Preparing Claims

Do you have a $10 head?

I have been a keen motorcyclist for many years and I recently had cause to recall an advertising slogan that Bell Helmets ran during the 1980s. Their powerful message was:

If you have a $10 head, wear a $10 helmet.

Bell helmets were not cheap, but it was no coincidence that a significant number of motorsport competitors could be seen with the Bell logo on their helmets.

How does this relate to the construction industry?

A couple of years ago I was asked to present a training course on procurement for a property developer. Part of my presentation was focussed on the selection of suitable consultants for their projects. I asked the attendees to help me to do some calculations and give me some advice. I don’t remember the exact figures, but the following is a reasonable synopsis of their input:

  • I first asked them to tell me the average total project cost of their projects. Let’s say this was $10,000,000.
  • I then asked what percentage of the total project cost they would budget for consultancy fees. The answer was 10%, which works out at $1,000,000.
  • My next question was, what is the cost difference between engaging the very best consultants and the worst? The reply was that there was maybe a cost difference of 30% between the two extremes.
  • We then worked out that with a $1,000,000 budget for consultancy fees, hiring the cheapest consultants would, on the face of it, save the project $300,000. As a percentage of the total project cost this translates to a 3% ‘saving’.
  • I then asked how consultants were selected and was advised that although the project delivery team carried out pre-qualifications and checked on consultants’ past performance, the services were put out to tender and company policy dictated that the work would invariably be awarded on the basis of the most competitive fees.

I explored a little further into their experience on past projects...

  • Do we agree that the consultants that you engaged are probably the most competitive on price, because they pay lower salaries than the more expensive consultants? Yes.
  • Can we agree then, that the consultants that you appoint are able to pay low salaries, because they employ poorly qualified and experienced personnel? Yes.

Having established the procurement methodology, I asked more questions, this time related to existing projects...

  • Do you ever get design problems which result in additional costs for your projects? Yes, frequently.
  • Do the consultants appointed to supervise, manage and administer the contracts on your projects ever fail in their duties and responsibilities which results in additional costs for your projects? Yes, frequently.
  • Do the consultants appointed to manage and respond to claims on your projects do so in accordance with the contract and in such a way that claims are agreed amicably and in good time? No, we often have contentions with regard to claims.
  • Do disputes arise on any of your projects? Yes, we have had several arbitrations.
  • Are arbitrations costly? Yes, very costly and time-consuming.

And now to the final question I asked the group...

  • Are total project cost budgets ever exceeded? Yes, most of our projects come in considerably over budget.

You Get What You Pay For

The point here is that buying a $10 helmet is probably not a great investment, particularly if something goes wrong and you have an accident on your motorcycle.

The same applies to $10 consultants.

$10 consultants are actually worse. They often cause the ‘accident’ in the first place and will then not protect you properly. Similarly, if you have a commercial matter, contractual problem, claim or dispute of significant value, is it better to engage the best or the cheapest consultants to help you avoid or resolve matters?

Whilst Hewitt Decipher Partnership is not a $10 consultancy, our business model allows us to be very competitive for the high level of expertise that we offer to our clients. Our expert consultants are appropriately qualified and experienced in their particular disciplines, so we provide excellent value for money when assisting our clients. Can we help you? Get in touch.


claims

Success with Claims Arising from COVID-19

This month, I'm going to take the opportunity to blow our own trumpet a little...

And why not?

HDP has worked with a number of clients on extension of time claims connected with COVID-19 recently. Of particular note, we helped clients on two complicated and high-value projects with very high levels of delay penalties. I'm really proud of the way our team managed these projects to achieve successful outcomes and by sharing the details as case studies, I hope it offers some food for thought for managing your own claims...

The Projects

Both projects were EPC contracts undertaken by overseas contractors to engineer, procure and construct industrial plants. Both included many materials and significant quantities of plant and equipment which were manufactured overseas.

In a more conventional extension of time claim, the activities affected by the claimable delay generally only amount to a small number. They may be relatively easily impacted into a suitable programme to demonstrate the effects of the claimable delay on the time for completion. An extension of time claim related to  variation, for example, would require a fragnet to be created to show the instruction, shop drawing preparation and approval, material submission and approval, procurement, delivery and site installation. Other claims may include several delay events with corresponding periods of delay being impacted into a programme. If the logic links are correctly made, the programming software will produce the information necessary to calculate the extension of time due to the event or events.

