AACE INTERNATIONAL
after project acceptance. It is not uncommon for warran-
ty clauses to require a warranty for 1 year after project
completion, during which time, if any portion of the
project fails, the contractor is obligated to return to the
project and make it right or agree to some commercial
settlement of the issue.
As noted above, all clauses in a contract are important and
must be complied with in order to avoid any allegation of
breach of contract. Good contract administration requires
knowledge of and compliance with all clauses. Some clauses,
especially those identified above, are more important than oth-
ers. Cost engineers and project controls personnel must become
intimately familiar with the terms and conditions of any con-
tract they work on. In reading and interpreting contracts, it is
a fundamental rule of law that contracts must “be read as a
whole.” That is, it is a rare situation for a single clause in a con-
tract to be definitive of an issue. Therefore, people dealing with
contracts must read the entire document many times in order
to fully understand and appreciate all terms and conditions.
CHANGES
A frequent occurrence on almost all contracts is change. All
contracts contemplate the probability of changes to the work.
It is incumbent upon both the owner and the contractor to
establish formal systems to identify change as soon as it aris-
es, and to estimate and negotiate the full time, cost, and
impact of the change as quickly as possible. Projects that do
not deal adequately with change as it occurs are destined to
end up with major end of job disputes. On almost all con-
tracts, changed work involves cost and may involve time (as
in a delay to the end date of the job). Of equal importance,
and perhaps at even greater cost, is the impact of change
including such things as follow on work being delayed into
bad weather periods, increased labor or material costs, and
impact to unchanged work. All such elements of change
should be dealt with as promptly as possible in order to
avoid later disputes.
CLAIMS
It is not infrequent that disputes arise on projects that cannot
be resolved easily. Typically, such disputes are referred to
under the rubric of a “claim.” Claims, like changes, should be
addressed promptly and resolved in accordance with the
terms of the contract and as soon as possible. It is almost a cer-
tainty that the longer a claim remains unresolved on a project
the harder and more expensive it will be to resolve later.
• Definition—The term claim is generally defined in law
as a written demand or assertion by one of the contract-
ing parties seeking, as a matter of legal right, payment of
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CONTRACTING FOR CAPITAL PROJECTS
additional money, an adjustment to the time of perform-
ance, or some other change to the terms of the contract
arising under or related to the contract.
• Universe of Claims—Under most contracts, there is a
finite number of claim types possible. While the causes
of claim situations are numerous, the clauses of the con-
tract under which relief may be sought are limited.
Typically, there are only eleven types of claims in most
contracts. They are the following.
• Directed Changes—Claims resulting from directed
changes ordinarily involve a dispute over the time
and/or cost of an owner directed change. That is, while
a change to some aspect of the work has clearly been
directed by the project owner there is a dispute concern-
ing the time and cost impact of the changed work.
• Constructive Changes [1]—Unlike directed changes, a
constructive change is an owner action, which has the
unintentional effect of requiring the contractor to do
more than is required by the contract and results in addi-
tional cost or time being incurred. It is an accidental or
unintended change to the work.Owner comments per-
taining to a contractor submittal, not intended to be a
change, may bring about a change to the work and result
in time and/or cost impacts.
• Differing Site Conditions—These are classically
described as encounters with latent (hidden) physical
conditions at the site differing materially from the condi-
tions indicated in the contract documents or conditions
normally encountered and reasonably anticipated in
work of this nature in this area.
• Suspension of Work—This is an owner directive to stop
some or all of the work of the project for a limited period
of time.
• Constructive Suspension of Work—This is an acciden-
tal or unintended work stoppage caused by some owner
action or inaction which, while not intended to cause a
work stoppage, has the effect of doing so. For example, a
failure by the owner to act on a contractor submittal con-
cerning a piece of equipment that is on the project’s crit-
ical path. While the owner probably did not intend to
stop work, their failure to approve the submittal may
unwittingly cause the contractor to not purchase, deliver
and install the equipment in a timely manner.
• Force Majeure—Force majeure events are usually
described as unforeseeable events brought about or
caused by third parties over which neither the owner nor
the contractor exercise any control. For example, an
areawide strike of operating engineers may shut down
work for a period of time.