CLAIMS AND DISPUTES

INTRODUCTION

1. DISPUTES

There is a certain inevitability about claims in construction Contracts

In a complex environment of a construction project with all that such

an environment involves, and all of the events, whether foreseeable

or not, which can impact on the satisfactory and timely completion of

the Works the subject matter of the Contract, it is almost impossible

for the parties to predict and deal in advance with every eventuality.

It is for this reason that all of the standard form Contracts used

throughout the industry make provision for the occurrence of claims

and provide mechanisms for dealing with those claims once they

arise.

As Project Managers and Contract Administrators a very substantial

proportion of your time will be expended in dealing with and

managing claims and administering those claims in accordance with

Contractual mechanisms.

It is the terms of the Contract which determine whether a right to

claim has arisen, whether that right to claim persists and how,

presuming that the claim has survived the claiming mechanism set

out in the Contract, to evaluate and deal with the claim.

Most claims can, will and should be dealt with and disposed of

through the Contractual mechanisms. Some will not. It is in these

circumstances that a dispute arises.

2. THE CONTRACT

When faced with any claim the starting off point has to be the actual

Contract itself – what has the Contractor agreed to do for the

consideration which the Employer has agreed to provide.

This is, of course, stating the obvious, but it does bear repeating – in

particular when one considers the complexity of most construction

Contracts.

Every Construction Contract is different. This is because whilst the

Employer will undoubtedly select a standard form of agreement as a

starting off point, the amendments to the standard conditions will be

complex and tailor-made to the project in question and even when

dealing with the new Government forms where the amendment of

standard terms is “prohibited”, amendments to those terms can and

will be inserted. In addition, the Contract comprises not only the

standard terms and conditions but also all of the other documents

which are listed and identified as comprising the Contract (commonly

post-tender clarifications, drawings & specifications, pricing

documents, pre-contract correspondence.)

As if that were not complex enough in some circumstances the law

can imply certain conditions into Contracts which means that there

are certain unwritten conditions or terms which can, in given

circumstances, impact on the relationships between parties.

PRIORITY OF DOCUMENTS

In order to enable the parties to make sense of the various

documents which comprise the Contract and their often conflicting

provisions the Contract itself will almost invariably set out a priority list

in other words a descending list of documents and will state that in

the event of a conflict between any of the provisions thereof, one

document will have priority or precedence over another.

In the new Government forms this priority of documents is set out at

clause 1.3.

As stated when dealing with any claim the first port of call must be the

Contract itself.
CLAIMS AND DISPUTES

As already stated not all claims will lead to dispute – most of them will

be quite satisfactorily dealt with under the terms of the Contract itself.

However most disputes will in the first instance present itself as a

claim under the Contract – whether for payment, for time, for

variation, for a perceived failure in the administration of the Contract

or arising from a departure by one or other party from its obligations

under the Contract.

STAGES OF CLAIM

In an ideal world the Works will commence on time, be constructed

exactly in accordance with the drawings and specifications provided

pre tender, will be paid for exactly in accordance with the payment

schedule agreed and will be advanced and completed in accordance

with the completion schedule agreed between the parties. Deviation

in respect of time, scope, payment, flow of information or programme

of Works will lead to claims. Failure to reach agreement in respect of

those claims, or failure to comply with contractual obligations, will

lead to disputes.
TRADITIONAL APPROACH TO CLAIMS UNDER THE CONTRACT

Until the introduction of the new Government forms of Contract most

construction projects in Ireland were carried out under the RIAI or

GDLA forms of Building Contract or the IEI form for Civil Engineering

Works. All of these forms of Contract provide that the Works will be

carried out in accordance with specifications and the Employers

requirements, will be carried out within the scheduled time period and

will be paid for in accordance with the payment mechanisms.

Each of the Contracts also however makes provision for the fact and

envisages that there will be changes in scope, that delays will be

encountered for any number of reasons, that there may be delays in

payment and even that the Employer may elect to omit a proportion

of the Works the subject matter of the Contract.

Each of the Contracts vest responsibility for dealing with these issues

as and when they arise in the Contract Administrator (being either the

Architect or the Engineer) and allows for adjustments to the Contract

price or the Contract period to take account of events which occur

during the course of the Contract.

The Contracts will also determine a means whereby these claims can

be assessed and evaluated by the contract Administrator.

It is where one of the parties disagrees with an assessment that a

dispute arises.

Most Contractors will submit claims on an ongoing basis throughout

the life of the Contract for ongoing assessment by the Contract

Administrator. Ultimately however, both the Employers and the

Contractors have traditionally used the final account submission and

discussion as an opportunity to fully and comprehensively assess and

evaluate the full extent of all claims which will then fall to be

assessed, discussed and negotiated during the final account period.

