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Claim Analysis of Construction Projects in Oman

Article · January 2012

DOI: 10.18517/ijaseit.2.2.182

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International Journal on
Advanced Science
E n g i n e e r i n g
Information Technology

Claim Analysis of Construction Projects in Oman

Mohammed Al Mohsin
Built &Natural Environment Department, Caledonian College of Engineering, Muscat, Oman
E-mail: almohsinmohammed@yahoo.com

Abstract— Claims are one of the problems that construction project may face. Claims might cause many affects such as payment
delay, extension of time and work suspension. This paper aims to highlight claims in construction industry in Oman and factors
affecting these claims, as a result of construction boom, claims get bigger attention due to the high effect on the main elements of
construction management. Field study has been conducted to collect data required in claim concern. Data were collected through data
collecting form designed for this purpose, collected data was for 45 projects with specific criteria. According to the analyzed data, it’s
been shown that the average of claims in construction projects is 2.6 claims per project, most of these claims are: extension of time
effect, solved in negotiation manner, occurred in lump sum contracts. Owners are the first party “as sources of claims” with 42% of
research sample over other sources like consultants, contractor and contract documents.

Keywords— Claims; Construction; Projects.

specific cause or causes are generally the alleged action,

I. INTRODUCTION non-action, or wrong action by one or more participants in
Claims are one of the problems that construction project the construction project. The participants can include the
may face. Claims might lead to many consequences such as owner, the architect/engineer, vendors, general contractors,
payment delay, extension of time and work suspension. or construction managers and/or subcontractors.
Construction claims require both legal procedures and Effects and consequences of claims are the first
engineering abilities. It is possible to find professionals with justification for conducting many of researches different
these abilities; however, this is not enough to win a dispute. countries, furthermore, claim has to be discussed vertically
A good execution control system that permits the registration to highlight factors affecting claims.
of all deviations from the original plans must be This paper aims to highlight claims in construction
implemented. Construction claims should be made when industry in Oman and factors affecting these claims, as a
there is an amount of money that has not been paid through result construction boom, claims gets bigger attention due to
the common, accepted procedures. A quantitative analysis the high effect on the main elements of construction
must be prepared to decide if there is a return in the effort management. Field study has been conducted to collect data
that needs to be executed for carrying out the claim. required in claim concern.
Probability of loss should be considered in the quantitative
analysis. Qualitative variables, such as the possibility of II. BACKGROUND
losing the customer, should also be considered. A work The various related works done in this area of study are
breakdown structure is presented to help in the claiming reviewed with different approaches to assess the claims and
procedure. their impact on the construction Industry. Some reports and
Sometimes issues occur in construction project that studies have been carried out for the analysis of construction
cannot be resolved among project participants. Such issues claims.
from contractors' perspective typical involve requests for Diekmann and Nelson (1985)[1] examined the frequency
additional money or time for work performed beyond that of occurrence of 427 separate construction claims which
required by construction contract. were experienced on 22 federally funded and administered
The basic cause of a dispute that often leads to a claim construction projects. The data examined include various
can be attributed to the fact that there was no meeting of the claim types, the frequency of their occurrence and the
minds of the contracting parties. The end product of a claim average cost of these claims. His study indicates that the
is money and/or time that one party requests from another largest proportion of change orders and modifications
party during the course of a construction contract. The

