Contract Changes Management

“In a Perfect construction process, There is no

Uncertainty during planning And hence; There are no
Changes during Implementations!”
Alas!
There is no Perfect Construction Process!!
There is probably no voiceless phrase in projects than
“There will be no changes to construction Projects”!!
Introduction
➢ The two most important issues considered in contract change
management are
• Uncertainties and
• Changes.
➢ Uncertainties are issues that can either be difficult to
reasonably predict or unknown during the planning phase of
Projects.
➢ Changes are issues requiring variations/alterations during
projects implementation.
➢ Uncertainties are multi-dimensional.
➢ They can be Information related, and / or Time based, and / or
Ambition related; etc.
➢ Besides, they are dependent upon the complexity, risk,
opportunity, ambiguity and chaos associated with the project
under consideration.
❖ For instance, when uncertainty is understood as the
difference between the amount of information required to
perform the task and the amount of information already
available by the planning team (Figure 1);
❖ One can clearly understand that uncertainty is the major
factor that conflicts with prediction or planning.
❖ Uncertainty is higher in the early phase and reduces through
time by getting more and better information.
❖ At the same time, the early phase posses the most probable
influencing power on the project.
Figure 1: Uncertainties due to lack of Information during planning

❑ That is, the early phase is well known for its highest influencing
possibility of the project and
❑ where the available information and knowledge of the overall
situation that helps planning to predict is very minimal (Figure 2).
Figure 2: Figure showing Project Phases Versus Four important factors
with their developments
▪ Uncertainty is not only related to the future but also on the
knowledge of the past as well, that is;
▪ information records and those based on experiences are
also uncertain.
▪ This indicated that Uncertainty is always with us and can
never be eliminated.
▪ Subsequent to this, one then understands that all decisions
about the future is made in the absence of certainty.
▪ This can be more pronounced for decisions during the
Project Definition Phase where Uncertainties are high
• .What is important from this discussion is not to search for more
information until certainty is build but to recognize that all
decisions are and should be made under such uncertainties.
• In other words, waiting until uncertainty is eliminated before
making decision is an implicit endorsement of the stats quo, and
often an excuse for maintaining it and to impose an attitude not to
accept change during implementation.
• Therefore, all projects were, are and will be planned under a certain
level of uncertainty.
• This implies that all projects take over risks during implementations.
• This can be therefore one of the major reasons why changes occur during
implementations.
➢ Uncertainties can be mitigated using the following four interventions
used in project contracts:
Absorbing: Understanding projects are planned under uncertainty and
changes are expected during implementations imply alternative provisions
for implementation phases such as Contingencies, Alterations, Claim
Administration, etc which are made and used to absorb changes caused by
uncertainties.
Uncertainties can be mitigated using the following four interventions used in project
contracts:
Absorbing: Understanding projects are planned under uncertainty and changes
are expected during implementations imply alternative provisions for
implementation phases such as Contingencies, Alterations, Claim Administration,
etc which are made and used to absorb changes caused by uncertainties.
Dividing or Splitting: When a project uncertainty is high or there is less past
experience, dividing projects into packages or different phases in order to make
them smaller in sizes and lessen their complexities, etc is to divide or split them
in order to reduce higher risks involved during implementations due to
uncertainties.
Postponing: When Contracts could not clearly state specifications, quantities
and estimates; they often use Provisional Quantity or Provisional Sum to
postpone uncertainties.
 Transferring: Lump Sum Contracts, DB and BOT delivery

systems are some form of contractual approaches to transfer

uncertainties from Owners to Providers.

Points of Stakeholders’ Views on Changes: Stakeholders’ views and

perceptions have considerable effects on contract changes management.

