Fundamentals of Construction Claims. William J. McConnell

Step 2: Define the Type of Dispute

      Contract claims generally fall into five different categories. Standard contract forms have varying notice requirements and allowable remedies for each of these categories. Thus, it is important for the claimant to understand which category the claim falls into so the claim can be administered accordingly. The five claim categories are:

      1 Design Issues: When a party is impacted by a design issue on the project and the other party to the contract is responsible for the subject design.

      2 Administration Issues: When a party is impacted by the maladministration of the other party to the contract.

      3 Performance Issues: When a party is impacted by the poor performance of the other party of the contract.

      4 Third-Party Issues: When a party is impacted by a third party and can only recover if the other party to the contract is able to pass the claim through to the third party and recover from the third party. Or, if one or both parties to the contract are impacted by a force majeure event.

      5 Change Order Negotiation Issues: When both parties to a contract agree that a change should be made to the contract sum and/or contract time but the parties fail to agree to the amount of the change.

A. Design Issues

Many parties can be impacted by design issues. For instance, a contractor may be impacted by a design error and if the owner pays the contractor additional funds and grants additional time, the owner is then impacted and might seek recovery from the designer, and then the designer might then seek recovery from a responsible subconsultant. Or, an owner might delegate certain portions of the design to the contractor and if the design generated by the contractor is deficient, the owner might be the impacted party and seek recovery from the contractor via a backcharge. The contractor might then seek recovery from its retained design firm.

      Another scenario might be that an owner is impacted by its design builder's deficient design program and this might lead to an owner backcharge to the design builder. The design builder might then assert a claim against the designer. Thus, the scenarios are numerous, but the key point here is that a design issue exists when one party relies upon the design of the other party and when the design is deficient or revised without consideration, the impacted party seeks recovery from the other party. The most common design issues are as follows:

       Differing Site Conditions: When one party relies upon the site conditions represented by the other party and the represented conditions turn out to be different, which impacts costs and/or schedule. Or, when the contract documents are silent regarding the site conditions and the site conditions differ from what is generally found at the project location and this impacts a performing party's costs and/or schedule.

       Added Scope: When one party relies upon the design provided by the other party and the design later expands and the expanded design impacts the costs and/or schedule of the party that relied upon the original design.

       Changed Scope: When one party relies upon the design provided by the other party and the design later changes and the changed design impacts the costs and/or schedule of the party that relied upon the original design.

       Design Errors: When one party relies upon the design provided by the other party and the party that relies upon the design identifies flaws in the design that will cause cost and/or time impacts to its work.

       Design Omissions: When one party relies upon the design provided by the other party and the party that relies upon the design identifies omissions in the design that will cause cost and/or time impacts to its work.

       Late Design Issuance: When one party relies upon the design provided by the other party and the party that is responsible for the design is late in issuing its complete design and this causes cost and/or time impacts to the other party's work.

       Excessive Changes: When one party relies upon the design provided by the other party and the party that relies upon the design is faced with numerous design changes during construction of the project, which causes a cumulative impact to its work.

       Cardinal Changes: When one party relies upon the design provided by the party and the party that is responsible for the design fundamentally alters the scope of the other party's work via a change or changes in the design, which frustrates or makes impossible the purpose of the agreement by significantly increasing the volume of the work, by drastically modifying the type of work, and/or by greatly increasing the original contract costs.

B. Administration Issues

      Standard contract forms define the administrative duties required by each party to the agreement. For instance, on a design-bid-build stipulated sum agreement between a contractor and an owner, each party relies upon the other party to timely and properly administer payment applications, submittals, requests for information (RFIs), inspections, and other administrative duties. When one of the parties fails to administer the contract as required, and this detrimentally impacts the other party's cost and/or time on a project, the impacted party can assert a maladministration claim against the other party. Such claims are often difficult to quantify contemporaneously—as the claimant often has to establish a pattern of maladministration—so impacts are frequently determined retrospectively, after much or all of claimant's work is complete. Typical maladministration claims include:

       Payment Administration Issues: When one party maladministers the payment process and this impacts the other party's costs and/or time on the project.

       Proof of Funding Issues: When the paying party is required to show the performing party proof of adequate and its failure or delay in doing so impacts the performing party's costs and/or time on the project.

       RFI Administration Issues: When one party maladministers the RFI process and this impacts the other party's costs and/or time on the project.

       Submittal Administration Issues: When one party maladministers the submittal process and this impacts the other party's costs and/or time on the project.

       Change Order Administration Issues: When one party maladministers the change order process and this impacts the other party's costs and/or time on the project.

       Inspection Issues: When one party maladministers the inspection process and this impacts the other party's costs and/or time on the project.

       Subcontractor Issues: When one party maladministers the process of submitting or approving subcontractors and this impacts the other party's costs and/or time on the project.

       Project Management Team Issues: When one party maladministers the process of submitting or approving project management team members and this impacts the other party's costs and/or time on the project.

       QA/QC Issues: When one party maladministers the quality assurance/quality control process and this impacts the other party's costs and/or time on the project.

       Safety Administration Issues: When one party maladministers the safety process and this impacts the other party's costs and/or time on the project.

      Certain maladministration claims are easy to pinpoint, such as delinquent payments or lack of proof of funding. For these issues, contracts typically allow the claimant to halt work if respondent payments or proof of funding are not completed within a certain number of days after the claimant's notice to respondent. For other maladministration issues, it can be challenging to point to a single event as resultant impacts are often cumulative in nature. Cumulative impacts are analogous to death by a thousand cuts. Cumulative impacts might involve the excessive turnaround time of requests for information (RFIs), submittals, or change orders. Another example of a cumulative impact claim would be inspection delays or over-inspection issues.

C. Performance Issues

Performance issues involve claims made by one party to the