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originate with the owner of the project or with those III. TYPES OF CLAIMS
responsible to the owner. Contractor’s claims may be of three major kinds:
Ren and Ugwu (2001) [2] reviewed the developments in
claims management and highlights the deficiencies in A. Common law claims
current claims management approaches. His result was These arise from causes which are outside the express
focusing on the need for improvement of the efficiency of terms of a contract. They relate to breaches by the Employer
claims negotiation and suggests the use of multiagent or his agents of either implied or express terms of the
systems as an approach to achieve it. He assessed that contract, for example; if the Employer in some way hindered
disputes arise from the poor resolution of claims in the progress of the Works or if the architect were negligent in
course of construction projects. carrying out his duties, resulting in loss to the contractor.
Kululanga et al (2001) [3] presented the principles that
underly construction claim process and gives a generic B. Ex gratia claims
framework that aims to facilitate measurement of These have no legal basis but are claims, which the
construction claim process as one of the strategies for contractor considers the Employer has a moral duty to meet,
improving construction business processes. The paper also e.g., if he has seriously under-priced an item whose quantity
presents a survey of Malawian construction contractors' has been increased substantially because of the variation
performance on the construction claim process framework. which will in consequence cause him considerable loss. The
The results show a low awareness of such a construction Employer is under no obligation to meet such ‘hardship
claim process measuring instrument. claims’ but may be prepared to do so, on grounds of natural
Scott and Harris(2004) [4] used a novel approach to justice or to help the contractor where otherwise he might be
understand how contractors justify their claims on forced into liquidation.
construction contracts and how contract administrators are
likely to assess them. This is done by encapsulating C. Contractual claims
particular claim types into scenarios and interviewing not These arise from express terms of a contract and form by
only contractors and contract administrators, but also claims far the most frequent kind of claim. They may relate to any
consultants, to hear their views on how the situations or all of the following:
represented by the scenarios should be resolved. The results (a) Fluctuations; (b) variations; (c) extensions of time; and (d)
show some good agreement, particularly on the problems of loss and/or expense due to matters affecting regular progress
dealing with exceptionally adverse weather and with some of the works [7].
aspects of concurrent delay assessment. Mainly the above types of claims are the most common,
Iwamatsu et al (2008) [5] discussed unique characteristics other types can be seen below [8]:
of the implementation of construction work in Japan that are 1. Different Site Conditions Claims: refers to some physical
represented of this different use of terminology. These aspect of the project or its site that differs materially
unique characteristics are considered as the result of a from the indicated by the contract documents or that is of
business culture that has developed through a combination of an unusual and differs materially from the conditions
historical circumstance and the specific characteristics of ordinarily encountered.
Japan's construction market. The paper also examines the 2. Acceleration claims which occur when a contractor’s
mechanism of dispute resolution, and considers specific work is expedited to complete a particular work activity
details and changing trends in construction disputes using earlier than planned.
relevant statistical data. 3. Difference in Pricing and Measuring Claims: which deal
Hassanein (2008) [6] aimed to provide a better insight with the disagreement regarding measurements at the
into the status of claims management in general, and change final stage in the construction. Also, these claims include
order claims in particular, from the contractor's perspective the differences in pricing by the contractor and the owner
with respect to the Egyptian industrial construction sector, as of some of the materials. As well, the change and the
they proved to be the main cause of claims in this sector. extra work usually create some differences in pricing.
The results demonstrated that claims management in the 4. Damage Claims represented by three types; the first
Egyptian industrial sector has been suffering from a variety actual damages where the owner is entitled to the cost of
of obstacles, including lack of proper notification procedures completing the job or of remedying those defects that are
in public contracts and poor documentation management. remediable .The second types is liquidated damages
Change orders had been actually lost due to poor where they are agreed upon in advance by the parties as
documentation. Oral change orders were present in compensation for the breach of a contract, where the
approximately 76 percent of the projects; half of which actual damages caused by the breach are incapable of
resulted in loss of rights due to improper documentation, accurate estimation. The third is delay damages where a
which was largely attributed to the lack of contract contractor may be entitled to recover damages for losses
awareness of the site team, and to the “fear of consultant due to delays.
phenomenon”.
IV. CLAIMS EFFECTS
Claims can lead to tremendous effects upon the type of
claim and the reason has led for occurrence, these effects can
be summarized in table 1.