The following classical views are collected and listed for the different

stakeholders’ based on their merits and demerits (Table 1):

 Table 1: Stakeholders’ Views on Changes
Project Stakeholders Self initiated changes Others
Project Owners ✓ I know what I want, and I want it ✓ Cost and Time overruns are project doers
badly profits
✓ The designer should have thought of
Implementing Agencies ✓ The designer is the one at fault
this
Beneficiaries ✓ The cost is immaterial and minimal ✓ Variations & Claims are close to unethical
I am Paying for It! ✓ This should not take any more time practices
Too Cost and Too Time Oriented!!!
Project Doers ✓ Can we gain advantage? ✓ Negotiate to gain profit and extra time
Consultants ✓ This is better for you ✓ The designer should have thought of this
✓ The designer has short of
Contractors ✓ Can we recover soft costs?
experience on
Let’s Negotiate! constructability ✓ This should not take any more time
Too Profit and Claim Oriented!!!
Project Regulators ✓ Gone with the Wind! Fashionable. ✓ Control! Control! Control!
Financiers ✓ Saving Themselves. ✓ No More Finance!
Public Works ✓ More Administrative than Contractual✓ More Contractual than Administrative
Abide Laws, Rules &
Regulations
Too Control and Context Oriented!!!
 Claim Management System
Definition and Types
➢ Claim is mostly concerned with entitlements and liabilities arising
under, or as a result of, a legally valid contract (Hughes & Barber,
1992).
➢ A construction claim is therefore can be a demand for payment of
additional compensation, adjustment of the parties' respective
contractual obligations, Extension of Time or compensating delay
damages, or any other change with regard to the contractual
conditions or terms.
➢ Claim in practice can also be understood in different ways

based on the perceptions held by contractual stakeholders.

Wideman, 2001 reflected these views in three expressive

definitions; namely

A claim is a disguised form of a blackmail,

A claim is the last chance to bail out of a losing job, and

A claim is an assertion to a contractual right.

Such a perception is one of the major motto behind all the process of
Claim Administration and also a motive for either making claims or
not making claims. That is, claim is an emotive word that makes
contractual stakeholders to take sides and think the worst of each
other. He further defined construction claim formally as a legitimate
request for additional compensation (cost and / or time) on account of
a change in the terms of the contract.
Further to this, Thesaurus and Synonyms of the word Claim from
Microsoft Word, 2003 provided the following categorical meanings
(Table 1).
 Table 1: Different interpretations for the word claim

Ask for Right Assert Argue Accusation Receive

State Get
Call for Entitlement Declare Allegation Obtain
Meanings Demand Privilege Contention Retrieve
Collect
Apply for
Request
Willful Legally Properly
Act
Interpretati Supported presented Negotiate Litigate Compensated
ons
The very bases of such interpretations of the word claim
indicate that any claim is:
A willful act by the claimant when s/he believes that there is no
other way than claiming to compensate for the loss s/he
suffered during relationships,
All of such willful act of the claimant should base on her/his
right, entitlement and privilege that can legally be supported,
All of such willful act by the claimant need to be articulated in
such a way that it proved the claim is properly presented and
can be justified,
Whenever necessary, claim goes through different types of
processes when they become disputes among parties in a
relationship, and negotiation can be considered one form of
such a process,
When claims reach its utmost and severe stage, its fate is
totally geared to the formal litigation process, and
When they are concluded, they are made for compensation for
which the claimant intends to retrieve an entitlement.
Claims can be associated with three major categories that can be
understood as the different types of claims. These are:

➢Time Related Claims: Claims associated with delay or in time completion of

projects where either of the following six Entitlements or Penalties are subjected to:
• Time Extension only
• Liquidated Damages only
• Time Extension and Cost Compensation
• Concurrent Compensations
• Bonus
• Reliving of Obligation
➢Cost Related Claims: Claims associated with monetary compensation
where either of the following entitlements or penalties are entertained:
• Additions requiring rate adjustments
• Price Changes
• Provisional sum adjustments
➢Default by Contracting Parties: Claims associated with non performances
of contractual obligations such as:
• Delay in Payment Certificates
• Suspensions and Terminations
Claim Administration Processes
Claim administration process is understood as the process for the
compensation of any damage, and/or changes resulted during the
implementation of Construction projects which are called entitlements with
quantum. This is because claims require to establish both the liabilities as
well as the damages incurred in any construction contract. Construction
contracts allow that all contracting parties will be entitled to make claims.
The claim administration process is then understood as the process
starting from a willful act of the claimant through claim
notification by either of the contracting parties up to and including
claims approval and acceptance by both the Contracting parties for
agreed or enforced compensations or otherwise called claim
enforcement.
Either the Contractor or the Employer can initiate the claim
administration process. And, in some instances, the Engineer
can also advice on a reasonable incorporation of claims, on
behalf of both the contracting parties, if the engineer believed
that without the treatment of such claims, the successful
performance of the project will considerably be affected. This is
an obligation in the case of the Employer, but in no case, used
to accrue advantages only to the contractor.
Following the above interpretations for the word claim, accepted

national and international procedures, and findings from research

conducted recently, claim administration process can generally fall into

three major functions (Figure …). These included Claim Submittal,

Claim Processing and Claim Enforcement.

