Construction Claims

by Upali Fernando

MRICS,MCIOB,MAcostE,ACIArb,MASI,AIQS(SL) (Chartered Quantity Surveyor, Cost Consultant, Independent Adjudicator and Charted Builder) Managing Consultant WANFERND CONSULTING Construction Consultant Specialized in Quantity Surveying, Project Management and Claims and Contract Administration http://www.wanferndconsulting.com [email protected]

CLAIMS RELATED TO CONSTRUCTION

The following types of claims are encountering in construction contracts;

Claims arising out of the contract Ex-Gratia claims Claims related to Common Law

1. 2. 3.

CLAIMS ARISING OUT OF THE CONTRACT

These claims arises due to the breach of expressed and/or implied terms of the contract. Such claims may relate to any or all of the following; Claims related to extension of Time for Completion Disruption Claims Fluctuation Claims Variation Claims Loss and Profit Claims

CLAIMS RELATED TO EXTENSION OF TIME FOR COMPLETION

Any properly drafted contract would entail two provisions ; a definite beginning ( Commencement Date ), and; a definite end ( Completion Date). To enforce the completion date the Contract provides a provision to the Employer to deduct a pre-determined sum ( generally per day ) from the Contractors entitlement ( payment ) if the Contractor fails to complete the works by the Completion Date. This charge is called Liquidated Damages(LD). However, this Liquidated Damages can only be applied for the delays where the Contractor is solely at fault.

CLAIMS RELATED TO EXTENSION OF TIME FOR COMPLETION ( Contd. )

But the completion of works may also get delayed due to employer faults as well. In a situation where the employer cause delay to the completion of the work, then the agreed contractual completion date will no longer become valid/binding upon the Contractor; hence time becomes at large. When time becomes at large, the Contractor will only be obliged to complete the Contract within a reasonable time and more importantly the liquidated damages clause will fall away.

If the liquidated damages falls away the Employer would not have any provision to penalize the Contractor for his subsequent defaults. Therefore the purpose of granting extension(s) of time ( EOT) is to allow the date or period for completion to be adjusted in circumstance where the Employer has caused a delay.

Extension of Time claims As per the relevant Clauses of the Conditions of Contract, the Contractor shall entitle to give notice to the Engineer if the Contractor has an intension to claim Extension of Time due to the following reasons and the Engineer shall ,after due consultation with the Employer and the Contractor, determine the amount of such extension and shall notify the Contractor accordingly, with a copy to the Employer.

a) the amount or nature of extra or additional work b) any course of delay referred to in the Conditions of Contract, i) Not foreseeable physical obstruction or conditions, ii) Fossils,

iii) Engineer's determination where Tests not provided for,

iv)Engineer's Determination following Suspension

v) Failure to Give Possession,

vi) Contractor's Entitlement to Suspend Work, c) Exceptionally adverse climatic conditions, d) Any delay, impediment or prevention by the Employer, or e) Other special circumstance which may occur, other than through a default of or breach of contract by the contractor or for which he is responsible.

The above e) is clearly indicate that whether it is contractually or not, if the contract is delayed due to any reason other than the reasons which was happened due to his faults The Contractor's Quantity Surveyor's duty is to send the required notices in time.

Note; It is very important to read the appropriate Clauses in conjunction with the appropriate Clauses in Part ii of the Conditions of Contract (Contract Data), since the terms and required dates can be amended in Part ii of the Conditions of the Contract and Particular Conditions (Conditions in Part ii of the Conditions) shall supersede the General Conditions.(Conditions in Part I)

Contractor to provide Notification and Detailed Particulars

Hence the Contractor's Quantity Surveyor should give notice to the Engineer with copy to the Employer informing that pursuant to the relevant Clause of the Contract the Contractor is required extension of time due to the appropriate reasons which are purely beyond the responsibilities of the Contractor.

Interim Determination of Extension Provided also that where an event has a continuing effect such that it is not practicable for the Contractor to submit detailed particulars within the stated period of 8 days referred to in Sub-Clauses),he shall nevertheless be entitled to an extension of time provided that he has submitted to the Engineer interim particulars at intervals of not more than the stated days and final particulars within stated days of the end of the effects resulting from the event.

L E T T E R H E A D Our ref:BD Wl/c/01/09 08-Jun-09

M/SDESIGN EXPERTS .. .. Attention Dear Sir Project Subject BOUNDARY WALL AT PUDUKUDUIRAPPU DELAY EVENT NO 1-Not Foreseeable Physical Obstruction or Conditions (from Chainage + 280 to+310 in Sewer Line "A")- Notice of the Delay event No 1 : The Engineer

In pursuant to Clause 44.2(a),we give our notice that the above delay event has occurred within the last 28 days which is such as fairly entitle us to an extension of time for the completion of the Works or a section or part of thereof. Further we inform you that the above delay is occurred with related the the Clause 44.1(b) Thank you Yours faithfully, FOR . .. (Authorised signatory) Copies - 1) The Employer 2) The Engineer's Representative

