LITMIR.BIZ

1 Introduction

      Construction is an industry that is filled with risk and uncertainty. First, very few projects are designed alike, and no two project sites are the same in terms of geotechnical conditions and topography, so each project has its own learning curve. Second, humans manage the development, design, administration, and construction of projects and the skill set, personality mix, and experience level of project team members vary from project to project, which affects overall project performance. Third, the construction of a project includes a multitude of companies, including an owner, an architect, multiple engineering firms, third-party inspectors, a general contractor, multiple subcontractors, multiple vendors, utility companies, a variety of jurisdictional agencies, and others. Each entity operates with its own urgency and has a fixed number of resources to allocate to a given project, so these variables influence performance.

      When these three factors are considered together, the likelihood that a construction project will not involve disputes amongst certain parties is low, even though the parties to a construction project typically have the best of intentions at the onset of the work. As a result of this low likelihood, construction contracts typically include provisions regarding the administration of disputes, so projects do not grind to a halt when a dispute arises. Having an appreciation of the fact that the design and construction process is an imperfect science due to the sheer number of moving parts and the atypical nature of each project is important for each party to consider. Furthermore, when parties to a construction project do understand and follow the contract terms related to disputes, the overall performance of the project generally improves. The aim of this book is to provide a tool for all parties to improve the dispute administration process to improve the overall performance of projects.

This book is focused on contract claims. A contract claim is just what it sounds like—it's based on a breach of a contract provision of an agreement between the parties related to a construction project. The party asserting the claim is the “claimant” and the party responding to the claim is the “respondent.” Contract claims are easy to define if the terms of the contract are clear. If contract terms are ambiguous and require interpretation, that typically requires legal opinions. However, if the four corners of the contract clearly define the duties of the parties to the contract, legal interpretation is not necessary as the contract will speak for itself. If the dispute cannot be resolved at the project level and binding dispute resolution is required, the parties will require attorneys to administrate the arbitration or litigation process, as well as experts to evaluate and opine on dispute issues.

I've developed a nine-step approach to contract claims that will help claimants prepare affirmative claims and will assist respondents to evaluate the merits of affirmative claims. This process is summarized in Figure 1.1.

I. Step 1: Review the Dispute Resolution Procedure

      Because issues and disputes on construction projects are inevitable, parties to a construction project must understand how these events are administered. All too often, parties to a contract know very little about the dispute resolution terms they are bound to, and this can cause issues and disputes to snowball, which can frustrate the administration of the work.

II. Step 2: Define the Type of Dispute

      Contracts often have specific procedures and remedies for specific types of disputes, so it is critical to understand the type of dispute at bar. For instance, for contractors, standard contract forms deal differently with owner design issues, owner administrative issues, owner performance issues, third-party issues, and change order negotiation issues. Thus, it is critical to define the nature of the claim in order to understand how the contract deals with specific types of claims.

Figure 1.1 Dispute resolution flowchart.

III. Step 3: Fulfill Pre-Claim Requirements and Notice Requirements

Once the type of dispute is identified, the claimant must fulfill all pre-claim and claim notice requirements. An example of a pre-claim notice requirement relates to design issues involving differing site conditions. Under an AIA (American Institute of Architects) contract that incorporates the A201 general conditions, the contractor must notice the owner and the architect of a differing site condition within 14 days of observance so the architect can promptly investigate and either deny the claim or propose an equitable adjustment to the contract sum and contract time—this would be the pre-claim notice requirement. If the architect denies the claim, then the contractor must trigger the formal claim notice requirement by noticing the owner, the initial decision maker, and the architect within 21 days of the architect's denial of the differing site condition request. Hence, the claimant must be aware of all pre-claim and claim notice requirements defined within the contract. If the exact notice requirements are not followed, claimants and claimant attorneys often assert that the respondent had constructive notice, so this topic is discussed as well.

IV. Step 4: Establish Entitlement

      This

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