Appendix

Claims Management Process

Appendix F: Claims Management Process

Introduction

A claim is a request for compensation (either additional time and/or payment) not anticipated in
the terms of the original contract.

A change order that is written, negotiated, and accepted without going outside the project is not a
claim.

A disputed change order is a claim. Disputes can arise over performance guarantees, schedule
dates or any deviation from the original contract term.

Claims can be complicated based on the size, nature and the complexity of the projects.
Conflicts may arise as a result of different goals and expectations of stakeholders such as the
City, Consultants, and Contractors. If the conflicts are not managed successfully, disputes may
arise, which impact the successful completion of the project.

Common drivers of claims are:

• changes in scope
• change orders
• errors and omissions
• inadequate project planning
• poorly developed or executed contracts
• aggressive schedules

Claims Management is the process involving the prevention, mitigation, identification and
quantification, and resolution of consultant and construction contract claims, which requires
effective management during the entire lifecycle of a project.

The four components of claims management are:

1. Claim Prevention
2. Claim Mitigation
3. Claim Identification and Quantification, and
4. Claim Resolution.

Claims Management Process Contents

Appendix F: Claims Management Process................................................................................ 1
Introduction ............................................................................................................................ 1
1. Claim Prevention ............................................................................................................. 2
2. Claim Mitigation ............................................................................................................... 2
3. Claim Identification and Quantification ............................................................................. 3
4. Claim Resolution ............................................................................................................. 4

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APPENDIX F: CLAIMS MANAGEMENT PROCESS

1. Claim Prevention

The process starts at the pre-tender and contract development part of a project. Contract
documents, project delivery plans and scope of work should include all project requirements, as
after the award of contract, the chance to prevent a claim ceases to exist.

Recommended best practice is to:

• Perform Project Management responsibilities under the contract competently, promptly
and prudently.
• Provide Consultants and Contractors with quality plans and/or specifications, definitive
roles and responsibilities.
• Identify and manage risk exposures early and often in project delivery.
• Be pro-active in dealing with dispute situations that arise during the project delivery that
could lead to claims.
• Integrate preventative measures within contracts to minimize potential sources of claims
by hiring competent consultants and contractors.
• Ensure there is a contractual basis for each claim.
• Monitor project progress closely and be aware of any slippages in schedule, which could
lead to a claim.
• Ensure prompt enforcement of contract clauses when delays occur.
• Resolve conflicts and misunderstanding promptly as they occur.
• Ensure good working relationships with Consultants and Contractors and communicate
with them frequently.
• Employ existing industry standards, trends, and lessons learned.

2. Claim Mitigation

The best approach is to mitigate the possibilities of claims arising, is through the progression of
the contract. Emphasis should be on how to mitigate claims from arising. A well-defined scope,
and clear responsibilities and proper risk allocation in the contract will help to decrease the
possibility of claims occurring on a project.

Recommended best practice is to:

• Ensure the Project Delivery Plan has a clear and concise description of work, a
reasonable schedule, and an appropriate project delivery method for the specific type of
project.
• Ensure the contract scope and specifications are written in clear and unambiguous
language.
• Ensure the schedule requirements are clearly stated and developed realistically for the
successful completion of the project for all parties involved.
• Use of a Risk Management Plan mitigates claims by allocating the risk between all
concerned parties on the basis of which party has the most control over the risk involved.
• Ensure the proper handling of disputes. Mishandling of disputes can lead to strained
relationships, delays in work, and eventually to a claim.
• Use a clearly defined decision-making process as indecision leads to delays in work,
dispute, and claims.

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APPENDIX F: CLAIMS MANAGEMENT PROCESS

• Perform Constructability Reviews to assist in avoiding changes.

• Employ Request for Information (RFI) procedures. Contracts requiring Designer or
Business Owner approval of shop drawings, materials of construction, RFIs and like
items need a specific time-bound clause in which to provide the answer in.
• Maintain efficient and effective communication between all contractual parties.
• Maintain proper project documentation in order to easily recognize a change and to
improve communication on changes between the contractual parties. Proper project
documentation also provides a good defense against claims.