74
 V. CAUSES OF CLAIMS VI. CLAIM RESOLUTION
Claims can be originated in many forms with respect to All claims, in different stages, whether it's disagreement,
the sources of them, these sources are the main parties of dispute, protest, and claim; claim resolution is possible. The
contract and its documentation, a number of reasons can be method of resolution depends on the types of claim, size,
seen for each source. Causes and their sources are shown in effects and consequences.
table 2.
A. Negotiation
TABLE 1: EFFECTS INDUCED DUE TO CLAIMS
Negotiation involves both parties to the dispute sitting
Type of down, discussing both sides of the issue, and reaching
Effect
claim agreement on an appropriate resolution. This is the most
Contractual efficient and least expensive method of resolution and does
Poorly written contracts
claims not rely on any outside support. Negotiation should be
Delay These delays represent problems in the contractor’s
attempted as soon as the dispute surfaces to avoid creating
claims organization such as lack of management or
financial capability, sub-contractor caused delays an adversarial relationship between the contractor’s field
etc. personnel and those of the owner. Early negotiation may
Change The Client responsible of changing in original prove successful if attempted before the parties have had a
claims design. According to this change will be dispute of chance to formulate strong positions regarding the dispute.
delay and increasing cost of change.
Extra work  Misunderstanding between the client and B. Mediation
claims contractor. The contractor believes that he is Mediation is an assisted negotiation process in which
performing extra work, while the owner believes settlement discussions are facilitated by a neutral third party.
the work was part of original contract. Both the contractor and the owner may agree to bring in an
 Different measurement pricing claims. outside mediator, or it may be required by the construction
 The different measurements in final stages affect contract. General Conditions require mediation prior to
the plan of the time and price in the project taking a dispute to arbitration. The individual selected as
Damage  The contractor has full charge on site there for the mediator must be acceptable to both parties. As a
claims client can't do anything about the safety of
project.
consequence, this person must be credible and
 Different site conditions claims. knowledgeable of the issues in question. The mediator
 The Contractor found difficult conditions in site listens to both parties’ positions and attempts to help them
which is not expected to face. Therefore delays reach a consensus. The mediator does not render any
and needs special equipment to operate. decision on the issues, but serves as an intermediary between
the parties to the dispute. Most mediation sessions last only
TABLE 2: CAUSES OF CLAIMS [9]
one day, but occasionally they may extend into a second day.
Source Claims Reasons
1. Lack of expertise C. Arbitration
Owner 2. Long line of authority in project organization Arbitration is a formalized alternative to litigation in
3. Sequence of work directed by owner which the disputing parties present their case to a neutral
4. Delayed approvals of schedules and change third party, called the arbitrator, who is empowered to make
orders
a decision. Arbitration can be binding or nonbinding.
5. Slow change order processing
6. Failure to obtain permits Binding arbitration means that the arbitrator’s decision is
7. Irrelevant milestone dates in documents final, and nonbinding arbitration means that either party may
Contract 8. Inadequate scheduling clauses pursue litigation after arbitration. If the losing party in
Documents 9. Drawings not indicating work interfaces nonbinding arbitration decides to litigate, the arbitration
10. Permitting responsibilities vague award may be entered as evidence in court. Both the
11. Milestone dates and interface clauses contractor and the owner may agree to take their dispute to
unreasonable arbitration, or it may be required by the construction contract.
12. Leverage for enforcement of schedule Article 4.6 of the AlA General Condition requires the use of
specification binding arbitration to resolve disputes. Arbitration generally
13. Coordination inadequately specified
14. Power of individual party vaguely specified
is a more efficient process than litigation because it is
15. Lack of expertise in schedule management quicker and less expensive. Even so, arbitration of large,
16. Quality control complicated cases can still be time consuming and expensive.
Consultant 17. Inadequate record keeping In addition, arbitrators typically have more expertise in the
18. Inadequate schedule updates and progress technical subject matter under dispute than do judges.
monitoring
19. On-site coordination D. Litigation
20. Job progress meetings Litigation means referring the disputed issue to a court for
21. Noncompliance with specifications resolution. This involves hiring legal counsel, preparing
Contractor 22. Non adherence to site instructions necessary documentation, and scheduling an appearance
23. Non updating of schedules
before a judge. Most contractors and owners attempt to
24. .Reluctance to cooperate and coordinate
25. Failure to meet milestone dates
resolve their disputes without resorting to litigation, but it
26. Noncompliance to permit requirements might be used as a last resort. Litigation is not an expedient