L E T T E R H E A D Our ref:BD Wl/c/02/09 28-Jun-09

M/SDESIGN EXPERTS .. .. Attention Dear Sir Project Subject BOUNDARY WALL AT PUDUKUDUIRAPPU DELAY EVENT NO 1-Not Foreseeable Physical Obstruction or Conditions (from Chainage + 280 to+310 in Sewer Line "A"-Interim Particulars No.1 1) SEC to DE letter BD WI/c/02/09 dated 08 June 2009 : The Engineer

Reference

Further to our above reffered letter with regard to aforementioned subject In pursuant to Clause 44.2(b) and Clause 44.3 of the Conditions of Contract, we enclose herewith our interim particulars up to 28 June 2009 for your investigation and prompt action of granting extension of time to which ,we consider ouselves entitled . 31 -31

Thank you Yours faithfully, FOR . .. (Authorised signatory) Copies - 1) The Employer 2) The Engineer's Representative

L E T T E R H E A D Our ref:BD Wl/c/03/09 M/SDESIGN EXPERTS .. .. Attention Dear Sir Project Subject BOUNDARY WALL AT PUDUKUDUIRAPPU DELAY EVENT NO 1-Not Foreseeable Physical Obstruction or Conditions (from Chainage + 280 to+310 in Sewer Line "A")-Interim Particulars No.2 1)SEC to DE letter BD WI/c/01/09 dated 08 June 2009 2) SEC to DE letter BD WI/c/02/09 dated 28 June 2009 : The Engineer 26-Jul-09

Reference

Further to our above reffered letters with regard to aforementioned subject In pursuant to Clause 44.2(b) and Clause 44.3 of the Conditions of Contract, we enclose herewith our interim particulars up to 26 July 2009 for your investigation and prompt action of granting extension of time to which ,we consider ouselves entitled . Thank you Yours faithfully, FOR . .. (Authorised signatory)

L E T T E R H E A D Our ref:BD Wl/c/04/09 M/SDESIGN EXPERTS .. .. Attention Dear Sir Project Subject BOUNDARY WALL AT PUDUKUDUIRAPPU DELAY EVENT NO 1-Not Foreseeable Physical Obstruction or Conditions (from Chainage + 280 to+310 in Sewer Line "A")-Final Particulars : The Engineer 23-Aug-09

Reference

1)SEC to DE letter BD WI/c/01/09 dated 08 June 2009 2) SEC to DE letter BD WI/c/02/09 dated 28 June 2009 3) SEC to DE letter BD WI/c/03/09 dated 26 July 2009

Further to our above reffered letters with regard to aforementioned subject In pursuant to Clause 44.2(b) and Clause 44.3 of the Conditions of Contract, we enclose herewith our final particulars up to 23 August 2009 for your investigation and prompt action of granting extension of time to which ,we consider ouselves entitled . Thank you Yours faithfully, FOR . .. (Authorised signatory) Copies - 1) The Employer 2) The Engineer's Representative 0

On receipt of such interim particulars ,the Engineer shall, without undue delay, make an interim determination of extension of Time and, on receipt of such interim particulars, the Engineer shall review all the circumstances and shall determine an overall extension of time in regard to the event. In both such cases the Engineer shall make his determination after due consultation with the Employer and the Contractor and shall notify the Contractor of the determination, with a copy to the Employer

No final review shall result in a decrease of any extension of time already determined by the Engineer.
Notice Procedure a) Draft properly (include the contents required by the Contract- event, duration, potential effects, intention to claim etc. b) Serve in a timely manner (within the time stated in the Contract-shortest time) c) Serve in a proper manner (address to, copy to and sign by, the authorised persons, deliver to the stipulated address by the stipulated method and retain proof of delivery. d) Maintain a log (register)for notices served.

Considering the effect on and how it should affect the based programme of the project to be suggest by the planning engineer after collaboration with the project manager/site agent and quantity surveyor it should be decided.

If you have encountered more than one delay event you may submit combined delay particulars giving details for each delay in separate page. when calculate the delay amount you have to prepare revised programme based on the original contract programme

THE CONTRACTORS BENEFIT FOR SUBMITTING CLAIMS FOR EOT

To protect themselves against any potential Liquidated Damages, To recover the costs of Site Overheads (Preliminaries ) and Head Office Charges for the period extended from the original Completion Date.

Contractual Provisions to produce an EOT claim

When claiming for EOT the Contractor has to establish the following; that the Contractor is not responsible for the subject delay, and; that the reasons for the delay are the ones hold the Employer liable under the provisions of the Contract; these delays are known as excusable delays.

DELAY AND ASSESSMENT OF DELAYS

Delays contributed by the Engineer/the Employer may impact the project in two ways;
Delay to the progress of works such delays are occurring merely on a single activity ; these delays may not necessary affects the completion date of the project. Delay to Completion Date some delay to the progress will also result in a delay to the completion of the project. Importantly and often most difficult task therefore is to identify which delays to progress cause a delay to the completion and determine it extent.

KEY ELEMENTS IN PREPARATION OF AN EOT CLAIM

The role of the programme The programme or more specifically base-line programme is an essential tool for planning , managing of the control of a project. Programme generally provides the Contractors intention to go about with his task of executing works.

