1 CHAPTER ONE 1.0 GENERAL INTRODUCTION Construction industry has been characterized by several problems regarding constructor clients‟ relationship which has posed setbacks in several construction projects. One of these problems is effective claim management and administration. Claim is something that is difficult to avoid in construction industry and therefore needs adequate understanding as well as proper methods of preparing and administration of claim. Ghanaian construction industry is no exception to this and is faced with challenges related to claim administration. 1.1 BACKGROUND TO THE STUDY The construction sector is a major economic engine in the Ghanaian economy; as the nation‟s economic development and growth rely heavily on physical infrast ructure created by construction industry (Mensah 2009). The growth of this sector has been parallel to the encouragement of new investments in the country. The sector has played a crucial role in extending job opportunities for the Ghanaian labour force generating many jobs for skilled, semiskilled and unskilled workers. According to Ghana Statistical Service (2007), the industry contributes to 8.5% to Ghana‟s GDP and it engages 2.3% of economically active Ghanaian population in 2002 (Amankwa, 2003). Construction projects are conventionally designed to a client‟s brief by a design organization, and a contractor is then appointed by the client to build the designed works. It has been an unfortunate characteristic of the construction industries in many countries that projects are seldom completed on time or to budget (Sheikh et al (2003). Agyarkwa-
This document is posted to help you gain knowledge. Please leave a comment to let me know what you think about it! Share it to your friends and learn new things together.
Transcript
1
CHAPTER ONE
1.0 GENERAL INTRODUCTION
Construction industry has been characterized by several problems regarding constructor
clients‟ relationship which has posed setbacks in several construction projects. One of
these problems is effective claim management and administration. Claim is something
that is difficult to avoid in construction industry and therefore needs adequate
understanding as well as proper methods of preparing and administration of claim.
Ghanaian construction industry is no exception to this and is faced with challenges
related to claim administration.
1.1 BACKGROUND TO THE STUDY
The construction sector is a major economic engine in the Ghanaian economy; as the
nation‟s economic development and growth rely heavily on physical infrastructure
created by construction industry (Mensah 2009). The growth of this sector has been
parallel to the encouragement of new investments in the country. The sector has played a
crucial role in extending job opportunities for the Ghanaian labour force generating many
jobs for skilled, semiskilled and unskilled workers. According to Ghana Statistical
Service (2007), the industry contributes to 8.5% to Ghana‟s GDP and it engages 2.3% of
economically active Ghanaian population in 2002 (Amankwa, 2003).
Construction projects are conventionally designed to a client‟s brief by a design
organization, and a contractor is then appointed by the client to build the designed works.
It has been an unfortunate characteristic of the construction industries in many countries
that projects are seldom completed on time or to budget (Sheikh et al (2003). Agyarkwa-
2
Baah and Fugar (2010) also opined that construction delay is a major problem facing the
Ghanaian construction industry. It is endemic and its economic and social impact cannot
be over emphasized. Construction projects are often delayed by unforeseen conditions
and poor management practices with the drive to build cheaper and faster products
sometimes will result in several problems for engineers and managers on the construction
site (Singh et al., 2006) which in most cases lead to contractual claims. Over the past
decades, construction projects are becoming more complex due to new standards,
advanced technologies and owner-desired additions and changes. While the successful
completion of projects has been thought to depend mainly on cooperation between the
contractor, consultant and owner, problems and disputes have always erupted due to
conflicting opinions as to the various aspects of design and construction (Essam, 2006).
The increased complexity of construction processes, documents, and conditions of
contracts has been contributing to higher possibilities of disputes, conflicting
interpretations, and adversarial attitudes (Surawongsin, 2002).
1.2 STATEMENT OF THE PROBLEM
Claims have become an inevitable burden in implementing construction projects in
Ghana and have such high impact on construction project‟s cost and time that an effective
claim management system in the industry deserves serious attention
(Chovichien&Tochaiwat, 2006). The concept of a construction claim is not new, but what
has been lacking are the methodologies that can help construction managers assess the
level of effectiveness in their construction claim process. The need for such a structured
instrument for auditing construction contractors‟ claim process cannot be ignored.
3
In this respect, a contractual claim requires a proper procedure for claim preparation and
administration in construction industry in order to make contractors obtain value for
money. However, there is currently the lack of empirical understanding by Ghanaian
Contractors as to how to prepare and administer claims and the measures that can be
implemented for improvement. This study seeks to establish this knowledge base so as to
help all the involved contractual parties to possess the knowledge and the necessary
experience to deal effectively with claims arising during the contract implementation.
1.3 THE AIM OF THE STUDY
Establish an understanding of the nature and administration of claims so that measures
can be recommended for improvement.
1.4 THE OBJECTIVES
1. To identify the main causes of claims in the Ghanaian Construction Industry.
2. To identify the significant factors that hinder proper preparation of contractual
claims.
3. To identify the procedure for the proper preparation & administration of good
construction contractual claims by Ghanaian Building Contractors.
4. To use the selected factors to establish an understanding of the best procedure for
the preparation & administration of building construction contractual claims.
4
1.5 RESEARCH METHODOLOGY
Because of the relatively fairly large population (80) which was dispersed, the structured
postal survey method was adopted for this research to achieve the aim and objectives in a
timely and economic manner. The data collection tool for this research took the form of a
structured postal questionnaire and personal interview targeted specifically at key
Contractors in the Ghanaian Construction Industry.
A self-administered postal questionnaire was used as an investigative tool.
The validity and reliability of the data collected and the response rate achieved to a large
extent on the design of the questions, the structure of the questionnaire (Robson 2002).
1.6 SCOPE OF WORK
The scope of study is focused on contractual claims by building contractors in classes
D1K1 and D2K2. The form of contract being used is the Standard Conditions of Contract
by Public Procurement Authority in Ghana.
1.7 LIMITATIONS OF THE STUDY
This study is conducted using a sample as a result of limited time and resources. The
researcher has recognized that the sampling size from the target population might not be
totally free from errors; that is to say that there might be some level of errors.
Also time constraint did not allow in-depth inquiry with key informants within the
construction industry in Ghana. This interaction could have yielded information which
could not be captured with the survey too (questionnaire).
5
1.7.1 ORGANIZATION OF THE STUDY
The study is organized into five chapters, of which chapter one consists of the
introduction and background of the study, problem statement, objectives, and justification
of the study, methodology, scope of the study and its limitations as well as the
organization of the study and also the organization of the study. Chapter two consists of
critical review of relevant literature on the topic under consideration; Chapter three on the
other hand entailed the methodology adopted in conducting the study.
Chapter four contained the critical analysis and discussions of results obtained from the
study whilst chapter five presents a summary of the major findings, conclusions and
recommendations of the study.
6
CHAPTER TWO
2.0 LITERATURE REVIEW
CLAIMS UNDER DIFFERENT FORMS OF CONDITION OF CONTRACT
2.1 INTRODUCTION
The form of contract being used in this project is the standard condition of contract under
Public Procurement Authority in Ghana. However, there are others, among them are the
International Federation of Consulting Engineers (FIDIC), the Institution of Civil
Engineers (ICE) under the name of New Engineering Contract (NEC), Joint Contract
Tribunal (JCT), Institution of Electrical Engineers (IEE), Institution of Mechanical &
Chemical Engineer and so on. The FIDIC is used throughout the world and is thus
referred to as International Standard. The FIDIC range of Contract comprises three major
forms which are usually known as Red Book, Yellow Book and Silver Book. All of them
contain a set of General Conditions, Guidance for preparation of particular conditions and
several model forms. Another frequently used standard form has been published by the
Institution of Civil Engineers (ICE) under the new name New Engineering Contract
(NEC). The NEC contract family is even broader than that of FIDIC and is accompanied
by guidance notes, flow charts and advisory documents. In the field of technical and
Electrical plant the MF/1 form having been published by the Institution of Electrical
Engineers for the Joint IMechE/IEE Committee on Model Forms of General Conditions
of Contract has become quite common.
All the aforementioned standard forms originate from common law Jurisdiction and/or
strongly influenced by common law doctrines and experiences. They have been drafted in
7
English and no authentic translations exist. Only FIDIC has begun in recent years to
change its policy to license translations.
