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CLAIMS NAL WORKS ARISING UU! OF VARIATIONS AND Al A Case of the Buitding Construction Industry in Kenya PS. Kisia BA(BI) Tons ily Registered Quantity Surveyor, McLarb, Claivns Consultant TLiFt up My eye? to tHe HILL2.. WHERE Dok? MY HeLp Come FROM...2 Preamble The Construction Industry, today more than ever before is in a period of transition, Challenged from all sides to produce a better product more efficient and that responds to the Reeds of the aged, young, the disabled and the terrorist, the industry is now realizing that better management of resources is a key factor to both survival and future growth, Further, as the economy continues to tighten, in an environment of profit focus, it is now inevitable, more than ever before for the contract documents to focus on the importance of developing accurate estimates of the project inpuis namely; quantum of materials, plant, machinery, tools, labour, finance and most importantly, construction time. The possibili to ‘make profit will be improved with the contractor's ability to track down these inputs together with the conduct of the subcontractor. While the contract documents try to be accurate, the documents remain a projection of a future event, The Contractor and Developer (or owner) therefore makes assumptions when entering a construction contract. These assumptions do not necessarily coincide. When these assumptions are not fulfilled, a claim usually ensues This paper focuses on the assumptions on construction time based on quantum of work defined in the contract documents and the financial strain on the contractor resulting from time escalation on account of increased seope of work. A. THE CONTRACTOR'S ASSUMPTIONS ‘The contractor thet enters into @ construction contract with the owner makes certain assumptions:- 1. that the owner has accurately and completely defined the entire scope of work. This enables the contractor to project costs and profits and successfully complete the project. Thio aooumption ia made on the basis thet plans and aperificalivus are complete and accurate, nothing being left to guess work. 2. that the owner hes fulfilled auy seyuitcutculs uovessay W pluveed with construction, Such requirements may include approval of plans, the ownership of the land upon which the project is to be cuustructed, dic land is fee of any obstructions, financing is secured, and everything isin place for construction. When assumptions are not fulfilled, extra-contract expenses are sure to arise resulting in claims and the contractor must be ready. 0 avoid these expenses, the contractor must understand, observe and maintain some clear rules to clearly put to focus the scope of work and ettecttvely execute the contract. @) Read and know the contract documents with respect to scope of work Reading and understanding the contract documents (the Agreement and Conditions of contract, Bills and Drawings) is a simple and surprisingly the most misunderstood task. Many contractors believe that the contract documents simply include the basie contract and he technical specification for the work. Many other contractors believe the Agreement is for the lawyers to know and understand as long as the contractor has the Drawings and the Bills. It is important to convince the construction supervisors that the Agreement is not overly complicated and are intended to provide them with ¢ roadmep to administer the contract, The Agreement will not construct the project but they will guide the construction of the project, The Conditions of Contract would stipulate rights and obligations upon which variations are ordered. They would specify any limitations on time, type of variations and capacity to order. 4) Develop a comprehensive and aceurate schedule of construction Developing an accurate and comprehensive construction scliule is alu un important task that is misunderstood. Whether or not the owner requires a schedule, a schedule is a Valuable tool that every construction pijeut uceds, especially if an untimely inewent should occur. These project schedules do not have to be complicated. They must however be accurate, current and reliable. A couipieleusive constructton schedule notifies the owner and the contractor that construction tasks have been performed, are being performed or are planned, Should the owner desire to change the scope of work or add or modity the work, the owner must be given opportunity to know whether the task has already been performed, or when it is scheduled to be performed or whether itis scheduled to be performed at al. A comprehensive construction schedule also informs the contractor of when specific ‘materials, equipment or labour is needed to perform a specific work task. The accuracy of the schedule must include any updates to the schedule should changes or plans regarding a specific work task change. It is critical to inform the parties regarding the reason for schedule change, whether it is a work scope change or a modification to the exeeution of a task. Even if the contractor is responsible for the change, an explanation is necessary in case other work tasks ate affected, ©) Prepare accurate and comprehensive daity construction reports These daily reports should be inclusive of