Construction project claim management


Consultant & Trainer for Application of Project Management

Integrated Management Services

<[email protected]>,<[email protected]>


Claim Management is an inevitable process in Construction Project Management, to reach successfully the desired results. The requirement in first place is to avoid claim through managing the breeding grounds with all earnest, alignment of documents, and eventually entertaining an entitlement in an efficient and business like manner. Considerate approach for early settlement on issues between parties is always cheaper and leads to win/win results. The construction project, mostly a large undertaking, demands one to prevent stained relationship of parties, stalemates, delays, disputes, or loss of resources that cause or carry the potential force for litigious and arbitral action of the parties, for resolution in contract.

Claim is a management issue and the process needs efficient and effective management during the entire life cycle of a project.

The construction project generally has four well-recognized phases;

a) Ph-1 Pre-tender -initial concept, design of contract-documentation,
  pre-tender meetings and up to invitation of tenders
b) Ph-2 Contract Formulation -preparation and submission of tenders, tender
  assessments, pre-contract negotiations and contract formulation
c) Ph-3 Construction -during construction up to substantial completion
d) Ph-4 Post completion -settlement of outstanding issues after substantial completion & finalization of accounts

Mostly claims relate to the encountered conditions or events, which occur during the construction phase. But the seeds of claim and nutrients essential for development are contained in the contract documentation and the information supplied or not supplied in pre-contract phase.

The greatest opportunity to Prevent Claims comes to an end once tender-documents are finalized and the contract is awarded.

There are two significant elements in the control of the employer and his professional-team. The first is the efforts expended in pre-contract preparation as regards the reliability and completeness of information, design and documentation aligned to purpose. The second is the development of scheme for risk distribution, plan for management, selection of Form of Contract, and procedure for dealing with emergent issues.

Some form of conflict is inevitable; the preponderance of opinion is that “Construction conflicts are endemic in the industry” for involvement of stakeholders, having varied requirements and expectations associated with project, for particular need. Further the tendency of contracts to generate dispute, because of externality of interpretation; a contract cannot “specify their own indexical” by providing how they will be read or used by parties and interpreted differently in conjunction with documents prepared by various parties. The majority view that the nature of the construction process makes conflict unavoidable in some form, to some extent, t can be characterized as “pragmatic” as contrasted with the “long term strategic”.

The major players are involved with varying interest and carry conflicting business requirements that lead to issues & disputes, as illustrated in Exhibit 1.

Major Stakeholders Objectives / Concerns

Exhibit 1 Major Stakeholders Objectives / Concerns

The problems fall into a series of broad categories. They can be grouped into two headings – those, which have their origin in the planning of the project, and those, which are caused by problems during the construction of works.

Therefore the logical processes for claim management at different phases of project are:

1 Claim Prevention -an endeavor made during phase-1
2 Claim Mitigation  -efforts made during phase-2&3
3 Pursuing Claims -an approach for phase-3&4
  a) Claim Identification  -an approach for phase-3&4
  b) Claim Quantification  -an approach for phase-3&4
4 Claim Resolution -an approach for phase 3&4

Claim Management

The Management Processes that requires prevention or mitigation of construction claims and the expeditious handling when they do occur, for earliest settlement can be viewed from two perspectives: the party making the claim and the one defending against it. A claim is, “A demand for something due or believed to be due”, usually the result of an action or direction. In construction “something” is usually additional compensation for work claimed to be extra to the contract or an extension of time for completion or both. What distinguishes a claim from a change is the element of disagreement between the parties as to what is due or whether or not anything is due. If agreement is reached, then the claim disappears and becomes a change. If not, the claim may proceed to negotiation, mediation, arbitration, and finally, to litigation before it is ultimately resolved. Often claims are thought of in terms of the contractor making claims against the owner or other prime party and by subcontractors against the contractor. But claims can also originate from the owner/prime party who believes that some requirement of the contract is not being performed by the contractor.

The Endeavor here is not meant to be a primer on claims which is a very involved and complex subject that has plagued the construction industry for years and still does. Rather, it presents an outline of approach to claim management to stimulate a careful approach to manage contract, documents preparation and expeditious handling of claims should they arise.

Claim management processes overlaps and relates to all four phases of construction project.

Phase I


The prevention process is activated at Ph-1 & 2 of project that starts with formulation of contract documents and development of integrated project plan with sufficient knowledge of the purpose. Clearly the best way to prevent claims is to have no claims to prevent! Thus, the emphasis is on how to avoid or prevent claims from arising. Alignment of purpose, and development of all documents related with Contracts for a project are all prepared in same line. The ingredients are management scheme, identified risk distribution to ones in best position to control and defined responsibilities. Effort is required to align the contract documents to the defined purpose, logical risk sharing and management scheme. The seeds of claim and nutrients essential for their development are contained in the contract formulation/documentation and the information supplied or not supplied at relevant point in time. After the award of contract the opportunity to prevent nutrients for Claim comes to an end.

