workshop 1028 bta claims process in the construction industry · contracts and claims manager,...

Workshop 1028 BTA

Claims Process in the Construction Industry

Dr Moustafa Ismail

Dr. Moustafa Ismail, CFCC, MCInstCES, MCIOB

Claims And Dispute Resolution

Presented By: @moustafaabudief

https://www.linkedin.com/in/dr-moustafa-ismail-cfcc-mcinstces-

mciob-rmp-pmp-ficcp-ccp-93798a16/

[email protected]

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https://www.linkedin.com/in/dr-moustafa-ismail-cfcc-mcinstces-mciob-rmp-pmp-ficcp-ccp-93798a16/





















Contracts And Claims Manager, Moustafa has Experience In Construction Projects,

Engineering, Contracts, Claims, Dispute Resolution, and Training Management For More

Than 30 Years In Egypt, Kuwait, KSA. Since 2005 he Is a member in number of

professional organizations and reviewer for International Certifications Exams.

Speaker Profile

Moustafa I. Abu Dief, Ph.D, CFCC™, PMP®, CCP, PMI-RMP, MCIOB

Dr. Moustafa Is Certified Forensic Claims (2010) Consultant In Addition To:

• Associate Prof. ABMS University- Swizerland

• Risk Management Professional PMI.Org - PMI-RMP, 2017

• Fellowship Justice Arbitration Academy, 2017

• Fellowship, Institute Of Construction Claims Practitioner, UK, 2016

• QMS/ Qa Management IRCA Certification, UK 2017/2022

• Chartered member MCIOB CIOB Chartered Institute Of Building, UK, 2017

• PMOC certification, 2014 - Certified Arbitrator – KSA- Kuwait- Bahrain- Egypt

• CCP - Certified Cost Consultant AACEI, US. 2008/2020 , 2008

• PMP, Certified. 2006-

• Chartered Member- Chartered institute of civil Engineers Surveyors, MCInstCES

• A. Royal institute of Chartered Surveyors

2 Workshop 1028 BTA Construction Claims 19 April 2019 Dr. Moustafa Ismail, CFCC, MCInstCES, MCIOB

Workshop 1028 BTA - Claims Process in the Construction Industry

CLAIMS MANAGEMENT IN CONSTRUCTION PROJECTS

Construction Claims Are Impacting The Construction Projects Success

And Adding Conflicts And Disputes Into The Project Life Cycle,

While Solving The Claims In Proper Time Shall Increase

The Project Success & Maintain Business Flow In The Industry.

Workshop 1028 BTA Construction Claims 19 April 2019 Dr. Moustafa Ismail, CFCC, MCInstCES, MCIOB 3

Contractual obligation

A party Breach of obligation

Damages to other party

Claim


• Claims Types

• Claims Causes

• Claims Impact

• Claims & Changes

• Quantifications

• Claims Avoidance

• Dispute Settlement

Overview

Workshop Outlines:

4


Process Applications



5



Introduction.

Although the construction project should be a beneficial endeavor to the project

stakeholders, many projects experience extensive contractual disputes due to unsettled

claims, which can culminate in disputes. Thereby, in order to achieve successful

project, prudent contract parties must be aware of all issues pertinent to construction

claims and claims settlement procedures, consequently protect the project from

suffering lengthy and expensive disputes.


A party Breach of obligation

Damages to other party

Claim


6



Definitions.

“CLAIM” claim is a request for compensation not anticipated in the terms of the

original contract.

• A change order that is written, negotiated, and accepted without going outside the

project team is not a claim, while a disputed change order is a claim.

• Disputes can arise over schedule targets, performance guarantees, or any deviation

from the original contract terms that have significant commercial consequences.

• Claims also include owner requests for compensation for the contractor’s failure to

meet contractual terms.

• Nael G. Bunni,: claims & right to claim play a significant role in E& C relationship


7



Definitions – continue

• According to R. Max Wideman, (1990) a claim is “legitimate request for additional

compensation (cost and/or time) on account of a change in the terms of the contract", he

provided suggestions, in same context:

A claim is the last chance to bail out a losing job

A claim is an assertion to a contractual right

SIMPLY

• James G. Zack Jr., (2009) defined claim as: "claim" is a written demand or assertion

requesting additional time and/or money for acts or missions during the performance of

the work under the terms of the contract.


