To some construction owners, A/Es, and CMs, “claim” is an unsavory word. They regard claims as hostile assaults on their management of the contract and contractors who file them as devious and unscrupulous. On the other hand, some contractors indiscriminately file claims whether they are contractually justified or not. In reality, filing a claim is the only contractually provided procedure by which either party to the contract can openly and fairly assert their position regarding contract time or money when disputes arise. Filing a claim is the first step in the contractually provided dispute resolution process.

This chapter highlights some of the more important aspects of this complicated subject.

Threshold Matters

Nearly all claims originate with the contractor following the occurrence of a contract dispute. The Massachusetts Water Resources Authority contract for the construction of the Inter-Island Tunnel in Boston Harbor defined a claim as follows:

A claim means a written demand or assertion by the Contractor seeking an adjustment in Contract Price and payment of monies so due, an extension or shortening in Contract Time, the adjustment or interpretation of Contract terms, or other relief arising under or relating to the Contract following denial of a submittal for change under Article 10….

By the above definition, a contractor’s claim is triggered by the owner’s denial of a contractor’s proposal for a change in contract price or time. The claim is a response to the owner’s denial, which now takes the form of a demand for a stated amount of money or time, which demand becomes subject to the dispute resolution provisions of the contract. The original contractor’s proposal for an adjustment in contract price or time that triggers the owner’s denial typically originates for one of the following reasons:

• The owner issues a formal change order or change notice adding contract work or making changes in original contract work, originally specified working conditions, or originally permitted construction methods. The occasion for the owner’s issuing of the change order or change notice could be a desired scope change in the finished project or because acknowledged differing site conditions had been encountered by the contractor. In these situations, the contractor is required to propose a change in contract price, time, or both in response to the change order or change notice.
• The contractor, believing they have encountered differing site conditions, so notifies the owner and requests (proposes) that the owner issue a change order for an appropriate increase in contract price, time, or both.
• The contractor, believing that instructions received from the owner constitute a constructive change to the contract, so notifies the owner and requests (proposes) that the owner issue a change order for an appropriate increase in contract price, time, or both.
• Some causal event that the contractor believes is compensable or excusable has occurred and the contractor, after so notifying the owner, requests (proposes) that the owner issue a change order increasing the contract price, time, or both.

In order for a contractor’s claim to be valid, it usually must be established by written notice submitted to the owner within a stated number of days after the occurrence of the event giving rise to the claim. For instance, the Massachusetts Water Resources Authority contract provides that

For any claim under this article to be valid, it shall be based upon written notice delivered by the Contractor to the Authority promptly, but in no event later than twenty-one (21) days, after the occurrence of the event giving rise to the claim and stating the general nature of the claim (underline added for emphasis).

In the context of this type of contract provision, the “event giving rise to the claim” (causal event) could be the owner’s denial and refusal to issue a change order in accordance with a contractor’s cost/time proposal, or the occurrence of some event that the contractor believes is either compensable or excusable under the terms of the contract.

Once the written notice of claim has been delivered to the owner by the contractor, most contracts provide that the contractor’s detailed claim submittal, supported by a CPM schedule analysis in cases involving a demand for additional contract time be submitted to the owner within a stated number of days following the notice. Some contracts require the detailed claim to be submitted within a stated number of days following the occurrence of the event that gave rise to the claim notice. For instance, the federal government contract proscribes that the contractor’s detailed claim proposal be submitted within 30 days after the furnishing of a written claim notice while the Massachusetts Water Resources Authority contract proscribes that the detailed claim submittal be submitted within 60 days after the occurrence giving rise to the claim notice.

The contractor’s detailed claim submittal must clearly establish that (1) the contractor is entitled by the terms of the contract to an adjustment in contract price, time, or both of some amount (the entitlement element), and (2) establish the amount of the claimed dollar change in contract price or claimed number of calendar days of contract time extension—the quantum element.

“Red Flag” Contract Provisions

The above discussed matters pertain to contract claims in general. Some of the more specific provisions that contractors should be particularly alerted to include the following.

