Construction Claims Explained
Construction claims can be described as actions for a mandate for something due against a contractor by the owner or vice versa, in which cases subcontractors and/or clients may be also involved. Construction claims often involve the demand for money and time spent.
Construction claims can occur as the result of disagreements and conflicts involving poor project planning and scheduling, additional requests for work without proper change order due processes, inadequate financial auditing and monitoring, and errors and oversights in the original contract among involved parties. Costly and lengthy litigation can be an undesirable result of a construction claim.
Key Factors and Considerations to Avoid a Construction Claim
Arguably, the most important and defining element in the process of avoiding a construction claim is the contract itself. The contract should establish the foundation of the expectations, schedule, costs, and change order process. A solid contract document that has been vetted by the appropriate entities, including legal counsel, will help the organization avoid unnecessary construction claims. The contract must be clear and concise in its language and define the expectations of all parties involved. Any form of verbal communication is a liability, as all instructions, details, and information must be well-written and proofread in the contract.
The contract pricing must be clear, and the full scope of work expected to be performed must be priced clearly and adequately to cover all expenses. All contractors and subcontractors involved in the project must understand their costs and the terms of the contract. In addition, the contract must include documentation and language on the change order process. If this portion of the document is overlooked, modifications to the existing work to be performed can be costly.
The contract schedule is a critical element in the contract. You must validate and ensure agreement among all parties involved on the project schedule timeline. The project schedule must contain realistic milestone dates that will be key to the project schedule’s critical path. In addition, it is imperative that the project schedule once agreed upon by all necessary stakeholders is fully baselined for dates and costs. The future intent should mandate that the project schedule is maintained regularly and efficiently by a project controls specialist.
Consistent and Diligent Schedule Progress
A detailed project schedule, such as one generated in Primavera P6, must be developed and maintained regularly. At a minimum, you need project schedule progress to be monitored weekly.
Software solutions such as ScheduleReader can help you to dynamically visualize the data from your existing .xer and .xml schedule exports and easily track the schedule progress throughout the project execution.
Additionally, with the unique Progress Update feature available in this XER reader, a two way communication channel between the teams on-site and the scheduler in the office can be enabled, allowing field teams to report back activity and assignment progress updates in a controlled environment, and structured format that allow the scheduler to keep the project plan up to date at all times.
The project schedule should be baselined upon agreement, and updated with progress following the project start date. Schedule analysis and resource analysis must be conducted regularly to catch deviations from the baseline immediately, which is another area where the ScheduleReader with its plethora of features can be of great assistance.
Modifications to project scope should be addressed in the contract, particularly on how they are expected to be handled and the details that require the attention of all parties involved. Changes should be limited, and if the contractor or subcontractor is responsible for absorbing the cost of any deviations from the original scope, this must be identified clearly in the contract. All change orders require documentation, traceability, and implementation into the project schedule.
Knowledge of Consequences and Actions
All parties must be aware of the consequences of any actions, or failure to comply and deliver, per the terms of the contract. This verbiage should be clearly outlined in the contract document.
Responsibility, Communication, and Due Diligence
Team members must understand the contract put into execution, and they must ensure that they deliver on those terms. All parties involved must have a clear understanding of their responsibilities, and communication among all parties should be encouraged.
Examples of Impacts on Projects That Can Result in Construction Claims
Avoidance is always the best policy when it comes to construction claims management; however, there are some situations and factors that may impact a project, thus making it susceptible to a construction claim:
- The owner/client/contractor agrees to a set amount of engineering hours on a project that ends up being too low to complete the job,
- The owner awards the contract to an unqualified contractor due to the entity submitting the lowest bid available,
- The contractor fails to adequately compensate its employees for the work as previously agreed to in the contract,
- The owner requests multiple design changes not covered by the contract,
- The owner/client/contractor is not appropriately staffed for the scope of work required to be performed on the contract,
- The contractor refuses to provide a baselined project schedule of their work on the project as outlined in the contract,
- The owner/client/contractor fails to utilize planning and scheduling best practices to track the project schedule and costs on the project, failing to identify impacts to the critical path and overrunning costs on the project, or
- The contractor requests additional time or funds to complete the job.
Situations That Cause Construction Claims Can Be Both on the Owner and Contractor Sides
When It Is a Problem with the Owner
Inadequate Bid Time Preparation and Weak Scope Language in the Bid Documents: The owner must provide sufficient detail in the scope of work for the project, and be very specific regarding contractor expectations. Owners should provide ample time for contractors to prepare their bids to ensure that the process has been thought out thoroughly.
Making Significant Design Changes During Construction: Significant and numerous design changes should be avoided, as this can cause issues for the contractor performing the work in addition to the significant costs involved. Some scope changes are necessary; however, the terms of potential scope changes must be addressed in the contract.
Schedules That Are Set Up Poorly and Costs That Are Unrealistic: The owner should always provide adequate scheduling and cost analysis in their timeline when opening the project for bidding. The owner should understand the timeline that is sufficient to start work and deliver on the project.