2.2 TYPES OF CONTRACTS
One of the most critical issues in apportioning risks is that prices are calculated and fixed
in the contract. The three ways to define the contract price which is to be paid to the
contractor for carrying out the works are Lump sum, cost reimbursable and re-
measurement contracts.
In the Lump sum contracts the contractor agrees a fixed price (a Lump sum price) for the
execution of certain specified construction works. Payment is received either when the
contractor has substantially completed the works or by installments according to a
payment schedule. The Lump sum price is usually agreed at the time of contract
formulation when the work starts. The contractor bears the risk of any additional
quantities with its estimation.
The cost reimbursable contracts are not based on pre-agreed price. The contractor is paid
for the works that are expended together with an additional payment called a fee to cover
profit and overheads of the contractor.
The re-measurement contracts are a combination of unit prices and measured quantities.
The parties agree to the rates of remuneration per unit but not the price of the work as a
whole. The rate in the bill will be multiplied by the actual quantity of each item fixed.
8
2.3 COMMON CHARACTERISTICS OF STANDARD FORMS
2.3.1 The above-mentioned internationally used standard forms have some common
characteristics with which craftsmen and user should be familiar before using the forms.
These are the position of the Engineer, Certification and Time.
(a) POSITION OF THE ENGINEER
All the above-mentioned standard forms use the concept of certification and a certifier.
The certifier is a person or company, usually nominated by the employer, who is
authorized to certify payments, completion of works and to determine claims. The
certifier known under different names such as Engineer, Project Manager, Employer‟s
Representative, Architect etc. is a third person to the contract who is not a party to it.
However, the certifier derives its powers from the construction contract. The idea is that
the parties to the contract agree that certain rights and obligation only exist under the
condition that the certifier exercises his powers. Hence payments is only due if the
certifier evaluates and certifies the relevant amount. A claim is given, if the certifier has
determined it.
(b) CERTIFICATION
It is a common feature of construction contracts to provide for an independent third party
to issue certificates signifying particular events and usually embodying administrative
decisions. By means of the construction contract the parties to it agree that such kind of
certificates will be issued. The effect of such a certificate is thus no more than the parties
agree to it. Usually the function of the certificate is to record factual events involving the
certifier to form a judgment or giving an opinion. Whilst such a certificate may be
9
conclusive as to what it purports to certify, generally the parties confer only a power and
duty to file interim binding certificates which can be challenged in further proceedings.
On the other hand standard forms quite often require the existence or issuing of a
certificate as a pre-condition for payments. It is usual to provide a contract provision for
evaluation and payment certification by the contract administrator. If no such certificate
exists the employer will be entitled to refuse payment. This leads to what happens when
the certifier improperly refuses to issue the certificate. It is not at all astonishing that a
considerable number of court cases exist, where the alleged improper conduct of a
certifier has been dealt with.
(c) TIME
The parties to a contract may make time an essential element. They do this when they fix
time for completion. If they have done so, they usually also agree to liquidated damages
(LAD) for failure to comply with time for completion. But what happens if the employer
prevents the contractor from complying with the time limits, either by instructions or by
failure to grant possession of the site? In this event there is a risk to slip into time at large,
which means that the employer loses his right to sue for liquidated damages in the event
of delay by the contractor. At common law the usual approach to preserve the employer‟s
entitlement to liquidated damages is that the contractor becomes entitled to require time
extension, if and when delay and disruption occurs which is attributable to the employer.
Usually the certifier has the power to determine whether the contractor is allowed to ask
for time extensions. In order to make his decisions transparent and comprehensible a
sophisticated system has been established. Quite often networks techniques are used
showing the critical path of the works. If and when delay and disruption have any impact
10
to the critical path time extension has to be granted. It depends on the contract wording
whether time extension will be given for each impediment or not.
For large complex projects, most often dispute adjudication is the preferred dispute
resolution method. It can save enormous amounts of money and time compared with
traditional court proceedings or even arbitration. Disputes are settled contemporaneously
with the construction project, which allows the parties to free up time and resources and
allows personnel to work on more productive things.
2.4 CONTRACT FORMS OVERVIEW
FIDIC forms of contract, the MF/1 form of contract and the NEC family of contracts
comprise each a full set of model forms, based on recommended General Conditions
which can be adapted and altered for special purposes. The FIDIC and NEC contracts
respond to the need of a diversified range of contract forms. Thus the FIDIC contract
forms and the NEC family of forms provide different forms for different procurement
routes. For example FIDIC has published a measurement contract form for the
procurement of works designed by the employer (so called Red Book) and two design &
build contract forms (the Yellow and the Silver Book). A new Design-Build-Operate
Contract forms is available since 2007. Additionally FIDIC has published a special
Dredging and Reclamation works form in 2006 and a Consultant Agreement Model
Form, 4th
edition 2006. The NEC family is even more sophisticated and comprises
modules for management contracting, cost plus fee contracts.
FIDIC, NEC3 and MF/1 forms are administered by a nominated contract administrator.
Under a FIDIC form the contract administrator is called Engineer. NEC3 has split the
11
function of the contract administrator in a Supervisor and a Project Manager, who are
required to be impartial, when acting as a certifier (Costain Ltd and others v. Bechtel).
According to the MF/1 form an Engineer will be appointed for contract administration
purposes and especially as a certifier.
All three of the standard forms provide detailed provisions as to the certification of events
and claims. The duty of issuing the certificates is given to the concerned contract
administrator. Sub-Clause 3.5 of the FIDIC forms expressly rules that the Engineer (the
certifier) has to act fairly taking due regard to all relevant circumstances. No such express
contract term exists in the NEC3 form.
Contracts rarely attempt to specify all the obligations of the parties. Some contracts, such
as the MF/1 form even exclude implied terms by stating that the obligations, rights and
liabilities of the parties are only those as expressly stated. Others exclude implied terms
only on particular issues. Civil law contractors and consultants are used to be held liable
for fit for purpose as to the works and the design whilst common law contractors and
consultants usually expect as their design duties to be protected by the standard of due
diligence and care.
If a duty of care exists, it is necessary to establish a breach of that duty in order to recover
damages. If the contractor or consultant is under a duty of fit for purpose, the design must
result in works that fulfill the purpose for which they are intended (Huse 2002). The
designer under NEC will not escape liability by showing that his design satisfies accepted
standards of engineering (Huse 2002). Thus the contractor‟s liability for his design is
almost certainly on a fitness for purpose basis (Eggleston 2006).
12
2.5 DEFINITION AND NATURE OF CLAIMS
Claims by contractors for additional payments have been identified by commentators as a
major source of difficulty in the industry (Rook et al, 2004). Ethnographic research with
industry members reveals some key features of planning practices that underlie such
events which are sometimes planned at tender stage and sometimes during the course of a
project (Rook etal, 2004). According to Norazian and Hammah (2013), there is no
construction project which is contractually claim-free, even if successfully executed. This
is because, the nature of civil construction projects are unpredictable, and are therefore
claim sensitive no matter how carefully drawn the contract may be.
In general, the purpose of claims by contractors is to seek additional money over and
above the contract prices (Bunny 2003). For the Client, however, it means additional
costs, which in the end may make the project commercially unviable. According to
Harvey (2002), such a differing interest in the execution of a project will inevitably lead
to disputes.
The term “claim” has become a commonly used word in the construction industry around
the world and it has been reported that disputes that occur in construction projects are
continually increasing in the industry (Harvey 2002). Over the years, there were various
attempts to define the term “claim”. Some defined a claim in terms of its relation to the
original contract. Semple et al (1994) defined a claim as “an assertion to the right to
remedy, relief or property” or as “a failure to fulfill obligations under the contract”.
Jergeas and Hartman (1994) defined a claim as “any application by the contractor for
payment that arise other than under the ordinary contract payment provisions”. A more
13
elaborate definition however, has been provided by Hughes et al in their reference
“Claims in Perspective”, where they defined a claim as “a request, demand, application
for payment or notification of presumed entitlement to which the contractor, rightly or
wrongly at a stage, considers himself entitled and in respect of which an agreement has
not yet been reached” (Hughes et al, 1992).