This exercise – being the discussion and negotiation of the Final

Account will normally be undertaken in the period between practical

completion and expiration of defects liability period.

It is of course in the interests of all concerned that claims be dealt

with as they arise during the life of the Contract and that both the

Employer and the Contractor are fully apprised of the value and

extent of each claim at the earliest opportunity. Comprehensive

presentation of claims throughout the Contract period contributes to

positive cash flow, to the ability to budget appropriately, and assists in

reducing risk and exposure. The practice, under the traditional forms

has been to use the Final Account negotiation as a ‘mopping up’

exercise in respect of all claims and events which have occurred

during the Works – and, for example, in the context of prolongation

claims, it appears logical that the full assessment in respect of same

be carried out as a retrospective exercise.

NEW GOVERNMENT FORMS OF CONTRACT

The introduction of the new Government Forms of Contract has

resulted in a sea change in the manner in which claims are to be

dealt with during the course of a construction project.

The primary intention behind the radical modification of State Agency

Contracts was so that the Government could procure cost and time

certainty with regard to construction projects.

For this reason the new Government Forms of Contract introduce not

only a condition precedent type of claims procedure but also a very

stringent and detailed requirements with regard to the extent and

nature of the information which must be presented to the Contract

Administrator in respect of each and every claim during the course of

the Contract, and continual assessment and progress reports in

respect of time impacts on projects.

The effect of this change is to alter irrevocably the claims

environment which evolved under the traditional forms of standard

Contract and will inevitably lead to a loss of flexibility in approach and

a much more Contractual environment.

Whilst the claiming events remain broadly speaking the same as

those which arise under the traditional form of Contract (with some

notable exceptions), the manner in which those claims are to be dealt

with by the Contractor in the first instance and then by the Contract

Administrator have changed beyond recognition.

Clause 9 of the Contract deals with time and Clause 10 with claims

and adjustments. It is worth reading clause 10.3 in full :-

“If a Contractor considers that there should be an extension of

time or an adjustment of the Contract Sum or any other
entitlement under the Contract he shall, as soon as reasonably
practicable or within twenty working days of having become
aware, or should have been aware give notice to the Employer’s
Representative. Failure to adhere strictly to all of the provisions
of clause 10.3 in the presentation of claims will result in the loss
of the right to claim at all. Contractors must ensure that any
claim under the Contract is presented as a Clause 10.3 claim,
within the time limits set out in this clause, and accompanied by
the directed detail.”

The effect of this section is that all Contractor claims for time or

money are now subject to compliance with a condition precedent

procedure. If the procedure is not complied with the Contractor loses

his right to claim.

This is not a new concept. Many standard form construction

Contracts in other jurisdictions contain condition precedent claims

procedures and certainly many of the amendments to the traditional

standard forms of Contract which I have reviewed on behalf of

construction companies acting for private sector developers have

contained similar types of clauses. The intention is that in subjecting

the Contractor’s claims to a condition precedent process the

Contractor will be required to provide full detailed information at the

earliest opportunity during the course of the Works thereby placing

the Employer in a position to deal with the consequences of the claim

and its impact on the project budget.

The effect of failure to comply with the procedure is somewhat

draconian especially in view of the relatively loose and flexible

arrangements which have pertained prior to this. The mopping up

exercise which was a feature of the final account negotiations up to

now will, under these forms of Contract with these particular claims

procedures in place, become a thing of the past.

WHEN CLAIMS BECOME DISPUTES

A claim arises – to be dealt with in the first instance by the Contract

Administrator – what options does he have?

1. Accept the claim

2. Reject the claim – the Contract Administrator might reject the

claim for one of two reasons either;

A the Contractor has lost his right to claim by virtue of the

claiming mechanism set out in the Contract or;

B the claim has no Contractual justification.

3. Accept the principal of the claim but reject the quantum.

4. Accept the principal of the claim, accept the quantum of the

claim but claim set off or contra charges;

In any of the aforementioned circumstances either party to the

contract does not accept the assessment made by the Contract

Administrator, a dispute will arise between the parties.

The other circumstances which a dispute may or can arise is in

circumstances where there has been a failure on the part of either of

the parties to comply with their contractual obligations. I include here

a failure, on the part of the employer to ensure that the Contract

Administrator, and the various parties nominated by the Employer to

administer the Contract, or any part thereof, fail to discharge those

responsibilities in accordance with the reasonable expectation of the

contractor under the terms of the contract.

