Contractor Claim in Construction

             Contractor Claims in Construction Industry

Claim is a request or demand by contractor for compensation (Extension of time, additional cost or escalation on rates) for costs caused by failure of the other party to fulfil his part of duties (to complete remaining work) as defined in the contract.

During execution, lot of problems come and that can’t be resolved by stakeholder and to solve these problem contractor demand claim from client.

      Nowadays, there is lot of competition in construction market, and contractor are compromising on their profits just to stay in business and to make their profile strong and due to which number of contractor claims in construction are increasing rapidly.

But raising claim by contractor is not a crime. Contractor can raise legitimate claims in any contract by linking claim with contract clauses and with backup document. Further it will be on client how they handle it.

Main reason for Claims

1.     Generally contracts clauses are prepared in favors of client and client tries to transfer their risk to contractor.

Most of the time contractor doesn’t read the contract and they provide acceptance on contract clauses in hurry to take the project. And when contractor feels that their profit margin are decreasing and project going towards loss then contractor start submitting the claim.

2.     Loopholes in contracts:- No contract can be 100% complete. There must be some loopholes in that. Lots of clauses are not clearly defined, may have dual meaning at different place and contractor use this loopholes and submit claim.

3.     Extra Work:-Extra work is those type of work which is not covered in client order but executed at project. Most of the time contractor and client agree for such claim because both the parties knows the reason behind that. For safer side contractor should take client approval on extra item before executing work to avoid any dispute.

4.     Delay in Payment:- Most of the time contractor submit claim due to delay in releasing payment of bills.

5.      Scope of work or specification modified after contract finalization.

6.     Delay in handing over the drawings, facilities (Such as water, power), free issue material.

7.      Due to delay in project time line

Each contract has a timeline within which contractor have to complete the awarded work. But if the contractor doesn’t get work front, Contractor not be able to complete the work.

In such case client extend their timelines which force contractor to stay at project for longer time and during which contractor have to pay their resources from their pocket.

8.    Contract termination without taking contractor in confidence

9.     Price escalation of raw material in market

      Price escalation of raw material put an financial impact on contractor. Every contractor keep some contingency amount for price escalation but when it goes beyond the limit then it become difficult for contractor to maintain their margin and at the end contractor submit claim for such escalation.

10.  Pushing the contractor to assign a particular sub-contractor for certain specific works.     

     Things to be taken care by contractor 

    1. Submit claim with proper reason, backup document and analysis.

    2. Read the contract properly and clear all doubt before entering into agreement.

    3. Keep the written record of all communication with client, don't execute on verbal communication.

    4. Highlight and keep records of the delay occurred due to client.

  

     In construction claim is very unpleasant word for client, as it simply related to project progress and cost. Some times it cause financial impact to contractor and client both.

      So, its better to develop positive attitude to resolve the the problem by mutual discussion. 

No contractor enters into any agreement for the purpose of submitting a claim

And it is seen most of the time that the contractors are in the mode of helping and not disturbing Because submitting a claim is as painful for them as it is for the client

Once the contractor submits the claim, his relationship with the client also weakens and have a bad effect on the image of the contractor.

In most of the cases, the contractor is ready to settle the claim through mutual discussion.

So, the client should also understand the contractor's pain and settle it through mutual discussion because if the matter goes to arbitration, it will be painful for both the parties, which wastes time and money both.

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