2.6 CLASSIFICATION OF CLAIMS
2.6.1 (a) Claims within the Provisions of the Contract
(b) Claims outside the Provisions of the Contract
(c) Claims in Tort
(d) Quantum Meruit (“as much as it is worth”) claims
(e) Ex-gratia Claims
(f) Claims Concerning Disruption and Delay (Design)
(g) Claims Concerning Delay on Site Handover/Rights of Way
(h) Claims Concerning the Execution of Works
2.6.2 CLAIMS WITHIN THE PROVISIONS OF THE CONTRACT
Claims made under the expressed provisions of a contract fall under this category.
According to (Harvey, 2001), they arise and are dealt with under the provisions of the
contract. Such types of claims form the largest part of claims and the terms of the
contract define the situations in which they may be made and how they may be handled.
For example the employer may institute a design change, and if such an unforeseen event
occurs there is a procedure set out in the contract whereby the contractor may claim
restitution by submitting a straightforward contractual claim (Harvey, 2002). Certain
14
„common‟ breaches of contract, such as denied access or late information are also
covered by claims procedures included within the claims clauses of the contract.
Generally such claims include a certain type of claim such as, additional work, damages
or risks (Harvey, 2002).
2.6.3 CLAIMS OUTSIDE THE PROVISIONS OF THE CONTRACT
These claims are those which are either not made under the conditions of contract or are
those allegedly made under them but considered legally unenforceable by the employer
on the basis that they do not fall within their provisions [Haswell et. al, 1989, pp172].
Such claims are invariably concerned with the recovery of damages and even though they
may be outside the scope of the contract, they are nevertheless subject to resolution
within it (Harvey, 2001).
2.6.4 CLAIMS IN TORT
Tort is a legal term used to describe the various wrongs, which may give rise to civil
proceedings, mainly in the form of action for damages (Bunny, 1991). Although the law
of tort regulates a wide variety of unlawful behavior, those related to construction
include, nuisance, slander, libel, trespasses and negligence. For example, excessive dust,
noise, vibration, fumes, seepage, gasses, smoke etc. produced by someone may expose
him to liability for nuisance. (Bunny, 1991)
2.6.5 QUANTUM MERUIT: (“AS MUCH AS IT IS WORTH”) CLAIMS
Quantum Meruit claims are claims where work has been done but no contract or price has
been agreed. Then it may be claimed that the work should be valued and paid for what it
15
is worth (Harvey, 2001). A quantum meruit claim may also arise, for example where
work is done on the basis of a letter of intent and there is no contractual liability
(Bubshait et. Al 1998).
2.6.6 EX-GRATIA CLAIMS
These are claims made with no foundation in the contract or at law but
only in a sense of “fairness” or equity (Harvey, 2002). Such claims depend upon „ex-
gratia‟ or „kindness payments „by the employer made in the particular circumstances;
sometimes-such payments are made to avoid or to terminate claims negotiations or a
dispute. An „Ex-gratia‟ claim might be made to recover cost incurred by the contractor,
the expenditure of which gave benefit to the employer, but for which there are no grounds
for recovery under the contract. According to (Harvey, 2001), the principal bases of
claim, which may be submitted, are among others the following:
1. Costs associated with the encountering of physical obstructions and conditions
which would not have been foreseeable by an experienced Contractor;
2. Errors in setting out which are based on incorrect written data Supplied by the
Engineer;
3. Loss or damage due to employer's risks;
4. Indemnities that the employer has contractually undertaken to assume;
5. Fossils or discovery of things of geological or archaeological interest;
6. Delays caused by other interfacing contractors;
7. Uncovering work that has already been completed;
8. Suspension of the work ordered by the Engineer;
16
9. Late Possession of the site, which is as a result of a failure of the employer to give
the required handover;
10. Remedying defects not the responsibility of the Contractor;
11. Searching for defects which are not the fault of the Contractor;
12. Valuation of variations which may include alternations, additions and/or
omissions;
13. Provisional sums pending a proper valuation of the variation under;
14. Special Risks which very often include war, hostilities, contamination, riots and
other such risks;
15. Fluctuations of labor costs (if provided for) and subsequent legislation that
adversely affects the project.
2.6.7 CLAIMS CONCERNING DISRUPTION AND DELAY (DESIGNS)
One of the most common causes of claims in international contracts has been the late
issue of information and drawings, by the consultant to the contractor (Carnell, 2000).
Most contracts are carried out on the principle that the bidding documents include fairly
adequate details of drawings to enable the contractor to carry out the works but that
working drawings is necessary for the implementation of the work to be prepared on site
by the contractor. These drawings are then checked, approved and then returned to the
contractor for implementation. In the event that the contractor suffers delays due to the
late issue/approval of the drawings, then he may claim for any loss made (Carnell, 2000).
In principle fundamental changes in the overall design of a project should not occur,
unless there was a major oversight in the initial design preparation stage of the works. In
spite of this however it has been observed in at least 100% of the projects surveyed that
17
there are, claims resulting from the change in the design of the works. This type
of claims can only be mitigated by investing an appropriate amount of expenses in
the pre-tendering/design stage of the works. This type of an investment will have to focus
on obtaining adequate site investigation reports, and other pertinent data.
2.6.8 CLAIMS CONCERNING DELAY ON SITE HANDOVER/RIGHTS OF WAY
Another major cause of claims in the construction industry has been the late handing
over, or rights of way related issues (Carnell, 2000). In regard to failure to give
Possession of site the contract documents do make a provision in the event that the
Client/Engineer fails to exercise his obligation in handing over of the site, and thus
causes the contractor to incur additional costs, the contractor is then entitled to claim
costs of delay.
In such an event the contractor must produce evidence that the costs that he claims he has
incurred due to the delay can be substantiated by accurate programming. In most cases it
may be impossible to accurately describe the delay caused by programming. On the other
hand, the actual delay due to the fault of the Client/Engineer or that due to the
contractor‟s own fault must also be clearly differentiated(Carnell, 2000).
Claims has become inevitable in construction industry with it causes not farfetched. One
of the causes of claim in construction is delay. According to Sambasivan and Soon (
2007) Delay in construction is a global phenomenon which affect many aspects of
economy of countries across the globe (Faradi and ElSayegh, (2006). Delay as a reason
that warrants claim is complex issue which is of vital to the parties to the construction
contract. Bolton, (1990), these issues concern entitlement to recover costs of delay or the
18
necessity to prolong the project with the consequential entitlement to recovery costs for
adjustments to the contract schedules. Delay in construction can lead to dispute
regarding the agreement of the cost and recovery process since parties to the construct
will always want to avoid or reduce cost.
Norazian and Hammah (2013) opined that delays in construction can come about as a
result of the need for request for extension of time, to provide adequate time to complete
the project successfully. Most standard form of contract has provision that enumerate out
relevant events that warrant a contractor to apply time extensions; the contract often
expressly states that the claim should be made and dealt with timely as possible with the
delaying events. However, no specific explanation with regards to the assessment of the
claim is given, and this is left to the professionals involved in the project (Norazian and
Hammah, 2013).
2.6.9 CLAIMS CONCERNING THE EXECUTION OF WORKS
Such claims according to (Carnell, 2000) include:
1. Claims over Constructive Changes
2. Claims due to Acceleration of Works
3. Claims Concerning Unforeseen Circumstances
4. Claims Concerning the Payment Certification
5. Claims concerning Breach or Termination
6. Claims concerning Change of Legislation
7. Claims Concerning Delay and Disruption (due to Suppliers, Sub-Contractors etc.)
8. Claims Concerning Weather Conditions
19
9. Claims Concerning Variations
10. Claims over Additions
11. Claims due to Omissions
12. Claims concerning Importation issues
13. Claims Concerning Design Error
14. Claims Concerning Acceptance/Handover/Refusal to Take Over Completed
Work
15. Claims due to Early Occupancy
16. Claims over Contract Administration Skills; the Role of the Consultant.
17. Bid Evaluation and the Incidence of Claims.
2.7 EFFECT OF CLAIMS ON CONTRACTUAL RELATIONSHIPS
Nowadays due to challenging situation, companies accept orders under conditions
which are not reasonable and even not achievable. Even though profit margins
are relatively low they still are barely acceptable by the clients.