• Claim Notification • Claim Compensation
• Claim Preparation • Remedial Rights
• Claim Submittal • Claim Closure

Claim Submittal Claim Processing Claim Enforcement

• Claim Handling
• Dispute Resolution
• Claim Approval

Figure ….: Claim Administration Process

Claim Submittal: This is a process by which the claimant is
obliged to claim within a reasonable period of time (28 – 30 days
in most contracts) followed by her/his preparation for all
substantial documents and legal aspects supporting hers/his
entitlements for an official submittal. This constituted that a claim
has been filed for its consideration if all these three sub processes
called Claim Notification, Claim Preparation and Claim Submittal
are fully undertaken by the claimant.
Claim Processing: This process initiates checking of the claim
whether, it is legally or contractually supported or not; documents
provided are valid and reliable to substantiate the claim for
consideration or not; and overall procedural requirements have
been followed or not. After verifying the validity of the claim
proper computations and evaluations will be carried out to
present the proposed compensation for the contractual parties the
claim is applicable to. Generally the sub process that undertakes
these requirements is termed as Claim Handling.
The contractual parties will pass through different dispute resolution
system depending on their acceptance over the proposed compensation
varying from the simplest mediation by the consulting engineer to the final
court ruling in the form of litigation. Basically, three types of dispute
resolution systems are well recognized (Section …). This sub process
where dispute was handled in any form of its resolution systems is termed
as Dispute Resolutions. Such dispute resolution systems require conducive
Macro and Messo environments such us legislations, policies, regulations,
etc. above all other things. Once the contractual parties agree on the final
outcome of the claim process then they have reached into a stage where the
claim is approved.
Claim Enforcement: This is a stage where the approved claim is
enforced and finally becomes a closure therefore two sub processes
are included. The claim enforcement process will entertain the
inclusion of the approved claim into payment certificates where their
enforcement is due.
Once this compensation or entitlement is due in accordance to the
approved claim and its enforcement requirements, then it is concluded
for its closure. In order to account for such an administration process
contracts provide claim clauses with in their provisions in their
conditions of contract.
Contract Conditions

➢ Here claim clauses which are set out in the MoWUD's SCC for construction
of civil work projects in Ethiopia, 1994 are considered and given in Table …..
➢ These claim clauses are largely similar to FIDIC's SCC, 1996 except in the
case of delegating Duties and Power of the Engineer by MoWUD.
➢ The duties and power of the Engineer is limited such that it required special
approvals of the MoWUD (ERA in the case of Road projects) in connection
with claim clauses causing:
• Repayment to contractors under clause 26.3,
• Cumulative TE Exceeding 15% of the contract time under clause 44,
• Fixing rates under clause 52.2,
 • variation exceeding 10% under clause 52.3,
• Increase or decrease of costs under clause 70, and
• Termination of contract under clauses 63 & 69.
From this summary of claim clauses one can generally classify
claim entitlements and quanta into two major types: Claim
related to Variations in Time and Cost issues.
 Table: Claim clauses in SCC for construction of civil work projects, MoWUD, 1994
Clause No. Description of claims Entitlement Due to
5.2 Ambiguities or discrepancies among several documents forming the Additional Cost + Time Extensions The Contractor
contract
6.4 Failure or inability to issue Engineering drawings with in reasonable Additional Cost + Time Extensions The Contractor
time causing disruption of progress.
12 Physical conditions or artificial obstructions which can not be Additional Cost + Time Extensions The Contractor
predictable
18 Additional boreholes or exploratory excavation Additional Cost + Profit The Contractor
20.1 Repairs due to damages, loss or injury from any of the excepted risks Additional Cost + Profit The Contractor
25 Contractor's failure to insure. Repayment successively The Employer
26.3 Compliance with statutes, Regulations, etc. Additional Cost The Contractor
27 Obstructions such as archeological and geological interests or Additional Cost The Contractor
structures
30.2 & 30.4 Protection or strengthening due to special loads to highways or bridges Additional Cost + Profit The Contractor
30.3 & 30.4 Damages due to extraordinary traffic claims Repayment successively The Employer
31 Use of constructors belongings for other purposes by the Employer Additional Cost + Profit The Contractor
36.4 Tests additional to provided in the contract Additional cost The Contractor
38.2 Uncovering and making openings to inspected works Additional cost The Contractor
39.2 Removal of improper work & Material Repayment successively The Employer
40.1 Extra cost due to suspension Additional Cost + Time extension The Contractor
42.1 Failure on the part of the Employer for possession on time Additional Cost + Time Extension The Contractor
47.1 Delay in completion time Liquidated damage The Employer
49.3 Cost due to remedy works other than contractors responsibility Additional cost + Profit The contractor
49.4 Remedy on contractor's failure Repayment The Employer
50 Searching for defects, imperfections, or faults Additional cost +Profit
52.1 Valuation of variations +/- cost The contractor/
The Employer
63.1 & 63.3 Costs incurred by the Employer due to default by the contractor Repayment The Employer
64 Urgent remedial work made by the Employer Repayment The Employer
65.3 Damage due to special risks Additional cost + profit The Contractor
65.5 Increased costs due to special risks Additional cost
65.8 Payment after termination Additional cost The Contractor/
Repayment The Employer
69 Default by the Employer Additional cost + Time Extension The Contractor
70.1 - 70.2 Changes in Cost & Legislation Additions / Omissions The contractor/
The Employer
 Requirement Changes Management Systems

