International Journal of Science and Engineering Research (IJ0SER),

Vol 3 Issue 4 April -2015

3221 5687, (P) 3221 568X

A Study On Factors Influencing Construction Contract Claim

Management
K.Sundhar #1, N.Nandhini #2
#1
PG Student (M.E Construction Engineering and Management),
#2
Assistant Professor ( Department of civil Engineering),
Kongu Engineering College, Perundurai, Erode.

Abstract-Construction contracts are notorious for occurrence of claims and disputes. Most of the construction projects in India face t he
problems of time and cost overruns which result into claims and are result of claims. The basic reason for occurrence of any dispute is,
two parties viewing the same situation from different angles. When either party involved in a contract feels that it is been made to suffer
due to actions of other party a dispute occurs which eventually results in a claim been put forward.There are a varied number of reasons
for occurrence of claims. One sided nature of the contracts, heavily biased in the favor of client, are one of the prima ry reasons for
occurrence of claims. There are many other reasons for occurrence of claims like delays, force majeure, nonperformance which have been
discussed in detail in the study.Once a claim occurs, it is very important that it is resolved quickly to ensure that the project does not gets
affected. It is very essential for either party to ensure that the project remains unaffected. There are a number of remedies available for
dispute resolution. Arbitration is a widely adopted approach in this regard. For a contractor, proper documentation is very essential to
ensure that the contractor has sufficient material to back his claims. Although the cost for documentation seems waste in the initial period,
yet it proves beneficial in the longer run. Proper documentation goes a long way in ensuring speedy settlement of the claims. However
positive attitude of both the parties and a commitment to resolve disputes are the prime

Keywords: Contracts, disputes, time and cost .

INTRODUCTION available on claims and contracts were referred to such as

journals, magazines and books. In addition to this the
Construction claims form an inseparable part of any researcher met many experts in the field of dispute resolution.
construction project. It is very rarely that a construction project Interactive discussions and interviews with such respected
gets completed without any disputes or difference of opinion people have gone a long way in framing of the thesis. The
between the client and the contractor. In some projects this subject of claims is such that it is of little use to discuss the
difference of opinion come out in open and give rise to claims. topic without referring to the actual case studies. Actual case
However in some projects, the contractor or client let goes studies were also discussed in the thesis to get an idea of how
certain things for maintaining a good business working actually things work practically.
relationship. Both the parties executing the contract do end up
having disputes over a wide range of subjects which eventually CAUSES OF CLAIMS
give rise to claims. Both the parties hold the other one
responsible for claims and disputes. The general tendency of When two parties are entering into a contract with each
passing the buck around is largely responsible for this. The other it is essentially that they are getting in to an
contractor thinks that it is he who is been victimized by the understanding with each other. Now no understanding can be
unfair conditions of the contract. On the other hand the client made so perfect that there will be no disputes between the
thinks that it is the contractor who is trying to exploit the client concerned parties. Disputes can be due to a variety of reasons:
by finding the loopholes in the contract conditions and taking
unfair advantage of the client’s unfamiliarity of the work  Clash of parties involved.
procedures of the contract which is the case in most contracts.  Rise in awareness amongst the parties.
 Delayed response by the other party.
OBJECTIVE OF STUDY  Inadequate clarity in contract conditions.

The objective of the study is: It is often the contract document that comes up for
 To find the various reasons for occurrence of claims interpretation. Therefore certain basic rules have to be
and discussing the remedies for the same. formulated which should be observed while interpreting the
contract. This includes the following:
NEED FOR STUDY
 Intention of the parties is to be considered.
The study was conducted by employing data gathered  Subsequent mentions super seed the previous ones.
by the researcher from various sources. Various literatures

Sundhar,Nandhini…. (IJ0SER) April - 2015

 International Journal of Science and Engineering Research (IJ0SER),
Vol 3 Issue 4 April -2015
3221 5687, (P) 3221 568X

 It is to be noted that the contract is to be read in

totality.
Identifying factors
 Ambiguities may be resent in the contract.

COST OF CLAIMS
Questionnaire preparation
Both the parties involved in the contract are very
much involved when it comes into claims. It is but natural that
each party blames the other one for the claim occurrence. In
case the Government is the client it is usual tendency for the
Government Officers to pass the buck around. Bath the parties Questionnaire survey
are reluctant to step back from their positions after the claim
has been lodged.

