In construction projects, it is very important to solve problems that can influence price or time for completion as soon as they are encountered (or even earlier to avoid or mitigate the consequences) while all equipment, human resources, and witnesses are still on site. Negative consequences of specific hazards are allocated in the form of a risk to the parties by contract. If a risk is allocated to one party, the other party may usually claim additional payment or extensions of time after such risk is realized.

It is common in international construction contracts for parties who consider themselves to be entitled to a claim to be under a duty to notify it. This notice can draw attention to the problem. The duty to notify creates a natural responsibility to keep contemporary records. This brings with it a higher probability that faster solutions will be implemented (to mitigate consequences) and problems resolved in a timely manner.

A structured claim management system also prompts the contract administrator (the engineer), the employer, the contractor and others involved in a construction project to respect and take claims seriously. They must follow the contractual claim procedure, document events, report and quantify the consequences by paying more attention to the claims and related site inspections and investigations.

The claim management is, in the most general sense, created by being able to identify, document and quantify a claim. It is strongly recommended to commence claim preparation and administration from day one, i.e. from receipt of the tender invitation by the contractor. Well-experienced contractors, engineers and employers prepare themselves for every individual project prior to its commencement by using a set of checklists, organizational charts and sample forms of letters that facilitate future claim management.

The principles of claim management are also discussed in case law. For example in Attorney General for the Falkland Islands v. Gordon Forbes Construction Limited and National Insurance Property Development Co Ltd v. NH International (Caribbean) Ltd. Particular claims usually correspond to damages caused by the employer, the contractor or external grounds. When proving damages, one has to deal with difficulties based mainly on the three following problems: causation, concurrency and calculation. The subject of causation will be dealt with in connection with global claims (discussed below in Section 10.6), the subject of concurrency will be touched on in connection with concurrent delay (Chapter 7) and the difficulties with calculation will be dealt with in Headquarters Overhead Claims (also discussed below in Section 10.4.1). Causation, concurrency and calculation issues lead to uncertainty in the way the tribunals decide about claims for damages.

While there is no easy solution that can overcome these difficulties, if the parties are aware of the uncertainty, they can take steps at an early stage to assess the best way to establish the claim before a particular tribunal. This means that the party can carry out the necessary analysis to formulate a robust position and assess the risks which will increase the likelihood of successfully establishing the claim (Ramsey, 2013). The best place to prepare a strong claim is at the construction site itself provided that contemporary records of delay, disruption and their respective effect on costs is up-dated in the time programme and progress reports.

An application for damages (whether in a court or via a claim submission), can be both confusing and tedious. Since the purpose of a claim is the recovery of damages, making the application clear, simple, and easily understandable is extremely important. The damages claimed should, whenever possible, reference and tie to the contractor’s accounting documents and records. This provides evidence which can be verified and accessed. Damages that cannot be traced to accounting records are immediately suspect, no matter how reasonable the amount claimed may seem. There is a tendency for damages to be overstated in a claim submission, with the idea that it can later be negotiated down to a more realistic but still acceptable amount. However, this approach is not advisable, as the claimant will lose credibility and will eventually have to explain the discrepancy between the claim amount and the amount sought at trial (Schwartzkopf and McNamara, 2001).

There are three types of claims in general, i.e. claims for:

• extension of time (EOT);
  
• additional payment;
  
• extension of time and additional payment.

In some situations, the contractor can claim extensions of time for completion. It is in fact a defence against contractual penalty/delay damages filed by the employer and a form of risk sharing in some of situations such as extremely adverse weather. The position of the SCL Protocol on the purpose of extension of time is that the benefit to the contractor is only to relieve them of liability for damages for delay for any period prior to the extended contract completion date. The benefit of an EOT for the employer is that it establishes a new contract completion date and prevents time for completion of the works becoming ‘at large.’ Entitlement to an EOT does not automatically lead to an entitlement to compensation. The parties should attempt—as far as possible—to deal with the impact of employer risk events as the work proceeds in terms of EOT and compensation. Where the full effect of an employer risk event cannot be predicted with certainty at the time of the initial assessment by the contract administrator, the contract administrator should grant an EOT for the then predictable effect.

The employer usually claims an extension of the defects notification period in terms of time (under Sub-Clause 2.5 in the FIDIC forms). Under the FIDIC forms (CONS/1999 Red Book), the contractor may claim an extension of time for completion under Sub-Clause 8.4. The contractor is entitled (subject to Sub-Clause 20.1) to an extension of the time for completion if and to the extent that completion is or will be delayed by any of the following causes:

1. Variation (unless an adjustment to the time for completion has been agreed in the variation procedure) or other substantial change in the quantity of an item of work.
   