11.12.2. The Authority may elect, at its sole discretion, to grant an extension in Contract Time, without the Contractor’s request, because of delays meeting the requirements set forth below.

11.12.3. An extension in Contract Time will not be granted unless the Contractor can demonstrate through an analysis of the Progress Schedule that the increases in the time to perform or to complete the Work, or specified part of the Work, beyond the corresponding Contract Time(s) arise from unforeseeable causes beyond the control and without the fault or negligence of both the Contractor and his Subcontractors, suppliers, or other persons or organizations, and if such causes in fact lead to performance or completion of the Work, or specified part in question, beyond the corresponding Contract Time, despite the Contractor’s reasonable and diligent actions to guard against those effects. Examples of such causes include: (1) Acts of Gods or of the public enemy; (2) Acts of the Government or of another Public Entity in its sovereign capacity; (3) Acts of another contractor in performance of a contract with the Authority; (4) Fires, floods, epidemics, quarantine restrictions; (5) sinkholes, archeological finds; (6) freight embargoes; (7) unusually severe weather; (8) a case of an emergency; (9) delays as itemized in this paragraph, to Subcontractors or Suppliers or other persons or organizations at any tier arising from unforeseeable causes beyond the control and without fault or negligence of either the Contractor or any such Subcontractors, Suppliers or other persons or organizations.

11.12.4. It is the intent of the Contract Documents that an extension in Contract Time, if any granted, shall be the Contractor’s sole and exclusive remedy for any delay, disruption, interference, or hindrance and associated costs, however caused, resulting from causes contemplated in this paragraph but not included under paragraph 11.13.

11.12.5. The provisions of this paragraph 11.12. shall govern and are applicable to Contractor requests, submittals or claims for acceleration in lieu of the alternate extension in Contract Time.

The MWRA contract then continues with article 11.13, dealing with changes in contract time due to compensable causes as follows:

11.13 CHANGES IN CONTRACT TIME MAY BE COMBINED WITH CHANGES IN CONTRACT PRICE:

It is the intent of the Contract Documents that an extension in Contract Time shall be combined with an appropriate increase in Contract Price to provide the Contractor with full remedy for any delay, disruption, interference, extension or hindrance caused by: Acts of the Authority in its contractual capacity in connection with changes in the Work, differing physical conditions or differing reference points; a case of an emergency, of uncovering work, or a suspension of work not excluded by another provision of the Contract Documents. However, no adjustment in Contract Price under this paragraph shall be provided: (1) to the extent that performance would have been so extended by any other cause, including fault or negligence of the Contractor, or his Subcontractors, Suppliers, or other persons or organizations; (2) for which an adjustment is provided or excluded under any other provision of the Contract Documents; (3) for acceleration costs in lieu of extension costs to the extent that the acceleration costs exceed those of the alternate extension in Contract Time; or (4) if delays merely prevent the Contractor’s achievement of completion of the Work, or part in question, ahead of the corresponding Contract Time(s). The Contractor shall be entitled to a Contract Price increase due to these delays, disruptions, extensions, interferences or hindrances only when delays extend the Work or specified part of the Work, beyond the applicable Contract Time(s) including any authorized adjustments.

Finally, the MWRA contract continues with article 11.14placing a limitation on the costs allowed due to an extension in contract time:

11.14 COST OF THE WORK INVOLVED—EXTENSION IN CONTRACT TIME:

When determining the cost of the work involved to complement an extension in Contract Time, amounts shall be allowed only if related solely to the extension in Contract Time,… “

As can be seen from the above, contract provisions governing changes to contract price and time are apt to be complicated. In the following sections of this chapter dealing with methods of proving the price and time quantum elements, the contract provisions of the type illustrated above must be strictly observed.

Methods of Proving Price and Time Quantum

Two separate general claim scenarios can each generate cost and time impacts. In the first scenario, some new element of work not present in the original contract is required to be accomplished either as a result of an owner directive or due to the contractor encountering differing site conditions. If the contract price and time change is to be forward priced by agreement between the owner and contractor, the quantum analysis is nothing more than making a cost and time estimate for performance of the added work by the same general methods as used for the original total project cost and time estimate. Alternately, if the price and time changes are to be determined retrospectively, it is only necessary to maintain mutually agreed accurate job records detailing the elements of contractually allowable cost and time adjustments previously discussed in this chapter.

