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Using Project Documentation: A Simple Format For A Construction Claim
By Last & Faoro
The prior newsletter discussed the documentation that should be maintained for a
construction project. This article will discuss how that documentation should be
incorporated into a construction claim.
First, it is necessary to discuss what must be established to prevail on a claim. For the
purpose of this article, a construction claim is a demand for payment of additional
compensation, adjustment of the parties' respective contract obligations, or any other
change in the contract compensation or terms. In presenting a disputed claim to the
party with whom you are contracting it is necessary to establish the other party's
liability for the claim (often referred to as "entitlement") and that the amount of the
damages sought (often referred to as "quantum") are correct. Generally, if you are
unable to establish both aspects of the claim you will not prevail. Thus, establishing
liability and damages of are equal importance. Nonetheless, many claimants focus on
the entitlement issues with the end result being that the damages are not properly
established.
Proving entitlement to prevail on a claim is generally a matter of making a correct
legal interpretation of whether not the facts as applied to the relevant contractual
provisions allow the recovery of additional compensation. As a practical matter the
provisions of the construction contract incorporate the plans and specifications.
Therefore, the proper legal interpretation of the plans and specifications is essential.
The actual analysis of the facts that entitle a claimant to recover the extra costs
typically includes an objective review of the scheduling, plans, specifications,
building codes and standards of the industry. Many claim presentations include expert
opinions. Obviously, the application of the facts to the relevant contract provisions
must be made on a case-by-case basis and is beyond the scope of this article.
Establishing the quantum aspect of the claim also requires an objective analysis of the
costs associated with the additional work. If the contract does not establish a method
for determining the additional costs (e.g. T&M), the claimant should rely on cost
accounting principals to quantify the damages. The type of claim will generally
dictate the method for calculating damages. However, the types of costs that are
considered include: home office overhead, job site overhead, material costs, labor
costs and equipment costs. Once again such a discussion cannot be properly treated in
this article.
The remainder of this article will discuss the general format of a construction claim
and set forth where the project documentation should be incorporated. Generally, a
claim should be presented in the following order:
Cover sheet
All but the smallest claim should be presented in a bound package. Three ring binders
are preferable for freedom in gathering and refining the supporting documentation.
While not critical to prevailing on a claim, a cover sheet and index at the front of the
claim presents a professional appearance.
Executive Summary sheet
The executive summary is intended to be a short and concise overview of the nature
of the claim and why the other party should be obligated to grant the claim. The
executive summary should be a page or less and should be followed by a List of Each
Separate Claim.
The Actual Claim Analysis
Typically, a construction claim will be comprised of a number of individual claims
that require separate analysis of the basis for entitlement and the amount of the
damages that are being sought. The body of the claim should include a separate
section for each individual claim.
The review should include the following:
Claim # 1: Provide a simple descriptive title for each claim.
A. Summary of Claim
Briefly describe the basis for the claim and the amount sought.
B. Underlying facts
This section should include a brief summary of the relevant facts that support the
claim.
C. Entitlement Analysis
This section should include the rationale behind your contention that the contract,
including the plans and specifications, allows for the additional compensation you
seek. Additionally, this section should set forth an analysis that applies the relevant
facts to the contract provisions and any other legal basis for prevailing on the claim.
D. Quantum Calculation Analysis
The exact amount of the additional costs that are being sought should be set forth in
this section. The section should set forth the actual calculation that is the basis for the
amount sought.
For example, if the Eichealy formula is used to determine home office overhead, the
actual formula should be set forth in this section. In addition, the legal rationale and/or
accounting rationale for using that particular formula for calculating home office
overhead should be discussed.
E. Factual Support for Claim
The next section should list all the relevant documents that support the claim.
1. Contract Provisions That Support Entitlement and Quantum Calculation
2. The relevant contract provisions should be set forth in this section.
3. Chronology of Events and Correspondence
4. In a columnar format, the key date and then a description of what occurred on
that date should be set forth. Key dates should, at a minimum, include: (a) when the
claim work was discovered, (b) when the claim work was reported, (c) when the claim
work was started, and (d) when the claim work was completed.
5. List of documents relating to the claim
6. In this section list all the documents that support the claim. The documents
should include: (i) specifications, (ii) drawings, (iii) relevant correspondence, (iv)
clarifications and requests for information schedules, (v) change order and RFI logs,
(vi) photographs, (vii) schedules, and (viii) any other relevant documents.
F. Attachments
Each claim should be supported by separate copies of the relevant specifications,
drawings, clarifications/requests for information, schedules, job diaries, RFI change
order logs, submittal logs, correspondence and similar documentation.
Conclusion
The claim format set forth in this article is a general outline of what should be
included in a claim. The actual format should be modified to present the claim in a
persuasive manner.
Since many contracts require the claim to be submitted in a particular format at a
particular time and updated on a particular, set schedule, you should review your
contract to determine what contractual obligations exist. If you fail to follow the
contractual mandates relevant to the claim presentation, your claim may be barred.
Therefore, if the contract mandates the format of the claim you should follow those
requirements.
If you are inexperienced in preparing a claim document you should seek the guidance
of competent consultants who specialize in construction and have experience
preparing and advocating the claim. Such consultants include construction law
attorneys, construction claims consultants and accountants who specialize in such
claims.
Irrespective, the author recommends that you start a three ring binder with sections
based on the aforementioned claim format as soon as you recognize the claim. As the
claim is refined you should supplement the claim by adding new supporting
documentation and refining the claim analysis. The sooner you start organizing the
claim and gathering the supporting documentation, the easier it is to prepare the final
claim document when the project is ready to be closed out.