Why Do Construction Claims Occur?
Solving the Problems is Best, but That’s not Always Possible
Nov 16, 2009
Consulting engineers who work on projects that include construction often find themselves having to deal with claims from contractors, and less often from the facility owner. Construction claims occur:
- Because construction is risky, and contractors often misjudge the risk and then try to recoup losses by making claims;
- Construction involves many unknowns, especially with underground construction, with changed conditions resulting;
- Ideas for changes or improvements in the facility being constructed come to light only during the actual construction process; and, most importantly
- The parties to the construction contract cannot agree to the extent of the change.
Construction Contract Provisions for Changed Conditions
No matter how well the construction drawings and specifications are prepared, every detailed item of a construction project cannot be known or shown. Some things can be learned only as construction is taking place. Most construction contracts include the recognition that changes will be either necessary or desirable.
For example the Engineers Joint Contract Documents Committee [EJCDC] General Conditions include several paragraphs which anticipate the types of changes that are likely to occur.
- Reporting Discrepancies: Since no set of construction documents is perfect, the General Conditions require the contractor to “carefully study and compare the Contract Documents and check and verify” everything in those documents that might be a “conflict, error, ambiguity, or discrepancy. The contractor is required to obtain a written interpretation or clarification from the engineer before constructing those parts of the project.
- Resolving Discrepancies: The General Conditions provide some guidelines for how to resolve discrepancies in the Contract Documents. It states that the job-specific documents will take precedence over general standards. Also, the Contract Documents will take precedence over local laws and regulations, though this provision is limited.
However, changes can arise that are not related to discrepancies in the construction documents. When the contractor begins digging, underground conditions may differ from what everyone assumed. Because of this, the EJCDC General Conditions specifically state what to do when differing subsurface conditions are encountered.
- The contractor must promptly notify the Owner and the Engineer, in writing, and must not further disturb the area until the conditions can be assessed. Specific description of what constitutes a differing condition is included in the general conditions.
- The engineer must promptly review conditions, determine whether additional underground exploration is needed, or decide if the differing conditions
- require that the contract price or contract times be changed, or if the differing conditions are not significant and do not justify a change.
- An equitable adjustment in contract price and contract times is called for, according to the engineer’s assessment of the conditions.
The General Conditions Include a Formal Process for Dealing With Contract Changes
For this reason, most construction contracts have provisions for making changes to the work, including changes in contract price and contract times. The EJCDC General Conditions provide three ways to change the contract documents.
- A Field Order, issued by the Engineer, making minor adjustments in the work that engineer does not believe will involve changes in price or time. Either the contractor or owner could disagree with the engineer and make a claim concerning any field order.
- A Change Order, which is a formal change signed by the owner and contractor, officially changing the contract documents, and likely including change(s) in price or times. This is the preferred method of change.
- A Work Change Directive. When the work must progress, but the parties cannot agree on the changes required, the owner can order the work to be done by having the engineer issue a Work Change Directive. This requires the contractor to proceed with the change, and is an acknowledgement by the owner that a change in price or times is justified, but with the specifics to be worked out later.
The EJCDC general conditions also have a provision for how to deal with the cost of the work performed under a change. This can be a useful provision when the parties simply cannot come to agreement on changes in price.
Work Hard to Come to Agreement so that a Change Does not Become a Claim
When either the contractor or the owner requests a change in the contract documents, which will likely include a change in contract price and contract times, the most import part of the engineer’s job is to get the two parties to agree to an equitable change. If the two cannot agree to a change, the next step is for either party to file a claim for what they believe they are entitled to.
A claim will typically be more difficult to resolve than a request for a change. The fact that a claim is submitted indicates the process of working together has already begun to break down. The engineer’s best option is to bring the two parties agreement on the change needed. Often the owner will abide by the engineer’s judgment, providing the change is not too large. However, if the changed condition results in a decrease in contract price or contract times, the contractor is likely to balk, and it may be the owner who will be led to file a claim. More information on resolving claims is given in the article "Construction Claims - Use the General Conditions."
The engineer will do well to help the owner and contractor to agree to changes and not let changes become claims. Claims are much more difficult to work through, have the possibility of becoming disputes, and put a greater burden on the engineer.
Source: Engineers Joint Contract Documents Committee, Standard General Conditions of the Construction Contract, 2002
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