1. FAILURE TO COMPLY WITH CONTRACTUAL

PROCEDURES

As stated above under the traditional forms of Contract commonly

used in Ireland until the introduction of the GCCC form of Contract

(i.e. RIAI / GDLA/ IEI forms of Contract) failure to comply strictly with

either Contractual procedures or with time limits set out in the said

standard forms is rarely fatal to a claim. The one notable exception

to this is that where an Employer seeks to terminate a Contract a

failure to comply and adhere to the formal procedures referable to

termination may result in the termination being held to be unlawful

under the terms of the Contract. Apart from this one exception the

industry has been relatively flexible in respect of Contractual

procedures and time limits as between the parties although delays

will often be penalised in the event that prejudice is suffered by the

other side.

Rejection of a claim for failure to comply with the new procedures as

set out in GCCC forms of Contract is an entirely different issue. The

Contract stipulates that if the Contractor failed to give notice of an

intention to claim within 20 days of becoming aware of the right to

claim and failed within a further 20 days to give the full and detailed

particulars specified in the Contract then he will lose the right to claim

altogether. The burden of proof rests with the Contractor to establish

that he has complied with the Contractual procedure and if he fails to

satisfy this burden of proof his claim would fail from the outset of the

dispute. There are some legal authorities available which have

challenged the strength of condition precedent claims procedures –

but no notable successful challenges so far. The approach, on the

part of the courts is to look at the terms of the contract which the
parties actually entered into, and apply those terms, even though the

result of such application might result in a total loss of a right to

succeed in an otherwise legitimate claim.

A Contract Administrator in dealing with the claim under a new

Government form of Contract is entitled to and in fact required to

ensure that the Contractor has complied with the provisions of clause

10.3. A dispute will arise between the parties where the Contractor

contends that he has complied with the procedure and the Employer

contends that he has not. As stated the burden of proof in this

respect rests with the Contractor.

2. On the assumption that any Contractual procedures have been

complied with (to the extent that this is a necessary pre condition) the

Contract Administrator when dealing with a claim must then assess

whether or not the principal of the claim is acceptable under the terms

of the Contract. It is here that detailed analysis of those Contractual

terms must be undertaken. It is also here that many substantial

disputes arise – because parties will often take opposing views as to

the meaning of the relevant term or provision of the contract when

determining whether or not the claim is a justifiable one under the

terms of the contract. Key questions must be asked and answered in

considering whether or not a claim has arisen.

3. Again assuming Contractual procedures have been observed

where these are pre conditioned, and assuming that the Contract

Administrator is satisfied with the principal of the claim being made

(for example a claim arising out of the introduction of a variation or a

culpable delay in the provision of necessary information) the next

question which arises is to decide the true value of the claim being

made whether in terms of money or in terms of time. The Contract

provides guidance with regard to the manner in which claims should

be evaluated.

All of the standard forms set out events which, should they occur, will

result in an extension of time within which the Contract works are to

be completed. Under the traditional forms of contract, it is a matter

for the Contract Administrator to review the Contractor’s entitlements

to time and to assess them in accordance with the provisions of the

contract – having regard to provisions dealing, for example with

concurrent or culpable delay on the part of the contractor. The

contractor is required to submit details of his claims in respect of time.

Again with a view to obtaining the stated objective of time and cost

certainty the new Government form of Contract (under clause 9)

introduces very detailed provisions with regard to both the

assessment of time entitlement and the evaluation thereof. The

Contractor is deemed to have built into his programme a contingency

for a certain amount of delay and whilst it is primarily the Contractor’s

responsibility to assess the impact on that contingent period of any

delay in respect of which time is claimed, the Contract Administrator

would similarly have to be in a position to assess and review that

impact. Under the new Government forms any claim for time is

similarly subject to the condition precedent claims procedure set out

in section 10.

4. The Contractual procedures have been observed, the principal

has been accepted, the quantum has been either accepted or

agreed, but the Contract Administrator, on behalf of the Employer

claims a contra charge or set off.

Once again the Contract determines whether or not the Employer will

be entitled at any stage to claim a contra charge or set off as against

sums due to the Contractor. The most common forms of set off in

the traditional forms of Contract are the provisions dealing with

Liquidated and Ascertained Damages. Under such contracts L&AD’s

can only be assessed when the Architect or Contract Administrator

has issued a certificate to the effect that practical completion should

have been achieved as of a certified date and was in fact achieved as

of another later date and that in the circumstances the Employer is

entitled to deduct Liquidated and Ascertained Damages from any

sum payable to the contractor.

The other contra or set off which an Employer might claim during the

conduct of the project works arises in circumstances where a

Contractor has failed or refused, notwithstanding instructions to carry

out an instruction issued by the Architect or Contract Administrator.