The necessary Inputs required to Claim Prevention process are:

  • Scope Assessment: An assessment of work that needs to encompass all requirements and satisfy the purpose.
  • Required Distribution of Information: Plan for distribution of necessary information to project players who prepare responses to risk.
  • Management Scheme of Project: The required management scheme that defines the responsibilities of major players and stakeholders.
  • Requirement of risk sharing scheme: The scheme of the risk sharing among the major players and stakeholders.
  • Time frame for project completion: An assessment of logical time frame for completion.
  • Dependency. Project players understanding of alignment to the defined purpose and dependency of responsibilities for risk sharing.
  • Conflicts of Interests. Defined assessment of interest and respect for difference of
  • Need.
  • Strength & Weakness of Employer. An analysis of strength/weakness of employer

Necessary Tools and Techniques that help Claim Prevention

  • Methodology for Economic Exchange. Methodology with win/win outcomes that best serves the scheme of management and risk sharing of project players.
  • Identification & Assessments of Project Scope. Every thing that is necessary to add value or is required to serve the purpose of project, needs to be incorporated in Project Scope.
  • Information Sharing. Distribute information in accordance with the responsibility and risk carried by project player.
  • Template. Tested methodology and lessons learned on similar project.
  • Expert Judgment. Independent views of experts of the field to ascertain that the approach adapted will lead to win/win end results.
  • Alignment of Documents. All documents are aligned with the purpose for a Contract.
  • Dispute Resolution. A reliable mechanism for fast resolution of dispute
  • Partnering Approach. Respect for project player's independence and commercial interest.
  • Monitoring & Control. The system and team developed for project monitoring and control
  • Education & Training. Project life long continuous education and training is necessary to develop an atmosphere of trust, respect for purpose and direction setting through the complexities.

Desired outcomes from Claim Prevention process:

  • Project Scope. Scope of work (explicit and implicit) to satisfy the purpose
  • Contract Form. Economic exchange adopted in contract leads to win/win situation. Well defined risk sharing and responsibility policy, the Contract Form may be;

    - Cost-plus-fee

    - Management

    - Lump sum

    - Quoted Rate for Bill of Quantities

    - Design and construct

    - BOT

  • Contract Documents. All documents carefully aligned with the purpose
  • Dispute Resolution Methodology. An independent dispute resolution board is defined.
  • Trust Building & Training Plan. Action plan is developed to train & educate the team of project players on Claim/Contract Management during progression for trust building.

Phase-2 & 3

Claim Mitigation

Construction activities are generally carried out in complex, highly sensitive and changing environments. Perfect conditions and control on every thing are next to impossible. Best approach is to mitigate the possibilities of arising claim all through progression of the contract. Thus, the emphasis is on how to mitigate claims from arising. The perfect, well-scoped, defined responsibilities and risk allocated contract will entail lesser disputes. The project players can do their best with timely and fast communication toward resolution of disputes. There are several general principles of practice described in this section for mitigating claims that, when followed, can work toward the elimination of the basis for, or at least minimize, the occurring of claims.

The required Inputs to Claim Mitigation process are:

  • The project plan. The fundamental parts of the plan are the most important. A clear and carefully described scope of work, a reasonable schedule and an appropriate methodology of project execution tailored to the type of project and the degree of risk involved all go a long way to the goal of mitigating claims.
  • Contract terms. Fairly drawn contract terms that provide logical sharing of risk for possible changes and unknown site conditions, force majeure type delays, periodic reporting, fair notice provisions and approval times also provide a basis for minimizing claims.
  • Risk management plan. Claims are mitigated by the use of a risk management plan that allocates the risk between the parties on the basis of which one has the most control over the risk involved. A contemporary owner's practice of often trying to have the contractor be responsible for more and more risk, some of which the contractor has little or no control over, is an invitation to claims.
  • Handling of Dispute. Mishandling of disputes mostly leads to strained relationship of parties, delays in work and eventually to a claim.
  • Decision Making Process. Cumbersome decision-making process or indecision leads to delays in work, dispute, and claim.
  • Information need. An assessment of information need of project players.