Most of the time, contractors disregard safety and risk premiums in order not to
jeopardize the chance of receiving the project. Especially in a competitive
bidding system and public funded projects, it is not unusual for contractors to bid low
on a project and hope to recover the loss through negotiations and claims
(Rook et al, 2004). This approach is named by Zack (1993) as “bid your claims”
meanwhile the same approach is called as “opportunistic bidding” by S. Ping Ho and
Liang Y. Liu (2004). However, considering the shortcomings of this approach this
option is mostly neglected by contractors. Opportunistic bidding may lead to
20
unanticipated results like damaging the relationship with the client therefore loosing the
possibility of getting new jobs from them. Moreover claim negotiations could end up
unexpectedly so that the case could be directed to courts. At this stage, risk of losing
the lawsuit should be considered thoroughly since the court will cost extra amount to
the contractor.
2.8 EFFECTIVE CLAIM MANAGEMENT
The construction process has become increasingly a dispute prone activity Riad et al.
(1994) cited and added; the distribution of risks between the owner and
contractor is tilting in favour of the owner, leaving the contractor with enormous risks,
including inflation, strikes, labor problems, adverse weather, accidents, shortages
of materials and skilled labor and unforeseen conditions at the construction
site. Furthermore, the contract between owner and contractor is getting more
complex day by day. The number of disputes increased significantly with
the increasing complexity and magnitude of projects. The disputes should be
resolved immediately, better if it is resolved within parties but not in courts, in order not
to hamper progress, achieve project objectives and go out of planned budget.
However, if one of the parties is not satisfied with the resolution, the
concept claim and claim management come into picture. Consequently, claims
within a project or an order can be directed toward the top (against client), from the side
(against a consortium partner) and/or toward the bottom (against the supplier).
Briefly, claim management is a process that starts with the agreement of a project and
gets completed with the finalization of the same. Furthermore, according to Proclaim
Management Solutions Company (www.proclaim.com.au);
21
“Claim management is the application of the right resources to manage a portfolio of
losses arising from anticipated company activities. It involves combining the
right levels and amounts of internal technical expertise with systems and external
partners to minimize a company‟s exposure to a series of anticipated (and sometimes
unanticipated) exposures. When done correctly it should also produce risk management
reports, which can identify corporate exposures and form the basis of an effective risk
management strategy (Zack, 1993).
Jergeas and Hartman (1994) developed general guidelines to effectively manage
contractual claims and keep disagreements from escalating. These was cited by Norazian
and Hammimah (2013) and summarized as follows;
Record keeping: Accurate evidence including daily-progress reports, photographs
and video films, minutes of meeting, memos, transmittals, drawings, and many
others, are among the most important evidence that should be kept, maintained
and organized in a proper manner to facilitate contracts and project administration
tasks.
Knowledge of contract: often this is among the things neglected by contractors.
The Contractor should carefully read and understand their obligations and
responsibilities as imposed by the contract. Adherence to the contract is vital and
the contractor must fully comply with all contract requirements, especially those
that closely relate to extension of time, such as the variation clause, the claim
clause, etc., as failure to comply with these erode the chances of a claim‟s
success.
22
Preservation of rights: in order to preserve their right to a claim, a written notice
of a potential claim should be served within the time stipulated in the contract.
Among the situations that require written notice to preserve the contractor‟s right
are; any contradiction in contract clauses; instruction to perform work in a
particular manner which differs from the original; any stop work order; owner
supply materials or equipment related matters; and many others.
Qualify change orders; Change order is sometimes imperative and any change
order that involves additional cost should be given proper attention prior to
negotiation and contract agreement
Planning and scheduling: Proper planning will ensure adequate resources are
available at the time needed and that adequate time is allowed for each activity
and all activities starts at appropriate times. As critical paths may change as the
work progresses, the client and the consultants should be kept informed by
regularly or periodically updating the activity schedule.
Proactive actions: a claim conscious attitude is encouraged, as it will facilitate the
claim management process. Proactive measures includes quick responses to
complaints from clients, requesting written confirmation on any important verbal
conversation or instruction, all form of requests on excusable delays should be
recorded and clarification on any instruction prior to the commencement of such
extra works should be made and understood by both parties.
2.9 CLAIM PROCESS FRAMEWORK
The basis for any contractual claim must be founded in a clause of contract, but although
identifying the circumstances where claim may be made, such clauses are often not
23
exhaustive about how claim should be made. This often leaves much to the judgment of
the parties concerned and therefore much on which to disagree (Chester et al, 2005). On
the other hand, a well-established and developed claim management methodology
surely helps construction managers to assess the level of effectiveness for their
construction claim and audit their organizations‟ construction claim process capabilities.
As indicated by Kululanga et. al (2001) the need for such a structured instrument for
auditing construction contractor‟s claim process cannot be overemphasized for the
purpose of reducing time and cost increases. In order to be able to set up such a
methodology, the variables should be determined carefully. The researchers were
concerned with construction claim process and focused on variables that form it. Based
on literature review, the researchers modeled and developed the construction claim
process based on following variables. (Easton 1989; Diekmann et al. 1996; Kartam
1999);
i. Claim documentation
ii. Claim Identification
iii. Claim Notification
iv. Claim examination
v. Claim presentation
vi. Claim negotiation
2.10 CONSTRUCTION CLAIM DOCUMENTATION
Construction claim documentation constitutes a very important phase of claim
management and thus explained in detail in the following section.
24
2.10.1 CONSTRUCTION CLAIM IDENTIFICATION
Construction Claim identification involves timely and accurate detection of a
construction claim. This is the first and critically important ingredient of the
claim process. For example, some construction claims of excellent merit are
lost solely due to failure of identifying them (Easton, 1989). Hence, an awareness
of job factors, which give rise to construction claims, is a skill that generally has to be
specially acquired. Such knowledge not only make construction managers sensitive
to possible construction claims but also exposes company-wide problems to
management.
2.10.2 CONSTRUCTION CLAIM NOTIFICATION
Construction claim notification includes alerting other party about a potential
problem in a manner that is not unpleasant as time limit requirements are very crucial and
critical. For example, a typical contract provision such as “shall be confirmed in writing
as soon as practicable and no later than twenty days” means exactly that (Sawyer and
Gillot, 1990). An initial letter of claim notice to the other party should be
short, clear, simple, conciliatory, and cooperative, that is to say, it should not contain any
hostile information and approach to the subject in order not to create tension between
parties at this early stage. The letter should point out the problem and alert to the
other party of the potential increase in time or cost.
25
2.10.3 CONSTRUCTION CLAIM EXAMINATION
This step involves establishing the legal and factual grounds on which the claim is going
to be based on. This should also involve the estimate of the possible recovery. Such
issues may have to be investigated carefully and in detail by interviewing staff who
worked on the project. The primary sources for claim examination could deal
with project files, video recording if possible, memos etc. That must be
used to prove the time and cost elements of the claim. Moreover analysis of
the existing data via available programs like Primavera, MS Project and office tools can
come to help at this stage to forecast roughly the route of the project.
2.10.4 CONSTRUCTION CLAIM PRESENTATION
A claim presentation should be logically built up, well organized and exactly
convincing. Therefore, claim should be written in a format that emphasizes the fact that
contract requirement was breached. A contractor must then demonstrate the
resulting harm was caused by the owner‟s acts. Feng (2000) has appropriately
said that presentation is best separated into two the entitlement and the quantum.
The former section should have the legal and actual basis while the latter should
provide the estimated recovery of the claim.
2.10.5 CONSTRUCTION CLAIM NEGOTIATION
According to Easton (1989) an organized and proper negotiation preparation
includes (1) ascertaining that all information is current and complete; (2)
minimizing the scope of negotiation beforehand so that insignificant points
26
should not precipitate a violent argument and disrupt progress; (3) knowing
one‟s weakness and trying to utilize weak points by conceding them in return from the
other party (4) foreseeing problems; and (5) anticipating the opposition‟s next move. To
benefit from this stage, a contractor needs experts that have skills for negotiation. It is
more important to be prepared than it is to be right. Therefore getting help from
experts or consultants may be advantageous if the project team dealing with the
claim is insufficient. Moreover, in construction disputes, it is often difficult to
determine the “right” whereas it is the preparation for negotiation that really counts.