As a result of the refusal, the Employer, subject to compliance with

the provisions as to notice etc, is entitled to engage a third party

Contractor to carry out the Works and claims the costs of that

engagement from the Contractor. Again in my experience this

particular issue arises, if it arises at all, when the Contract is coming

to or has in fact terminated and is invariably the subject matter of a

dispute.

Under the new Government forms of Contract there are substantially

more opportunities for the Contract Administrator/Employer to

introduce contra charges or set off charges by way of penalties for

failure to comply with certainly management or procedural issues

arising under the Contract. Penalties can be imposed by way of

deductions from interim certificates for failure for example to comply

with the provisions of clause 5.3 – dealing with Contractors personal

certificate or the failure to provide progress reports or updated

programme.

OTHER DISPUTES

The other circumstance in which disputes often arise is where one or

other party alleges a failure on the part of the other party to deal with

some or all of its obligations under the Contract. When the

Contractor makes this allegation it might be, for example, as a

consequence of a failure, on the part of the Contract Administrator to

discharge his functions and administer the Contract in accordance

with its terms. The allegation would be that the failure to ensure the

discharge of administrative function comprises a breach of contract of

on the part of the Employer.

Finally a substantial number of disputes arise in the context of

termination of purported termination of the Contract. These arise

where one party purports to terminate the contract, and the other

disputes that the termination is lawful, contractually justified, or

technically compliant.

DEALING WITH DISPUTES

We have now seen in general terms how disputes between the

parties can arise and it is now appropriate to review how the various

Contracts direct the parties to deal with those disputes. Again – the

first step, when dealing with a dispute or intending to serve Notice

that a dispute has arisen is to check the specific terms of the dispute

resolution clause contained in the Contract between the parties.

If there is no dispute clause – there is probably no arbitration

agreement, or method agreed between the parties as to how disputes

are to be resolved. In such circumstances, the dispute will be dealt

with and resolved through court proceedings.

If any of the standard form contracts have been used – each contains

a dispute resolution clause.

Every dispute whether under the new form or under the traditional

form commences by way of a Notice of Dispute from one party to the

other setting out the issue between them and the matter which is to

be referred for resolution.

The standard form Contracts most commonly used make provision

for the resolution of disputes between the parties by either

Conciliation or Arbitration.
CONCILIATION – is a facilitated negotiation with the added facility

that at the end of the process, if the parties cannot reach agreement

a recommendation will be issued by the Conciliator which if not

rejected by either party within 10 days will become a binding

settlement agreement as between the parties. The function of the

Conciliator in making the recommendation is to attempt to achieve a

middle ground between the parties without necessarily expressing a

view as to the strengths and weaknesses of the respective positions.

Under the traditional forms of Contract the Conciliation Procedure to

be observed will often be attached as an appendix.

The procedure under the new Government form is very specific and

issues directions not only to the parties but also to the Conciliator

once appointed. The conciliation procedures to be observed under

the new Government form are actually included in clause 13 of the

Contract.

ARBITRATION – is a formal procedure. The appointed Arbitrator is

required to hear formal evidence from both sides, to review the

documents relied upon by the parties and to determine, on the

balance of probabilities, the factual and legal position as between the

parties. Arbitration terminates with the making of an award by the

Arbitrator in favour of one party or another. Whilst with the older

procedure an Arbitrator was not required to give reasons for his

award unless specifically asked to do so by the parties, under the

new Arbitration Act an appointed Arbitrator is required to issue a

reasoned award. Typically, in a reasoned award, the Arbitrator will

set out a full analysis of the evidence provided to him, his

assessment of the respective legal positions of the parties and his

conclusion based on the evidence and on the law.

Again traditionally an Arbitrator’s award could in limited

circumstances be challenged and appealed to the High Court, under

the new Arbitration Act the circumstances of which an Arbitrator’s

award may be challenged and severely curtailed.

The Arbitration rules to be observed under the traditional forms are

the rules devised by the appointing authority whether the RIAI or the

IEI and under the new Government forms are the new Arbitration

rules specifically for this Contract.

In addition any Arbitration which arises from hereon will be subject to

the rules set out in the Arbitration Act 2010.

MEDIATION - a dispute resolution procedure which is in essence a

facilitated negotiation. It involves a third party Mediator whose

function is to guide the parties towards a negotiated settlement and is

in essence an informal procedure, entirely without prejudice.

Mediation is a mandatory step in the domestic form of Sub Contract

be used in conjunction with the new Government forms of Contract,

but is not mentioned in the current standard forms of Main contract.

Practitioners are increasingly turning to Mediation as a speedy and

cost effective means of resolution.