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Definitions – continue

Counterclaim “a written demand or assertion made by a party, which can be

examined or disposed of in other party original caused action”. Ex. Employers claim

for delay D. Or:

for a claim of prolongation costs and re-payment of liquidated damages by sub

con- the main contractor levies a counterclaim for the payment of further

liquidated damages and contra charges


9


Workshop 1028 BTA Construction Claims 19 April 2019 Dr. Moustafa Ismail,

CFCC, MCInstCES, MCIOB 9

Claims Types

1. According to legal base

2. According to liability


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Claims Types according to legal base

Contractual claim: A claim under the contract, in which a particular contract clause

entitles one of the contract parties to claim when a certain event occurs.

For a claim when valid, the claimant may be entitled to:

Additional cost for test (7.4 FIDIC)

extension of time S.CL 8.4

liquidated damages -PC


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• Financial reimbursement: Ex. FIDIC 1999

KSA -ASHGAL

Kuwait- PW con.

SC 2.5


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Claims Types according to legal base- continue

A claim arising out of or in connection with the contract

No designated remedy in the contract and the claimant has to establish the claim under the criteria of the applicable law to

be entitled to recover for a remedy.

Ex. Out of contract claim, Lost profit in the Saudi P. Contract.- FIDIC 20.1, 2.5 “ …or otherwise in connection with the

contract”

A claim under the principles of the applicable law: Common law claims

Such claim may arise either by any of the contract parties or against third party. Claim for common law damages are

possible. Ex. negligence, occupier’s liability, and breach of statutory duty. Ex. Mitigation- good faith- ethics- Profession.


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Claims Types according to legal base- continue

Quantum meruit claims- the principle is a party performed some work and is to be paid reasonably..

It does not usually arise if there is a contract with an agreed price,

Applicable for quasi contract (LOI), or the contract exists but void

Work outside the contracted project scope. New nature or new price( no similar item).

Ex. Letter of intent and work start.

Discussion:

A door is measured by no. and size 2.0 x 1.0 m, price is 4000 SAR- how much is 2.05 x 1.1 m door.

Ex gratia claim

(Out of kindness) a claim often put forward by the contractor but with little chance of success, unless the Employer is

expecting some benefit as a result, as to maintain the goodwill required to carry out the different project processes

successfully.- To keep business- ensure project continuity, avoid sucking project. (no acceptance of liability provided).

Ex. A Contractor is claiming price increase for non justified structural design change.


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Claim Types according to liability

Directed acceleration - Constructive acceleration - Voluntary acceleration - Acceleration to mitigate delay


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Construction Claims: Proving And Pricing Acceleration Claims

• Acceleration

Is the execution of work more quickly than previously anticipated.

It usually occurs in one of two forms:

o first, it occurs when t is e Contractor is required to accomplish the same work

within an intentionally shorter period. (can be instructive acc).

o Secondly, it occurs when it is required to accomplish increased, additional or

delayed work within the same period, that is, without granting (EOT).

This second The second side is complicated and usually dispute as the sequential effects

of additional, or delayed work are not smoothly acknowledged by the initiator.

Contractor’s related cost are always complicated for proving and estimating.


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Acceleration Categories

A. Instructive acceleration

the acceleration is said to have been "Instructive" /"express" or "directed"

1. When the Employer either recognizes the effects of delays on the construction

programme and requires the contractor to accelerate the remaining work.

2. OR the Employer intentionally shortens the contract duration without the occurrence

of any delays.


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Instructive acceleration features

Instructive acceleration is rarely disputed.

It is generally renowned that a contractor is entitled to complete within the contractual duration

Costs of acceleration incurred due to instructions by the Employer in order to shorten the duration

are to be agreed prior acc., starts. (e.g. FIDIC 1999S.CL 13.2 (Value Engineering) Red B.).

Similarly, acceleration directed to be carried out to overcome delay for which

the contractor is legally responsible (culpable delay), is generally accepted by the contractor

when the contractor acknowledges responsibility for the delays (see below). The contractor

may not be able to recover its acceleration costs if the delays were the contractor's

responsibility. The contractor accelerates to avoid the possibility of being ruled in breach of the

contract by completing the work late if it is later determined that the contractor was not due any

additional time.


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Define bases of Claims

• Contractual claim- Facts and information are integrated to establish the claim and form the claim basis

and basis of entitlement.


A party Cause or breach

Damages Claim

Contract Clauses

Define, analyze breach

Bases of claim

Link


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Claims damages overview- Nature of damages for breach of contract

Compensatory by nature.

Damages for breach are intended to put the claimant back in the same position as if the requirements

of the contract had been performed.