All projects are planned under the context of uncertainties, what makes
them different among each other is that the type and degree of uncertainties
does differ. Accordingly, there are almost no times that projects are realized
without requirement changes. That is why in virtually all contracts, provisions
for requirement changes are retained so that Project Owners can
prerogatively make changes during implementations.
Requirement changes can either be additional; or extra or excess; and / or
omission works. They can cause review of designs; and / or create additional
or changes in designs; and / or just work orders to instruct contractors to
carryout the requirement changes. While project owners retain the right to
requirement changes, the contractor is obliged to accept as per the conditions
of the contract. However, the contractor is entitled to request and agree upon
new or existing rates for such changes.
Change Orders are written instructions, agreed by the Project Owner or His
Representative, directing the Project Doer to make changes with or without
the Consent of Regulatory Bodies.
There are three kinds of Change Orders:
✓ Unilateral Change Order: is a type of change order that provides the right to any of the parties
to make changes without
causing any effect on the other parties or disrespecting any laws, regulations and rules binding
the contract and itself but requires notification to the other parties for knowledge.
✓ Bilateral Change Order: is a type of change order that require the agreement and / or consent
of the two contracting parties (the Project Owners and The Project Provider) to make changes
but requires the respects for laws, rules and regulations binding the contract and itself and
requires notification to the other parties for knowledge.
✓ Multilateral Change Order: is a type of change order that require the agreement and / or
consent of the three or more contracting parties (the Project Owners, The Project Providers,
The Project Financiers and / or The Project Regulators) to make changes but requires the
respects for laws, rules and regulations binding the contract and itself and requires notification
to the other parties for knowledge.
Requirement changes based on the different types of change

orders modifies contracts in either of or the combinations of the

following three ways:

Time changes only,

Time changes accompanied by Cost Compensations, and

Cost Changes only.

Time Changes Management System
General Descriptions: Contract Time can either be competitively or directly
assigned. In both cases, Time planning can be made using different
approaches such as CPM, PERT, MCS, SP or TOC. Bar Charts, Gantt Charts,
Network Diagrams and Tables can be used to show Time Plans and
Accomplishments. Contractual Agreement finally defines the Contract Time of
a project. The Completion Time of projects includes:
Dates between Contract Agreement and Handing Over of Site,
Mobilization Period(s),
Contract Time, and
Justified and Agreed Supplementary or Extension of Time.
As a result, the following Expressions hold True for Construction Time
Competitions (Box 2).
Dhos = Dcont + Thos; Dhos; Thos = Date or Time for Handing Over of
Dstart = Dhos + Tmob; Site
Dcomp = Dstart + Tcont + Tjust + Dcont = Date for Contract Agreement
Tsupp Dstart = Date for Start of Construction Works
If Dact < Dcomp; Bonus, if any Tmob; Tcont = Mobilization or Contract Time
If Dact > Dcomp; Time Overrun Dcomp; Dact = Time for Contract or Actual
& Liquidated Damage Completion
Tjust; Tsupp = Time for Justified Delay or
Supplementary Works

