Contract Administration 341

opic 9

Claims

Topic 09 (Claims).doc

Table of Contents
TABLE OF CONTENTS ........................................................................................................................... 2
LECTURE OBJECTIVES. .......................................................................................................................3
CLAIMS (AS 4000 CLAUSE 41 & WHOLE OF CONTRACT) ........................................................... 3
INTRODUCTION .......................................................................................................................................3
DEFINITIONS ............................................................................................................................................3
COMMON CAUSES OF CLAIMS ................................................................................................................5
VARIATION CLAIMS ................................................................................................................................ 5
HEADS OF CLAIM .....................................................................................................................................9
LOSS AND EXPENSE ............................................................................................................................... 10
PREVENTATIVE MEASURES & ASSESSMENT OF DELAY ........................................................................10
SELF ASSESSMENT QUESTIONS ...................................................................................................... 13
BIBLIOGRAPHY ....................................................................................................................................14

Curtin University of Technology

School of Architecture, Construction and Planning

Page 2 of 14
(04/06/99)

Topic 09 (Claims).doc

Lecture Objectives.

Identify 3 common reasons for a claim and be able to discuss particular aspects.

List several heads of claim and be able to discuss preventative measures and
assessment of delay.

CLAIMS (AS 4000 Clause 41 & Whole of Contract)

Introduction
Claims for loss and expense and for extensions of time to the contract are a familiar
feature of construction. The contract documents allow for changes in the scope and the
final construction scope may vary considerably from that envisaged at the time of
tender.

This aspect is not all bad news for the client as careful management of

variations to the scope may enhance the project and afford considerable savings in
terms of cost and time upon completion.

Definitions
A claim may be simply defined as a request, often supported by little or no detail, for
something that one party to a contract believes that it is entitled to under the terms, or
implied terms, of the contract, but for which at the present there is no formal
agreement.
Construction claims may be defined as a variation that has not been accepted by the
parties to a contract. The end product of the claim is either time or money or both that
one party requests from another.
Claims and contractual entitlements are emotional issues in the context of construction
contracts because they have such a bearing on a successful outcome. Many people
believe that there should be a clear distinction between Claims and Entitlements
fluctuations, extensions of time, ascertainment of direct loss and expense
are more properly to be called contractual entitlements and the word
claim should be probably left for those matters which are in effect requests

Curtin University of Technology

School of Architecture, Construction and Planning

Page 3 of 14
(04/06/99)

Topic 09 (Claims).doc

for money compensation for breaches of contract by the Employer or his

professional agents for which there are no specific contractual
entitlements
An example of a claim would be the extra cost due to the Contractor where the date for
possession is not honoured since the contract provides no specific remedy.
Entitlement would be a request for money compensation for a late instruction
nominating a heating sub-contractor.
This approach has been accepted by various experts who suggest;
more properly a claim is a cause of action based in law.

Standard Contract Terminology

Widely used standard forms of contracts use the following terminology regarding
claims, (RAIA, 1995), (Standards Australia, 1995):
JCC-C

...if he (the Contractor) desires to claim an extension of time.

AS 2124 -1992

the Contractor gives the Superintendent a written claim

AS 4300 -1995

the Contractor gives the Superintendent a written claim

AS 4000 - 1997

that party shall give to the other party and to the Superintendent the
prescribed notice

Reasons for Claims

Alleged action, inaction or wrong action by one or more of the participants to the
contract is often quoted as being the reason for a claim.
Two factors need to be considered and justified in determination of a claim, they are,
the actual entitlement to the claim and the value of the claim.

Curtin University of Technology

School of Architecture, Construction and Planning

Page 4 of 14
(04/06/99)

Topic 09 (Claims).doc

Common Causes of Claims

variations whether; alteration, addition, omission
ground conditions not as specified
poor scope definition
poor documentation
slow or lack of supply of information

Variation Claims
For every contract there is an optimum number of variations that will ensure that the
scope in terms of cost, time and performance are met to the clients satisfaction. In law
there is no such thing as a variation claim, the term is simply used to describe a variety
of different categories of claim. If the Contractor wishes to succeed in a variation claim
it must make the claim fit a contractual circumstance. Most contracts contain a clause
that allows for variations to the scope of works and as such the claim is under the
terms of the contract. Should the contract not allow for variations then the claim
would be based on unjust enrichment. Remember, the Contractor is only bound to
execute a variation which is within the general scope of the contract. Nomination of
extension of time costs to be associated with variations may be included at the time of
the tender submission. This action will accommodate the time-related costs.

Other Reasons for Claims

Several other reasons for extension of time are predictable and include:

weather

industrial relations problems

late information

Curtin University of Technology

School of Architecture, Construction and Planning

Page 5 of 14
(04/06/99)

Topic 09 (Claims).doc

However, as a consequence of their predictability they are only likely to be agreed to in

the even that they are exceptional conditions.