75
means of dispute resolution. It can take years before the A. Number of Claims
matter proceeds to trial, and if appeals are made, the final The total numbers of the claims that occurred in 45
result will be delayed further [9]. projects were 119 claims with average of 2.64 claims per
each project and standard deviation of 1.68. However, the
VII. METHODOLOGY minimum number of claims is 1, and the maximum of the
Claims is the topic of which associated to many aspects of claims 7. As far as concern to the number of claims of
construction industry for instance it’s related horizontally to construction projects in Oman, this number seems to be too
all phases of construction projects despite that claims less as compared with other countries for many reasons
occurred in construction phase but avoidance of claims is represented by the calm nature of this industry in Oman.
already there. On the other hand, claims are related vertically Many trials have been conducted to check whether the No.
to all activities in construction and other elements of cost of claims is correlated to type of contract, delay time, actual
management as time, cost, and quality. Claims are related to cost. All of these trials have shown insignificant correlation.
other psychological factors due to the fact claim is a parts of The interpretation of this insignificancy is because of that
conflict happening in construction projects. No. of claims is not correlated to one variable; it's correlated
This study mainly consist of three parts; the first to these entire factor and may be more that researchers have
represented by theoretical part and literature review, in this to study them.
part the researcher is attempting to narrate the whole picture
B. Effects of Claims
of claims in theoretical basis and details in addition to
reviewing some researches and studies have been published According to the data collected, it’s found that the most
in correspondence with the topic of this research. effect in construction projects in Oman that if there is
The second part is the process of data collection; it has extension of time in percentage of 75%, w here 15% of the
been decided that the conclusions of this research would be effects were in work suspension as effects of the claims but
based on actual data collected from finished project in Oman; 10% of the effects happen when there is payment delay.
hence, the actual data would enhance and consolidate these The main indication has come out through effects of
conclusions. For this purpose, the researcher has designed a claims is the degree of delay in construction projects where
unified data collection form to be filled up for each project the average delay was for research sample is 43.25% giving
of research sample using projects’ record kept with high attention to both standard deviation(81.09) and max
consultants. The main condition of these projects that is the delay is 294.525% , the wide range of delay in these projects
total cost must more than 500,000 OR (about 1,358,700 $) to makes a sense of infeasibility of discussing these values.
highlight the importance of this research for both public and Furthermore, correlation coefficient between delay
private sector, project cost is the main criteria to screen percentage and the no. of claims was 0.053 which is
projects with respect to the size of project, assuring that the insignificant correlation. It’s obvious that the main reason of
size of project is would be economically effective. Claims of delay in construction projects is not because of claims in
projects of such size would have clear impact on these projects, the coefficient of correlation between them
construction industry. Research sample consist a number of indicates so.
projects in different owners and categories. In general, extension of project duration (not delay) is the
effect No. 1 has come out due to claims in addition to many
The third part is analysing data collected and summing up effect as work suspension and payment delay for contractors.
the finding out disclosed through analysis; analysis tools
C. Claims resolution
comprise the following:
 calculating the mean for the number claims per each The results show that 84% of the research sample which
project, have claims can be solved by negotiation, where 15% of the
 Calculating coefficient of correlation between No. of claims can be solved by mediation. On the other hand, 4% of
claims per project and other factors as actual cost, delay the claims can be solved by arbitration and 2% of the claims
time, and types of project. in Oman solved by legislation.
This result seems to be logical because of the high cost in
 Percentages of occurrence are also calculated to clarify
solving claims in other method other than negotiation, it’s
the details of claims in Oman construction industry.
clear that claims resolution by negotiation is the best way to
solve any problems, moving to higher level of claim
VIII. RESULTS AND DISCUSSION
resolution is already highly costed and takes time that is also
As the research methodology is being in progress, a cost. Negotiation is one of the most common approaches
research sample was a number of public and private projects used to manage disputes, this type of settlement involves
in Oman, 45 records were collected for 45 projects in Oman, deep discussion between the two side of claim till reaching
all of these construction projects were in different fields of an agreement on an appropriate resolution.
construction industry as; residential, commercial, industrial
buildings projects, highway project, and sewage treatment D. Types of contracts and claims
plants. Research sample mostly are Lump sum contract with a
As per data collected and analysed the results for each percentage of 80%, where premeasuring contract takes 11%
part of claims will be shown and discussed separately. from the percentage. Moreover, bill of quantity has 6%
where civil contract and traditional contract have same
percentage which 4 %. Even that there is no clear