Compensatory damages may be claimed under:

1. Expectation loss: the loss of the expectation or profit the claimant entitled.

2. Reliance loss: loss for expenses suffered based on the defendant's promise, wasted because of

the defendant breach;

3. Restitution: the value of any benefits that the claimant has conferred on the defendant.

4. Reimbursement: Employer (make good for contractor default).


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Claims damages overview

Damages Categories

• Direct damages

such as the damage results from a project delay, in the form of project cost overrun, as a

summation of different losses such as, additional direct and indirect project cost elements.

• Consequential damages,

such as the indirect damages result from an event like delay or acceleration, lost profit, market

reputation, cash flow interest, and time value of money are the main items in the course of

consequential damages.


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Claims damages overview- continue

Types of Damages- injured

• Contractor's Damages

some of the damages pertinent to the following events: delay, acceleration, disruption, improper site

conditions, scope changes, termination, and some specific circumstances a claim for lost profit.

• Employer's Damages

Are in the forms: Delay, liquidated damages, damages for termination, and lost profit is also a prime

element in the Employer’s claims.


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Types of Damages- injured

• Contractor's Damages

some of the damages pertinent to the following events: delay, acceleration, disruption, improper site

conditions, scope changes, termination, and some specific circumstances a claim for lost profit.

• Employer's Damages

Are in the forms: Delay, liquidated damages, damages for termination, and lost profit is also a prime

element in the Employer’s claims.


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Proving damages

i. claimant party has to identify the cost components would be impacted due specific event i.e.

direct and or indirect costs

ii. Analyze and separate the costs according to time effect and the relation with the impacted

project activities,

iii. claimant has to link each cost to the claims particulars.- i.e Sus. Of work, T related cost.


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Damages evaluation methodologies

Damages are evaluated in different approaches;

i. Total cost method

ii. Modified total cost method

iii. Discrete Cost Method

iv. Jury verdict

v. Quantum meruiet

vi. Measured mile approach

TCM: Criticized

TCM. Damages = (total cost incurred) – (Estimated cost of the work)….1

MTCM Damages = (Adjusted total cost incurred) – (Estimated cost of the work)….2

Disruption Damages = Actual cost of disrupted work – Should cost of non disrupted work

= Cost of disrupted work- actual cost of same work non disrupted


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Damages methodologies- continue

Right Termination: Employer’s Termination Damages

Recoverable damages =

Cost of new contractor - Price of the terminated contractor……………………………….……..1

OR

Recoverable damage =

Total reasonable cost to complete the project - Price of the terminated contractor……….......….2


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Claims damages overview

Damages methodologies- continue

Righteous Termination: Contractor’s Termination Damages

Contractor recoverable damages

= Contract price – Estimated cost of performing the project by the contractor………..1 ???

OR

Recoverable damage = Contract amount – Project estimate to complete……….......….2


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كفاة العطاء( : ١ ١)المادة رقم ش ع -

فترض ف المقاول أن كون قد استكمل معلوماته قبل تقدم عطائه وتأكد من أن األسعار الت دونها ف قائمة

الكمات وفئات األسعار تكف لتغطة جمع التزاماته المترتبة عله بموجب العقد وغرها من األمور واألشاء

-أثناء تنفذ األعمال -وف حالة ما إذا اعترضت المقاول . الضرورة إلنجاز وصانة األعمال بشكل متقن وسلم

أة صعوباتا مادة أو عقبات غر عادة لم كن ف إمكان أي مقاول مجرب توقعها عقال فإن عله أن قوم فورا

من تارخ اكتشاف هذه الصعوبات والعقبات بإخطار المهندس أو ممثله خطا وف معاد ال تجاوز عشرة أام

ف الموضوع إلى صاحب العمل متضمنا رأه ف التكالف وعلى المهندس ف هذه الحالة أن قدم تقررا بذلك

اإلضافة الت تكبدها المقاول بسبب تلك الصعوبات والعقبات إذا تأكد من وقوعها وذلك للنظر فه من قبل

صاحب العمل وتقرر ما راه مناسبا بشانه على أنه إذا لم تقدم المقاول ف خالل العشرة أام )القانون الواجب

.المنكورة بإخطار المهندس والمطالبة بالتعوضات سقط حقه ف هذه المطالبة-(طبق ؟ -التطبق

Case Study

Differing Site Conditions


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Claims damages overview: Ex.

• Proving and evaluating damages for differing site conditions:

• Different damages may occur, such as:

Suspension of the work or some specific activities;

Deterioration in the overall productivity; and

Delay, disruption, and acceleration damages

Generally, the damages cause cost overrun like:

o Increased labor and equipment cost due to loss in productivity;

o Increased material cost, as new procurement resource to substitute planned material.

o Additional subcontractor costs, payment to the subcontractor for additional expenditure,

and or the reimbursement claimed in the subcontractor claim (pass-through claim).