In this first claim scenario, costs may consist of the “proximate” costs directly associated with the added work itself, incurred at the time and location where the work was added and the consequential or “impact costs,” which consist of (1) time-related costs such as increased indirect costs due to the extension of the contract period, escalation costs on unchanged work that is pushed into a period of increased labor rates or material prices, excess costs resulting from pushing original work into periods of severe weather that otherwise would have been avoided; and (2) the adverse effect of the added work on the efficiency of performance of related original contract work.^[2]

The second general claim scenario is one where the original contract work is made more difficult as the result of (1) an owner directive changing the details of the original work itself, changing the conditions under which the original work must be constructed, or restricting the construction methods or equipment that is permitted to be employed for the original work; and (2) situations where the original work is made intrinsically more difficult for the above reasons due to the contractor encountering differing site conditions.

In this second claim scenario, proving time and price quantum always involves evaluation of a decrease in efficiency of performing work originally included in the contract. Several different methods utilized by contractors to prove decreased efficiency of original work performance are discussed and illustrated in the following sections.

Use of Industry Published Factors

The National Association of Electrical Contractors and others have conducted studies and published factors claimed to quantify the loss of efficiency in performing unchanged work due to stacking of trades, frequent crew movements with associated starts and stops, frequent requirements for prolonged overtime, the necessity of going through a learning curve more times than would otherwise would be necessary, and the general effect on morale due to continual changes and delays. Similarly, the Business Roundtable has published data illustrating the loss of efficiency when excessive overtime is worked on an extended basis.^[3] Generally speaking, this method of proving decreased work efficiency of performance is met with skepticism by owners, courts, and arbitrators because of a lack of proof that the same conditions applying to the underlying studies were present in the claim situation involved.

Comparison with Contractor’s and Engineer’s Bid Estimates

Typically, the contract bid price is based on the contractor’s cost and time estimate prepared at the time of bid. Also, the owner’s engineer usually makes a parallel estimate indicating their assessment of a reasonable bid price under the competitive conditions existing at the time of bid. Either or both of these estimates provide a useful standard for measuring the adverse impact of causal events not contemplated at time of bid on the performance of unchanged original contract work.

In one case in the writer’s experience, both the contractor’s bid estimate and the engineer’s estimate for a IBM-excavated tunnel in rock, which had been impacted by excess water inflows not expected at the time of bid, were available to establish a reasonably expected rate of advance under the water inflow conditions indicated by the contract documents. In this case, the advance rate was also heavily dependent upon the tunnel excavation temporary support assumptions in each estimate. When the engineer’s estimate was adjusted to reflect the same temporary support assumptions as the contractor’s estimate, the adjusted engineer’s estimate advance rate was 121.8 ft. per day. The actual advance rate in the contractor’s estimate was 123.9 ft. per day. Alternately, when the contractor’s bid estimate was adjusted to reflect the same temporary support assumptions as the engineer’s estimate, the adjusted contractor’s estimate advance rate was 95.5 ft. per day. The actual advance rate in the engineer’s estimate was 95.1 ft. per day. It would be difficult to argue in this case that these estimates did not provide a reasonable figure for the tunnel advance rate that could be expected under as-bid water inflow conditions.

Comparison with Similar Cost Experience on Other Contracts

Sometimes the entire contract work is adversely impacted by a series of intertwined causal events that significantly affect the efficiency of performance of original unchanged contract work. Such was the writer’s experience in the early 1980s during the performance of structural concrete work for the underground Peachtree Station constructed in downtown Atlanta for the Metropolitan Atlanta Rapid Transit Authority (MARTA). In this case, the entire surface and underground structural concrete operation was adversely impacted due to the following causations:

• Excessive number of changes both by formal change notice and constructive changes.
• Changes directed at the “eleventh hour” preventing their incorporation into the work in a timely and organized manner.
• Numerous errors, omissions, and conflicts found in the drawings and specifications as the work was performed.
• Lack of engineering information and/or direction and eleventh-hour provision of same.
• Directed acceleration of the work requiring stacking of crews and overtime work.
• Change in sequence of performance of the underground cavern structural work.
• Impacts associated with interference of other MARTA contractors who were allowed into the main cavern work area concurrently with the structural concrete operations.