Not Your Usual EoT Claim

Delays related to COVID-19 were, however, just like COVID-19 itself, very, very different. On the projects in question, COVID-19 delayed literally hundreds of the programmed activities. Overseas manufacture and delivery of many items was delayed because of lockdowns. Travel restrictions meant that our clients could not mobilise personnel for site installation and specialist personnel for testing and commissioning were also unable to travel to the sites. The countries in which the projects were based were placed under lockdown. The sites were closed due to COVID-19 being discovered amongst the project personnel and social distancing in the workplace reduced productivity. In addition to delays incurred by our clients, local subcontractors were similarly affected by many of these matters. This list of delays, all due to COVID-19, went on and on.

Thinking Outside the Box

This unprecedented situation called for us to re-think the conventional approach to extension of time claims, particularly the delay analyses necessary to prove the effect of COVID-19 on the time for completion. The fact that we did so, and did so successfully for our clients, was validated because the claims were accepted by both the Engineer and the Employer and our clients received the required extension of time awards on both projects. What’s more, the claims were not subject to any requests for further particulars and were agreed within a couple of weeks of submission. That's what we call a successful outcome.

Hewitt Decipher Partnership’s expert consultants have been preparing and responding to claims for many years. We know how to think out of the box when required to do so and how to formulate the best strategy for a successful outcome for our clients. Can we help you with COVID-19 related claims? Get in touch.


delay analysis

Get your Delay Analysis Accepted | 8 Tips for Success

Over the past couple of weeks we have been asked by two separate clients to review responses that they've received where their claims have been rejected. Whilst in both cases, the respondents cited several reasons for rejection, some valid and some not, both cited the method of delay analysis submitted with the claims as a cause for rejection. In my experience, this ranks as one of the most frequently used reasons for the rejection of claims.

Case 1

In the first case, the contractor had simply taken a number of what he considered to be critical activities and established the number of claimable delay days to these activities. He then added the highest number of delay days to the prevailing Time for Completion and requested an extension of time to the resultant date.

I can absolutely guarantee that no respondent will award an extension of time on this basis and that includes myself if I were acting on behalf of the client. I would need to see the effect of the employer-risk events on the latest programme using the existing logic, I would need to check that existing contractor delays had been considered and if a cost claim was involved, I would need to verify that there was no concurrent delay.

Case 2

The second case was different. The contractor had produced a good delay analysis using one of the recommended methods, but the Engineer had rejected it, simply on the basis that he wanted a different method of delay analysis and, I suspect, because he did not understand the analysis itself. This is very common because it allows those acting on behalf of the respondent to defer putting their necks on the line and making a decision which could result in an award to the claimant.

The problem here was caused entirely by the claimant, because he did not justify the use of the chosen method of delay analysis, he did not explain how it had been performed or  demonstrate the effect on the prevailing time for completion. Had he done so, this would have closed the door on the respondent using the delay analysis as a reason for rejection.

Delay Analysis: 8 Tips for Success

Our 8 top tips for successful delay analyses are:

  1. Ensure that you use an appropriate method of delay analysis for the project, the nature of the delays and the information that is available
  2. Justify that the chosen method is appropriate for the circumstances
  3. Use an appropriate programme as a basis of the delay analysis and explain why and how it has been used
  4. Perform the delay analysis in accordance with established procedures and to an appropriate professional standard
  5. If logic errors in the base programme are discovered, correct them and explain why and how they have been corrected
  6. Explain in the claim narrative exactly how the analysis has been performed in such a way that a non-expert programmer can understand it
  7. Explain the findings of the delay analysis
  8. Use the findings to properly calculate the extension of time that you are claiming and explain the calculations clearly.

Keep these tips in mind and you'll be submitting with success each and every time.

Hewitt Decipher Partnership’s expert consultants have been preparing and responding to delay analyses for many years. We know how to comply with good practice to ensure that you have a robust delay analysis to support a claim and, if working on the employer’s side of the fence, we know the standards that the claimant must meet to justify an award.

Can we help you? Get in touch via our contact page; we would be happy to discuss any support that you may need. Want our article straight in your inbox, sign up to our mailing list.


interim claims

Interim Claims and COVID-19: should we wait, or should we submit?

Unsurprisingly, we are currently advising several clients on matters related to COVID-19 and the topic of interim claims frequently comes up. One of the questions we are asked is ‘Should we wait until the delays arising from COVID-19 have ended before we submit our claims?’.

Our answerer is an emphatic...NO!

