Project Claim Analysis

A clearly structured project claim analysis is most helpful for the profound understanding of a claim situation, and thus, in determining the best claim strategy.

We pick up the claim case of sub-section Project Claim Management. In that case, we have two parties involved:

  • Company A, the employer or customer
  • Company B, the contractor or system supplier

A and B have a contract under which B has to provide engineering, design, manufacturing, delivery, installation and commissioning of a storage control system (SCS), following a schedule of twenty four months with eight major milestones.

On 14. October, the project manager of B calls John, an independent claim consultant, to help with a pending claim against A and with their project claim analysis.

Two days later, John begins to work on the case. Between 16. and 20. October, he carries out interviews with all involved employees of B in order to get an overview and documents his findings for his later project claim analysis report:

12. September, 09:30 am:   Sixteen months into the project, B is scheduled to deliver the SCS equipment and needs access to the project site which is under control of A. The entrance to the site is blocked by a twelve-meter container. The driver of the truck with the SCS equipment parks next to the container and calls the project office of B for further instructions.

12. September, 09:40 am:   Within ten minutes, the chief engineer of B decides to setup an improvised access gate thirty five meters east of the original one and immediately sends a team of four workers and the necessary material to site in order to carry out the works. In an internal note, the chief engineer of B explains he has to take fast decision and action in order to ensure milestone M6 which corresponds to the successful installation of the SCS equipment.

12. September, 14:40 am:   Five hours later, the improvised access gate is finished and B delivers the SCS equipment and the installation team continues with system installation so that they can keep the corresponding performance milestone M6.

10. October:   Five weeks later, together with the performance documentation of milestone M6, B informs A by sending a notification about the improvised access gate, together with an invoice asking for payment of an extra EUR 8,000.-- for the setup of this gate which, by the way, is continuously used by the employees of A and other suppliers ever since it was installed.

After concluding all the interviews, John analyses the contract and finds these specific contract clauses that might be relevant for the project claim analysis:

Clause (3.1): The employer shall give the contractor right of access to, and possession of, all parts of the site. The right and possession may not be exclusive to the contractor.

Clause (5.2): The contractor shall be responsible for the adequacy, stability and safety of all site operations, of all methods of construction and of all the works.

Clause (6.3): During the execution of the works, the contractor shall keep the site free from all unnecessary obstruction.

Clause (7.1): The contractor shall, whenever required by the employer, submit details of the arrangements and methods which the contractor proposes to adopt for the execution of the works. No significant alteration to these arrangements and methods shall be made without this having previously been notified to the employer.

Clause (7.9): The contractor shall give the employer not less than 7 days’ notice of the date on which any plant or a major item of other goods will be delivered to the site.

Clause (8.2): Unless the employer, within 7 days receiving a project time schedule, gives notice to the contractor stating the extent to which it does not comply with the contract, the contractor shall proceed in accordance with the project time schedule, subject to his other obligations under the contract.

Clause (8.4): The contractor shall be entitled (…) to an extension of time for completion and/or additional payment if and to the extent that completion (…) is or will be delayed by any of the following causes:

(a)   (…)

(b)   any delay, impediment or prevention caused by or attributable to the employer, the employer’s personnel, or the employer’s other contractors on the site.

Clause (18.1): If the contractor considers himself to be entitled to any extension of time for completion and/or additional payment, (…), the contractor shall give notice to the employer, describing the event or circumstance giving rise to the claim. The notice shall be given as soon as practicable, not later than 28 days after the contractor became aware, or should have become aware, of the event or circumstance.

Clause (18.2): Within 28 days after the contractor became aware (or should have become aware) of the event or circumstance giving rise to the claim, (…), the contractor shall send to the employer a fully detailed claim which includes full supporting records of the basis of the claim and of the extension of time and/or additional payment claimed.

Clause (18.3): Within 28 days after receiving a claim or any further records, the employer shall respond with approval, or with disapproval and detailed comments.

Clause (18.7): Disputes shall be handed over to an Independent Expert, jointly appointed by both parties, within 28 days after one party gives notice to the other party of its intention to refer a dispute to an Independent Expert.

Clause (18.9): Unless settled amicably, any dispute in respect of which the Independent Expert’s decision (if any) has not become final and binding shall be finally settled by international arbitration.

With this preparation, John turns to the actual project claim analysis. He checks the project documentation for all available records in order to find out if there is sufficient evidence to support the claim. He finds five documents, other than the contract between A and B. The following time line diagram summarizes the available evidence, from the perspective of B. This diagram forms the core of the project claim analysis. Please note that John only refers to the hard evidence.

Time

A

 

B

 

10. May (last year)

 

<------------->

 

 

 

Contract

 

 

 

 

 

12. Sept.

 

B1 ><

 

 

 

Internal Notification of B

Chief engineer informs the project manager: gate is blocked; we build an improvised access gate to keep the schedule.

 

 

 

 

 

 

12. Sept., 15:00

 

<-------------- B2

 

 

 

Delivery note

SCS equipment delivered

 

 

 

 

 

10. Oct.

 

<-------------- B3

 

 

 

Invoice / notification

Partial payment for milestone M6, including M6 performance documentation and the notification of installation of an improvised access gate for EUR 8,000.—

 

 

 

 

 

10. Oct.

 

A1 ------------->

 

 

 

Confirmation

Delivery of SCS equipment accepted

 

 

 

 

 

14. Oct.

 

A2 ------------->

 

 

 

Payment notification

Notification that payment for milestone M6 was transferred, EUR 8,000.— for the improvised gate not included

 

John calls the project manager of B to inform him of the results of his project claim analysis and asks for a meeting to discuss if B has sufficient evidence for a claim and to decide further steps.

In the following meeting John emphasizes again that his project claim analysis only contains records that count as hard evidence. After a short discussion, they come to the conclusion that B does not have sufficient evidence for a claim so far, subject to further correspondence with A.

Reasons:

  1. Clauses (3.1), (8.4 / b) and record B1 indicate B has the right for extension of time.
  2. The right of access to site, clause (3.1), is not exclusive to the contractor; the blocking container might belong to another contractor of A and might refer to a similar clause in their contract.
  3. The record B2 proofs that the SCS equipment could be delivered according to schedule.
  4. Record B3 can be seen as notification of a possible claim, in line with clause (18.1) and just in time. The question is if it also counts as “… fully detailed claim …” as required by clause (18.2).
  5. For B, it had been better though to send a notification about the blocked access to A, together with a picture taken onsite and a request for advice how to continue, as early as 12. or 13. September and definitely before installing the improvised gate. This is missing.
  6. Records A1 and A2 only confirm recognition and confirmation of milestone M6 and the acceptance of the deliverables, apparently according to the contractual time schedule. Thus, there is no delay and consequently, no reason for extension of time.
  7. There is no evidence that A approves the construction of an improvised access gate, although one interview shows that A’s employees and other contractors use it continuously as well. This might indicate “conduct implying an intent” of tolerating – if not approving – the improvised gate.

This example shows that a project claim analysis which only considers records that provide hard evidence is very critical and therefore, can help to avoid unnecessary arguments between contract parties. It also shows how important it is to regularly check the project site for any obstacles and closely coordinate with the other involved or affected parties before making large deliveries.

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