It’s going to be costly one way or another. Both sides are likely to be burdened by the additional cost the claim is related to (and it’s always about an extra cost either directly or indirectly) or ultimately, it will delay the project which is normally costly to everyone involved. However, construction claims are a part of life in the construction industry.

In this article, we look at the more common types of construction claims, their technical titles and what they mean. In most cases, we’ll be discussing them from the perspective of the party that is most likely to make a claim.

The three main construction claims are:

Cardinal Change

This is defined as a change in the initial plan. It could be a significant timeline change, due to unforeseen weather, but what is essential is that the original agreement has been made impossible due to the extent of the change.

From the contractor’s perspective, it is a dangerous situation to be in. They create a budget based on the plan which includes costs, profit margins etc.

A Cardinal Change normally incurs additional costs which, unless additional compensation is agreed, puts the contractor in danger of making a financial loss.

When a contractor claims a Cardinal Change, they can, if proven, walk away from the project and claim compensation for damages.  But if they make a claim and it’s not proven, they could be in breach of contract. So it’s important to make a considered decision before making this claim.

Constructive Change

With a Cardinal Change, normally it’s a “request” from the client to change the plan. A constructive change is a little different – it’s a change to the plan caused by activity or inactivity caused by:

• A misinterpretation of the existing contract
• Faulty specifications
• Failure to disclose critical information
• Acceleration of project schedule
• Interference with contractor’s work

If a contractor proves a constructive change, they will be compensated for the additional costs the change incurred.

Contract Termination

Either side is likely to make a construction claim if a contract is terminated. However, it’s important to remember it can also occur before work has begun by either the contractor or the client.  In some cases, a contractor might be in a position to claim loss of profit.  When a contract is terminated during the project, it’s a little more complicated as both sides are likely to make claims. However, if it’s proven that the contractor had completed work within the terms of the original contract, they might be able to claim the full contract price.

There are some additional causes for disputes that lead to claims that are perhaps less common than Cardinal Change, Constructive Change and Contract Termination, however common enough to be aware of; these are:

Defective and Deficient Contract Documents

Contractors take the documents related to the project and use them as a resource to determine their own bid for the project.  They calculate their costs and their profit using those documents. If they’re not accurate, or lack information, the client is opening themselves up to a dispute claim in the future.

Schedule Delay

When a situation arises where work has to start later than originally scheduled, both parties to the contract (or in a large contract, multiple contractors) might be in a position to claim for damages. The dispute is likely to be centred on the cause for the delay.

Differing Site Conditions

Probably the clearest cut scenario. If the site has different conditions that were not made clear during the pre-site inspection or in the documentation, it could be disputed for additional payments to cover the additional costs the change in site conditions might have caused.

Work Suspension

When either party in a construction contract suspends a contract for a period of time, this is likely to cause a claim. Suspensions will probably cause additional costs which, if proven, will have to absorbed by the party that was proven responsible for the suspension.A well-written contract will really help to mitigate these claims by having processes in place, especially in terms of how your claim is made.

One of the most important factors is time. Nearly always, time is money for both sides. A speedy resolution of a claim is probably the most cost-effective result of a claim, especially if a contract is suspended while the claim is resolved. Which brings us back to the contract and the inclusion of a process for dispute resolution. The more specific it is, the better protected both sides are.

Article provided by Kenzie Group

DISCLAIMER: This article should not be regarded as constituting legal advice in relation to particular circumstances. This article is merely a general comment on the relevant topic.