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Cost segregation

• Estimating claims damages, analyzes deferent cost elements, which are usually a combination of some of the

following elements;


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Construction Delays EOT


Construction Delays

• Delay may occur because of different risk events, employer risk event (ERE), and

contractor risk event (CRE) in which the protocol (SCL) defines both as follows:

ERE, an event or cause of delay, which under the contract is at the risk and

responsibility of the owner (Employer).

CRE, an event or cause of delay, which under the contract is at the risk and

responsibility of the contractor

Workshop 1028 BTA Construction Claims 19 April 2019 Dr. Moustafa

Ismail, CFCC, MCInstCES, MCIOB

31


Construction Delays Factors

Project

Delay

Factors

Consultants

Factors

Contractors

Factors Project

Type

Factors

Contract

Type

Factors

Factors

Owners

Factors External

Factors



Construction Delays

Delay Factors

1. Factors pertinent to Owners - Financial ability, credibility, and Priority on

construction time; decision making, client characteristics, (public, private);

possible changes to initial design, owner project customers.

2. Factors pertinent to Consultants- Completeness and timeliness of project

information, constructability of design, staff experience, and provision for ease

of communication, slow response and decision making.

3. Factors pertinent to contractors- Experience of P. management team, planning

the work, project, technicians experience, subcontractors, financial ability,

material, suppliers management.



33


Construction Delays- continue

4. Factors pertinent to contract type- suitability to project duration and price, use

of standard form of contract and selection of proper contract type RYGBW.

5. Factors pertinent to project type- function or end use, (commercial, residential,

industrial, …etc.), complexity and project deliverables characteristics; location (city,

town, remote) and ground condition.

6. External Factors/risks- Weather and environmental concerns, regulations and

government permits, problems with neighbors, force majeure, civil commotion, and

wars, strikes, ..etc.


CFCC, MCInstCES, MCIOB

34



Categories of delay responsibility:

1. 1st Owner (or owner’s agents) is responsible.

2. 2nd Contractor or subcontractors are responsible.

3. 3rd Neither of contractual party is responsible.

4. 4th Both contractual parties are responsible.



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Categories of delay types:

Independent delay

Concurrent delays

Excusable delays

o Excusable reimbursable-ERE

o Excusable n-reimbursable- no

LD, no delay damage

In- Excusable delays – CRE”culpable”

Critical delays TIA

Non- critical delays-

Disruption

Special delays Serial delay - Pacing delay - Dominant delay


Delay Type categories

Delay liability

Delay criticality

Delay occurrence

Expected delay claim by contractor: Ex.



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ASHGAL

المطالبات ٢-٤٤ :ش ع

إلى برسل أن المقاول على

شهر كل ف مرة المهندس

كاملة بصورة فه شرح حسابا

الخاصة المعلومات ومفصلة

المتعلقة المطالبات بجمع

عتبر الت اإلضافة بالنفقات

وسائر فها حقا له أن المقاول

الت واإلضافة الزائدة األعمال

وفقا المهندس بها أمر

بتنفذها المقاول وقام لصالحاته

خالل الشهر السابق، وال لتفت

ألي مطالبة تتعلق بدفع قمة

لم إذا األعمال هذه مثل

الخاصة المعلومات تتضمنها

تضمنها ولم عنها المنوه

.النكر سالف الشهري الحساب


Delay claim by contractor: Ex. Red FIDIC 1999



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Changes HINT ASHGAL-عقد األشغال السعودى تقوم التغرات والمطالبات (: ٤٤)المادة

:التغرات ١-٤٤

على المهندس أن قوم بتحدد القمة إن وجدت، والت رى أن تضاف أو تحسم من المبلغ المنكور ف العطاء بسبب أي عمل زائد .أو إضاف جرى تنفذه أو إلغاؤه بناء على أمره

وجري تقوم مثل هذا العمل وفقا للمعدالت المنكورة ف العقد إذا رأى المهندس أنها قابلة للتطبق، أما إذا كان العقد ال تضمن أة معدالت تنطبق على العمل الزائد أو اإلضاف فعلى صاحب العمل والمقاول أن تفقا على تحدد األسعار العادلة لذلك.

الالئحة التنفذة

إذا لم كن لألعمال اإلضافة بنود أو كمات مماثلة ف العقد ، تم العرض على لجنة فحص العروض أو اللجنة المختصة 58-4 -فان لم وافق المتعاقد على ما تنته . بالشراء بحسب األحوال ، لدراسة التكلف بتلك األعمال، ومناسبة األسعار المقدمة من المتعاقد

إله اللجنة ، تم التعاقد على تنفذها بواسطة مقاولن آخرن ، وفقا ألحكام النظام وهذه الالئحة.

