King Saud University
CE 614 Selected Topics in Construction
Construction Claims
Construction Contract Claims, Changes &
Dispute Resolution
Chapters 2,3 & 8
Instructed By: Dr. Khalid Al- Gahtani
Done By: Soliman Alfaraidy
Contract Types
Standard Contract:
 Federal Government Construction Contract
 American Institute of Architect Contract
 Associated General Contractors Contract
 Engineers Joint Contract Document Committee Contract
 State Highway Department Contracts
 Saudi Government Contract
 Other Agency Contract
 One- of- a-Kind Contract
Private Contract:
 It is different from country to country and from owner to
owner. Each owner and contractor tries to draw up contract
to suit its own interest
Typical Document
Comprising the Contract:
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Bidding document consisting of the ‘Invitation
to Bid’, ‘Instruction to Bidders’, and ‘Bid form’.
General Condition of Contract
Supplementary Condition of Contract
Specification
Drawings
Report of Investigation of physical conditions
Any variance or change to these documents
will cause variation in time and cost and such,
remedies are sought through contract claims
and change order.
Definition of Claim:
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AS per AIA (American Institute of Architects):
“A claim is demand or assertion by one of the parties
seeking, as a matter of right, adjustment or
interpretation of:
I.
Contract terms
II. Payment of money
III. Extension of time
IV. Other relief with respect to the terms of the
contract.”
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Payment of money and extension of time are the
most common claims in Saudi Arabia.
When the administrative processes of
claims and change order required?
It is required in case of:
 Change in the Contract condition
 Design Change (Common in Saudi Arabia)
 Defective Specification
 Quantity Variation (Common in Saudi Arabia)
 Delay (Common in Saudi Arabia)
 Disruptions
 Acceleration
Basic Procedures for Claims and
Change Order Administration:
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Contract Knowledge
Notification
Systematic and accurate documentation
Analysis of time and cost impact
Pricing
Negotiation
Dispute resolution and settlement
Some Contractors avoid an active aggressive policy for
calms and change order administration. This is due
to part to the history of construction contracts and
public record for litigation and costly overruns.
Reasons of poor Claims
Lack of experience in the processing of
claims.
 Lack of awareness of claim situation.
 Lack of legal and contractual rights.
 Lack of knowledge of common
problems.
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Chapter 2
Identification and
Notification
Identification and Notification
Claims Consciousness
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The contractor should be aware of the potential risks
associated with claims and that one of his highest
priorities should be proper management of these risks.
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Most public and privet contracts contain clauses
requiring notification of differing site condition, changes,
and delays within a stated period of time before
equitable adjustment can be pursued.
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What if this clauses not in the contract?
Early Identification
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If the contractor dose not recognize a situation, or
wait too long to take actions, any and all right to
claim can be lost.
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Early identification is also important for the following
reasons:
It enable the owner to verify, confirm and possibly
remedy the situation at the earliest opportunity
Sometimes new design, new material or
equipment, or different construction methods my be
required by changing condition
Early identification allows the contractor adequate
time to study the problems
1.
2.
3.
Identification of Claims and
Change Orders
Importance of Identification:
 Identification of a claims situation is the first and the most
important phase of
I.
Claims process
II.
And the claim situation
Claims must be recognized and identified as soon as it
occurs.
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First Requirement of Identification Knowledge of Contract:
The construction project staff must have a good working
knowledge of the contract document and it is very
important for them to be able to anticipate the flow of
work and to predict potential problems.
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Identification of Claims and
Change Orders
Frame of Reference:
 It helps to recognize problems that are not
always obvious.
 frame of reference must be available to
measure job performance.
 Communication:
The project staff must be knowledgeable
about expected field conditions, and to be
aware of actual condition that differ from
those expected.
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Identification of Claims and Change
Orders
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Second Requirement of Identification is
familiarity with legal Concepts and Right
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The project staff must have a working
familiarity with the legal concept and
right that will affect the outcome of
potential claim situations.
