PDB Debrief: Contract Language - Claims
A bit outside the normal topics, this month will be focused on a particular term used in construction contracts—CLAIMS. Part of the design build process is negotiating the contract and its pitfall as well as the construction pitfalls.
What is a claim? When one party to a contract asserts the rights afforded (or they believe to be afforded) per the contract language. The AIA 201 defines it as “a demand or assertion by one of the parties seeking, as a matter of right, payment of money, a change in the Contract Time, or other relief with respect to the terms of the contract.” There are many types of claims, and the claim can affect the owner, architect, GC, subs, and any and all combinations of these parties. One benefit of design/build contracts is less owner claims, since the design & construction are performed by one integrated team.
Some common types of claims are:
Design or Construction Defect
Change in Work - Errors & Omissions
Unforeseen Site Conditions
DON'T WAIT - THINGS WILL ONLY GET WORSE! IF THERE IS A CLAIM ON THE HORIZON, GET IN FRONT OF IT & GET HELP IF YOU ARE UNSURE!
Claims can affect profitability on the face of the claim (e.g. margin fade on warranty work), but it can also affect insurance rates if bonds are involved, and of course, take time and money to settle, even if your side is correct.
Claims are so important the AIA standard General Conditions (AIA A201) has 3 pages (just under 10%) of the entire
document devoted to the issue. The standard Keeley contract also devotes a similar amount of text to the issue. Both are found in Article 15 of the contract.
REVIEW EVERY CONTRACT & SET OF GENERAL CONDITIONS FOR EACH PROJECT—TIME CAN BE A FACTOR!
The contract language should lay out the parameters for settling any disputes. There are usually multiple steps involved:
The parties attempt to work it out on their own—this is often a required step and best for all parties if it can be settled at this point. BE CAREFUL—there are often time limits on bringing a claim that we must be aware of. The contract may specify that all claims must be made in writing within x days of the dispute being known, usually in a fairly short period of time (think days, not weeks).
Some contracts specify a third party (often the Architect) to settle disputes. Again, settling at this point can save time and money. However, this ruling can still be appealed.
Most contracts will specify the next steps as mediation, then arbitration, and then a lawsuit if the claim cannot be settled by the parties themselves. The contract should specify what rules apply to the mediation/arbitration/legal proceedings, what state’s laws apply, and how payment for the mediator/arbitrator/lawyers should be apportioned.
EVEN IF YOU WIN, MEDIATION, ARBITRATION, AND LAWSUITS ARE EXPENSIVE—THEY COST TIME & MONEY TO PURSUE/DEFEND.