موضوع للمناقشة وإرسال الردود لألكامة عناة د مصطفى إسماعل

لماذا؟ -هل حق للمالك إلغاء بعض األعمال فى حدود نسبة العقد بغرض تنفذها بمعرفته بسعر أقل



Changes HINT ASHGAL - العقد الكويتي



Claims HINT ASHGAL - العقد الكويتي




42

A window is measured by no. (item) and size 2.0 x 1.0 m, price is 4000 SAR.

How much is 2.05 x 1.1 m door in an instructed change?

Case Study

Different additional Item


Schedule analysis techniques;



43


Schedule analysis techniques; continue


http://www.virginiadot.org/business/resources/const/aace_recommended_practice_forensic_schedule_impact_analysis-29r-03.pdf


Delay Damages Anatomy

• Contractor’s Damages

o Increase in Material Costs due to Escalation

o Increase in equipment costs

o Cost of extended supervision

o Extended job site expense (filed overhead)- Ethics, mitigation, direct, indirect

o Unabsorbed Home Office Overhead



45

Additional supervision cost= Cost of actual duration – cost of supervision for contract duration


Delay Damages Anatomy- continue

• Owner's Damages

o Liquidated damages

o Lost rental income, escalation for material

o Extended overhead, and liability for third party claims

o Consequential damages, including lost profits, interest, loss of business value, and

changes in production costs.

o Finance charges



Executive implementation regulations for the Saudi procurement law

انحكيخ انشتشبد انبفسبد نظبو انتفزخ انالئحخ

ـ4/9/1427 تبسخ (58/و) سقى انهك ثبنشسو انصبدس

HINT-

األسثؼ انتبسؼخ انبدح :

انتضايبتب تفز ف انحكيخ انجخ إخالل إن استبدا ، انتضايبت تفز ػ انتخه نهتؼبقذ جص ال .



47


ASHGAL Contract- KSA- Delay Clause

HINT-

انتأخش غشايخ :(٣٩) سقى انبدح;-

انت انذح ػ ثغشايخ هتضو ي انؼم نسحت داػب انؼم صبحت ش نى انحذدح اناػذ ف كبيال تسه انؼم إتبو ػ انقبل تأخش إرا

يذت ػه انؼقذ قخ ثقسخ رنك نهششع انيخ انتكهفخ يتسط أسبط ػه تحتست نهتسهى، انحذد انؼبد ثؼذ انؼم إكبل فب تأخش

ه؛ نب فقب

خسخ أ يب ػشش خسخ انذت أكثش تجهغ حت تأخش و كم ػ انيخ انتكهفخ يتسط سثغ ثقذس انتأخش يذح ي األل انجضء ػه غشايخ -أ

.اال يذح ي (%٠) انبئخ ف

يب ثالث انذت أكثش انجضءا جكهى حت تأخش و كم ػ انيخ انتكهفخ يتسط صف ثقذس انتأخش يذح ي انثب انجضء ػه غشايخ -ة

.انؼقذ يذح ي (% ١٠) انبخ ف ػششح سجخ أ

انفقشح ف ػهب انصص انذت ألكثش تبل تأخش و كم ػ انيخ انتكهفخ يتسط كبيم ثقذس انتأخش يذح ي انثبنث انجضء ػه غشايخ -ج

.(ة)

انتأخش انجضء أ انؼم صبحت سأ إرا أ ػه انؼقذ قخ ي (% ١٠) ثبنبئخ ػششح سجخ انفشضخ انغشايبد يجع تجبص أ جص ال

يب ػه سئب تأثشأ ؤثش ال أخش يفؼخ أ إستؼبل ف إستجبكب سجت ال إلتبئ انحذد انؼبد ف األكم انج ػه ثبنؼم اإلتفبع غ ال

.انتأخشح األػبل قخ ي (% ١٠) انبئخ ف ػششح سجخ انغشايخ إجبن تجبص فال فس انؼم ي تى

انتبخش ػه انتشتجخ اإلششاف تكبنف ;(٤٠) انبدح

انقبل خضع فتشح خالل انششع تفز ػه انششف أتؼبة ثتحم انقبل هضو انسبثقخ انبدح ف ػهب انصص انغشايخ إن ثبإلضبفخ

…………انقبنخ ػقذ قخ ي يئخ سجخ أ دس ثجهغ كب إ انششف ػقذ ث قض يب أسبط ػه األتؼبة ز تحست نهفشايخ



: غرامة التأخير ومواد القانون المدني المصرى




Case Study

Incomplete tender study by

Contractor

Notice of missing item in re-measured contract

Notice of missing Drawings in

tendering stage



Case Study

Incomplete tender Information

The Contractor Failure to communicate or request

additional information for missing Drawings/items/

specifications in tendering stage



Case Study

Inclusion of General Statements

The Contractor shall be responsible to supply and install

all required works to complete the item as per the

specifications and contract documents.