Weather
Weather statistics and historic records are available and the Contractor should allow
for delays as a result inclement weather in the tender price. The RAIA in their practice
note PN47 discuss alternatives where the risk for weather allowances may be passed
onto the Contractor and they are generally dealt with by additional wording in the
specification;

The works program shall include fifteen working days in which the project works are
deemed to be delayed. No extension of time shall be granted unless the actual delay
exceeds the deemed delay and then only for the delay in excess of the allowance.

These clauses are often used when the client is determined that the project should be
handed over on a specific date and all risks should be passed onto the Contractor.
Often they fail, the risk holds a price which will invariably be passed from the
Contractor to the client.

In assessing whether the Contractor has been delayed for this reason it is important to
remember that the weather must have been exceptional in order to give rise to a delay.
Adverse weather must have an affect on the Contractors program of works to be
allowable as a claim:

If the Contractors work is programmed so that the foundations are constructed in

cold winter months, it will not be entitled to an extension of time merely due to the
fact that on some days the weather was too cold for concrete to be poured, since low
temperatures should be expected.

What will be the outcome if the Contractor through its own fault is delayed and
constructing elements of the project in the wet season when it should have, in normal
circumstances, been constructed in dry weather?

Curtin University of Technology

School of Architecture, Construction and Planning

Page 6 of 14
(04/06/99)

Topic 09 (Claims).doc

This argument has been considered by the English courts in, Walter Lawrence and Son Ltd. v
Commercial Union Properties Ltd. (1984) 4 Con LR 37. The findings being that delay due to
weather must be considered in relation to the work being carried out by the Contractor at the
time of the delay and not by referencing to the work which would or should have been
happening in accordance with the Contractors program of operations.

Industrial Relations
Industrial relations problems are not at all easy to anticipate but an experienced
Contractor can make an assessment based on historic data and an assessment of the
present industrial climate in which it has to work.

Late information
It is said that in most lump sum contracts the design work will be completed before the
actual works start on site.

Inevitably there will always be questions from the

Contractor for additional information or clarification required. Often Contractors will

state that they have been delayed because information was not received in due time.
The courts have established that if it is not possible to avoid delay due to the fact that
neither party had realised sufficiently in advance that the information was necessary,
the Contractor is not entitled to an extension of time.

Minutes of meetings are often used as a vehicle to communicate the requirement of

information. They will not always suffice as a valid notice if tested by the courts,
particularly if the Superintendent writes them. A contractor's progress report that
contains all the relevant information may well prove sufficient.

The case of Stanley Hugh Leach Ltd. v London Borough of Merton, (1985), provides an
insight as to whether the courts are prepared to accept the program of works as a
notice to provide sufficient detail for the establishment of late information. In this case
it was held that it could.

It should be noted however that delay to the Contractors program due to resequencing of the work by the Contractor might change the outcome in the above
example.
Curtin University of Technology
School of Architecture, Construction and Planning

Page 7 of 14
(04/06/99)

Topic 09 (Claims).doc

Information should be requested with regard to the completion date of the project. If
the project is moving at a faster rate than envisaged this may be disregarded by the
Superintendent who should provide information at a time that enables the Contractor
to maintain the program.

Global Claims
In an attempt to reduce the cost involved in researching and producing the paperwork
that is required to justify a claim regarding a specific occurrence it has become
common place for Contractors to roll numerous claims together and state that all the
factors of delay have had an mutual impact.

Global claims or total cost claims as they are known in America may be defined as:

Those claims where a global or composite sum, however computed, is put

forward as the measure of damage or of contractual compensation where
there are two or more separate matters of claim or complaint, and where it
is said to be impractical or impossible to provide a breakdown of the sum
claimed between those matters.

In a simple scenario the Contractors are saying;

there have been 250 variations, the client denied us access to several levels when it
was clearly programmed, we had to reprogram the closing stages due to the artists and
tradesmen of the client, the job is 16 weeks behind time, without checking too much it
is clear the variations together with all the other factors are the cause of the delay.

Global claims first obtained approval in 1967, (Sutton 1995).

A more recent case

occurred in 1985. The case being Stanley Hugh Leach Ltd. v London Borough of
Merton. (1985).

The arbitrator had found it impossible to apportion individual sums to individual

items in the claim.

Donaldson J decided the arbitrator was entitled to make

Curtin University of Technology

School of Architecture, Construction and Planning

Page 8 of 14
(04/06/99)

Topic 09 (Claims).doc

individual awards of isolated matters and a composite award in respect of the

balance. Vinelot J confirmed that a rolled up award would be permitted where the loss
attributable to each head of claim could not in reality be separated.

Arbitrators have appeared to accept these circumstances and have awarded in favour
of the Contractors, but recent cases indicate that this procedure is inherently
dangerous. Arbitrators may have sympathies for the Contractor, but it is incumbent on
the party seeking recovery of loss and expense to provide the best possible particulars
of the loss and the specific causes. Whilst one aspect of the claim may be acceptable, it
may be lost due to incorrect emphasis placed on an unacceptable aspect of the claim.