Hence it is in the best interest of both the parties that to

see to it the claims are settled as early as possible so as to avoid Questionnaire analysis using
it’s affect on the progress of the project. As far as the client is SPSS
concerned he should understand that prolonging a claim
settlement is ultimately going to affect him. Some of the costs
that have to be borne by the client as far as claims are
concerned are; Conclusion &
recommendations
1. Cost Overruns: The cost of the project will increase and the
increased cost will have to be borne by the owner. REASONS FOR CLAIM OCCURRENCE
2. Delay in Completion: Every owner builds the facility since The reasons for which the claims occur are varied and
he wants to generate revenue from the facility. If the plenty. However we shall now concentrate on the common
completion of the project is delayed it will lead to loss of types of claims that occur. Also it has to be kept in mind that it
revenue for the owner. Delay will also increase the cost of is not necessary that all the types of claims will be covered in
financing the project. the subsequent discussion. The following chapter is just an
effort to identify the various types of claims and discuss them
3. Loss of reputation for the owner: If the owner has a
briefly about their occurrence pattern, effect on project, etc.
reputation of having a tendency of getting into disputes often
Before we move forward we shall take a look at some
with the contractors, the contractors will resort to adding the
commonly occurring claims:
cost of claims in the contract. Also it is possible that the bid
received by him would not necessarily be the lowest bid.
 Partial Nature of Contracts
METHODOLOGY  Improper Framing of Contract Conditions
 Delay in Handing site
The study was conducted by employing data gathered by  Delay in handing Drawings
the researcher from various sources. Various literatures such as  Changes in design
journals, magazines and books are available on claims and  Change in Scope of work
contracts were referred. The subject of claims is such that it is  Late supply of materials
of little use to discuss the topic without referring to the actual  Miscellaneous Changes
case studies. Actual case studies were also discussed in the  Ambiguity
thesis to get an idea of how actually things work practically.  Change in quantity
 Delays
 Non Performance
 Time Extensions
Literature review  Delays
 Escalation
 Delays by Third party
 Fixation of rates
Study of claims

Sundhar,Nandhini…. (IJ0SER) April - 2015

 International Journal of Science and Engineering Research (IJ0SER),
Vol 3 Issue 4 April -2015
3221 5687, (P) 3221 568X

OCCURRENCE OF CLAIMS  This helps in clearing many misunderstandings that

might have been existed between the parties.
The claims may occur due to variety of reasons as cited
above. We shall now try and classify the frequently occurring  In case one party feels that it is not been treated
and common types of claims. The major reasons for properly and the other party is not fulfilling
occurrences of claims can be as follows: obligations properly, it lets the party know about it. It
1. Claims due to delays asks for certain actions from the other party.
2. Claims due to change in scope of work  In other words it tells the other party what it expects it
3. Claims due to force majeure to do. If the second party agrees to it then there is no
4. Claims due to non-performance dispute.
5. Miscellaneous claims.  The dispute occurs only when the other party does not
accept the demands. It is then that negotiation comes
REMEDIES FOR RESOLVING DISPUTES into picture.

Usually the method that has to be adopted for solving a  Usually both parties prefer for going in for negotiation
dispute is specified in the contract itself. It gives clear steps at the beginning, as both realize the advantage of the
that are to be followed in case a dispute arises. Different method. They sit for a discussion where each party
contracts specify different remedies for dispute resolution. It puts forward its view point. They tend to agree on
varies depending upon the conditions of contract, the nature of certain things but disagree on other terms.
work, the no of contractors, the nature and extent of
involvement of the funding agencies and other related factors.  The idea is to come to a working compromise with
The following are the usual remedies that are employed in case each party taking certain steps back. The attitude
of dispute resolution: should be to come to a solution such that both parties
leave the discussion in position that is better before
 Negotiations
they came into the discussion.
 Dispute resolution board
 Many times it may happen that the issue is not
 Dispute Adjudication board resolved in a single meeting. However the parties
 Arbitration should not let go off the process immediately.
 In case of complicated and highly debatable issues it
The methods have been involved to resolve the disputes
is better to have a series of meetings.
amongst the parties itself instead of going to the court.
 It should be also kept in mind that the very essence of
However either party can go in for legal remedy if it is not
the negotiations is the fact that both parties are willing
satisfied with the outcome for this method.
to compromise. Hence an open mind while going in
Initially there was no alternative except going to the negations is very important.
court if things did not work within the party. However
litigation is a very complex process. The time and money DISPUTE REVIEW BOARD
involved are tremendous. Also the parties lose substantial
business in the process. In addition to this, the relationship Wide scale adoption of Dispute Review Boards
between the parties is soured. This is very harmful for the (DRB’s), sometimes also called Dispute Adjudication Boards
parties. In most case it is the contractor who has to suffer many (DAB’s), in large size engineering projects construction
losses in case of litigation. As it is the contract conditions are contracts is only a decade old in the advanced world. It was
realized during this period that DRB’s are ideally suited to
not designed in a fair way and they are heavily biased in favor
dispute resolution processes in large size projects involving
of the client.
sophisticated technology and intricate construction techniques.

NEGOTIATION DRB in construction contracts is a voluntary, non-

binding and mutually accepted process, as a part of contract
agreement. With the passage of time, it has found wide scale
 Negotiation between the parties is the best available
acceptability. In construction contracts, worldwide, all from
method for settlement of disputes. Both parties sit and
1998 onwards, there is huge trend of DRBs for resolving
put their viewpoint forward. They give the other party
disputes.
description of what they expect from the other party.
 Also the party tells the other what it is ready to give RESULT
the other party in return. Direct communication
between the parties is the biggest advantage of this
Result from SPSS analyses,
method.