Box 2: Valid Expressions for Construction Time Computation

Generally, Time delays can be classified into the following three categories:
Concurrent Delays
Concurrent delays are understood in two ways; namely simultaneity of delays
themselves and delays responsibilities. In both cases, concurrent delays are
delays that occur simultaneously when they occur in parallel. Their effect for
the project can be assessed using that part of the delay which causes longest
duration. For instance, if a project owner agreed to supply material and
irrespective of its delay, if the project faced adverse weather condition; the
project can not be executed. Therefore, both delays could not be counted as
serial delay but concurrent and the one that causes longer delay is considered
for time delay computations
Justifiable and Non - Justifiable Delays
Justifiable delays are delays that occurred due to causes which are beyond
the control of the project doers. If delays are caused by project owners, the
contractor or the consultant or the supplier is directly justified for the effects
on the delay of the project. Force Majeure will also be one of the causes for
justifiable delay.
Non - Justifiable or Non - Excusable Delays are delays that occurred due to
negligence to fulfill contractual obligation by the Contractor and are within its
control. Contractors or Consultants or Suppliers will be liable for Non -
Justified delays. However, in DBB contract type, faults by the consultant are
transferable to Project Owners responsibilities.
Compensable and Non – Compensable Delays
Delay damages can involve additional costs incurred by the
contractor as a result of the extended duration of its performance.
These typically include costs of idle laborers and equipment,
higher costs of performance during the later period of time and
extended contractual conditions.
Examples of the type of additional costs associated with delays include:

• Extended or Increased management / supervisory costs

• Additional payment / performance bond premiums
• Additional liability insurance premiums