3. Claim Identification and Quantification

Claim Identification is performed by analyzing both the scope of work and the provisions of the
contract. The identification of a claim starts with sufficient knowledge of the scope and
responsibilities written in contract terms, when some activity appears to be a change in scope or
terms requiring a contract adjustment. Proper identification involves an interpretation of what the
contract requires, and also a documented description of the activity viewed as extra to that stated
in the contract.

Once an activity is identified as a claim it will be quantified in terms of additional compensation or

a time extension to the contract completion or other milestone date. Schedule and critical path
analysis should be made in order to calculate the delay of the project. In addition direct and
indirect costs originated from the claimed activity should also be calculated. In some
circumstances, the claimed activity has an indirect effect on other aspects of the construction
project, making other work more costly, changing sequences, or delaying other activities. To the
extent that these indirect effects can be justified and quantified they should be properly included
as part of the total cost of the claim.

Recommended best practice is to:

• Analyze the baseline scope of work as approved in the contract.
• Analyze the provisions of the contract to identify who is responsible for work to perform,
especially terms relating to changes, changed conditions, schedule preparation, submittal
and notices given. In many cases, claims are invalid when not made in a timely manner.
• Detail the description of work believed to be extra to the contract, where, and when it took
place. Statement of why it is not covered in the contract scope, and reference to the
section of the contract that supports the contention.
• Record the extra work and time delays. Time extension claims resulted due to events
such as unusual weather, strikes or other force majeure items outside the contractor's
control may be valid while they may not be compensable. The contract often indicates
which events are compensable.
• Reach a consensus among more than one person that the activity under questions does
warrant claim status. In some circumstances, where a claim may be large, seek Legal
Services’ advice to further support the validity of the claim.
• Project documentation is the most important factor to support a claim. This may take the
form of relevant contract sections, drawings, photographs or videos of the work in
question, statements of persons involved in or related to the claimed work. Also, the time
for work that was performed should be noted and logged independently in order to clearly
separate the claim work from other contract work.
• Develop actual quantities of the claimed work.
• Develop activity base costing of the resources involved in the claimed work. The cost
records provide the basis for the estimate or prepare the estimate using the current

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APPENDIX F: CLAIMS MANAGEMENT PROCESS

applicable rates. Overhead costs and profit are appropriate at this time as the claim at
this stage is represented as a change In case the claimed work has an effect on other
project work, there may be additional cost, and this is estimated for cause and effect
relationship.
• Compare the ‘as planned’ to the ‘as built’ schedule to support the time extension
requested not only for the claimed activity, but also for the effect (if any) on the balance of
the project work. The ultimate deciding factor is the effect on the critical path; it can
become difficult to separate these because of all of the other factors that can and do
affect construction schedules.
• In more complex situations, it may be of assistance to cite other contract law precedents
to substantiate the claim when the contract does not clearly provide a solution. The other
precedents may provide guidance as to what may or may not be included in the claim or
how the claim is evaluated.

4. Claim Resolution

Claim Resolution is a step-by-step process to resolve the claim issue. The process begins with
negotiation, perhaps at more than one level, before moving on to mediation, arbitration and
litigation depending on the remedies afforded by the contract.

Recommended best practice is to:

• Analyze and evaluate claims utilizing a team environment approach.
• Negotiate between affected parties trying to find an equable solution.
• Abide by provisions in the contract for dispute resolution.
• Ensure the rights and obligations of the consultant/contractor are properly considered.
• Assess each claim separately with its own costs or merits based on 'reasonableness' of
arguments and costs presented.
• Resolve claims promptly by being fair, open and transparent.
• Ensure that adequate project records, videos, photographs are retained for future
reference.
• Estimate the cost of carrying the dispute further if the initial attempts at negotiation fail.
Mediators are costly, and some arbitration cases can approach the expense of litigation
due to the amount of discovery involved. An estimate of these costs can help in deciding
just how beneficial it is to pursue a claim.
• Use litigation as a last resort when all attempts have failed. Construction lawsuits are
complex and often take a longer time to present, and are more expensive in terms of
cost.

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