As promised, here are a few more necessary steps to set up a Contract Administration System. You can find the first two steps here. Today, we’ll discuss contract risks and the theories you may pursue to recover your damages, along with checklists for making common claims.
Who is Responsible for the Risk?
It is important to consider who is responsible for the risk associated with the project. When considering who is responsible, you will have to know both the contract and the law. While the owner may attempt to place all risk on the contractor, the contract should identify who is responsible. And, there may be some risks that the owner or contractor may not be able to delegate to another party. Ultimately, the entity responsible for the risk could be:
- 3rd parties
- No one
I know that last one seems odd, but there are times when no is responsible for the risk and all parties bear their own losses.
What is the Basis for your Claim?
Any assessment of whether your company is entitled to extra compensation or additional time must begin with the contract. Contracts usually contain four entitlement categories:
- Extra Work;
- Significant Changes in Character of Work;
- Differing Site Conditions;
- Delays; and
- Suspension of Work
For each type of claim, you should have a checklist of what needs to be done to pursue this type of claim and when it must be completed.
For example, a Differing Site Condition Checklist could include:
- Does the differing site condition clause include the type of condition encountered?
- Do the conditions differ materially from those indicated in the contract or those normally encountered?
- Did the contractor make a reasonable site investigation as required by the contract?
- Does the differing site condition clause allow the contractor to recover impact costs?
- Did the contractor notify the owner/engineer prior to disturbing the conditions?
- Have the conditions encountered increased the contractor’s costs in performing the work or time required to complete the work?
A Delays Checklist could include:
- Does the suspension of work clause cover both owner-directed suspensions and construction suspension of work?
- Is there a No Damage for Delay clause in the contract?
- Was the delay foreseeable?
- Was the delay unreasonable?
- Did the delay/disruption increase the time necessary to perform the work?
- Did the contractor comply with the notice requirements of the contract?
- Did the contractor comply with the schedule update requirements of the contract?
As you can see, these checklists are very involved and require you to know both who is responsible for the risk and theories of recovery that may be asserted.
While adopting a thorough Contract Administration System will take some work, it will also greatly assist you in getting procedures in place before problems arise, and will improve your chances of prevailing in your claim.