 The
contractor should keep open the
right to cost reimbursement and
schedule adjustment via the Changes
or Extra Work Clause
Warning Signs of Claim Situation:
Additional work not specified in the
contract document
 Work different from that specified
 Work in a particular manner or method
that varies from the originally
anticipated.
 Work resulting from contract drawings or
specifications that have been changed,
amended, revised, amplified, or clarified.
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Warning Signs of Claim Situation:
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Unanticipated work that results from
insufficient details in the plans and
specifications.
Work required to be performed in one
particular method when specifications allow
two or more methods.
Work out of sequence.
Stopped, disrupted, or interrupted work,
wholly or partially, directly or indirectly.
Joint occupancy.
Warning Signs of Claim Situation:
Owner furnishing equipment late, in poor
condition, or not suitable for the intended
use.
 Accelerated performance in any way, to
regain schedule, to add men or materials,
or to work over time or extra shifts.
 Following any new, different, or shorter
schedule.
 Relocating existing work because of lack of
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Warning Signs of Claim Situation:
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Coordination, information, or other factors.
Differing site condition.
Differences in contract interpretations.
Defective specifications.
Delays from the owner’s acts or failure to act.
Unwarranted work rejections.
Increased inspections requirements, tests or
quality control program.
Owner’s failure to disclose information.
Strikes.
Forces of nature.
Notification of Claims and
Change Order
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Identification of claims must be followed by
notification
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The owner representative must be formally
notified of claim or change order if the contractor
intend to seek equitable adjustments for
additional time or cost.
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In written notice the contractor should always
stress his urgency to resolve a dispute and
should request acknowledgment of the situation
Notification- Time Requirements
In Saudi Arabia there is no duration for the claims
and it is depend on the Contract type.
Late Notification:
 If the contractor dose not recognize a situation, or
wait too long to take actions, any and all right to claim
can be lost.
 But in some cases low has waived the notice clause
due to:
1. The owner was aware of the situation
2. The owner was not prejudiced by the late notice
3. The contractor was not immediately a ware of the
facts
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Chapter 3
Differing Site
Condition
Chapter 3 Differing Site Condition
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I.
II.
III.
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Differing site conditions are usually thought to be
subsurface physical conditions such as:
geological configurations
water levels
suitability of soils that differ from those promised or
implied by the contract document.
However, differing site conditions can also include:
man-made site conditions from previous or
concurrent construction activities.
Differing Site Condition Types
Type One
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‘’Sub surface or latent
physical condition at the
site differing materially
from those indicated in
this contract’’
Type Two
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‘’Are unknown physical
at the site of an usual
nature, which differ
materially from those
ordinarily encountered
and generally recognized
as inhering in work of the
character provided for
the contract ‘’
Differing Site Condition Clause
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All contractors must be sure that every contract
contains a differing site conditions clause.
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In general courts denied differing site conditions
claims when the following are found:
An absence of positive misrepresentation upon
which the contractor responsibility relied.
A clause in the contract that clearly relieves the
owner of extra costs resulting from differing site
conditions.
An opportunity to conduct a site investigation and to
inspect the plans and specifications before
submitting a bid.
1.
2.
3.
Forces of Nature
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In general forces of nature are not
usually considered to qualify as a
differing site condition in that they create
physical changes after award of the
contract
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However in some cases it might be
considered as a differing site condition
for example rain and flooding.
Site Investigations
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Usually bidders do not have access to make
detailed studies regarding the site condition.
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Even if the bidder did have access, time and
money present a major obstacle to perform a
detailed site condition analysis.
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The contractor has no right to claim costs
due to the fact that originally there was no
adequate investigation done.
Site Investigations
The contractor should approach the site
investigation in the early stages of the project and it
should be recorded including:
I.
sketches
II. photographs
III. job sites
 The site investigation is important when preparing
bids, and planning the work. Also, it can play a
critical role in claims situations.
 In preparing bids contractors need not make a
scientific and skeptical analysis of the conditions.
