Contractual Claims in Construction

Contractual Claims in Construction: A Complete Guide

in Real Estate

The success of construction projects depends on mutual trust and credibility. However, paperwork is necessary for accomplishing all the tasks and activities to ensure well-tracked progress. For this purpose, a contract is a document that contains all essential roles and responsibilities for the project owners, contractors, and sub-contractors.

However, the contractual claims are a significant hurdle in the way of successful project completion. It is evident from the fact that a dispute among the contracting parties can lead to a disruption or suspension.  

In case you are going to sign an agreement in the construction industry, you should have a comprehensive understanding of fundamental concepts. The article comprised everything related to contractual claims in construction – keep reading!

What is a contractual claim?

Construction projects require mega investments. To secure the investment, a significant amount is paid to the security purchaser during a specific period by the agreement. The contractual claims are related to the time duration for payment to the principal and additional details.

It has been observed that the construction industry is prone to the risks of bankruptcy. Because project nature is complicated, and things may change out of the blue. It is essential to comprehensively manage the contractual claims for improved efficiency in the projects.

Types of Contractual Claims

Nevertheless, the claims in construction have many types and categories. It is because every claim is different from the other based on the issues faced by the contracting parties. A few essential kinds of claims are as given below:

Delay Claims

The project can get delayed owing to the causes generated either by the owners, contractors, or related environmental situations. In any case, it is better to look for an experienced construction delay expert for analysis. It is because project disruption can result in suspension in the worst cases.

Claims of price acceleration

The contractors are required to manage the budget effectively. However, inflation may impact the project adversely. It sometimes leads to disputes as the contractors may ask for compensation to buy the materials on the revised prices as per the clauses added in the contract.

Damage Claims 

The construction projects are based on the assets and properties. The contractors are liable for protecting the construction site and all equipment used for the building process. In this regard, if the contractors damage the property of construction accidentally or intentionally, the owner may claim for compensation. 

Impact of contractual claims on the project

There is no denying that large value claims can damage the reputation of the contracting parties, along with having an adverse impact on the project. The claims related to the contract violation are very disappointing, especially when time extension or compensation is requested.

It is imperative to understand that owners might face severe consequences if payment related issues are not resolved timely. On the other hand, the contractors may face legal proceedings from the side of project owners in case of any negligence.

Overall, the project completion gets into trouble when contractual claims arise, no matter during the initial period or after the project delivery.

Phases of contractual claims management

Once a claim is raised, the best thing is to focus on resolution instead of merely talking about the problems. In this regard, the effective management of claims is an important activity to help the disputing parties to agree on mutual solutions without getting the problem to the court. In this way, claims management is an unavoidable activity. Let’s consider the primary stages:

Prevention of claims

First thing first, prevention is better than cure. It is so true when it comes to the construction industry. The contractors must try their best to avoid all the claims as much as possible for the delivery of the project as per the due deadline.

Claim mitigation

The activities in the construction sector are accomplished outdoor. Owing to this reason, the sensitivity has been increased to the manifold. The contractors must try their best to mitigate the risks of claims using effective construction project management. So, don’t forget to come up with a mitigation plan right from the start.

Claims Persuasion

No matter contractors work day and night, but still, the probability of claims exists. For example, the weather conditions and other such stuff can delay the building process. In such a situation, it is better to acquire the services of a delay expert for finding out the underlined reasons. It helps in pursuing the claims effectively under the supervision of the professionals.

Claims resolution

The last phase of effective claim management is the resolution. At this stage, the disputing parties opt for certain ways to deal with the claim in a peaceful manner. In the worst-case scenario, the matter is taken to the courts, and the decision is considered a legal binding for compliance by all and sundry.

Avoid contractual claims with effective management!

Summing up, the construction industry is full of ups and downs. People dealing with construction projects need to deal with the activities starting from bidding to delivery vigilantly for better management. It is because the contractual claims can have a detrimental impact on the overall health of a project and the reputation of the contracting parties. Don’t forget to consider project requirements thoroughly for preventing the risks of claims!


Learn More:

Step by Step Guide to Implement CPM in Construction Projects

Common Issues that Lead to Change Orders – How to Manage Them