Following are the main objectives of a base-line programme; a) Determine the earliest date upon which the completion can be achieved b) What are the critical activities ( critical path ) in order to achieve the completion date on time c) Demonstrate the interrelationship/interdependancy among activities d) Presenting a logical sequence to the site operations. e) Identify the time constraint imposed by labour, plant and materials.

KEY ELEMENTS IN PREPARATION OF AN EOT CLAIM (Contd.)

The role of the programme for presenting EOT claims Base-line programme act as a yardstick when it comes to establishing the effect of a disruption on the progress of works thereupon the completion date. How you demonstrate a delay in a programme ?

Step1- use the base-line programme and update it just before the delay occurs. This will gives the reader an indication that if the subject Employers delay had not occurred the project would be finish by certain date.
Step 2- then you insert/include the Employers delay as an activity and show what has happened to the completion date due to the Employers delay. Step 3-Maintain all records (contemporary records) to substantiate the above both steps

The difference of Completion Dates ; i.e. Completion Date without the Employer delay ( step 1 ) and the with Employers delay (step 2) is the Contractors entitlement for EOT.

CONTEMPORARY RECORDS
It is very important to submit all required contemporary records such as: *appropriate correspondence (incoming and out going letters) with regard to the relevant delay/s *Appropriate photos

* news paper cutting , etc.

to establish the gravity of your case

MITIGATION ACTION

Being an experience Contractor you have to convince the Engineer/Employer with substantiations that you have taken the all possible and reasonable efforts to mitigate/reduce/minimize the Cost impact due to the delay

PROCEDURE TO CREATE AN EOT CLAIMS

The Conditions of the Contract ( COC ) will states the procedural requirement that the Contractor need to fulfill to submit a EOT claim. Step 1- If the Contractor believes that any potential delay have occurred due to the Engineer or Employers fault, he is required to promptly notify ( see the COC to know the time frame ) of his intention to claim for extension of Time for Completion and receive additional costs in that regard. Step 2- Following the notice , the Contractor is required to provide particulars with proper substantiation by using the Programme (programme may be based on software such as Microsoft or more advance Primavera )and any other evidence to prove

The Engineer may determine/quantify the extent of extension of time which the Contractor is entitled to. However keep in mind that the when assessing your entitlement , the Engineer will assess delay contributed by you to the completion of the project. So while claiming for your entitlements make sure to keep your house in order always.

Claiming for additional cost associated with EOT claims

Due to the delay to the progress of works, the Contractor may incur two types of additional costs; Extended preliminaries Extended Head Office costs

HOW TO EVALUATE EXTENDED PRELIMNARIES

This can be derived by arriving the total actual cost of time related items in the Preliminaries and dividing by the Contract Duration and multiply by the number of dates extended. Example i) The amount of time related preliminaries including Overheads = Rs. 3,000,000.00 & Profits.

ii)The amount of time related preliminaries excluding Overheads and Profits (Assumed 20% as the Overheads & Profits) = Rs.3,000,000.00 x 100
120 =Rs.2,500,000.00 ii) Contract Duration say 400 calendar dates Hence day rate is

=Rs.2,500,000.00
400 = Rs 6250.00 = Rs.6250.00 X 20 days

iii) Number of Days extended say 20

iv) Then the Amount of extended Preliminaries 125,000.00

= Rs.

Some time this preliminary based method may not be accepted by the Engineer. In such events the Contractor has to substantiated with actual cost incurred within this extended period.

HOW TO EVALUATE EXTENDED HEAD OFFICE COSTS

It is very difficult to find out exact additional costs to the head office due to the extended period of a single project. Accordingly various formulas being used to calculate , if the Engineer is willing to accept , head office costs. Such formulas are; Hudson Formula Emden Formula Eichleay Formula Hank Laan Formula Modified Eichleay Formula

Emstorm Formula Manashl Formula Cartert Formula Allegheny Formula Samaratunga Formula

EXAMPLE HUDSON FORMULA

If the Initial Contract Price is

If the Overhead percentage is (b/100)

If the original Contract Duration is c

Then the Amount of Day Rate is y

Hence the extended dates say

a x b =
c z

Then the amount of extended head office costs is

y x z

Total E.O.T claim = extended preliminaries + extended head office cost

Note But the present days normally the Engineers are not respecting any of the above mentioned formulas on calculating head office overhead charges and preliminary based method for calculating extended site overheads , but insisting actual costs incurred.

PRESENTATION AND NEGOTIATION

He who asserts must prove ; the burden of proof rest with the person who is claiming ( i.e. the Contractor ).

Following are the most important aspects when making an extension of Time Claim; Be mindful of the provisions of the contract ; these provision will first and foremost determine your entitlement, so comply with them. Remember what you need to establish; do not bring irrelevant point to your claim. Stick to what you are claiming. Communicate effectively ; the reader of your claim should not struggle to understand what you are saying. Use clear language and shorter sentences Summaries clearly Support what you state with evidence Be timely

ANY QUESTIONS on E.O.T claims

THANK YOU