any and all issues affecting the project regardless of responsibility for the issues. These reports should accurately and comprehensively outline work progress. This allows the contractor to provide daily updates on productivity as necessary. Complete daily reports allow others to update construction schedules rather than consuming the valuable time of the foremen. © Any icone that affiets productivity chould be itomiced on the daily reports to cstablisl record, Should the owner issue a variation and thus affect productivity, a record can be established. If'a eubeontrastor causes an iasus, it should be recorded. If the vuntracior's staff cause an issue, it must be recorded. Accurate, unbiased daily reports are credible couroso for establishing a record of events affecting daily wuik puuductivity &) Timely notify the owner of any issuey that may uffeet the scope of work Ta euustsuciion issues outside the expected occurs on a project, the contractor generally notifies the owner. The construction issues or discovery may or may not affect the contractor's overall project productivity, but if there 1s the possibility of productivity impact and the issue is not the contractor's responsibility, the owner must be notified, It is important to know that most contract provide the manner and timing of such notification which if not followed, a claim may fail. The timely and accurate reporting is important to the owner as well as it allows the owner ability to correct the detrimental impact of the construction issue or at least understand the potential consequences of the construction issue. ©) Keep track of costs Most contractors maintain a track of costs, However methods of tracking costs differ from contractor to another. Even the simplest costing system can be ulilised if the lowest, level of tracking is comprehensive enough to establish the actual cost of specific issues that need to be evaluated, f) Maintain inclusive documentation Accurate and timely documentation of detrimental construction impacts should assist in the mitigation of construction claims resulting from such impact to a project. B_THE OWNER’S ASSUMPTIONS The owner, like the contractor cers iuly a vousiruciion contract with certain assumptions:~ 1 tt die woniactur is quadiZied to complete the Work accurately, has sutficient support staff to manage the project effectively, and has financial support necessary to work ‘wilhin the payment provisions of the contract. 2. that the contractor can schedule its work appropriately and efficiently to complete the project within the time Limits allowed by the contract, that the price given by the contractor for the construction of the project is the total amount to be paid. When these assumptions are incorporated but however the owner fails to fulfil its obligations, extra-contract expenses are sure to arise resulting in claims and the owner must be ready. To avoid these expenses, the owner must understand, observe and maintain some clear niles to clearly put to focus the scope of work for the effective execution of the contract. a) Read and know the contract documents with respect to scope of work Reading and understanding the contract documents (the Agreement and Conditions of contract, Bills and Drawings) should be the task for the owner since the owner is the maker of the contract in any event, However the contracts would be drawn by the owner's consultants. Many owners believe that the contract documents are thoroughly understood by the contractors. The contractor would abide by the contract. It is therefore necessary for the owner to be aware of the basic contract requirements, Other owners believe the contract is written only for the contractor and the owner has no requirements to follow. It is important to convince the owner that the contract documents provide the roadmap to manage the project 5) Understand and analyse the contraotor's sohadule of construction Understanding and analysing the contractor's achedule of construction of the project is critical to the owner's ability to manage the project. Most owners require a comprehensive construction schedule to be developed and maintained duvughout the progress of construction. The project schedule does not have to be complicated. They ust huwever be accutale, eutieut aud reliable, AS long as the owner understands the construction schedule, the owner would know the construction tasks which have been performed, are being performed ot are planned. Showid the owner therefore desire to change the scope of work or add or modity the work, the owner would then have opportunity to know whether the task has already been periormed, or when it 1s scheduled to be performed or whether it is scheduled to be performed at all. This enables the owner adjust the project budget and ensure availability of funds so as to dispense with any claims which may arise on account of variations. In situations where the owner shoulders some responsible on the project, a comprehensive construction schedule would inform the owner when specific materials, equipment or labour is needed to perform a specific work task. The accuracy of the schedule must include any updates to the schedule should changes or plans reganding a specific work task change. An owner that understands the