Clear Definitions of Milestones and Completion Milestones: Owners must specify the definitions behind the milestones that they establish. A completion milestone, for example, must be identified as to what its actual completion is. For example, if a delivery milestone involves a drawing, specify whether the completion of the delivery is the actual submittal from the contractor to the owner, or if it is the submission plus the approval cycle to and from the customer and the contractor. Milestones must be specific as to the criteria required, and the project schedule assists in identifying the milestone details.
Delays on the Customer Side to the Contractor: The contract must outline the terms of submissions and approvals. Delays in the submission and approval process of drawings or materials can be critical to the delivery of the project.
Oversight of the Contractor’s Role with Owner-furnished Equipment: If an owner wants to furnish their specialty equipment or materials for a project, they must ensure that the contractors will be able to fully utilize, operate, and meet the timeline with such requirements. This must be coordinated between owners and contractors and not based on an assumption that the contractor will be able to operate efficiently.
Access or Safety Issues on Site: The owner must allow the contractor access to the worksite and the owner-furnished materials to complete the job. All safety precautions and laws must be honored on-site by the owner, as well as by the contractor.
When It Is a Problem with the Contractor
Submitting a Bid That is Too Low for Operating Costs: Contractors that bid below the expected cost of a project to fulfill a new order for new business can be dangerous territory since the contractor should expect to overrun its budget. For example, if a contractor bids on a project requiring a significant portion of the work to be performed by a specialized trade that typically will incur a significant cost over the rest of the employees, the contractor must consider this essential cost as part of the total cost when it submits the bid for the project.
Lack of Due Diligence at the Site Before Bidding for the Contract: If the contractor has not performed its homework at the site where the work will be performed, this can result in a costly issue. For example, if the contractor expects to bid on a pipeline construction project, the contractor must first understand critical elements such as local and state permitting, environmental obligations and laws, geographical and soil characteristics and studies, and weather patterns just to name a few.
Eliminating or Underestimating the Mobilization Process: Contractors must consider multiple factors in the timeline for mobilization. Sufficient planning in the timeline must consider factors such as employee and equipment availability, delivery of the proper equipment to the site, and any environmental factors that may impact such. A slow start to the project on-site can be disastrous if the adequate time to mobilize was not considered in the bid for the contract.
Errors and Defects Equate to Loss of Time and Money: Any errors, omissions, or delays in the work must be quantified and rectified as soon as possible. Re-work may be required; however, when defects are caught immediately, this can help the contractor to recover their schedule or costs quickly. This can help to prevent the owner from withholding payment.
Insufficient Project Controls and Processes: The contractor must ensure that they employ and maintain their internal scheduling and cost systems to track all of their work. This requires regular project controls maintenance and auditing of these systems to ensure proper traceability and reporting from both a schedule and a cost perspective.
Project Schedule Integrity in Question and Primavera P6’s Role in Construction Management
The Primavera P6 schedule plays a crucial role in the subject of construction claims. When dealing with construction claims, the team investigating a schedule slip that results in a significant loss to the project may carefully review and investigate the root causes of the project delays in the schedule. Such forensic schedule analysis can play a critical role in finding the root cause, errors, omissions, incorrect project status and progress, and more.
In addition, if the project schedule has major issues, to begin with, this can open the firm to further scrutiny. For example, one of the most crucial and essential basics of a solid construction project schedule (or any schedule for that matter) is a baseline. Without a baseline schedule for both schedule and costs, progress cannot be accurately measured and deviations from the plan cannot be highlighted. When this happens, it is a construction claim and litigation waiting to occur.
Planning and scheduling best practices often refer to the Defense Contract Management Association (DCMA) 14-Point Assessment, which is a pre-defined set of measurements that determine overall project schedule quality, integrity, and health. The first crucial step in project schedule management is the initial set-up of the project schedule, and DCMA’s 14-point assessment helps tremendously with this process.
Poor Logic and Missing Logic
Activities in the project schedule that are missing predecessor and/or successor links or contain logic that does not make sense are a problem for any project schedule. According to the DCMA, a project schedule should not exceed more than five percent of all scheduled tasks in this category. Open-ended activities are those activities missing logic, particularly successor relationships.
At a minimum, DCMA states that 90 percent of all project schedule relationships should be finish-to-start relationships. Start-to-start and finish-to-start relationships should be kept at a minimum in the project schedule, and by default, most relationships should contain some kind of dependency to drive to a deliverable or event. This key factor will help to establish the project schedule’s critical path.
Long Durations Lacking Granularity
Project schedule tasks exceeding 44 working days in duration should be limited to five percent or less according to the DCMA, and high-duration activities should be carefully evaluated to determine how to effectively break them up into smaller logically linked tasks. Failure to adhere to this guideline may result in a schedule that does not make sense or where key activities are missing in the chain of events.