Sundhar,Nandhini…. (IJ0SER) April - 2015

 International Journal of Science and Engineering Research (IJ0SER),
Vol 3 Issue 4 April -2015
3221 5687, (P) 3221 568X

The following are the factors which are identified as Changes in designs 3.28 15
risk on productivity. According to the response obtained from
the survey the ratings are calculated. Site Condition of the 3.23 16
construction project
SUMMARY OF MEAN VALUE AND RANK OF CLAIM Delay in obtaining various 3.22 17
FACTORS permissions

FACTORS MEAN RANK Delay in giving approvals 3.22 17

VALUE
Working Shifts of the 3.67 1 Delay due to clients 3.20 18
labors
Quality related claims in 3.20 18
Extent of effect of the 3.62 2 construction
force majeure claims
Delay in handing over the 3.18 19
Delay in approving works 3.57 3 site

Changes in external 3.55 4 Delay in 3.18 19

conditions drawings,specification,etc

Payment of losses for 3.55 4 Third party claims 3.18 19

uncertified works
Environmental Conditions 3.18 19
Extension of time 3.53 5
Failure in meeting 3.18 19
Natural calamities 3.53 5 specifications

Insurance claims 3.52 6 Wrong Decisions in 3.15 20

Completion Period
Altered site due to 3.50 7
unsuitable conditions

Late possession of the site 3.47 8 CONCLUSION

& RECOMMENDATIONS
Extent of damages 3.47 8
work disturbing the overall 3.45 The following are the inferences made from 60
9 respondents collected from various contractors, owners and
work schedule
engineers.
Need for Additional or 3.43 10
extra items  The Working shifts of the labors greatly affect the
claim due to contractors with a mean value of 3.67.
Misinterpretations of 3.40 11 This can be reduced by assigning different work shifts
drawings or specifications to the labors.
Unforeseen increase or 3.38
 The extent of effect of the force majeure claims has a
12 mean value of 3.62 which states that it plays a vital
decrease in the quantities
role in increasing claims. This sort of work pressure
Social issues 3.35 13 can be avoided by regular monitoring of works by the
supervisors or engineers.
Non-payment of bills 3.33  Delays in approving the works resulting of halting the
14 progress of future also includes more claims which
Breach of contract 3.33
has a mean value of 3.57 and it can be neglected by
14 maintaining quality in work and due to influence with
government authorities.
Interest due to delayed 3.28 15
payments  The changes in external conditions like laws and
regulations have a mean value of 3.55 and hence non-

Sundhar,Nandhini…. (IJ0SER) April - 2015

 International Journal of Science and Engineering Research (IJ0SER),
Vol 3 Issue 4 April -2015
3221 5687, (P) 3221 568X

violating the laws will improve the efficiency of  Nabil Abbas M.A., ‘The impact of construction contract models on
construction claims’ Association of Researchers in Construction
project and thus reduces the claims with contractors.
Management,Vol. 2, 438-46,(1998).
 The payment of losses for uncertified works has a
mean value of 3.55 where labors are forced to  Patil B.S., ‘Building and Engineering Contracts’,(1994).
complete the work with pressure. These issues may be
rectified by having clear knowledge about the  Prakash V.A., ‘Contract Management in Civil Works, Projects, A
Text Book’, A Nicmar Publication.
worksite, before executing it.
 The extension of time, as the name implies it increases  Spang K., ‘Designing the relationship between contractor and client
the claim since the project could not be completed to partnership’, Challenges, Opportunities and Solutions in
within time and the entire cost of the project may also Structural Engineering and Construction – Ghafoori (ed.).(2010).
increases. This leads to claim which has a mean value  VikasDeshpande., ‘Contracts and Claims Management –
of 3.53. Conceptual Approach’, CE & CR JUNE (1993).
 Natural calamities like earthquake, storms, thunder,
blizzards having a mean value of 3.53 contributes
more claims to the contractors and can be minimized
He is percusing M.E Construction
by predicting the earthquake zones before Engineering and Management in
commencing the project work. KonguEngineering College, perundurai. He
 Due to unfortunate happenings of resources such as Completed B.E Civil Engineering in in Kongu
insurance claim due to accident and damages of the Engineering College, Perundurai.
equipment and machineries, disabilities to workers
lead to insurance claim with a mean value of 3.52.
This can be avoided by monitoring safe working of
labors and improving the awareness about site
accidents and value of human life, also by regular
maintenance of equipment and replacing the old ones.
 On the whole the claim for contractors is more
influenced only by claims due to force majeure claims
rather than claims due to delays, claims due to change
in scope of work, claims due to non-performance and
claims due to miscellaneous.

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Sundhar,Nandhini…. (IJ0SER) April - 2015