schedule can readily evaluate the timeliness and status of the contractor's performance based on the use of scheduled materials, equipment and/or labour. ©) Prepare accurate and comprehensive daily construction reports It is not often that the ower takes the time to prepare a comprehensive daily construction reports, This important task is usually left to the contractor to perform. The contractor ‘would weually prepare conttactor epecific report. Even if the report were projest opecifie, owners should take time to prepare their own written report of progress, These daily reports would be invaluable tools to the owner to mitigate any losses in the event of claims by the contractor on account of orders for variations. Should the contractor affect its own productivity by an act or omission, a record can be established. These comprehensive daily repusts nulify Uae contractor of issues that may be referenced in a dispute situation. @ Respond timely to notification by the contractor of any issues that may affect the ‘Scope of work It a construction issues outside the expected occurs om a project, the contractor generally notifies the owner. The construction issues or discovery may or may not affect the contractor's overall project productivity, but if there is the possibility of productivity impact and the issue is not the contractor's responsibility, the owner must be notified This does not dispense with the importance of the owner making its own private record of any issue that may arise on the project for any future reference. This may include any accident or failure of part of the project. Upon notification by the contractor of any issue, the owner is under obligation to respond timely to such notification including correcting any detrimental impact of the construction issue or at least understand the potential consequence of the construction issue. The owner should similarly evaluate the issue, its timing and the cost of the impact of the issue and if necessary forward instructions to the contractor. A timely response from the owner allows the contractor to adjust the work schedule accordingly and prevent or decrease any loss to productivity. 2) Analyse and research contractor's cost for performing extra wark It is usual that during the construction period extra work would be ordered and performed. The owner may alter an initial intention out of change of mind ot priorities. It is more convenient when these changes come up early during construction. Late orders may involve demolitions of work properly executed. Most contract provide for the auditing of these changes by the owner. This duty has to be carried out in a timely manner to avoid tying the contractor's fimds for Innger time than is allowed by the contract. PD Maintain inclusive documentation ‘Accurate and timely documentation of detrimental construction impacts should assist in ¢he mitigation of construction claims reculting from ouch impoot to a project. Experiences in one project would provide invaluable information for future projects. The owner that maintaing inclusive documentation would more efftetively defend contractor’s elaimns, C. TIME EXTENSION CLAIMS - arising out of Variations and Additional Works Even when both the contractor and the owner follow their respective clear rile outlined above, the resulting project is not assured to be claim free. A construction claim, on the other hand does not necessarily result from disputes among the parties. A claim can develop concurrently with an event that disrupts the construction progress, or it can develop after the results of the disruption are thoroughly reviewed and all cost impacts are evaluated, Claims can develop ftom both the contractor’s perspective and the owner's perspective. An owner's claim against the contractor is rather unusual but does occur. Whichever way the contractor prefers fo present its claim, successfully proving and pricing claims requires an extensive knowledge of key elements of the claim and the ability to illustrate the facts and or position persuasively. Successfully challenging a claim also requires an extensive knowledge of the key elements of the claim, the ability to illustrate the facts, and the ability to respond persuasively to the pricing of the claim, The following are possible heads of claim on extension of time arising out of variations and additional works:- i) Extended Preliminaries ii) Extended use of Machinery. Tools and Plant iii) Extended employment of labour iv) Head Office overheads v) Extended Site Supervision vi) Loss of Profit on lost opporinnities vii) Interest on delayed release of retention vill) Finance Charges ix) Revision of rates x) Statutory dednetions and levies The process of preparing, prosenting and negotiating olaime can cause otrain if not well handled. On the other hand, if well handled, claims negotiated even at arbitration may be the pillar upon which great future relations would be built, Whichever way relation develop, a proper attitude is essential in the settlement of claims on extension of time on account of variationo and additional works. And now these three remain: Faith, Hope and Love. But the Greatest of these is Love PS. Kisia B.A.(B.E.) Hons Nrb, Registered Quantity Surveyor, MCLArb, Claims Consultant 19