2. Cause of delay giving an entitlement to an extension of time under another Sub-Clause (mainly Sub-Clauses 1.9 (late information, instruction, delayed drawings), 2.1 (denied or late access or possession to site ), 4.7 (errors in setting out information), 4.12 (unforeseeable physical conditions), 4.24 (fossils), 7.4 (testing), 8.5 (delays caused by authorities), 8.9 (engineer’s instructions to suspend work), 10.3 (interference with tests on completion),16.4 (termination by contractor), 17.4 (employer’s risks), 19.4 (force majeure), or 19.6 (optional termination)).
   
3. Exceptionally adverse climatic conditions.
   
4. Unforeseeable shortages in the availability of personnel or goods caused by an epidemic or governmental actions.
   
5. Any delay, impediment or prevention caused by or attributable to the employer, the employer’s personnel (including the engineer who is listed as employer’s personnel under Sub-Clause 1.1.2.6.), or the employer’s other contractors on site.

If the contractor considers themselves to be entitled to an extension of time for completion, the contractor shall give notice to the engineer in accordance with Sub-Clause 20.1. When determining each extension of time under Sub-Clause 20.1, the engineer shall review previous determinations and may increase, but shall not decrease, the total extension of time.

If the contractor obtains an extension of time, they may be in a position to recover costs associated with the delay. However, there is no link (obligation) between Sub-Clause 8.4 and additional payment.

The contractor must keep proper records of the consequences of the event causing the claim in order to prove it. Documentation and reporting must follow the particular contractual provisions. For example, the contractor must keep records of labour, materials, equipment, progress reports, photographic and video documentation.

The importance of a maintained, detailed and up-to-date time schedule should be noted here. A claim for extension of time for completion is often submitted along with the updated time schedule detailing how and to what extent the claim events have influenced the individual construction works and relationship between activities. Critical paths in the time schedule are then explored together with floats, if any.

In the event of extremely adverse climatic conditions, for example, the contractor shall submit records of the weather encountered which can then be checked against the official statistics of the local bureau of meteorology.

Related to claims for additional payment, it is important to explain how the bids are priced (see Chapter 6). Pricing methods may vary, depending on the practices used within a particular company. The pricing method which enjoys widest use is based on a calculated unit cost which is then increased by a per-cent surcharge.

The bid price is usually a total sum of the direct costs of equipment, material and labour, indirect costs of site overhead, headquarters overhead, risk and profit surcharge. Most frequently, a claim for additional payment rests on the documented direct costs plus overhead and profit surcharge.

Under FIDIC forms (Sub-Clause 1.1.4.3, for example), ‘cost’ means all expenditure reasonably incurred (or to be incurred) by the contractor, whether on or off site, including overheads and similar charges, but does not include profit. Profit is allowed only in specific claims, i.e. usually those where there is an employer default.

These surcharges should be defined or agreed for the purposes of claims quantification. It should further be noted that the terms ‘cost’, ‘expenditure’ and ‘overhead’ could be interpreted differently in particular jurisdictions. For example, these terms may be interpreted in the common case law sense (see Hadley v. Baxendale (1854) 9 Ex. 341) or in the civil law sense (see Compagnie Interafricaine de Travaux v. South African Transport Services and Others (680/89) [1991] ZASCA 16; 1991 (4) SA 217 (AD); (21 March 1991).

With every claim, the first test to be done is the test of liability, i.e. does the other party bear the risk of the particular hazard subject to claim? If so, it must be examined and potentially compensated.

The contract defines what claims the aggrieved party is entitled to and if there is also an entitlement for an additional payment. The claims for additional payment must be further subdivided into claims for:

• direct cost;
  
• direct cost and overhead;
  
• direct cost, overhead and profit.

The structure of a particular claim for additional payment depends on the wording of the contract and/or the governing law.

In its most general form, the heads of contractor’s claim for additional payment would include:

• claims resulting from variations;
  
• claims resulting from delay and/or disruption under the particular provisions of the contract;
  
• claims resulting from governing law.

The employer usually claims delay damages, liquidated damages (or contractual penalties) and an additional payment caused by a lack of quality (price reduction) because the works are not performed to the agreed standard.

The question of particular claims under the contract and time bars was discussed in Chapter 9. In the following part, the specific heads of claims will be discussed. See also the Table of Contractor’s and Employer’s Claims under FIDIC CONS/1999 Red Book in Appendix D4. Many of those claims are typically both for an extension of time and additional payment.