Recognizing a potential claim—whether related to delays, defective work, payment, or some other issue—often requires immediate attention to ensure that your rights are protected. This article provides a general overview of several practical considerations and proactive steps for contractors to take at the onset of a potential claim to better position themselves for positive resolution. While this is not an exhaustive thesis on claims management (or long-term litigation of claims), it is nonetheless intended to provide some practical guidance to follow during the initial phases of a potential project claim.
Read the Contract Thoroughly
As soon as a potential claim arises, read the contract. Then read it again. Understanding contractual obligations and rights is an important first step in preparing to address a potential claim. Construction contracts, such as those provided by ConsensusDocs, usually contain relevant provisions regarding claim preservation and dispute resolution/management. If these provisions are not properly adhered to, it can potentially prove fatal to successful resolution of a claim.
Some key provisions to review can include
Provisions with deadlines to submit a claim: Most contracts contain various deadlines to submit a claim for compensation (additional time, money, etc.). These deadlines can be scattered throughout the contract, but failure to adhere to them can result in the waiver of a claim. Thus, identifying and understanding the timeframe within which a claim needs to be submitted can be very impactful.
Change Order and Delay Clauses: These provisions often outline the process to address scope changes, delays, or unforeseen conditions. These provisions often identify the party that bears the risk for delays (e.g., weather, owner-directed changes) or when a contractor is entitled to extensions of time or additional compensation resulting from an unforeseen condition.
Scope of Work: Outlines some of the contractor’s practical obligations and project requirements by defining the work that is to be performed, often using specifications, plans, drawings, and/or deliverables.
Dispute Resolution Provisions: Sets forth certain procedures specifying how disputes must be handled, often including deadlines for filing claims (including informal, in-Project claims) and designating a specific forum in which the dispute must be brought (e.g., arbitration, or litigation). For example, Article 12 in ConsensusDocs 200 requires the parties to attempt to resolve the dispute in by engaging in “good faith direct discussions” before the dispute can be brought before a selected mitigation procedure (e.g., a “Project Neutral” or “Dispute Review Board”) or mediation.
Damages: Details—and sometimes limits—the damages that a party may be entitled to recover. For example, construction contracts often attempt to limit or exclude consequential damages (things like lost profits). See ConsensusDocs 200 § 6.6. Or contracts can sometimes exclude the recover of monetary damages for delays, with an extension of time being the only available remedy.
Indemnity and Limitation of Liability: A common provision in construction contracts in which a party agrees to indemnify (i.e. pay) and/or hold harmless (i.e., defend) for claims related to the contractor’s work. However, it is important to note that this provision is often highly contested during contract negotiation and may contain exclusions to said indemnification and/or “triggers” before a party will be obligated to indemnify (e.g., a verdict in favor of the party seeking indemnification).
Understanding contractual provisions impacting a potential claim is an important component to managing a possible claim, particularly early-on in the process.
Identify Key Documents
Documents are often the backbone of any claim. It is important to identify relevant documents early in the process, particularly in construction disputes where documentation can be voluminous (note, this article does not address legal document retention and preservation obligations; that is a different subject for a future article).
Categories of documents to support or defend a claim can often include:
Formal Project Documents: Almost all projects involve the creation of “formal” project documents, like contracts, change orders, schedules, daily reports, inspection records, RFIs, submittals, pay applications, etc. Often, selections of documents from across these categories can directly impact a claim. For example, in a delay claim, project schedules and meeting minutes can be used to identify and build timeline impacts. As a result, identifying relevant documents at the outset can be very useful for managing claims.
Communications: Frequently, project communications contain information impacting claims. This includes letters, as well as emails (or other forms of informal communication). A good first step in identifying important communications is to identify the individuals who engaged in those communications. Then identify important communications that help support or defend a claim.
Interviews: Consider taking the time to identify and interview employees, subcontractors, inspectors, site supervisors, or other individuals who may have firsthand knowledge of the issue. Capturing this information at the time events are occurring can be a great way to document and preservation information that may otherwise be lost over the passage of time. However, do not assume that these interviews (or any notes, etc.) will be protected from future production to an opposing party in formal litigation (another topic for another article). But documenting witness impressions contemporaneously can be a useful tool for managing early claims.
Organize Your Thoughts, Materials, and Approach
A clear, organized approach to managing an early claim to better position a contractor for positive resolution. Some things to consider include:
Timeline/Events: Consider making a detailed chronology of the project, including key events relating and leading up to the claim (e.g., notice of delay, delivery of defective materials). If possible, identify key individuals or documents that can corroborate the events on the timeline and use digital tools such as project management software or spreadsheets to ensure clarity and ease of transmission. Additionally, be sure to identify any upcoming dates/deadlines required to pursue the claim required by the contract.
Identify Key People and Documents: List individuals involved, such as the project manager, architect, or owner’s representative, and link them to relevant documents and key communications. For example, if possible, try to tie a superintendent’s daily log to a specific delay event. Identify missing documents and pursue them promptly.
Damage Assessment: Quantify the claim’s value, such as additional labor costs, equipment rentals, or lost profits. Be sure to reference contract provisions and/or relevant documents to justify damages, ensuring compliance with contractual requirements. Again, if possible use digital tools to ensure clarity and ensure ease of transmission. But mapping this information at the outset of a claim can be very helpful.
Confirm Contractual Compliance: As noted above, read the contract. Try to ensure compliance with any applicable contractual procedures or deadlines required to pursue the claim.
Identify Outstanding Questions/Issues: Make a list of any outstanding questions or issues that require further investigation and be sure to identify missing documents and/or communication.
Engage in Early Discussions
Proactively raising issues and negotiating early can help resolve disputes without costly litigation. It can also help preserve project relationships and future opportunities flow
Evaluate the Posture of the Other Party: Assess the other party’s willingness to resolve the issue. Are they cooperative, evasive, aggressive, something else? Either way, early and proactive communication can help facilitate efficient claims resolution.
Negotiate in Good Faith: Approach discussions with a willingness to reach a deal. If possible, present a claim with supporting evidence, such as photos of defective work or a timeline of delays, and propose a reasonable resolution (e.g., partial payment, schedule extension). To that end, try to maintain professionalism in communications—it can go a long way to positive resolution and help to reduce the risk of future problems.
Document Negotiations: Keep records of all offers, counteroffers, and discussions. Written summaries of meetings or emails confirming agreements can prevent misunderstandings and be instructive to individuals not in attendance during the negotiations.
Conclusion
Proactively addressing claims early in the process can help result in positive resolution of those claims. By reviewing the contract, identifying key documents, organizing the claim, and negotiating thoughtfully, a contractor can better position itself for a favorable resolution. Again, this is not a comprehensive list of practical actions, nor is it a comprehensive summary of best claims management practices. But this articles does offer some practical actions for consideration to help prosecute or defend claims towards a positive resolution.
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The views expressed in this article are not necessarily those of ConsensusDocs. Readers should not take or refrain from taking any action based on any information without first seeking legal advice.