Main cost/obligation

Implied obligations/cost

Total Cost

Event analysis- Q

In your project, describe the Role of the Contract parties if an Unforeseen

physical conditions were experienced on the site- the project contract is

based on the FIDIC Red Book, 1999- Provide any necessary assumption:

• Case 1 you represent Contractor’s Project manager/ Contract manager.

………………………………………………………………………………

………………………………………………………………………………

……………………………………………….

• Analyzed by Eng: Workshop 1028 BTA Construction Claims 19 April 2019 Dr. Moustafa Ismail, CFCC, MCInstCES, MCIOB 54

Event analysis- Q

In your project, describe the Role of the Contract parties if an Unforeseen

physical conditions were experienced on the site- the project contract is

based on the FIDIC Red Book, 1999- Provide any necessary assumption:

• Case 2 you represent the Engineer:

………………………………………………………………………………

………………………………………………………………………………

……………………………………………….

• Analyzed by Eng: Workshop 1028 BTA Construction Claims 19 April 2019 Dr. Moustafa Ismail, CFCC, MCInstCES, MCIOB 55


Head/ Home Office Over Head

• Home office overhead represents group of different cost elements in the normal conditions. They

include the elements that contribute in different projects under construction, such as :

Payroll Personnel

Home office rent and expenses.

Human resources personnel. Advertising and marketing

Corporate Computer Support Company insurance costs.

Construction Management Utilities, telephone, fax and computers.

Executive and administrative salaries Human relations costs.

Legal and accounting expenses Costs for the HO , Interest on company borrowings

Travel for home office staff. Entertainment

Bid costs

Bad debt, depreciation of firm assets Professional Fees Contributions


Workshop 1028 BTA - Claims Process in the Construction Industry Claims And Dispute Resolution

Head/ Home Office Over Head

• The contactor’s home office costs that support all projects in identified ratios as shown in the

figure , are allocated to a certain delayed project, consequently recovered based on a daily rate

applied to compensable delay period .



Estimation of Head/ Home Office Over Head

The home office overhead damages are complicated cost item to estimate, inserting the need for

developing formulaic approaches that approximate the effect of the extended construction

duration on the Contractor’s home office overhead costs.

1- Eichleay Formula

Contract Billings X Total company overhead in period A = Overhead Allocable to

Contract

Total Billings in period A

Allocable Overhead = Overhead Allocable to Contract per day

Actual days of performance

Per Period

A

Per Day

Owed

Workshop 1028 BTA Construction Claims 19 April 2019 Dr. Moustafa Ismail, CFCC,

MCInstCES, MCIOB

58



Estimation of Head/ Home Office Over Head

2- Hudson Method

Planned Home office overhead&profit X Contract Price = Home Office Overhead

Owed

Contract Duration in days

= Allocable Overhead per day x Owner-Caused Delay in days

3- Emden (Canadian) Formula

(Total Overhead & Profit / Total Company Turnover) / 100 X Contract price X

Original Contract Period

Owner-Caused Delay In days = Home Office Overhead Owed



You are the project Contractor for a private school construction project which includes hundreds of

activities, valued 4.50 M SAR and the contract is FIDIC Red Book 1999, the value of the school

buildings is 4.0 M SAR while the fence and car shades are 0.50 M SAR, total duration 8 months

Discuss the following in case you are the project Contractor

1. If the Employer released an IPC IN 86 days from the day of properly submitted by the Contractor-

discuss clauses late payment- value/ EOT if any

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………....

Analyzed by Eng. …………

60

Event Analysis Case Study

Delay in Payment

Workshop 1028 BTA Construction Claims 19 April 2019 Dr. Moustafa Ismail, CFCC, MCInstCES, MCIOB

You are the project Contractor for a private school construction project which includes hundreds of activities, valued 4.50 M SAR

and the contract is FIDIC Red Book 1999, the value of the school buildings is 4.0 M SAR while the fence and car shades are 0.50

M SAR, total duration 8 months Discuss the following in case you are the project Engineer/Employer

1. What are the requirements for releasing the 1st IPC

2. The period of the letter of guarantee?

3. Can the letter of guarantee be decreased?

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………………....

the first installment of the advance payment after the later of after issuing the

• within 42 days Letter of Acceptance or

• within 21 days after receiving the 4.2 [Performance Security)

Analyzed by Eng. …………

61

Event Analysis

Case Study

Advance payment




Claims management processes

Claim preparation





Claim Presentation





Claim Settelment

Workshop 1028 BTA Construction Claims 19 April 2019 Dr.