 In preparing bids contractors need not make a
scientific and skeptical analysis of the conditions.
 Design features may indicate expected conditions.
 Design changes may confirm a changed conditions
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Chapter 8
Subcontractors
and Suppliers
Introduction
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Subcontractor have a dual problem – guarding
their interests against the general contractor
as well as the owner.
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General contractor sometimes rank
subcontractors on the lower half of their list of
priorities.
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Subcontractors work items are often placed off
the critical path, and the general contractor will
alter subcontractor schedule to suit his
convenience
General Contractors Performance
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The general contractor must be very careful to
act as a two- way conduit between the
subcontractor and the owner.
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Good relations with subcontractors goes a long
way toward enhancing mutual reinforcement in
claim situations
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All contact and correspondence between the
subcontractor and the general contractor should
be well documented
Contractor- Subcontractor
Relationship
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By having the subcontractors participate in drawings
up the CPM schedule, in updating the schedule and
in meaningful coordination meetings, the general
contractor creates an atmosphere of cooperation.
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Such cooperation works toward mutual resolution of
job problems as well as the elimination of schedule
conflicts and misunderstandings situations.
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If the general contractor offers no cooperation, the
subcontractor should proceed as best he can with
frequent notice to the general contractor.
Subcontractor- Owner Claims
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The general contractor should attempt in all
subcontractor- owner problems to protect his
own interest and also to make sure the
subcontractor is acting to resolve these
problem expeditiously.
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It is important to resolve any problem
between the owners and subcontractors as
early as possible to avoid any delay or
additional const to all parties.
Suppliers
Delay, Drawing Approval
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Since shop drawings are involved, it is important
that the contractor allow sufficient time for
approval of drawings, and that he maintain
accurate records of all transaction and
transmittals involving the supplier.
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Contract delay caused by a supplier can possibly
be excused when it is shown to be beyond his
control.
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Delayed approval of drawings by the owner can
also contribute to contract delays, and may result
in excusable and compensable delay.
Suppliers
Supplier Purchase Orders
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The contractor should do everything possible
to avoid supplier problems by writing explicit
purchase order (with appropriate lead times)
keeping adequate inventory of parts and
supplies, and actively monitoring the
suppliers activities
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Acknowledgments and other documents
received from supplier should be scrutinized
to insure they do not create terms that are
inconsistent with the purchase order
Suppliers
Supplier Purchase Orders
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Disclaimer of express and implied warranties.
I.
Express: are representation made in
published specification, sales catalogues and
other promotion.
I.
An implied warranty: is a warranty that exists
when a seller is aware of the intended use of
his product and the product is suitable for that
particular purpose.
Suppliers
Supplier Purchase Orders
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Any attempt by a supplier to limit or disclaim
prior express warranties is cause for concern.
Contractor must be extremely cautious about
the acceptance of:
I. supplier terms
II. supplier condition
III. qualification condition contained in purchase
order acknowledgments.
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Suppliers
Proprietary SpecificationContractors right to substitute
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On private construction contracts, owners have a
right to specify and insist on proprietary
specification.
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The situation is different on public contracts and
may lead to number of different issues:
The contract usually authorizes the substitution of
‘’equal’’ products.
Public project owners need to avoid even the
appearance of favoritism toward particular
manufacturers or suppliers.
I.
II.
Suppliers
Supplier Schedules
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Suppliers and subcontractors should be aware
of aware where they fit in the CPM schedule.
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Suppliers and subcontractors should be
obligated to show their own schedule for
accomplishing work
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Schedules should contain check points for
monitoring supplier activities and the supplier
should produce periodic updates or status
reports.
Documentation of General
Contractor Subcontractor/ Supplier
Transaction
For claims arising from contractor- supplier
problems, detailed records are very
beneficial for tracing delay due to:
I. Working or shop drawings.
II. Difficulties with design.
III. Production Problems.
IV. Nonresponsive activities by the owner or
engineer.
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