2.11 CLAIMS DISPUTES AND THEIR HANDLING
Considering the unavoidability of such problems, dispute resolution mechanisms are
placed in many forms of contracts. Current dispute resolution mechanisms stipulated in
the FIDIC forms of contract place the Engineer as the central element in the dispute
resolution mechanism.
Prior to an amicably negotiated settlement, the contract documents usually require the
contractor to place his claim demands at the jurisdiction of the Engineer (Bunny 2003).
The Engineer is also required to act impartially. Should both parties consider the decision
of the Engineer to be fair, then the parties will agree to settle the issue. If one or both
parties, however, do not accept the decision of the Engineer, then an alternative dispute
resolution mechanism is instituted. This usually leads to negotiating amicable settlement
or finally to arbitration. Such occurrences of claims are the source of disagreements and
may sometimes result in disputes that could lead to arbitration proceedings. In case a
dispute occurs, forms of contract, such as the FIDIC form, set out details of the
submission and resolution of claims. These can be summarized as follows:
27
1. Submission of claims by contractor
2. Review of claims by the Engineer
3. Decision by Engineer
4. Negotiation and/or amicable settlement
5. Disputes review expert/board
6. Arbitration
The above stages of formulation and/or submission, assessment, repudiation, negotiation
of claims are in itself a complicated process (In order to avoid a complicated costly and
time consuming arbitration proceedings, parties to a contract may institute an Alternative
Dispute Resolution (ADR) as an option of claim settlement (Bunny 2003) which may
include ;
1. Direct Negotiation
2. Mediation
3. Conciliation
4. Mini-trail procedure
5. Claims review board (CRB); and
6. Pre-arbitral review board
2.12 METHODS OF CLAIMS DISPUTE RESOLUTION
2.12.1 DIRECT NEGOTIATION
Settlement of disputes through arbitration is a very costly process. Before the case is even
heard in court, the parties to a dispute may spend a substantial amount of money in legal
28
fees. Besides the substantial amount of money spent in pursing legal grounds to the
claim, relations at work may be strained.
This implies that as a first attempt negotiation is implemented in an attempt to carry out
an amicable settlement the simplest, cheapest, and quickest method of dispute resolution
is negotiation. According to, Gould (2004), negotiation “is a process of working out an
agreement by direct communication and it is voluntary and non-binding.”.. This is also a
form of an out-of-court settlement, and may maintain a conducive working atmosphere
between all parties. This form of negotiation or amicable settlement is carried out
between the parties to a claim, normally without a third party. In case the parties jointly
agree to the involvement of a third party, however, then this process is called mediation.
As can be seen above, claims may be resolved through negotiation. When negotiations
are not successful, however, the claimant, whether contractor, designer or owner, has the
option of resolving the claim through an alternative dispute resolution process such as:
2.12.2 MEDIATION
In the event that direct negotiations fail, then a third party is involved as a mediator
between the parties to a claim and help in the settlement of the claim. A mediator engages
in the task of persuading the disputants to change their respective positions in the hope of
reaching a point where these positions coincide (Bunny, 2003).
2.12.3 CONCILIATION
Conciliation is a dispute resolution procedure where the parties sit together in the
presence of a third party to discuss the way out. Usually the conciliator will draw up and
29
propose a solution, which represents what, he believes, is a fair and reasonable
compromise of the dispute, after having discussed the case with the parties concerned.
2.12.4 THE PUBLIC PROCUREMENT ACT AND CLAIMS MANAGEMENT
The Public Procurement Act of Ghana, 2003 (Act 663) set out the legal, institutional and
regulatory framework to secure fiscal transparent and public accountability in Ghana‟s
procurement system. The Act establishes five basic principles upon which the public
procurement is based World Bank, 2003). These pillars are: the legal and institutional
framework; standardized procurement procedures and tender documents; independent
control system; proficient procurement staff; and anti-corruption measures.
The objectives of Act 663 are to harmonize public procurement processes in the public
sector to ensure judicious, economic and efficient use of public resources and to ensure
that public procurement functions undertaken within the public sector are fair, transparent
and non-discriminatory.
The Act applies to procurement financed wholly or partly from public funds for the
procurement of goods, works, services and procurement financed by loans contracted by
the government of Ghana, including foreign aid and donor funds.
The Public Procurement Act 663 establishes the Public Procurement Board (PPB) now
PPA, Entity Tender Committees (ETCs) and Tender Review Boards (TRBs). It specifies
in clear terms the laws for procurement methods and thresholds, procedures, appeals and
complaints resolution procedures and disposal of stores. It authorizes the issuance of
30
enforceable regulations, Guidelines, Standard Tender Documents (STDs) and Manual
under the Act.
2.13 ADMINISTRATION OF CLAIM UNDER PUBLIC PROCUREMENT ACT (PPA)
Anvuuret. Al. (2006) reported that the performance of construction in Ghana is poor and
many reports have decried the public sector‟s lack of commercial edge in the exercise of
its procurement function. Contracts for both works and consultancy services take very
lengthy periods to reach financial closure and are subject to unnecessary delays (Crown
Agents 1998, Westring 1997). Westring (1997) attributes the causes of the delays to
extensive post-award negotiations, delays in the preparation of technical specifications
and drawings, delays in evaluation, an extensive system of controls, reviews and
approvals, and land ownership disputes. Project implementation has itself been
characterized by extensive cost and time overruns and poor quality (Crown Agents 1998,
Westring 1997, World Bank 1996, 2003). The process for payment to contractors and
suppliers is also long, involving over thirty steps from invoice to receipt of the payment
cheque, and often over-centralized, thus leading to delays in project execution (Eyiah and
Cook 2003, Westring 1997, World Bank 2003). Fiscal constraints and poor procurement
practices (as outlined above) have led to insecurity of funding for construction projects
and created a constant spectre of delayed payments and payment arrears to contractors
and consultants (World Bank 1996). The accumulated interest on late payments and the
frequent price changes due to extensive renegotiations, further exacerbate the funding
problem (World Bank 2003).
31
Consultants and contractors encounter difficulties in processing claims arising from
escalation clauses and are indirectly pressured not to push forward these claims (World
Bank 1996, 2003).
Many private sector entities delivering works and services to government establishments
try to limit their losses by cutting corners or abandoning the work altogether (Westring
1997). This often has negative consequences for project execution and leads to
adversarial relationships developing between contractors and clients. There is reduced
respect for contracts entered into with neither party to the contract expecting it to be fully
binding. Small contracts and ad hoc approaches are favoured at the expense of full-
fledged competitive bidding for economic sized projects. Long-term strategic planning by
both public and private sectors is difficult and so is the monitoring and control of
procurement (Ayirebi 2005, Westring 1997). Some procuring entities also resort to
making contractual payments before the due dates in order to prevent a budget allocation
lapse and advance mobilization funds provided to contractors can exceed considerably
the 15% allowable (Westring 1997, World Bank 1996). Contract management is very
poor and so are the training and working conditions of the construction workforce (World
Bank 2003).
Notwithstanding, the provision of the PPA there is a lack of empirical understanding on
the effective preparation and administration of claims by Ghanaian contractors and that is
what this study is seeking to explore.
32
CHAPTER THREE
RESEARCH METHODOLOGY AND DATA COLLECTION
3.0 INTRODUCTION
The outcome of any research is directly related to the methodology adopted and
consequently the success and validity of the research critically depends on the appropriate
selection and implementation of the research method (Naoum 1998; Fellows and Liu
2003; Saunders, Lewis and Thornhill, 2000). Naoum (1998) provides that once the
purpose of a study is determined and a thorough literature search has been completed,
one should be ready to design the research in detail. He maintains that research design is
an action plan for getting from “here” to “there” where “here” may be defined as the
initial set of questions to be answered, and “there” is some set of conclusion (answer)
about these questions. Between “here” and “there” may be found a number of major steps
including the collection and analysis of relevant data (Yin, 1994).