The necessary Tools and Techniques that help Claim Mitigation:

  • Clarity of Language. The contract scope and specifications are written in clear and unambiguous language.
  • Schedule. The schedule requirements are clearly stated and developed realistically for accomplishment. Schedule update requirements is fair.
  • Constructability Review. The constructability review help avoid changes.
  • Request for information (RFI) procedure. Contracts requiring designer or owner approval of shop drawings, materials of construction, RFIs and like items need a specific time bound clause for the answer given.
  • Partnering. Project specific partnering is required for mutual interest to reach end-goals.
  • Effective Communication. Efficient and effective communication is the key for bonding to reach common goals.
  • Prequalification Process. Prequalification of contractors help to find the seasoned and qualified contractors who are conscious for reputation in market. They avoid claim situations for sake of a claim activity.
  • Dispute Review Board (DRB). Larger projects need a DRB. This acts as a kind of arbitration panel over any dispute arise during the progress. The potential claims are turned into changes or are dismissed for good reason.
  • Joint Recognition of Changes. Both parties need to be realistic and carry a win/win approach. The best way of reducing claim potential is for the other party to recognize when a change has occurred. The tendency to fail to do this and argue incessantly over every potential change is a major factor in perpetuating claims.
  • Documentation. Good documentation leads quickly to recognizing a change and help reduce the prolonged argument between the parties. It also provides a good defense against claims.

Outcomes achieved from Claim Mitigation are:

  • Changes. Potential claims for compensation or requests for extensions of time, or both, that are agreed are turned into changes and the claim/dispute disappear.
  • Dispute or No claims. There are no disputed requests for changes (claims) or dispute has emerged that need resolution.
  • Enhanced Business Relations. Parties have improved relations to go extra mile together.
  • Project Goals. Successfully achieved the project goals.

Phase-3 & 4

Claim Pursuance

Natural eventuality may arise when Claim Pursuance becomes necessary. In a contract no party is prepared to take extra financial or other burden for the default, omission and commission of other party or to bring additional benefits on cost. The process provides an approach to successfully pursue a claim in a contract. On construction projects a number of such natural eventualities go to waste for improper approach that brings suffering to the party. The process has two major areas:

a) Claim Identification

b) Claim Quantification

Claim Identification

The identification of a claim starts with sufficient knowledge of the scope and responsibilities stated in contract terms, when some activity appears to be a change in scope or terms requiring a contract adjustment. Proper identification involves not only an interpretation of what the contract requires, but also a documented description of the activity viewed as extra to that required by the contract.

The necessary Inputs to Claim Identification are:

  • Contract scope. The baseline scope of work as approved in the contract.
  • Contract terms. The responsibility for work to perform, especial terms relating to changes, changed conditions, schedule preparation, submittal and notices given.
  • Extra work description. Description of work believed to be extra to the contract, where and when it took place. Statement of why it is not covered in the contract scope and reference to the section of the contract that supports the contention.
  • Description of extra time requested. Record of the extra work and delays. Time extension claims resulted due to events such as unusual weather, strikes or other force majeure items outside the contractor's control may be valid while they may not be compensable. The contract and local law decisions often state which are compensable.
  • Hold-ups and Delays. Record of hold-ups and delays caused by events beyond control of a party but responsible for management under the contract.

Tools and Techniques for Claim Identification

  • Contract terms. The provisions relating to changes and notice are time barred. In many cases claims are invalid when not made timely.
  • Expert Judgments. It is worthwhile to reach a consensus among more than one person that the activity under question does merit claim status. In some cases of more important or larger claims legal advice further support to the validity of the claim.
  • Documentation. Most important factor is the need for good supportive documentation. This may take the form of photographs and videos of the work in question, relevant contract sections, drawings, relevant statements of persons involved in or related to the claimed work. In addition, the time for work that was performed is noted. It is helpful to open a new cost account to cover the claimed work in order to clearly separate it from other contract work.

The Outcomes achieved from Claim Identification process are:

  • Statement of claim. The information is gathered to prepare a complete statement of the claim and why it is considered extra to the contract.
  • Documentation. Presentation with supportive documentation for justification is made.

Claim Quantification

Once an activity has been reviewed and a decision made that it is worthy of pursuing as a claim the next step is to quantify it in terms (usually) of additional compensation or a time extension to the contract completion or other milestone date. Those who have had experience with this side of claim management know that it is not unusual for the claimant to inflate the amount of the claim to the extent possible and thus it later becomes a form of bargaining process between the parties as a reasonable “truth” is sought. Nevertheless, there are proper and logical ways of determining the cost of the extra activity or damages both in terms of money and time. The process basically uses a cause and effect approach to determine the full effect of the claimed activity-what was the full effect on the construction work caused by the claimed activity? Sometimes the claimed activity has an indirect effect on other aspects of the construction project-making other work more costly, changing sequences, delaying other activities. To the extent that these indirect effects can be justified and quantified they are properly part of the total cost of the claim.