Moustafa Ismail, CFCC, MCInstCES, MCIOB

64



Claims management processes Application of Claims in

Construction


Realize the claim: contractual- principles of Law

The Contractor is expected to be the proactive party to realize an event may raise a claim(delay-add cost)

The E & consultant should be aware and expect the seeds of claims.

The contractor should serve a claim notice.( 28 -10 d).

The Engineer has to interfere and work with the Employer and the contractor to resolve.

The contractor has to comply with the Eng. advice and provide the proper solution

C to submit interim particular for claims of the events having continuous effect.

The contractor submits the claim particulars, detailed cost and time impact. 42d

The Eng. Review and request more info., decide ASAP(42).

Settlement/dispute

Records

Records

Records

Records


Notice of claim

• As a minimum it should include

Identify the event

The start of the event

Causes of the event

Expected duration or time impact

Cost and time relevant impact


Records

Maintain Contemporary records

Contractual/other obligation

A party Cause or breach

Damages Claim

LINK


Dispute settlement

• Litigation

• Alternative dispute resolution mechanisms(Arbitration- Med- Conciliation, etc.).

Arbitration – Litigation




A Quarry by:

Dr. Hesham Saad,

concerning the above mentioned subject ,

the most valid definition of the force Majeure is that " it is act of the God", so regarding to

Egyptian Economy as a case study so can the Floating Exchange Rate, be considered as case

of force Majeure ?


Future Claims.

Historical records and case studies revealed some features pertinent to successful claim management; the

following are some useful tips to successful claims management, which is a part of a non-exhaustive list,

including different project stakeholders in disordered arrangement:

1. Properly define the contract type suitable to the project;

2. Implement the suitable contract type with detailed procedures to manage all expected project

circumstances, time, cost, payments, claims, dispute resolution;

3. Project parties should distribute/share the project risk by the principle of: the suitable party.

4. Successful contracting does not include two opposed parties, one is risk averse, the other is risk prone.

5. Complete contract documents, prevent, eliminate, and or allow for proper claim management if arises;

6. Construction contract should include express provisions to reference the contract basic principles, in the

domain of project management and contract administration, such as PMI, AACEI, FIDIC, AIA, AAA, and

the Egyptian law no 101/ 1996, 89/ 1998, and 5/ 2005.



70


7. Implied terms are fertile ground for disputed interpretation, it is preferable to be optimized.

8. The implied terms mainly depend upon the law and general contracting specifications, in the country at

which the project is performed, therefore, the project parties have to understand implied terms early.

9. Contract exploratory clauses are burning issues in claims process; certain defined circumstances recall

for implementing them and it need sophisticated attorneys to utilize them.

10. Special concerns should be given to changes, delays, extra work and all matters, which appear to be

"out of the ordinary" and, therefore, are potential items for a future claim.

11. OPA are prime inputs in the initiation phase, lessons learned provide valuable advice to stakeholders.

12. Project change and risk management are common factors for successful claim management;

13. Identify early changes and risk events;

14. Utilize the project contract in all project phases, processes, work packages, tasks, and activities;

15. Contract parties have to apply PM processes and comply with contract and all agreed plans as well

16. Project communication management must always take priority.



17. Keep detailed records simultaneously when an event, which gives rise to a claim, occurs.

18. Prioritize and highlight the advice of Max Abrahamson in his book Engineering law and The ICE

Contract , as he gave special emphasis to on the project records and wrote A party to a dispute,

particularly if there is an arbitration will learn three lessons (often too late):the importance of records,

importance of records and importance of records

19. Records show the facts and consequently eliminate debates and conflicts.

20. Give notice , consider time bar clauses of intention to levy a claim, prompt notice is preferred.

21. Comply exactly with any requirements instructed by the Engineer regarding records & any evidences.

22. Submit a claim in god faith with all available facts & information within specified time limit, usually 28

days of in FIDIC, and 30 days in the Saudi Arabian Public Work Standard contract.

23. Parties need not to wait the consequences of an event to occur, but give notice before. ”wait and see”

24. If the event has continuous effect, give claim notice and submit an interim account of claim regularly .



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25. Consider and strive for proper schedules as they are convincing record to show delays occurrence,

in addition, it shows the planned work sequence & is essential to prove delay & disruption claims.

