A Project Manager’s Guide to Common Construction Claims

A Project Manager’s Guide to Common Construction Claims

February 1, 2007

By Dean B. Thomson

Introduction

When talking with contract managers and contractors about construction claims, it is quite common to meet experienced professionals who fail to identify claims as they develop during a project. Before an A/E, contractor, or subcontractor can preserve or assert their rights, they must be able to first recognize if and when they may be entitled to relief. The likelihood that claims can be resolved, in a manner that is acceptable to both parties, increases when claims are recognized and notice is given as the events transpire. This month’s Briefing Paper reviews the elements of the most common construction claims with examples of how those claims might arise in the field. You may find it useful to distribute this list to your project managers and superintendents to use as a reference guide during the project. When they recognize a claim has occurred, they can then properly document the event in their daily logs, send proper notice, and begin to help track the cost impacts due to the claim.

Differing Site Condition

Most contracts contain a differing site condition clause that allows for an equitable adjustment to the contract price and time under the following two conditions:

Type I: where actual physical (subsurface or hidden) conditions at the site differ materially from the conditions represented in the contract documents.

For example, the soil borings indicate sand and the subsurface is pea, or the plans indicate stud wall and it is actually reinforced concrete.

Type II: where the actual physical conditions encountered at the site differ materially from the conditions normally encountered and generally recognized to exist, given the nature and location of the work.

For example, Type II claims have succeeded where the contractor encountered highly corrosive groundwater, excessive hydrostatic pressure, jet fuel in a manhole, and the failure of rock to fracture in the manner anticipated.

Constructive Changes

Generally a “changes” clause requires that all changes to the contract be in writing before the work is performed. Nevertheless, the owner often requires a contractor to perform more or different work than that specified in the contract without a written change order authorizing additional compensation. Even though there is not a written change order, the contractor can recover for these “constructive” changes if the contractor can prove that the work exceeds the minimum scope of the contract and the owner required the additional work.

For example, the owner constructively changes the contract by insisting on a method or level of performance that is more expensive than the industry standard and no particular method or level is specified in the contract.

Cardinal Changes

Generally, under the “changes” clause of a contract, the owner can modify the design, method and extent of the contract work. However, if the owner orders a “cardinal” change, this is a material breach of contract. The difference between a permissible and a “cardinal” change is a matter of degree. A cardinal change is outside the general scope of the project and entitles a contractor to new compensation rates and termination remedies.

For example, a 100% increase in the quantity of earthwork was considered to be a cardinal change.

Hypertechnical Inspections

This occurs when the owner’s agent holds the contractor to unreasonable standards.

For example, Owner insists on a perfectly flat wall or floor ignoring industry standards or tolerances.

Implied Warranties

An owner furnishing contract documents to prospective bidders impliedly warrants the accuracy of any factual representations in those documents and the suitability of the specified design, materials, and methods.

Warranty of Accuracy: The owner breaches this warranty if the contract documents contain representations that are materially different from those actually encountered

For example, a claim for breach of implied warranty may arise when the contract documents misrepresent the soil conditions, the availability of temporary power or other facilities, the quantity of materials required, or the dimensions of preexisting structures. 

Warranty of Suitability: When the owner requires the contractor to use particular materials, design features or construction methods, the owner represents that those required materials, feature or methods, will fulfill the contract requirements in the time permitted and without incurring extra costs.

For example, if the owner specifies use of a certain type of tunneling system, he impliedly warrants its suitability and cannot insist upon completion at the original cost if the method fails. Also if the contractor follows a specified building method and the building fails, the contractor has a defense to a claim by the owner for improper work.

Failure to Disclose Superior Knowledge

If an owner possess special knowledge that is vital to the performance of a contract, but the contractor is ignorant of that information and the information is not reasonably available to the contractor, then the owner has a duty to disclose its superior knowledge.

For example, contractors have recovered when the owner failed to disclose soil borings from a previous or nearby project, concealed conditions in an existing building (e.g. asbestos), large boulders and other mining waste dumped into a reservoir to be dredged, another contractor’s experience with rock in the area, or an engineering report noting the probable presence of concrete pile.

Scheduling Claims

Excusable, Non-compensable Delays: When delay is not the fault of any party, an extension of time may be obtained but often not extra compensation.

For example, unusually severe weather, strikes, war or Acts of God justify a time extension which avoids the imposition of actual or liquidated damages.

Excusable, Compensable Delays: All parties to a construction contract have a duty not to delay, hinder or interfere with each other in the performance of their respective duties. When a delay is due to the fault of another party, the delayed party may recover damages and an extension of time to complete.

For example, contractors have recovered delay damages from the owner in the following situations: when the owner delayed site access to all or a portion of the site; when the owner delayed staking a road construction project; for the owner’s delay in making necessary corrections to the project plans; or for the owner’s late return of the contractor’s shop drawings. 

Failure to Coordinate: If the owner, or the owner’s agent (i.e. the construction manager) is responsible for scheduling the project, then they are also responsible for coordinating the work of the various contractors.

For example, the contractor may have a failure to coordinate claim against the owner when the contractor is denied access to or exclusive use of a promised (i.e. scheduled) work area because another trade is still working in that area. 

Disruption: The owner or its agents (the A/E, other prime contractors, C.M.) may adversely impact your planned construction operations and increase your costs but not your time of performance.

For example, a design error may force you to resequence your work in an illogical order which is more inefficient and costly. 

Actual Acceleration occurs when the contractor is expressly told to complete its work before the agreed upon contract completion date or to accelerate its performance of already delayed work.

Constructive Acceleration generally occurs when the contractor has encountered excusable delays (either caused by the owner or by Acts of God), but the owner will not extend the project completion date.

Note, delay, disruption, and acceleration claims often arise out of the same set of circumstances and often involve loss of efficiency. These inefficiencies commonly materialize in the form of trade stacking, excessive manpower loading, and extended periods of overtime, the effects which should be noted in the daily project logs.

Notice

Reasonable written notice is often a condition precedent to preserving your rights. Recent court decisions trend toward strict compliance with notice provisions. Failure to provide notice of a potential claim may result in a forfeiture of the right to make that claim.

Before beginning your work, read the contract for notice provisions and know (1) to whom you must provide notice, (2) what form the notice must take, and (3) what the time deadlines are for giving notice. The effort spent to comply with these provisions is worthwhile when weighed against the possibility of loosing your right to just compensation. Another benefit of providing timely notice is that it helps parties focus on mitigating the problem in question.

For example, many contracts require that a contractor provide written notice to both the owner and the A/E with 10 or 21 days of encountering a condition that will entitle the contractor to additional time or compensation.

This discussion is generalized in nature and should not be considered a substitute for professional advice. © FWH&T

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