Fundamentals of Construction Claims. William J. McConnell

most challenging step to a contract claim and it is often the one most ignored. Establishing entitlement requires the claimant to define what is required by contract and how the actions or circumstances differ from the contract requirements. It is not uncommon for claimants to skip or provide a cursory entitlement review and then provide a detailed damages analysis. This methodology is flawed because a claimant cannot get to delay or damages unless the claimant can establish entitlement. Regardless whether the claimant is an owner, contractor, subcontractor, designer, or vendor, entitlement must be established to prove a claim. Depending on the type of issue or dispute, the entitlement methodology will differ.

V. Step 5: Calculate Delay

Once entitlement is established, the claimant can work on the delay analysis, if applicable. Contract claims often have a delay component, which results in delay damages. In order to establish that an issue or dispute had a critical impact on the claimant's work, the claimant should use one or more of the four accepted forensic scheduling techniques:

      1 time impact analysis;

      2 windows analysis;

      3 collapsed as-built analysis;

      4 as-planned vs. as-built analysis.

      The selection of the forensic technique depends on the information available to the claimant and whether the claimant seeks to prove an excusable and compensable delay or an excusable non-compensable delay.

VI. Step 6: Calculate Damages

      Once entitlement is established and the delay is calculated (if applicable), the claimant can move on to damages. The five main types of damages are:

      1 scope change damages;

      2 productivity damages;

      3 acceleration damages;

      4 delay damages;

      5 consequential damages.

      Depending on what cost information exists, damages for the first four categories may be calculated by one of four methods:

      1 actual cost method;

      2 agreed upon cost method;

      3 estimated cost method;

      4 modified total cost method.

      Consequential damages relate to costs not associated with on-site project activity, such as home office overhead, loss of bonding capacity, and lost profits. Consequential damages are often mutually waived in contracts and are not subject to markups.

VII. Step 7: Formatting and Packaging the Claim

The next step involves the packaging of the claim such that it is presented in an organized and clear fashion and it includes all the necessary backup for the reader to reference. Claims that are properly packaged have a much better chance of being resolved in a timely fashion and before binding dispute resolution is required, which saves time and costs for all parties. Chapter 8 will review how claims can be packaged in order to put the claimant in the best position to resolve the dispute.

VIII. Step 8: Non-Binding Dispute Resolution

      Standard construction contracts require non-binding dispute resolution such as settlement meetings at the project level, settlement meeting with decision makers, and formal mediation. Chapter 9 discusses best practices with regards to managing these non-binding forums. If the parties are interested in settling the dispute and the right mediator is in place, most disputes are settled.

IX. Step 9: Binding Dispute Resolution

      If the non-binding dispute resolution process fails, the claimant is left with a binding dispute resolution to resolve the dispute, which is in the form of litigation or arbitration, depending on what the subject contract stipulates. Binding dispute resolution is time-consuming and costly, so the claimant should go into this process with eyes wide open. Chapter 10 discusses best practices in terms of litigating or arbitrating a construction dispute.

X. Other Topics

      This book also includes additional chapters to address other important topics related to construction claims, such as termination claims, non-contract claims, and allocation of damages.

      A. Termination Claims

Termination claims are worthy of a separate chapter because termination is the most severe remedy provided to the parties to the contract and standard construction contract forms define when and how one party can terminate the other party to the contract and what damages are recoverable in the event of a proper termination. Thus, termination clauses are often self-contained in terms of entitlement, procedure, and damages. Chapter 11 reviews these standard provisions and provides examples of both proper and improper terminations.

      B. Non-Contract Claims

      While this book is focused on contract claims, many of the concepts noted herein also apply to tort claims. Tort claims are non-contract claims that arise when one party has a duty to other foreseeable parties, and when this duty is breached, and it results in damage, monetary damages and/or performance are owed. An example tort claim related to a construction project is when a Homeowners Association (HOA) sues developers, design firms, contractors, subcontractors, and vendors due to design and construction elements that fall below the requisite standard of care, even though no contract exists between these parties and the HOA. State statutes and state case law typically define tort law doctrine and remedies. In order to establish duties in a tort claim, “standard of care” experts are often retained by the parties that opine on which duties are owed and if conduct met or fell below the requisite standard of care. Some of the information in Chapter 12 applies to tort claims, such as damage calculations, and fault allocation is covered in Chapter 13. Other non-contract claims are highlighted as well, including: (1) quantum meruit; (2) unjust enrichment; (3) negligence; (4) breach of warranty; and (5) mechanic's lien claims. It is important for claimants and respondents to be familiar with these claims as they often arise during binding dispute resolution.

      C. Fault Allocation

      If a claim involves one or more parties, the claimant or respondent may need to allocate fault amongst the parties to properly apportion claimed damages. For instance, if an owner has an administrative claim regarding lack of clean-up by both the contractor and a separate contractor on site, the owner must properly allocate the damages between the parties. As discussed in detail in Chapter 13, this process involves a five-step approach: (1) defining the issue; (2) duties; (3) patent or latent in nature; (4) was there a cover-up?; and (5) responsibility.

XI. Summary

The aim of this book is to assist all parties to a construction project with the dispute resolution process. When the parties understand the dispute resolution process and can properly prepare and evaluate claims during the course of the project, there is a higher likelihood for the dispute to be resolved in a timely fashion and well before binding dispute resolution, which is when significant legal and expert fees are incurred by the parties. Moreover, if a dispute ends up being resolved in a binding dispute resolution format, the party that previously prepared or rebutted the claim in a reasonable