This section describes all the procedures that were followed to achieve the objectives set
for this study. The procedures adopted include all the information that were important to
the data, where those data were obtained and how they were obtained, the method used to
obtain the sample size, the difficulties and problems encountered during the search for
data, response rate and responses to the questionnaire, data collection and limitations.
Our main focus here shall be identification of main causes of contractual claims in the
Ghanaian Construction Industry, Significant factors that hinder proper preparation and
administration of contractual claim and the adoption of best procedure to preparation and
administration building construction contractual claims.
33
3.1 RESEARCH STRATEGY/APPROACH
This research took the form of a literature review and a survey using questionnaire
approach.
Generally two types of review with different purposes were identified. These are:
1. Integrative review which aims at summarizing past research by drawing overall
conclusions from separate studies which are believed to address related or
identical hypothesis (Torraco, 2005)
2. Theoretical review – which is the attempt to present the theories offered to
explain a particular phenomenon and to draw comparison between them (Read et
al, 2005).
This research took the integrative literature review approach as it was observed that it
suited the aim and objectives.
To determine the approach to the methodology of the research, the fundamental question
must be defined so that the research can be planned to follow logical steps from which
conclusions can be drawn.
The question that this research seeks to explore is the preparation and administration of
contractual claims in Ghana from the perspective of contractors under classes D1 and D2.
The study seeks to identify the main causes of claims in the Ghanaian Construction
Industry, to identify the significant factors that hinder proper preparation of contractual
claims, to identify the procedures for the proper preparation and administration of
contractual claims by Ghanaian Building Contractors and to use the selected factors to
establish the best procedure for the preparation and administration of building
construction contractual claims.
34
3.2 THE RESEARCH WAS CARRIED OUT IN THREE PHASES AS FOLLOWS:
Firstly, a literature search from academic journal worldwide and books were undertaken
to address the preparation and administration of Contractual Claims among Ghanaian
Building Contractors.
Secondly a questionnaire was designed and administered. It was administered to
contractors in the Western, Ashanti and Greater Accra Regions in a survey that sought to
provide data and opinion relating to the preparation and administration of claims. This
was supplemented with interviews.
Thirdly, the results of the questionnaire were analyzed statistically and the results used as
a basis for finding the perception contractors attach to the preparation and administration
of Contractual Claims in Ghana.
3.3 DATA COLLECTION
The primary source of data for this research was in the form of a questionnaire
administered to building contractors in the Ashanti Region in Classes D1 and D2. The
primary function of the survey was to collect information that can be analyzed to produce
conclusions in the areas of Preparation and Administration of Constructional Contractual
Claims in the Ghanaian Building Industry.
3.4 DEVELOPING THE QUESTIONNAIRE
The questionnaire was divided into three parts (Appendix 1). The first part contained
some questions that sought to identify the category of the company answering the
questionnaire. Respondents were asked to state whether they have been involved in
35
projects where claim was a problem and how it was tackled. They were also asked to
suggest ways of identifying, preparing and administering claims.
The second part of the questionnaire was originally developed by W.M. Chan (1994)
when he was pursuing his Master‟s Degree Programme at the Department of Civil and
Structural Engineering at the University of Hong Kong. It was modified to suit the
Ghanaian conditions.
This part of the questionnaire contained questions about the important level of 50
significant causes of claims. In this part a scale of 1 to 5 was used to measure the level of
important of each of the factors where I meant very little important and 5 extremely
important. Respondents were asked to check a number on the scale that reflected their
assessment regarding the different claim factors.
In the third part respondents were asked to comment on the possible effects of claims.
Respondents were to tick from the list of effects stated on the questionnaire, as many as
were applicable to them and to state any other effect they feel were not mentioned.
3.5 SAMPLE SIZE DETERMINATION
3.5.1 Building Construction Firms
Ahadzie (2007) pointed out that there are over 20,000 registered “building contractors”
with Ministry of Water Resources, Works and Housing and 12% of these building
contractors are in the Ashanti Region. Meaning, the region has about 2,400 registered
contractors. To determine the minimum sample size of these registered contractors in the
36
Kumasi metropolis, Kish (1965) formula which gives a procedure for calculating
minimum sample size has to be applied.
k
n =
1 + k
N
Where: n = Sample Size, k = s2 N= Population Size
v2
S = Maximum standard deviation in the population element (total error = 0.1 at a
confidence level of 95%)
V = Standard error of sampling distribution = 0.05
P = the population elements.
S2 = P (1-P) = 0.5 (1-0.5) = 0.25
Therefore in determining the minimum sample size of contractors in Ashanti region given
that
N = 2400
K = S2 = 0.25
V2 0.05 = 100
k
n =
1 + k
N
N = 100
1 + 100
2400
= 96
37
n = 96 means that, the minimum sample size of building contractors in Kumasi to be used
for the study is approximately 96. This 96 number of contractor will help in establishing
the actual size for the study. Saunders et al (2007) however put forward a formula for
calculating for actual sample size. This formula according to Saunders et al (2007)
considers irregularities such as refusal to respond to questionnaires, ineligibility to
respond to questionnaires, inability to locate respondent which occur during distribution
and collection of data. The formula is presented here as:
n x 100
na =
re%
Where na is the actual sample size required, n is the minimum sample size, re% is the
estimated response rate expressed as a percentage.
Oladapo (2005) and other researchers such as Newman and Idrus (2002), Ellhag and
Boussabaine (1999) and others, have indicated that a response rate of 30% is good
enough in construction studies. Thus given that n = 96, re% = 30. na
will compute as:
96 x 100
na
=
30
= 320
Drawing from the assertion from Oladapo (2005) and the formula from Saunders et al
(2007), 320 is the actual sample size, however 80 respondents was decided because the
time for the submission of this dissertation to the Department of Building Technology of
Kwame Nkrumah University of Science and Technology (KNUST) for assessment was
short.
38
3.6 SUMMARY
Although many different methods were available to this study, only clear and appropriate
methods were employed in this research. The above chapter revealed all the different
research methodology available for conducting a successful research work. In addition,
the chapter proceeded to give an insight into how the questionnaires were prepared,
distributed and managed. The methodology adopted for the research work and the
reasons for choosing the methodology. A quantitative style questionnaire was chosen
utilizing closed and open ended question formats. A total of Ninety-Six (96)
questionnaires were distributed to contractors in the nation and a total of eighty (80) were
received representing 83% rate of return. 60% of the questionnaires were received from
D1K1 contractors whilst 40% were received from D2K2 contractors.
Table 3.1
CONTRACTORS
FIRM
QUESTIONING ISSUED
RESPONSES
D1K1
55
48
D2K2
41
32
TOTAL
96
80
Total Number of Questionnaires issued = 96
Gross Total Response to the Questionnaire = 80
Overall response rate = 80 x 100 = 83%
96
39
In analyzing responses to the questionnaire, the Likert scale was utilized to aid
quick, easy and clear meaning to results. Lastly the limitations to the research
have been stated.
40
CHAPTER FOUR
PRESENTATION AND DISCUSSION OF RESULTS
4.0 INTRODUCTION
This chapter presents the results of the study and discussions of the results. The results
are presented in graphs and tables for simple for easy understanding.
4.1 Background Information
The study had interactions with a wide variety of professionals in different firms in the
construction industry. These included quantity surveyors, civil engineers, architects,
construction managers as well as technician engineers (Fig 1). Technician engineers
made nearly half the number of professionals that the study interacted with (48.8 per
cent). Quantity surveyors took the next largest share of 27 per cent. Construction
managers followed suit with 10 per cent, architects with 8.8 per cent and civil engineers
with 5 per cent.
Figure 1: Profession
27.5
5 8.8 10
48.8
0102030405060
Pe
rce
nta
ge o
f P
rofe
ssio
nal
Bo
die
s in
th
e C
on
stru
ctio
n In
du
stry
Professional Bodies
41
Higher National Diploma (HND) holders made up the bulk of the respondents that were
interacted with in the study. They accounted for 59 per cent of the total number of
respondents. Master of Science Degree holders followed suit with 24 per cent of the total
while Bachelor‟s Degree holders made up 17 per cent (Fig. 2). This shows that the
respondents are averagely possess good academic qualification for the performance of
their roles in their respective positions.