76
relationship between the types of contract and No. of claims, TABLE 3: PERCENTAGES OF CLAIM REASONS AND SOURCES
it’s difficult to link claims to the types of contract because of Source Claims Reasons %
that types of contract is not the only variable affecting claims.
1. Lack of expertise 6.81
E. Causes of Claims Reasons 2. Long line of authority in project
As per results, owners are the first source of claims with organization 5.76
41.36%, for contractor is 21.47 for consultants 20.96, and for 3. Sequence of work directed by owner 2.09
contract documents is 16.23%, this result would be reflected 4. Delayed approvals of schedules and
in form of claims submitted by contractors to clients due to Owner change orders 17.28
their responsibility of claims generating. 5. Slow change order processing 6.81
Both contractor and the owner represent about two third
6. Failure to obtain permits 0.52
sources of claims. This fact can lead to another which is the
problem of contractor selection and how far affects the 7. Irrelevant milestone dates in
documents 2.09
process of project execution. As project goes on smoothly
with less problems, success is the inevitable results achieved Total for owner 41.36
in these project. 8. Inadequate scheduling clauses 3.14
For owner side according to the results, the delayed 9. Drawings not indicating work
approvals of schedules and change orders is the majority of interfaces 5.24
causes of claims in 17.28 which is the highest percentage for 10. Permitting responsibilities vague 1.05
causes of claims. Once owners still controlling their projects 11. Milestone dates and interface
with less degree of awareness, it’s difficult to meet projects Contract clauses unreasonable 1.05
objectives. Features of less degree of qualification of owners Documents 12. Leverage for enforcement of
represented in shortage of qualified human resources, schedule specification 1.57
shortage of finance, bad control of budget. Under budgeting, 13. Coordination inadequately specified 3.14
all of these factors are mainly lead to claims originated by 14. Power of individual party vaguely
owners; this issue has become more pronounced if the specified 1.05
second cause in owner list appears which is “lack of
Total for contract documents 16.23
expertise”. The two causes of claims under owner list are in
compliance of each other to conclude that owners have to 15. Lack of expertise in schedule
management 2.62
improve the abilities of construction management in all
phases and particularly in study, design, construction phases. 16. Quality control 5.24
These phases consist of crucial decisions have to be made by 17. Inadequate record keeping 5.24
owners, if any decision has come in wrong way or out of Consultant 18. Inadequate schedule updates and
scientific approach, no one can expect meeting project progress monitoring 2.09
objectives. 19. On-site coordination 2.09
The first three causes are; Delayed approvals of schedules
20. Job progress meetings 3.66
and change orders (17.28%), Lack of expertise (6.81%), and
Slow change order processing (6.81%). all of these causes Total for consultant 20.94
are initiated by owner in addition to the fact that he had the 21. Noncompliance with specifications 4.19
privilege of 41.36% of claims.
22. Non adherence to site instructions 3.14
High attention to be given to construction projects
studying by owners for the reasons that they have to be 23. Non updating of schedules 4.19
qualified to manage their project. In case of inability to 24. Reluctance to cooperate and
manage these project owner has to move to another method Contractor coordinate 4.19
of procurements as a solution of lack of qualification in 25. Failure to meet milestone dates 4.71
construction project management, moreover, owner has to 26. Noncompliance to permit
ask for support in high specification project. requirements 1.05
As a comparison between the Omani and Egyptian case Total for contractor 21.47
with respect to claims, it has been seen that documentation
problems are highly effective of construction projects in
Egypt, while this problem hasn't the same impact.
Change order problem is one of the similar causes of IX. CONCLUSIONS AND RECOMMENDATION
claims in Oman and some of other cases discussed in the Upon the result discussed above the following
background of this paper. conclusions can be considered:
More details about sources and reasons leading to claims 1. The main source of claims in construction projects (in
are shown in table 3 Oman) is owner contributing of 41.36%.
2. Contractors and consultants are contributing as a source
of claims in equal percentage (about 20%).
3. Claims occurred in all projects for various causes with a
mean of 2.6 (standard deviation; 1.68) for each project

77
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