Most contracts oblige the claimant to submit claims within a specified time period and if the final effects cannot be ascertained, to submit interim claims until the delays have ended and the final effect on the time for completion and/or the costs may be calculated. Using FIDIC 1999 as an example, Sub-Clause 20.1 (Contractor’s Claims) states that:

‘Within 42 days after the Contractor became aware …the Contractor shall send to the Engineer a fully detailed …. If the event or circumstance giving rise to the claim has a continuing effect:

‘(a)    this fully detailed claim shall be considered as interim;

‘(b)    the Contractor shall send further interim claims at monthly intervals, giving the accumulated delay and/or amount claimed, and such further particulars as the Engineer may reasonably require; and

‘(c)    the Contractor shall send a final claim within 28 days after the end of the effects resulting from the event or circumstance, or within such other period as may be proposed by the Contractor and approved by the Engineer.

This is stipulated to ensure that the Employer and Engineer are aware of the likely effects on a regular basis and make plans for a late handover and/or provisions for additional financial requirements. If the contractor does not fulfil these obligations they won't be able to do either.

From a practical point of view, the longer a claimant leaves a claim, the more difficult it will be to agree – circumstances change, people leave the project, consultants are demobilised and of course, if the Employer has been presented with a completed project, his incentive to settle claims is considerably reduced.

Some contractors believe that the submittal of several updates will be time-consuming and costly, but this is only partly true. The time-consuming and difficult work is required for the first interim submission because this is where the majority of the investigations, data gathering, setting up of the delay analysis programmes and examination and demonstration of cause, effect and entitlement takes place. This, of course, is necessary whether the claim is being prepared on an interim or a final basis. Once the base document and calculations have been created though, the updates are reasonably straight-forward and do not require nearly as much time and effort as the first submission.

Some contractors are reluctant to put the effort into preparing adequately expressed claims or incur costs in doing so and keep deferring a decision on what action to take. Some of these contractors may also be facing delay penalties running into millions of dollars, so putting contractual obligations aside, does it make any financial sense at all to defer securing an extension of time until later? We think not.

Hewitt Decipher Partnership’s expert consultants have been preparing and responding to claims for many years. We know how to comply with good practice to ensure that our clients have a justifiable claim that is adequately expressed. Therefore, if entitlement to an extension of time exists, the claims will be accepted in a timely manner and delay penalties will be negated.

Can we help you? Get in touch via our contact page; we would be happy to discuss any support that you may need. Want our article straight in your inbox, sign up to our mailing list.


Coronavirus | Advice for Contractors, Engineers & Employers

Our last blog looked at whether contractors are entitled to claim for an extension of time and/or costs because of the effects of Coronavirus and examined the provisions under the FIDIC Red and Yellow Books.

This was our standpoint just four short weeks ago, at a time when some contractors were anticipating that delays may be caused by supply chain problems associated with plant, goods or materials sourced from China and the few travel restrictions which were then in place.

Our advice was that provided the Contractor can demonstrate delay to the Time for Completion and/or the incurrence of Cost, he will be entitled to an extension of time and may be entitled to claim for additional payment for Cost incurred.

Since then though things have changed drastically. Some countries are on total lockdown with people having to stay at home. Many countries have imposed travel bans. So, the effects of Coronavirus have now become extreme and are likely to be long-lasting.

As a result, HDP directors decided that it would be helpful to examine the options available to the Parties as the situation continues to develop. Again, we shall look at the provisions of the FIDIC Red and Yellow Books.

Suspension

The Employer may consider that if the Contractor is not able to proceed with the Works for the foreseeable future, it may be sensible to suspend the Works to minimise any cost which may become due to the Contractor.

Sub-Clause 8.8 (Suspension of Work) allows the Engineer to issue a suspension instruction and the Contractor is obliged to protect, store and secure the Works against deterioration, loss or damage, so this would effectively ‘mothball’ the project until the Employer decides to lift the suspension. In a case of suspension, the Contractor would be entitled under Sub-Clause 8.9 (Consequences of Suspension) to an extension of time and the payment of Costs including mobilisation and demobilisation costs, so the Employer must weigh up the options here.

Sub-Clause 8.11 (Prolonged Suspension) however, allows the Contractor to terminate the Contract if the suspension affects the whole of the works and the suspension period continues for more than 84 days. We are unsure how contractors will react as and when things return to normal and operations are resumed. Presumably though, many of them will be willing to pick up where they left off.

FIDIC does not provide any options for the Contractor to suspend the Works under the circumstances arising from Coronavirus.

Termination

There are two clauses in FIDIC which give the Employer entitlement to terminate the Contract. Sub-Clause 15.2 (Termination by Employer) allows the Employer to terminate because of various acts of default by the Contractor. In our opinion, it cannot be said that inability to progress the works in the circumstances of the coronavirus is a default of the Contractor, therefore this is inapplicable.