Since the entire surface and underground work area was adversely impacted, there was no “measured mile” that could be used to compare work item productivities to prove the claimed decrease in efficiency of performance. However, our heavy engineering construction division performing the concrete work had completed eight other rapid transit projects involving similar work operations and was concurrently completing a similar deep-mined station for the Washington Metropolitan Area Transit Authority (WMATA) in Bethesda, Maryland. All of these projects had been set up and operated in a virtually identical manner and the labor productivity cost records for each of them was structured in an identical format making it possible to directly compare actual construction performance for similar work items. Great similarity existed between many of the MARTA work items and comparable work items on six of the other projects for which our computer bank contained the work-item productivity records. None of the previously constructed projects departed from the norm in factors adverse to contractor work performance.

Figure 22-3 shows the comparison made for 27 separate MARTA concrete work items to our average “normal” performance for similar work items from the other company projects. For each work item, the work-item description is listed as well as the as-built MARTA quantity and unit of measure, the MARTA mh factor per unit of work accomplished, the MARTA mh total, the normal project mh factor, and the normal project mh total. The MARTA project required 309,100 mh for the 27 separate work items, which would have required only 254,960 mh according to our experience on the other projects. The excess MARTA mh equal to 309,100 – 254,960 = 54,140 exceeded our experience on comparable projects by 21.23%. Following an extensive review of our records, MARTA accepted our offer of proof and issued a change order that compensated us for the claimed inefficiency.

Figure 22-3: Structural concrete with performance inefficiency factor developed by comparison to average work performance in eight similar projects.

Conclusion

This chapter has reviewed the conceptual basis of construction contract claims, typical contract provisions delineating procedural requirements for their filing and processing, and the methods of proof traditionally offered by contractors seeking to establish the associated contract price and time quantum.

If the owner rejects a claim, the contractor must abandon it or contest the owner’s rejection through the dispute resolution provisions in the contract. The following final chapter in this book reviews the methods of contract dispute resolution practiced in the United States today.

Questions and Problems

1. What triggers the filing of a contractor’s claim?
2. What are the four basic reasons why contractors submit proposals for a change in contract price or time before the filing of a claim that were discussed in this chapter?
3. What two examples of “the event giving rise to the claim” were given in this chapter?
4. What two separate elements of a claim must be established by the contractor’s detailed claim submittal?
5. What is the most important contract provision regarding contractor claims discussed in this chapter?
6. What is the usual consequence of a contractor’s failure to conform to the claim notice provisions in construction contracts? What is “constructive notice”? Should contractors rely on the legal sufficiency of constructive notice?
7. Discuss the importance of the claim processing procedure provisions in construction contracts from the contractor’s standpoint.
8. In the case of construction contracts that proscribe strict time limits for the issue of the owner’s decision on a properly submitted contract claim, what is the usual consequence of an owner’s failure to issue a decision within the proscribed time limits?
9. What general methods for the determination of changes in contract price, when entitlement has been recognized on a contract claim, are provided by most construction contracts? Of the three methods, which is usually employed?
10. According to the Oakland County Drain Commission contract, what four elements make up the “cost of the work”? What is the maximum fee to be paid to a prime contractor for overhead and profit in addition to the cost of the work when their own forces perform the work of the claim? What is the maximum fee in the aggregate for the prime contractor and subcontractor when the work of the claim is performed by a subcontractor?
11. How does the MWRA contract differ from the Oakland County Drain Commission Contract with respect to extensions in contract time?
12. Discuss the two general claim scenarios presented in this chapter, pointing out how they differ and the kinds of claim costs generated by each.
13. Discuss the four methods for proving the level of decreased efficiency of original contract work performance due to claim causations presented in this chapter? Which is generally the most persuasive? Which is the least persuasive?