Figure 2: Educational Qualification
Most of the respondents (56.2 per cent) reported that their firms have recorded an annual
volume of work of between GH¢500,000 and GH¢1,000,000 according to Fig. 6. More
than a tenth (12.5percent) reported that their firms have recorded an annual volume of
work of over GH¢1,000,000 while 30 per cent said that theirs have recorded an annual
volume of between GH¢250,000 and GH¢500,000 over the last five years. At least all the
respondents reported to have undertaking some appreciable level of activities within this
period which make them eligible to provide valid information for decision making.
0
10
20
30
40
50
60
70
Higher National
Diploma
Bachelor of
Science
Master of Science
17%
59%
24%
42
Figure 3: Annual Volume of Work in the Last 5 Years GH¢
Respondents also said that their firms largely use standard conditions of contract PPA (80
per cent) according to figure 7 below. The rest however use both FIDIC and PPA (18
percent) as well as FIDIC only (2 per cent).
Figure 4: Form of Conditions of Contract
4.2 Claims Management and Administration
With this background, a majority of respondents 46.2 percent have had between 11 years
to 30 years of experience in preparing claims for their firms (Fig. 3). Another 43.8
31.2
56.2
12.5
0
10
20
30
40
50
60
250,000 - 500,000 500,000 - 1,000,000 Greater than
1,000,000
PE
RC
EN
TA
GE
RE
CO
RD
ED
ANNUAL VOLUME OF WORK
0
20
40
60
80
100
FIDIC Standard Condition
of Contract of PPA
FIDIC and PPA
2%
80%
18%
43
percent have had experience of between 6 years and 10 years preparing claims for their
firms. 7.5 percent of the respondents have 1-5 years of experience in claims preparation
while 2.5 percent of them have less than a years‟ experience in claims preparation. The
information above suggests that respondents to this study have enough experience in
claims preparation as reported by the respondents themselves.
Figure 5: Length of Experience in Preparing Claims for Firm
According to Figure 4, more than half (48.4 percent) of the respondents in this study get
assistance from their site managers in the preparation and administration of claims. A
fifth (20 percent) get assistance from a technician in the preparation of claims, 16.2
percent gets assistance from a quantity surveyor and 12.5 percent get assistance from the
managing director in the preparation and administration of claims. 2.5 percent claim that
they are assisted by no one.
2.5 7.5
43.8 46.2
05
101520253035404550
Less than 1
year
1-5 years 6-10 years 11-30 years
PE
RC
EN
TA
GE
LENGTH OF EXPERIENCE
44
Figure 6: Who Assists in the Preparation and Administration of Contractual Claim?
While 23.8 percent of the respondents claim to receive this assistance always in the
preparation and administration of claims, more than three-quarters (76.2) percent said
that they only receive this assistance sometimes.
Majority (63.8 percent) of the respondents said that their firm belonged to the D2K2
category of classes and 33.8 percent said that their belonged to the D1K1 category. 2.5
percent of the respondents could not state the category of class that their firm belonged to
As displayed in the pie chart of figure 5, 76 percent of the respondent‟s best described the
nature of the firm‟s activities as both civil and building engineering construction while 21
percent described theirs as building construction only. 3 percent said their firm was
involved in other activities apart from building and civil engineering construction –
notably, research and development activities.
12.5 16.2
48.8
20
2.5
0
10
20
30
40
50
60
Managing
Director
Quantity
Surveyor
Site Engineer Technician
Engineer
No One
PE
RC
EN
TA
GE
CIVILS AND BUILDING ENGINEERS IN CONSTRUCTION
45
Figure 7: Nature of Firm’s Activities
4.3 Identification and Notification
According to most of the respondents (91 percent) clients are always clients are always
notified when a claim is identified. However, 9 per cent of respondents said that their
firm sometimes notifies clients when a claim is identified.
Majority of respondents (71.2 percent) reported that notification of clients takes place
within 14 days after the claim has been notified. Others (28.8 percent) however said that
they do notify their clients within 14 days to 28 days after the claim has been identified.
After claims have been identified, 75 percent of the respondents said that records of the
claims are kept by the filing system and on the computer. The other 25 per cent however
reported that only the filing system is used for the recoding of claims.
In addition, 87.5 percent of the respondents reported that these records are always kept by
their firm while the rest (12.5 percent) admitted that sometimes the records are not kept.
0102030405060708090
Building Construction
Only
Building and Civil
Engineering
Construction
Other
21%
76%
3%
46
Every four out of five firms visited (79 percent); substantiate claims when identified in
writing according to respondents from these firms as represented in figure 8. Others
substantiate the claims by face-to-face interactions (16 percent). While a small minority
(2 percent) uses the telephone to substantiate claims, 3 percent said that their firms use
other means to do it.
Figure 8: How Claims are substantiated
0
10
20
30
40
50
60
70
80
90
Face to Face Writing Telephone Other
16%
79%
2% 3%
47
4.4 Preparation of Contractual Claims
Causes/Reasons for Contractual Claims
Respondents were asked to rank, in their estimation, the reasons for making claims as
captured in the Head of Claims in order of importance to their firms on a scale of 1 to 5;
where “1” signifies “Least Important” and “5” signifies “Most Important”
Table 4.1 Causes for contractual Claims
Causes/Reasons for Contractual Claims
N Minimum Maximum Mean
Std.
Deviation
Variation or modification of the quantity of the
works
80 3 5 4.90 .377
Late instructions or change of content of work 80 2 5 4.26 .590
Weather conditions 80 2 5 4.04 .737
Errors in description or quantities or any omission
there from
80 3 5 3.90 .377
Variation or modification of the design of the
works
80 3 5 3.64 .733
Suspension of the works 80 2 5 3.29 .640
Removal from site of any things brought on to site
and substitution of any such things
80 2 5 3.28 .595
Variation or modification of the quality of the
works
80 2 5 3.20 .560
Strikes 80 2 4 3.20 .604
48
Order of execution 80 1 4 3.19 .677
Any circumstance wholly beyond control of the
Contractor
80 2 5 3.08 .612
Damage to the Works including accepted risks 80 2 4 2.75 .490
Damage to Public Roads 80 2 3 2.70 .461
Facilities for other Contractors 80 2 4 2.64 .621
Nomination or appointment of any person 80 2 3 2.58 .497
Use of Materials from Excavation 80 1 3 2.45 .634
Ditto because of frost 80 2 3 2.34 .476
Opening up for inspection of any work covered up 80 2 4 2.30 .513
Statutory Undertakers 80 1 4 2.23 .527
Making of any defects due to frost 80 1 3 2.15 .424
Emergency works for Security 80 1 3 1.85 .480
Patent Rights 80 1 3 1.80 .604
Fossils 80 1 2 1.70 .461
Valid N (listwise) 80
Respondents recorded the Variation or Modification of the Quantity of the Works as the
most important reason for making claims in their firms with an average rank of 4.9 and a
standard deviation of 0.38. This is closely followed by Late Instructions or Change of
Content of Work (4.26 and standard deviation of 0.59) and Weather Conditions (4.04 and
standard deviation of 0.74). As displayed in figure 9, these three are followed in
downward order of importance by Errors in Description of Quantities or any Omission
49
there from, Variation or Modification of the Design of the Works, Suspension of the
Works, Removal from Site of any Things brought on to Site and Substitution of any such
Things, Strikes, Variation or Modification of the Quality of the Works, Order of
Execution any Circumstance Wholly Beyond Control of the Contractor, Damage to the
Works including Accepted Risks, Damage to Public Roads, Facilities for other
Contractors, Nomination or Appointment of Any Person, Use of Materials from
Excavation, Ditto because of Fossils, Opening up for Inspection of Any Work Covered
Up, Statutory Undertakers, Making of any Defects Due to Fossils, Emergency Works for
Security, Patent Rights and Fossils which comes in last with a rank of 1.70 with standard
deviation of 0.46.
