accepted method, such as certified mail or registered mail, archaic as that may seem. Contractor pre-claim notice requirements allow the respondent the opportunity to render a decision on the issue before it is elevated to a formal “claim” status. Formal claim notice generally comes after the respondent has rejected all or a portion of claimant's change request.
It is common for claimants to ignore or otherwise fail to adhere to pre-claim notice requirements and/or formal claim notice requirements. Because lack of notice defenses can cause draconian results for claimants, state and federal courts have ample case law on this subject. States vary on their treatment of respondent's “failure to provide proper notice” defense. A minority of states interpret notice provisions strictly and often time bar delinquent claims, regardless of merit. Most states and federal courts take a more liberal “fairness” approach and often accept claimant defenses that can demonstrate that the respondent:
1 had constructive notice;
2 was not prejudiced due to the lack of notice; or
3 waived notice requirements based on prior conduct.
Claimants that fail to adhere to strict notice provisions and whose claims are rejected by respondents based on a lack of notice should contact a qualified construction attorney to discuss available defenses.
Constructive notice means that the respondent knew or should have known about the claim event. This may include verbal notice, discussions at a meeting(s),