26. The claimant has to stick to the original purpose of the claim.

27. Show all facts and cards in the first submission.

28. The claimant is searching an entitlement.

29. Claimant needs to prove his entitlement to recover damages not to prove that other party is wrong.

30. The claim is not a personal issue; it is just dealing with facts.

31. It is recommended conforming to the claims contractual provision.

32. The recipient of a claim needs simple facts and clear general view of the whole event to make his

recommendations in the procedure of claim settlement.

33. Information has to be integrated and thorough as possible.

34. Settling the claim in first attempt is preferable, claimant needs to demonstrate all success chances.



73


35.Claims are ethical issues; the project parties should exercise the appropriate mitigation process and do

best endeavors in response to any disruptive event, despite the liability of the other party.

36. The contractor should avoid performing additional work prior agreed change order and the owner has to

limit the verbal instructions and the scope changes as possible.

37. The contractor should make appropriate notice as a response to instructions issued which constitutes a

change & resolve the issue with the owner through the agreed change process & procurement plan.

38. The contractor has obligation to visit and investigate the site conditions before pricing a tender and he

must comply with that , despite the limitations bounding his obligations, for example it is not expected from

the contractor to dismantle an existing structure to investigate the underground conditions.

39. Oral communications should be confirmed in written in reasonable period, to maintain complete records.

40. The Consultant/ Engineer has to timely review the project records, any information may be of the

interest the project staff.



74


41. The (Consultant/ Engineer) should comply with his commitments & deal impartially in the project.

42. Claim presentation documents need an Index to enable the recipient for timely select and retrieve critical

and conclusive records.

43. Owners should avoid opening ends and negligence of contractors needs, in order to eliminate the

damages my arise due to such conduct. For Ex, the owner should grant appropriate extension of time due

to ERE “delay” to avoid putting the project completion in the complicated situation, "Time at Large".

44. When an event occurs that may entitle the contractor to recover losses, the contractor must not take any

actions that may lead to additional loss.

45. Claims need substantiation of the cause and effect of what is considered disruptive action.

46. Small to medium projects may suffer more risk in the claiming process because of the lack in project

management in such projects, i.e., weak records, lake in scheduling, cost management, etc.

47. Smart project manager can share in simplifying the claiming process and eliminating project conflicts by

identifying and updating the project risks carefully.

48. Utilize electronic record keeping systems, computers, digital cameras, and cellular phones, etc.



49. The contractor should prepare accurate and comprehensive daily construction reports. Any issue that

affects productivity should be identified in the daily reports.

50. Project managers should possess reasonable experience in construction claim management in

addition to procurement management to optimize the circumstances that yields claims & project conflicts.

51. Project human resources need consistently training on development and advances in PM technology.

52. Legal advice is essential and smart practitioners deliberately seek it in the right circumstances.

53. Government and public sector owners need to lead the project management processes in a proactive

manner in order maintain full monitoring and controlling in project different phases and master all proper

ethical and contractual performance in bilateral coordination with the contractor.

54. Elegant & competent parties search for subject matter expert for technical advice, when needed.

55. Construction industry is increasingly incorporating and assimilating the culture of claims & owners need

to set aside old culture depending on claimant will lose any anticipated future business chance with owner.

56. Finally, project parties need to prioritize, appreciate, and respect all aspects relevant to project records

and documentation.



References.

1. Alnass, K., Khalil, A., and Nassar. G., (2014) Guideline for preparing comprehensive extension of time

(EOT) claim, HBRC Journal Vol. 10, Issue 3, pp. 308–316.

2. Amos, J. (2004) Skills and knowledge of cost engineering, 5th ed. Copyright ©2004 by AACE International

3. Bramble, B. and Callahan, T., Construction Delay Claims, 4th edition, Wolters Kluwer Law & Business

Cushman , R. and Tortorello, D. (1992) Differing site conditions Claims, Construction Law Library.

4. David, D., Smith, V., and Sims, J. (2005) Building Contract Claims 4th ed.© David Chapel

5. Wickwire, J., Driscoll, T., Hurlbut, S., and Groff, M. (2009) Construction Scheduling: Preparation,

Liability, and Claims. 3rd. ed. Frederick, MD: Aspen Pub.

6. Zack, J. (2015) Trends in Construction Claims and Disputes, Cost Engineering Vol. 57, No.2 pp. 24-37

7. Robert Frank Cushman, Esq. Cushman, John D. Carter, Paul J. Gorman, (2008) Proving and Pricing

Construction Claims, third edition.




End of Workshop

Thank you

السالم علكم ورحمة هللا وبركاته


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