Objections to the principle of global claims:

the total cost computation is not evidence that there is a breach

even with evidence of breach the cost increases may be due to other factors;
underpricing, poor site organisation, cost control or external factors such as
labour or material shortages.

An analysis of cause and effect must be shown to be successful in any claim, albeit of a
global or rolled up nature. There must be a genuine attempt to disentangle the heads
of claim by the Contractor. Claims pleaded on a rolled-up or global basis are a high
risk, all or nothing strategy. They are at best suspect due to the lack of detail provided.

Heads of claim
Typical heads of claim will include the following:
prolongation costs
disruption costs
loss

Curtin University of Technology

School of Architecture, Construction and Planning

Page 9 of 14
(04/06/99)

Topic 09 (Claims).doc

expense

Loss and Expense

Loss is the actual loss incurred as a result of a circumstance and expense is the
expenditure resulting from the circumstance eg:

Plant hired for a project is no longer required due to an unforeseen circumstance,

loss is the associated profit attracted to the work undertaken by the plant
expense is the cost of hire of the plant

Preventative Measures & Assessment of Delay

In justifying claims and providing information for an audit trail well-organised and
thorough records are required. The following procedures and records will assist:

Improve and adhere to quality assurance programs

Review the contract carefully

Review the program of works carefully

Establish an early warning system including; diaries, reports and concise filing
systems

Keep accurate up to the minute records

Be prompt in your request for variation orders

Accept a fair settlement, mitigate losses at all times if appropriate

Act quickly do not ignore the problem

Curtin University of Technology

School of Architecture, Construction and Planning

Page 10 of 14
(04/06/99)

Topic 09 (Claims).doc

Recognise your responsibility in the project team, work with the other
professional members and consultants.

Maintain an as built construction program

Keep accurate site progress sheets

Keep notes of discussions held, contractors or cow reports

Identify the dates when the work associated with potential variations started
and finished

Keep a record of weather conditions

Record the current workforce and equipment levels

Identify the status of documented progress to which the variation or daywork

items should relate

Regular progress photographs also provide good records especially when the
date and time is recorded on the plate.

It is true to say that the entire above list is important but progress records are
particularly important in support of claims.

Accurate Records
A process that will produce the desired information to substantiate claims requires the
preparation of exact as-built records that identify the process of events that took
place in the development of the project.

Unfortunately these records are seldom

available. It is a common failure of both the site and office management that despite a
rigorous analysis of the records minutes, valuations, diaries and charts, no sufficient
collective detailed history is available. The problem with records that are available are
that they lack consistency, continuity and often legibility.
Curtin University of Technology
School of Architecture, Construction and Planning

Page 11 of 14
(04/06/99)

Topic 09 (Claims).doc

To provide quality records inexperienced staff should be assisted by the more

experienced members of the project team and company guidelines and procedures
(particularly the Quality Plan) should be such that appropriate information recording
is encouraged and documented templates are provided.

A certain amount of foresight which comes with experience is also required as it is not
always easy to predict what matters will lead to a claim situation developing.
Accordingly it is difficult to predict what information actually requires recording, so
record it all.

Curtin University of Technology

School of Architecture, Construction and Planning

Page 12 of 14
(04/06/99)

Topic 09 (Claims).doc

SELF ASSESSMENT QUESTIONS

1. A housing project is tendered for that has a date for Practical Completion of
31 May 1999. Several variations are issued. One attracts an extension of time
of one month and a second (after negotiation) is seen to have delayed the job
by six weeks.

The project is completed and handed over, the date of

Practical Completion is determined by the Superintendent to be 31 August

1999. LDs are calculated as set out in the appendix as $5000.00 per week or
part of a week.

Are LDs due to the employer and if so what is the value?[A1]

2. The client, via the Superintendent, is slow in providing detailed information

to the contractor for the construction of pile caps on a particular high rise
project. The contractor makes and details an extension of time on the basis
of the late information. The Superintendent refuses to grant the contractor
an extension of time.

What are the Superintendents responsibilities? If the argument was taken to

court what would be a likely outcome?[A2]

3. If, in the same scenario as 2 above, the detailed information was a variation
and the contract was found to be silent on the issue of variations what
would be the likely outcome of a court battle?

Curtin University of Technology

School of Architecture, Construction and Planning

Page 13 of 14
(04/06/99)

Topic 09 (Claims).doc

Bibliography
Bailey, I. H. Construction law in Australia 2nd edition, North Ryde, N.S.W. LBC
Information Services, 1998.

Cremean, D. J.,Brooking on Building Contracts: the law and practice relating to

building and engineering agreements, 3rd edition, Sydney: Butterworths, 1995.

James, J. F. 1998, Contract Management in Australia, Longman, Melbourne.

Standen, D,. Construction Industry Terminology 3rd edition Melbourne RAIA Practice
Services. 1993.

Curtin University of Technology

School of Architecture, Construction and Planning

Page 14 of 14
(04/06/99)