High Float, Negative Float, Leads, and Invalid Dates
Project schedule tasks containing high float often indicate missing tasks and negatively affect the critical path and therefore should be limited to less than five percent in the schedule. Negative float, in particular, impacts the critical path and can signify issues and potential failures to meet the scheduled deadline or delivery. It can also be the result of hard constraints in the project schedule.
In addition, leads can alter and distort a schedule’s flow, and it is a better option for schedulers to build the project schedule with shorter duration tasks that connect logically together. Although DCMA allows limited positive lags in the project schedule, no more than five percent of these should exist. Lags can often be avoided by building out additional tasks in the schedule that define time-lapse tasks such as construction drying or curing durations.
Invalid dates contain schedule activities that contain forecast dates before the data date and/or actual dates that are in the future. Although scheduling tools allow for such errors, these should never exist in the project schedule.
Use of Constraints
Hard constraints in the project schedule can wreak havoc on the schedule logic and the critical path, and they should be used only occasionally when necessary.
The Schedule’s Critical Path
The critical path test analyzes the critical path integrity in the schedule by evaluating a delay’s impact on the final result of the project’s completion. The critical path gauges the schedule efficiency by determining if the project can be completed on time based on the current performance to date, and it measures the ratio of the project’s critical path length to the total float.
DCMA-14 Schedule Assessment Report in ScheduleReader
A full DCMA14 schedule assessment of an existing .xer or .xml schedule exported from Primavera P6 can be quickly performed using ScheduleReader PRO. The results are displayed in one-page visual graphical report with interactive properties.
The report data is easy to understand and consume and can be shared with the relevant parties further on in multiple formats, including Excel, in a simple manner. Another convenient details is this must-have report for any scheduler is the ability to customize the DCMA 14 check parameters according to the user needs.
Schedule Execution is the Key to Primavera P6’s Value in Construction Management
The next step following project schedule set-up, agreement, approval, and baseline is the project schedule execution. Proper tracking will ensure adequate warnings to slips in the schedule timeline.
Special attention should be noted and documented to any of the following during execution of the project schedule: added or deleted activities (all tasks require a baseline for tracking purposes), duration changes to tasks, logic changes, updated task descriptions, and any type of change to the schedule’s critical path.
Primavera P6’s Role in Investigating Construction Claims
A Time Impact Analysis (TIA) is the method utilized in determining the extent of the impact of delays in construction and quantifying unplanned construction events. Primavera P6 can play a crucial role in such an assessment since project schedules are analyzed during the process. The project controls team will carefully examine patterns and changes in the project schedule over time while investigating the impact of such events.
Similarly, forensic schedule delay analysis examines and investigates the series of events utilizing Critical Path Method scheduling to determine and explain the cause and extent of any delays in the construction schedule. Primavera P6 can assist legal teams in their investigations into construction delays.
Numerous factors must be considered and followed through on when involving multiple parties and construction projects. From the inception of the bid process and the initial contract through project execution, the owners and contractors must perform their due diligence on both sides at the beginning to the end of the project life cycle. Following the Primavera P6 schedule trends and deviations from the project baseline for both the schedule and the cost can help companies avoid costly and lengthy litigation involving construction claims.
About the Author
Melanie Calverley is an experienced professional with several years of knowledge and practice in Project Management as a Program Cost and Schedule Control Analyst on multi-million/multi-billion-dollar projects, Project Controls, Strategic Planning, Engineering Planning, Earned Value Management (EVM), and Earned Value Management System (EVMS) implementation, Configuration Management, and writing/editing. She commands full utilization of Primavera P6 software, MS Project, and MS Project Server. Her career background includes industry experience in oil and gas, energy, aerospace/defense, IT, litigation, and media.
Calverley has extensive experience in the planning and scheduling arena since 1999, as well as extensive experience in the aerospace and oil and gas industries combined. Calverley has worked for the large and high-visibility players in the aerospace industry – Boeing and Lockheed Martin, as well as the large companies in the O&G industry, such as Schlumberger, GE Energy, and Chevron. She supported NASA directly and a host of smaller sub-contractors over the years before exploring the O&G and IT industries. Calverley understands the strict, organized flow of the aerospace industry’s horizontal and vertical logic integration, the criticality of resource loading, and the reporting functions that support Earned Value Management (EVM). She has also participated in various audits such as DCMA audits, JSRs, ISRs, and CAM reviews. In 2013, Calverley was responsible for implementing a full EVMS in Primavera for Cameron International’s (now Schlumberger) Process Systems Division across the globe. The system was fully tested and successfully implemented and run in the United States, Brazil, the UK, Malaysia, Singapore, and the Middle East.
Calverley owns her own business, Calverley Consulting, LLC, which has been operational since 2017. Calverley is also a solid writer, editor, and process flow documentation expert. She possesses a full command of the proper English language, and she is also a published book author. Calverley developed and championed multiple process flows and written documentation via policies and procedures for various well-known companies.