Sub-Clause 15.5 (Employer‘s Entitlement to Termination) however allows the Employer to terminate for his own convenience by giving 28 days notice. Nothing can be sensibly predicted at the moment, but it could be that as things progress, some employers will simply decide not to proceed further with the project, or at least not for some considerable time.

Our earlier blog suggested that it is uncertain whether the coronavirus constitutes a Force Majeure event under FIDIC, but if the Parties agree that it does, Sub-Clause 19.6 (Optional Termination, Payment and Release) provides that if the Works are prevented from progressing for a period of 84 days or for multiple periods of 140 days by reasons of Force Majeure, then either party may terminate the Contract.

Sub-Clause 19.7 (Release from Performance Under the Law) provides that

if any event or circumstance outside the control of the Parties arises under the Law which makes it impossible or unlawful for either or both Parties to fulfil its or their contractual obligations … the Parties shall be discharged from further performance…’

This may apply in circumstances where governments have introduced measures to control Coronavirus which have, in fact, made further performance impossible and becomes effectively a further reason for termination by either party.

Finally

The circumstances arising from Coronavirus have never been experienced before, or at least not within the memory of most people. They are drastic and far reaching. Whilst we have given our opinions on the applications of the FIDIC contracts to the situation, this has been from a purely contractual point of view. In our opinion, the FIDIC contracts do not really envisage such a situation.

That said, it's important to look beyond what the FIDIC Contracts do or do not say. In a situation as serious as this, the Parties have to think 'outside the box' of the contract and find ways to work together to safeguard the personnel involved, to comply with government rules and regulations and to seek ways to manage the project to the best abilities of both Parties.

The ability to maintain progress and complete on time may well be totally out of the control of both Parties. Contractors may be expending substantial additional costs and will suffer from cashflow problems and will be powerless to control things. In short – both sides of the contracting fence will undoubtably suffer in one way or another and it would, in our opinion, be unfair for either Party to attempt to gain any advantage from the situation.

Don’t forget that, provided both parties are in agreement, contracts may be amended at any time, so despite what the contracts say we encourage all involved to reach agreement on a course of action which will be the least harmful to the parties and the project.

Hewitt Decipher Partnership’s expert consultants have been preparing and responding to claims for many years and we have investigated Coronavirus from a contractual standpoint. We can also see ‘outside’ the contract to look at matters from a project management point of view to seek ways to resolve situations and reach agreement on what is best for the project.

Can we help you? Get in touch via our contact page; we would be happy to discuss any support that you may need. 


Funding Claims | Got a claim but can't afford to pursue it?

I’m sure you know the situation. You have a good claim for a considerable amount of money, but your client won't pay it.

The client and his consultants delay things or reject the claim for unfair reasons. So, it becomes clear that in order to get paid, you're going to have to take ‘further steps’.

What are the further steps that you may take under the contract?

Read more


coronavirus

Coronavirus - Are We Entitled to Make a Claim?

The global hot topic this month seems to be Coronavirus and we’ve received lots of questions from clients so today, we thought we’d take a look at some of those questions and share our thoughts with you.

The usual question we're asked is:

We are obtaining labour / materials / plant / equipment from China and the supply is delayed. Are we entitled to claim for an extension of time and additional costs?”.

Our answers, as usual, have been along the lines of:

“it depends on your particular contract, but possibly”. 

I know that this is a bit of a lawyer’s answer, but it really does depend on several things. Let’s have a look at what the FIDIC Red and Yellow Books (1999) have to say on the subject.Read more


claims and disputes

Claims and Disputes | Top 10 Causes and What it Means for Your Projects

HKA have recently published a report: Claims and Dispute Causation – a Global Market Sector Analysis in which they have analysed over 4,000 disputes across 700 projects in 72 countries, with a combined project value exceeding US$1.2 trillion.

The report highlights the top 30 causation factors for disputes:Read more


avoiding disputes

Avoiding Disputes | Are you heading for an unnecessary dispute?

I have just returned from a trip to central Asia to visit a client project where I was asked to review a number of claims and responses. The project is a very large one and the claims amount to an extension of time of almost one year and cost claims amounting to over US$100M. Our brief was to provideRead more


claims

Construction Claims | 10 Tips for Success

ARCADIS have recently published their Global Construction Dispute Report 2019. The report says that the Number 1 reason for disputes in the Middle East is ‘Poorly drafted or incomplete and unsubstantiated claims’. So in light of this, we've put together a list of 10 things that you can do to get your claims accepted quickly and successfully:Read more