Most subcontractors are afraid to submit a claim to an owner because they fear they will make the owner angry, and possibly lose future work. They worry that some language in the documents like “no damage for delay” will not only prohibit them from pursuing the claim, but will also be seen as litigious. They are sure that they will be looked at unfavorably by the owner or even his/her agents. That being said, they suck it up and take the loss. They are hopeful the owner or his agents will not forget the beating taken on the job that was not of his making and will reward him with another job with some extra money to make up the loss. One thing I have learned over the years is that thinking about making up for losses on the next job is tantamount to thinking Santa Claus is going to give you a nice new train set come Christmas Eve. Here is a little advice, don’t hold your breath. There is a way of submitting claims that addresses the financial hurt you experienced on the project that was not of your making. It is professional and has an excellent chance of a favorable reaction from an owner. For this to acceptance to take place, the claim has to be fair and reasonable. The owner also has to be enlightened enough to understand that he needs the contractor for the project as much as the contractor needs him. The owner knows that it does not make economic sense to put a good contractor out of business because, in the long run, there will be one less responsible contractor to bid his work. Historically it has been proven that as the size of the pool of responsible contractors lessens to bid work, the prices for the same work increases. So let’s take a brief look at claims…
95% OF ALL CLAIMS HAVE THREE MAJOR COMPONENTS
A schedule analysis starts with the baseline CPM [Critical Path Method] and each month a CPM schedule update is issued. A good CPM specialist will use the updates to make graphic snap shots that show how the actual work was performed, as opposed to how it was originally scheduled to be performed. It will show if you were spiked, stacked or working in a different wage rate period than the baseline schedule showed. It will also show if and how change orders affected the job. Then a Claim-Digger analysis is made that will show if any of your durations were changed during the course of the project. This happens quite often when a job is running late: owners attempt to make up for the time lost by squeezing the time allotted for each activity which causes unforeseen hardships on the contractor. As an example you may have been given 5 working days per floor to get your conduit in. When an update is issued the time may have been reduced to 3 days.
A narrative must be written, it is a brief written history of the project and explains how the project has arrived at such a critical junction that it has become necessary to submit a claim. The narrative should take into account the estimated hours for the project at the time of the bid, change order hours, the number of change orders, when they were approved, and actual certified payroll for the project. The narrative should speak in a clear and detailed voice to all that happened on the project and take into account any of the responsibility for the damages that was caused by the contractor. It asks the question, what part of the damages is the ownerâ€™s responsibility? Was the project built out of sequence? Were there so many change orders that it resulted in a cardinal change to the contract? Were there unforeseen conditions that made it impossible to complete the project in its original duration? Was massive overtime used to try and make up for the delay? Were the trades stacked? Were you forced to work in freezing or hot weather when the base line clearly showed otherwise? Were you denied access to the site? Were the documents so poor that the project could not be performed in a timely and orderly way? The list goes on and on. It is your responsibility to explain it all and do so without any hysterical commentary. No one is going to understand why you are seeking extra compensation unless you can make a compelling case of why it is due.
It is my belief that the single most important part of the claim is the narrative, and it is here where most claims fall short. Some claim consultants seem to believe that in order to have a successful claim it must be confusing; the more confusing the more successful. It is my opinion that this is a major mistake. I have spent years reviewing and settling claims for the owner at the New York City School Construction Authority and I believe a claim must be clear and documented by the actual facts of the project if it is to be successful. Real certified payroll is also necessary. When your claim states that 10,000 man hours were spent on the project, the actual certified payroll must justify that statement. Start and finish dates must be accurate. When and where change orders were issued must be accurate. Original sequence of work verses actual sequence of work must be clearly stated. Predecessor activities necessary to complete oneâ€™s work must be accurately shown. If the project suffered any unusual conflict such as an unknown sub-surface condition it must be documented. The variables can be quite extensive and they must be clearly portrayed, for it is essential the professional reviewing your claim clearly understands why you are asking for the additional compensation. Many times the professional reviewing your claim will be far removed from the project and will be relying on his field people who have supervised the project for their input. And while their input will be good it will be biased toward the owner.
Your goal is to use the narrative to offer a more fair and reasonable take. If the narrative is clear and accurate it will go a long way in helping the reviewer make an informed decision. One final word on the subject is do not in any way insult the owner or his representatives. Keep any insulting or wise remarks home as they do not help. Tell your story without any of the derogatory adjectives.
Identifying and reporting all impact costs. Once the narrative is complete the copulation of the impact costs takes place. All factors that are involved in general conditions come into play if it is a general conditions cost. At the base of all general conditions costs is the inescapable fact that, regardless of the size of the project, it will go into the red if the duration is increased and the contractor receives no compensation for his additional costs. Sooner or later the contractor will go broke if the project takes a large amount of his actual work load, the duration is ongoing, and no compensation is forth coming. The old adage is true, “Extended general conditions will kill you.”
So it is important to report additional general conditions costs accurately. Weekly, monthly and yearly costs must be accurately reported for field supervision, foremen, stewards, engineers, cad operators and the adm who are assigned to the project. Not just their salaries, all of their insurance costs, benefits, etc., must be included in each of their line items.
This post was written by Ron Pestone. Ron has spent 50+ years in the construction industry as a subcontractor and assisting contractors with Project Management & Claim concerns. Visit him at http://www.elmcontractorspost.com/ for assistance.