Construction Claims

CONSTRUCTION CLAIMS

PRESENTED BY : JANICE KONG & FELIX LAU

WHAT IS CONSTRUCTION CLAIM?A claim is a demand for damages rightfully or allegedly due to the aggrieved party If there is any breach of contract by one party that causes actual damages, a claim for damages can be made under common law or under clause 74 of Contract Act.

However,There is a limit for the right to claim for specific matter ONLYContractor must also follow the conditions & procedure laid in the contract

TYPES OF CLAIMS1. Contractual claims (PAM 2006)This type of claim arises from the contract itself. Ex: • Clause 11.6 & 11.7 (variation works) • Clause 23.1 extension of time. • Clause 24.1 enables the contractor to pursue his entitlement to

loss and expense caused by matters affecting the regular progress of the works.

• Clause 24.1(a) also preserves the right of contractor to seek his entitlement under common law.

LOSS AND / OR EXPENSE CLAIM 14 relevant events under Clause 24.3 and no more. Any events or matters not in the list do not entitle the Contractor to loss and/or expense3.1 The term ‘Loss and/or expense’ includes: i) ‘direct’ damages arising naturally or directly from the breach itself. ii) ‘indirect’ or ‘consequential’ damages. Applies only if employer are aware in that the said damages were likely to result from the breach at the time of contract. 3.2 The contractor may claim for loss and/or expense if : i) The regular progress of the works has been or is likely to be

materially affected by any of the relevant matters expressly referred to in clause 24.3.

ii) The contractor has incurred or is likely to incur loss and/or expense which could not be reimbursed under any other provision in the contract, refer to clause 24.1.

3.3 Conditions For Loss And Expense Entitlement. i) Contractor to make a written formal application.ii) The loss and/or expense must be caused by the relevant

events under clause 24.3. iii) The regular progress of works has been materially affected

by the relevant event. iv) The contractor has taken reasonable steps to mitigate

(prevent) the delay.v) The contractor has actually incurred loss and/or expense. vi) That the loss and/or expense cannot be reimbursed under

other provisions under the contract e.g. clauses 1.4, 11.6, 11.7.

RELEVANT EVENTS LISTED UNDER CLAUSE 24.1

a) late issue of AI b) delay in giving site possession c) suspension of works by employer d) delay by employer’s licenses e) delay to supply materials by employer f) opening up for inspection and testing g) act of prevention or breach by employer h) discovery of antiquities i) appointment of a replacement consultant j) dispute with neighbours k) execution of works under provisional quantity l) failure to give entry and exit m) Suspension of works for non-payment and withdrawal of supervision n) Suspension of work by an Appropriate Authority.Any event not listed are NOT VALID for claims e.g. the effect of inflation.

CLAIM PROCEDURE (CLAUSE 24.1A & B)

Step 11. Written notice of intention to claim for loss and/or expense 2. Initial estimate of his claim, duly supported by all necessary calculations shall be stated3. Such notice must be given within 28 Days from the date of AI (or the start of the occurrence

of relevant event, whichever, is earlier). 4. The written notice shall be a condition precedent to any entitlement to loss and/or expense.

Step 2i) Contractor shall submit a formal application for claim. ii) Formal application shall include complete particulars of his claim for loss and/or expense,

together with all necessary evidence and calculation to substantiate his claims. iii) This formal application shall be submitted after the 28 Days of completion of the relevant

matters. iv) Failure to submit within 28 days or any extended date agreed; it is deemed the contractor

has waived his right to claim.

Contractor’s Common Law Rights upon rejection of his claims i) Contractor may be able to pursue his claim under common law for

damages. ii) He can only do this, provided he has satisfied the condition

precedent under clause 24.1(a) regarding written notice. Contractor’s entitlement To EOT and Loss and/or Expense Entitlement to recover loss and/or expense is separate from entitlement to EOT 1) When EOT is granted – there is no automatic right to money is

conferred 2) 2) Where an EOT granted under relevant event in clause 23.8 but the

relevant event is not listed in clause 24.3, and then Contractor is not entitled to loss and expense.

3) Conversely, when loss and/or expense is granted – there may be no automatic right to EOT.

