Construction Claims Between Contractors and Employers

Claims on major construction and engineering projects appear to be inevitable, no matter where in the world the projects are being built. There are many reasons that could generate claims: it may because of the contract documents that contain errors and omissions, code violations, or a lack of inter-discipline coordination, or failure of one or many parties to perform in a timely manner, thereby delaying the other party; or changes in the work/design unilaterally imposed by the owner onto the contractor; or unforeseen conditions, such as abnormal or unusual weather or ground conditions. Claims may occur in between the contractors and the employers, the key parties of a construction project.

Contractor Claim Against Employer
The contractor may claim against the employer for loss and expense (where the contractor needs to contribute more time and money than allowed for on the contract). For example, many of the contractors working on the MTR rail projects in Hong Kong have submitted multi-billion dollars in claims to MTRC over railway construction because of delays believed to be the employer’s responsibility. The common heads of loss and expense claimed include: prolongation costs; finance charges; loss of profits; general disruption; and wasted management time.

Besides, the contractor may have variation or quantum claims (which their costs arise because of the changes of work scope). If the employer changes the design or later specifies a different way to build instead of following the original contract, then a variation claim may occur. Then the contractor can put in a claim against the employer in order to get paid for providing extra or different work or materials.

Employer Claim Against Contractor
The employer may claim against contractors because the works are defective or the project is delayed as a result of the activity or inactivity of the contractor. Defective work is not abnormal in construction works. Defects may range from the smallest items such as within snagging lists at practical completion, to significant problems. If the contractor delays the completion date of the project, the employer can be compensated by liquidated damages clause (aka. LADs or LDs). The contractor would be required to pay the employer a pre-determined rate of damages that should be a genuine pre-estimate of the employer's loss.

Contracts and Claims
The scope for claims to be prepared and submitted and the procedure for how they are to be progressed and dealt with is outlined in the contract documentation that both parties are legally required to adhere to. There are many forms of contracts, such as FIDIC, NEC3, Design & Build, ICC & IChemE etc and all have key differences between them in the way they deal with matters such as compensation events, defects liability, limited variations, notification requirements and performance damage.

It is generally accepted that there is no perfect form of contract that can be universally applied. It is also accepted that some forms of contract are better suited to particular contexts; for example governments in the UK and Hong Kong are increasingly feeling that the NEC contract is the best way to work as harmoniously as possible with contractors and to allow risk to be shared and early warnings of problems to be identified and flagged up. Others say that the NEC is too admin heavy and bureaucratic and that a robust traditional contract will encourage good management of risk and encourage innovation to secure the promise of handsome profits.

Either way, there are numerous jobs available for contracts advisors, NEC contract administrators and claims consultants for to both prepare and rebut claims in the UK, Middle East and Hong Kong. If this is an area of interest or experience, please get in touch with your updated CV and we will be happy to discuss your options further.

Scarlett Ku
Maxim Recruitment
Hong Kong and Asia Region