50
Figure 9: Ranking of Causes of Claims
4.5 Procedures/Factors that helps most in Preparation and
Administration of Contractual Claims
Respondents were asked to consider and rank the factors and procedures that help most in
the administration of claims in their various firms on a scale of 1 to 5; where “1” signifies
“Least Important” and “5” signifies “Most Important”.
1.70
1.80
1.85
2.15
2.23
2.30
2.34
2.45
2.58
2.64
2.70
2.75
3.08
3.19
3.20
3.20
3.28
3.29
3.64
3.90
4.04
4.26
4.90
1.50 2.50 3.50 4.50
Fossils
Patent Rights
Emergency works for Security
Making of any defects due to frost
Statutory Undertakers
Opening up for inspection of any work covered up
Ditto because of frost
Use of Materials from Excavation
Nomination or appointment of any person
Facilities for other Contractors
Damage to Public Roads
Damage to the Works including accepted risks
Any circumstance wholly beyond control of the…
Order of execution
Variation or modification of the quality of the works
Strikes
Removal from site of any things brought on to site and…
Suspension of the works
Variation or modification of the design of the works
Errors in description or quantities or any omission…
Weather conditions
Late instructions or change of content of work
Variation or modification of the quantity of the works
51
Table 4.2: Descriptive Statistics for Procedures/Factors that helps most in Preparation
and Administration of Contractual Claims
N Minimum Maximum Mean
Std.
Deviation
Meeting Minutes Documents 80 3 5 4.88 .402
Client Correspondence 80 4 5 4.78 .420
Letters 80 2 5 4.63 .624
Site Diary 80 3 5 4.61 .539
Contract Modifications 80 3 5 4.56 .548
Field Reports 80 3 5 4.53 .595
Contractual Correspondence 80 3 5 4.46 .655
Drawings 80 4 5 4.45 .501
Invoices 80 3 5 4.38 .560
Weather Condition Record 80 3 5 4.28 .595
Agreement Document 80 4 5 4.25 .436
Financial Statements 80 3 5 4.20 .582
Consultant Correspondence 80 3 5 3.88 .682
Photography 80 3 5 3.75 .666
Time Records 80 3 5 3.71 .599
Specification Addenda 80 2 5 3.59 .669
Labour Change 80 3 5 3.25 .540
52
Respondents ranked Meeting Minutes and Documents as the most important factor that
helps in the administration of claims giving that factor an average rank of 4.88 and
standard deviation of 0.40 (Fig. 9). This factor is followed in a descending order by
Client Correspondence, Letters, Site Diaries, Contract Modifications, Field Reports and
Contractual Correspondence. Following are Drawings, Invoices, Weather Condition
Records, Agreement Documents, Financial Statements and Consultant Correspondence.
Following suit are Photography, Time Records and Specification Addenda while Labour
Change comes in last as the least important factor that helps with the preparation and
administration of claims with an average rank of 3.25 and standard deviation of 0.54.
Figure 10: Rank of Procedures/Factors that help most in Preparation and Administration
of Contractual Claims (Mean)
3.25
3.59
3.71
3.75
3.88
4.20
4.25
4.28
4.38
4.45
4.46
4.52
4.56
4.61
4.62
4.78
4.88
3.00 3.50 4.00 4.50 5.00
Labour Change
Specification Addenda
Time Records
Photography
Consultant Correspondence
Financial Statements
Agreement Document
Weather Condition Record
Invoices
Drawings
Contractual Correspondence
Field Reports
Contract Modifications
Site Diary
Letters
Client Correspondence
Meeting Minutes Documents
53
4.6 Important Steps in Preparing Contractual Claims
Respondents in the study were asked to rank the additional steps involved in the
preparation of contractual claims in order of importance to their firms on a scale of 1 to 5;
where “1” signifies “Least Important” and “5” signifies “Most Important”. Table
Table 4.3 Descriptive Statistics on Important Steps in Preparing Contractual Claims
N Minimum Maximum Mean
Std.
Deviation
Notification of the client 80 4 5 4.90 .302
Determination of contractual
clause (s) claim is to be notified
80 3 5 4.53 .746
Determination of payment clause is
to be sought
80 3 5 4.24 .830
On the average, respondents ranked “Notification of the Client” as the most important
step in the preparation of contractual claims, giving that step an average rank of 4.9 with
standard deviation of 0.30 (Fig. 9). Next, respondents ranked the “Determination of
Contractual Clause(s) on which claim is to be notified as the next most important step
with an average rank of 4.5 with standard deviation of 0.75. The least ranked important
step for the preparation of contractual claims is the “Determination of Payment Clause to
be sought with an average rank of 4.2 with standard deviation of 0.82.
54
Figure 11: Importance (Rank) of Additional Steps in Preparing Contractual Claims
4.7 Factors that hinder administration of Contractual Claims
Respondents were also asked to rank the factors that hinder the administration of
contractual claims in order of importance to their firms on a scale of 1 to 5; where “1”
signifies “Least Important” and “5” signifies “Most Important”.
Table 4.4: Descriptive Statistics for Factors that hinder administration of Contractual
Claims
N Minimum Maximum Mean
Std.
Deviation
Delays caused by the client 80 4 5 4.83 .382
Lack of claim documentation and tiring
procedures
80 3 5 4.76 .484
“Fear of the Consultant” Phenomenon 78 2 5 4.63 .705
Lack of contract awareness by the site 80 3 5 4.26 .707
4.24
4.52
4.90
3.80
4.00
4.20
4.40
4.60
4.80
5.00
Determination of
payment clause is to
be sought
Determination of
contractual clause(s)
claim is to be notified
Notification of the
client
PA
YM
EN
T O
F C
LA
US
E
IMPORTANCE OF ADDITIONAL STEPS IN PREPARING CLAIMS
55
team
Oral instruction from the client 78 2 5 3.88 .624
Valid N (listwise) 78
Delays Caused by Clients came up as the most important factor that hinders the
administration of contractual claims according to all the respondents. That factor was
ranked 4.83 with standard deviation of 0.38 above the other factors (figure 12). The
second most important factor that hinders the administration of contractual claims is Lack
of Claim Documentation and Tiring Procedures being ranked on the average, 4.76 and
standard deviation of 0.48. Coming in third is “Fear of the Consultant” Phenomenon
followed by Lack of Contract Awareness by the Site Team as fourth most important.
Lastly, Oral Instruction from the Client is the least ranked factor that hinders the
administration of contractual claims according to all the respondents with an average rank
of 3.88 with standard deviation of 0.62.
56
Figure 12: Rank of Factors that Hinder Administration of Contractual Claims
4.8 Dispute Resolution Methods in Resolving Claims
Respondents were then asked to rank the methods of dispute resolution that their firms
use in resolving claims issues in order of importance to their firms on a scale of 1 to 5;
where “1” signifies “Least Important” and “5” signifies “Most Important”.
Mediation was ranked as the most important dispute resolution method used by the firms
in resolving claims issues according to all the respondents in the study.
Table 4.5: Descriptive Statistics for Dispute Resolution Methods in Resolving Claims
N Minimum Maximum Mean Std. Deviation
Mediation 80 4 5 4.98 .157
Conciliation 80 3 5 4.95 .314
Adjudication 80 2 5 4.05 .549
3.88 4.26
4.63 4.76 4.82
0
1
2
3
4
5
6
Oral instruction
from the client
Lack of
contract
awareness by
the site team
“Fear of the
Consultant”
Phenomenon
Lack of claim
documentation
and tiring
procedures
Delays caused
by the client
RA
NK
ED
FA
CT
OR
S
FACTORS THAT HINDER ADMINISTRATION OF CLAIMS
57
Arbitration 80 1 5 3.38 .802
Litigation 80 1 3 1.58 .632
Respondents ranked that method highest (4.98 with standard deviation of 0.16).
Following Mediation is Conciliation as the most important dispute resolution method for
resolving claim disputes. This was ranked 4.95 but with standard deviation of 0.31 on the
average by respondents. Adjudication is the next preferred method with an average rank
of 4.05 and standard deviation of 0.55 followed by Arbitration (3.38 and 0.80 standard
deviation) and finally Litigation (1.58 and 0.63 standard deviation).
Figure 13: Rank of Dispute Resolution Methods in Resolving Claim Disputes