Effect of compliance with AI. 1) It is interesting to note that Clause 23.8(g) provides that contractor is entitled to

EOT for compliance with AI under : i) Clause 1.4 for discrepancy in contract documents ii) Clause 11.2 for variation works iii) Clause 21.4 for suspension of works by employer or fire.

2) But under Clause 24.3(c) – contractor entitled to loss and/or expense for compliance with clause 21.4 only;

3) The explanation is that On discovery of discrepancy under clause 1.4, architect to issue an architect instruction under clause 11.2 to put right the discrepancy. On execution of variation works – contractor are paid under clause 11.6 for variation and for additional expenses under clause 11.7 which he could not be reimbursed under clause 11.6.

Headings Of Claim4) Extra preliminaries due to elongation of time 5) Head office overheads 6) Loss of profit and loss of anticipated profit 7) Interest and financial charges 8) Loss of productivity due to disruption 9) Additional cost for acceleration of works 10) Inflationary cost of materials and labour 11) Cost of preparing claim

General Principles of Reimbursement Generally, compensation should be on the principle of ‘the loss lies where it falls’ • where the loss arises from contractor’s default, the loss of both

parties is wholly borne by him, or • where the loss arises from employer’s default, the Employer should

compensate the contractor, or • when both parties are not at fault, when the faults arises from a

‘neutral event’. Then each party shall carry their own burden or loss. Loss and/or Expense Claim is ExhaustiveLoss and/or expense claim under clause 24.1 is meant to be exhaustive in nature It does not allow contractor to make up for any shortfall for any claims under clauses 11.6 and 11.7.

2. Extra-contractual Claim(common law claim)

This include :1. claims for breach of contract – claims arising outside the

expressed term of contract.2. claims for implied contract – claim for work done based on a

Letter of Intent.3. claim under tort – claim for negligence, e.g. Architect refusing to

issue Interim Certificate with valid reasons.4. claim under quantum merit – claim for a reasonable sum for work

done where there is no contract or where the contract is silence on how the work is to be paid.

RESTRICTIONS TO CLAIM

1) VERY tedious! Contractors needs to prove damages with sufficient evidence and some damages are difficult to quantify.

2) Claims cannot be made immediately upon occurrence. Claim must go through arbitration or litigation only after practical completion or after determination of contractor’s employment.

3. EX-GRATIA CLAIMS

1) A LAST RESORT!2) NO legal basis. NOT legally binding but for which some moral obligation is felt. 3) It is premised on grounds of undue hardship. 4) Payment is discretionary. Usually made on goodwill basis or on moral grounds or generosity. 5) Such ex-gratia payment is usually made to settle a claim on a compromise basis and without prejudice (admitting) to liability, thus avoiding lengthy and costing litigation process.

PAYMENT OF LOSS AND/OR EXPENSEAny lost and/or expense ascertained and approved shall include in payment certificates and Contract Sum adjusted accordingly.Lost and/or expense payment shall not be subject to retention.QS should find out the actual lost and not estimate.

Claim for reimbursement for loss and/or expense is specific contractual right under clause 24.0.This right under clause 24.0 is additional to any rights or remedies which contractor possesses at law, particularly to damages for breach of contract.These right and remedies are expressly stated to be unaffected, especially the right to claim for breach of contract under common law.

EXPLANATORY NOTES ON TERMS‘Materially Affected’ refers to works or progress affected in a substantial extent.‘Disruption’ Of Works refers to the low productivity due to the disturbance or interruptions.‘Regular Progress’ refers to the speed of progress which are directly related to the completion date.

ACT OF PREVENTION OR BREACH OF CONTRACT BY EMPLOYER• Employer interferes with or obstructs the issue of payment

certificates by architect.• Employer deliberately pays the contractor late.• Employer interferes with the granting EOT.• Employer personally deducts the amount due in interim

certificate by architect.

PROBLEMS WITH CONTRACTUAL CLAIMSStandardizing meaning in the construction industry.Problem with proving loss.Problem with Quantifying effects of cause into monetary terms.

QUESTIONS!1. Which of the following claim is harder to pursue? WHY?