• Extended equipment / trailer rental costs

• Materials escalation costs
• Unanticipated weather protection
• Idle labor / equipment charges
Remedial Rights
Remedial rights are provisions entitled for non performances of the
contractual obligation by the contracting parties. Such rights can be
entertained considering the efforts sustained by the contracting parties
in lieu of their duty to mitigate the non – performances. Unless
otherwise contracting parties can prove their effort for their duty to
mitigate the occurrences of non performances, remedial rights are not
directly entitled.
The following remedial rights are well known in construction contracts:
Time Extension: Time extension is a provision for justified time delays.
Time extensions may or may not be entitled for compensations. Using
CPM, it is only justified delays that occur on the critical path that is
compensable. In none of the Conditions of Contract, the extension of time
clauses do not make any provisions of payment; and nor do delay and
disruption clauses make entitlement of extension of time a condition
precedent to entitlement to compensation.
Liquidated Damage and / or Compensations: Liquidated damages are typically
used when the determination of actual damages would be difficult to ascertain. The
amount of and application of liquidated damages are normally set forth in the
contract. The liquidated damage amount for a specific time period is determined
before the breach occurred. Some contracts attempt to include both liquidated
damages and actual damage clauses. When both clauses are included in the
contract the liquidation damage clause maybe invalid. If the owner caused the delay
the liquidated damages provision will not be enforced. If there are concurrent causes
to delay which are attributable to the owner and the contractor the courts will
generally not enforce the clause. However, there are cases where the court has
attempted to apportion the damages.
Acceleration: When projects delay or when projects are required to
be completed before its time, project doers are obliged to accelerate
their services or works to satisfy the requirements. The project doer is
entitled to compensation and time extension, if and only if delays are
justified and at the same time compensable. Otherwise, the
acceleration of projects will only serve to relieve project doers from
liabilities they should cover to the project owners.
Considering Delay Claims
In Evaluating delay claims, five aspects must be taken into
account:
➢The effective duration of delay
➢The effect of delay on work intended to be done
➢The costs attributable to the delay
➢The nature of costs / expenses
➢The resources and acceleration / expediting measures
Typical Contractors Delay Damage Components Include: The
components of a contractors delay claim include:
1. Indirect costs that occurred during the justified extended
performance period;
2. Home office overhead that was incurred during the justified
extended performance period;
3. Increased (material escalation) material direct costs that occur
during the justified delay;
4. Lost productivity caused by the justified delay; and
5. Other damages such as interest on claim compensated,
consequential damage, etc directly related to and attributable to
the justified delay.
Project Owner or Representative; Project Provider; Neither and Both
Project Owner or Representative: When causes are due to Project Owner(s) or their
representatives; project doers are entitled to time extension and compensations if
warranted.
Project Provider: When causes are due to Project Providers or their sub contractors;
project doers are not entitled to both time extensions and compensations, but are liable
for delay damages which will be payable to the project owner.
Neither: When causes are due to neither the project owners or their representatives, nor
the project providers; project doers are served with only time extensions without any
entitlement for compensations and delay damages.
Both: When causes are due to both the project owners or their representatives and the
project providers; project doers are only entitled for time extensions without any
provisions for compensations and delay damages.
• Delay damages can also include contractors’ increased labor hours resulting from a
loss of the on-site labors efficiency.
• Disruption occurs when a contractor cannot achieve the productivity that was
originally anticipated.
• Productivity can also be impacted by a delays ripple effect. Loss of productivity
can be calculated using several methods.
• Generally, a productivity claim seeks the increased labor cost.
• Typically, each area of lost productivity is determined by comparing the bid to the
actual cost.
• Once, the area of lost productivity is determined the damages are calculated for
each individual item of work or task where productivity is lost.
• Some contractors attempt to calculate the claim on a total overrun
cost basis, but such an approach is disfavored.
• It is thus very important to keep detailed time record when the
project is disrupted.
➢ The increased labor factors can be obtained through the following:
▪ Use of learning curves and other similar models,
▪ time motion studies,
▪ expert witnesses, scientific models, and
▪ comparisons to industry unit pricing standards.
Price Variation Management System
Cost of a project is composed of direct and indirect costs. Direct costs involve
expenses related to Material, Manpower and Machinery consumed by the project.
Indirect costs include overhead and profit. These costs may vary from the contract
price. Besides, project requirements could not be fully developed and may require
some changes which cause Variations. Variations can be Additions, Excess in
Quantities and Omissions. Furthermore some projects could not define some of their
work items and choose to postpone them during implementations in the form of
Provisional Quantity and Provisional Sums. These all situations are related to Price
Variation Management Systems. They are parts of contract administrations with regard
to one of the triple constraint called contract cost.
Variations: Additions, Excess in Quantities and Omissions
Variations are generally divided into two parts.
They are:
▪ Trades of works whose existing unit price is binding or can be used, and
▪ Trades of works which require new unit prices.
Excess in quantities and change orders where existing unit prices can be applied are
entertained as additions and omissions considering those parts which need to be
executed and incur additional costs and those deducted from the work. However, new
trades of works where the existing unit prices could not be binding will be subjected to
negotiation whereby its final settlement is given for the regulatory systems.
➢ Variations due to alterations and excess in quantities will be
payable based on the contract to the contractor without
considering as a part of claim if and only if these variations are
due to contractors default prior to and as a result of their
occurrences.
➢ Besides, it can also be considered as a part of claim if the
contractor disagrees with the unit price set by the regulatory
system.
Provisional Quantity and Provisional Sum Administration
Provisional quantity or sum is a form of forecasting the trades of works which
can not be reasonably quantified and estimated using cost break downs.
Such provisions will be revalued during implementations and accordingly
quantified and priced.
Cost Increase or Decrease
Cost increases can be accounted by two major methods, namely; Cost
compensation based on
increases and decreases of each components of the cost; or
➢use of price indices.
Requirements for a Valid Claim

Following the above theoretical reviews, what is important to know for

stakeholders in construction business is that they are aware of the following
two main requirements:

Know the different ways of how to deal with claims and disputes
together with their merit and demerits, and
Know required procedures and avail necessary documents to make a
valid claim.
Following this two requirements, fair and valid claim administration
process requires:
Conducive environment such as Policies, Codes, Standards, Rules
and Regulations called “Macro Environments”. These can be
considered as Policy and Regulation related issues. These include:
▪Lack of Clear Claim Administration and Dispute
Resolution System
Institutional capacity and capability to act as a good link
between Macro and Micro Environments such that their
requirements are aligned, developed and work for better
relationships called “Messo
Environments”. These can be considered as stakeholders
relationships and capacity related issues. These include:
▪Weak Stakeholders Relationships
▪Weak Organizational Capacity
Company specific issues that considered internalizing factors
with regard to claim making called “Micro Environments”.
These can be considered as weaknesses of construction
companies. These include:
▪Unhealthy Competition
▪Poor Information Management System
 Discussions based on Observations and Informed Opinions
Table: Claim Submittal process
Processes Regulations Observed Issues
Claims Submittals
• Notification When claims first become apparent, claims notification • Most claims are often made only after the claimant has
will1 prevent rejected valid claims. That is, late claims may realized the consequences such as delay for liquidated
deny the opportunity to observe, investigate, and provide damage, or when no or less profit is observed.
alternative solutions for the circumstances encountered, • Local Contractors capacity to claim administration in
and are often seen with a degree of suspicion. general is very weak.
• Preparation The claimant shall follow contractual procedures and • Local contractors are less experienced and are believed to
conditions when preparing claims. Records such as timely be too less claim oriented.
claims notification, instructions, job diary, reports, time • Supporting documents are weak and rarely found in the
sheets, invoices, photographs, difficulties encountered, case of local contractors.
and schedules showing planned and executed, shall be • Practitioners are weak in handling claim preparations
kept to serve as evidences and become supporting
documents during claim submittals.
• Submittals The claimant essentially shall provide a properly • Often contractors are deficient in presenting verifiable
documented and verifiable claim to the consultant in claims and often tend to rely on interpretive advantages of
charge. This include an executive summary of the claim; the claim conditions.
explanation of how events given rise to the claim; • Contractors claim submittals are more or less not timely
references to the specific contract clauses related, proves but after facts behind their failure to complete the project
and evidences for the claim; a summary of mitigating as per the contractual agreements.
action to avoid the claim; and calculations and • Employer's claim has never been caused unless in the case
justifications for the amounts claimed in time and/or cost. of defenses.
• These observations are supported by informed opinions and
further clarifications made with stakeholders in the study. Though
mostly claim related issues are less open to the public and
researchers and these observations largely focus on contractors’
side, they can be good inputs for this paper.
• Table above tried to show the inability of contractors to make
claims due to their lack of capacity and capability with regard to
their documentation system and lack of experienced human
resources to timely and contractually submit their valid claims.
 Table: Claim Processing Process
Processes Regulations Observed Issues

Claims Processing
• Handling The consultant after investigating the claims ▪ The review process by the executing agencies pass
draws out his recommendation and sends to through many public bodies scrutiny depending on their
the executing agency for consideration on his power and duties to approve certain amount of financial
part. limit, and hence a long decision making process.
This review is then passed to MoI for ▪ Executing Agencies capacity to handle claim is very
approval. limited.

• Approval The MoI shall examine the claim and give a ▪ Claim processing is generally less transparent.
final approval. ▪ Local contractors are not often entertained.
The approved claim will then sent to the
claimant for consideration on his part.

• Dispute If there is disagreement, the consultant ▪ Consultants are not providing their impartial services.
Resolution initiates its power for impartial mediation. ▪ Arbitration took often too long.
If mediation fails, the claim will enter its final ▪ Arbitration is undertaken by MoI.
stage of arbitration.
• Table above emphasizes on the nature of claim processing
where non transparency dominates due to weak relationships
among stakeholders and also lack of conducive environment
for valid claims.
• There seems to be unhealthy perceptions which have been
reined to cause such weak stakeholders relationships that
make worst the position of making valid claims and often let
to pass through a non transparent process.
 Table: Claim Enforcement Process

Processes Regulations Observed Issues

Claims Enforcement
• Acceptanc This process is dependent upon the ▪ The researcher did not come across a case
e acceptance of claims by both the where claims accepted by the contracting
contracting parties with or without parties are reversed or modified by the
dispute resolution. MoI.
▪ The researcher has come across three
cases after court ordering, negotiation
results in less claim amounts.
• Closure Incorporation of the approved and ▪ Claim amounts became part of the
accepted claims into a contract and contract.
perform the necessary consideration
to the claimant will conclude the
claim administration process.
• Table above showed that it is better to use the first
two dispute resolution systems (Preventive and
Amicable) and hereby advises for creation of
conducive environments for them than the adjucatory
dispute resolution system.
• Now the three major requirements are discussed
below.