The necessary Inputs to Claim Quantification are:

  • Statement of claim. The outcome of Claim Identification
  • Other Work Affected by claimed activity. In the event that there is additional effect on the balance of the contract work caused by the claimed activity. These effects are treated in the same manner and data collected as for the claimed activity itself.
  • Return on Resources. Details where party have lost return on resources for delays of a project.
  • Opportunity Lost. Details where party have lost other opportunity for delays in completion of a project.
  • Loss of Profit. Detail estimation or an Agreed basis for working out profits.

The Tools and techniques required for claim quantification:

  • Quantity measurement. Develop actual quantities of the claimed item/work. When disagreement arises the first place to look for agreement is the BOQ involved.
  • Cost estimation. Develop activity base costing (ABC) of the resources involved in the claimed work. The cost records provide the basis of the estimate or prepare estimate using current applicable rates. Overhead cost and profit are proper as the claim is treated at this stage as a change. In case claimed work has an effect on other work of project that causes additional cost, it is estimated for cause and effect relationship.
  • Contract law precedents. It is helpful to cite previous cases that act to support the claim in those more complex situations where the contract does not provide a solution. Such cases may give guidance as to what may or may not be included in the claim or how the claim may be evaluated.
  • Schedule analysis. Compare the “as planned” schedule with the “as built” schedule to support the time extension requested not only for the claimed activity, but also for the effect (if any) on the balance of the project. Schedule analysis with the aid of today's sophisticated computer programs can help, but also can make this analysis very complicated. The ultimate deciding factor is the effect on the critical path; it can become difficult to separate these because of all of the other factors that can and do affect construction schedules.
  • Business History of Party. Opportunity loss for delays is complicated assessment that requires toestablish the capabilities, market conditions and history of business approach.

Outcomes achieved from Claim Quantification are:

  • Direct and indirect costs. Statement of the cost or damages resulting from the claimed activity is developed with full support of the factors used in the calculation. Also, the cost, when justified, of the effects of the claimed activity on other aspects of the project calculated in the same manner as the direct costs.
  • Time extension. The result from the schedule analysis
  • Documentation. Backup of quantity calculations, time cards showing the extent of labor involved and machine usage, wage rates, equipment rates and invoices for material that are included in the claim are the kinds of documents needed for support of the quantification.
  • Opportunity Loss. Assessment based on factual grounds, is established.

Claim Resolution

Even with all effort to prevent claims, they may still arise for a justifiable disagreement as to whether the claim in question is a change to the contract or not or whether the claimed amount of compensation or time requested is correct. When this situation arises there begins a step-by-step process to resolve these questions. It is axiomatic that the longer this process takes, the more expensive and disruptive it is to both parties. Therefore, the goal is to settle these issues as soon and at the lowest point in the organization as practicable. The process begins with negotiation, perhaps at more than one level, before moving on to mediation, arbitration and litigation depending on the remedies afforded by the contract. Because of the proliferation of claims in construction and the expense of litigation, alternate methods of resolution have been increasingly used. Called ADR for Alternate Dispute Resolution, they include mediation, arbitration and mini-trails.

Necessary Inputs to Claim Resolution are:

  • Statement of claim. Established through identification
  • Claim quantification. Established through quantification
  • Contract. The agreed terms of contract that provides the ultimate baseline and means for resolution
  • Correspondence. Record of correspondence on the matter are initiated at a relevant point in time.

Tools and Techniques for Claim Resolution:

  • Negotiation. The foremost and best step for resolution. Sometimes the negotiation needs to be elevated to a higher level, but it still is a negotiation between parties trying to find an equable solution.
  • Alternate Disputes Resolution (ADR). These include mediation, arbitration and mini-trials.
  • Litigation. The eventual result when all attempts have failed. Construction lawsuits are commonly complex for a jury to understand and often take a longer time to present. This is the “last resort” and more expensive in terms of cost and outcomes that may upset the organizations involved. Parties in litigation really need to ensure that this is the only way for resolution.
  • Cost Estimated for resolution. When the initial attempts at negotiation fail it is prudent for each party to estimate the cost of carrying the dispute further. Mediators are costly (but can be cost effective) and some arbitration cases can approach the expense of litigation due to the amount of discovery involved. An estimate of these costs can help in deciding just how beneficial it is to pursue a claim.

Outputs from Claim Resolution

  • Claim resolved. One way or the other.
  • Contract closed. In cases where the contract cannot be closed because of a pending dispute, resolution of that dispute enables the contract to be closed.

Claim management processes come into play on a construction undertaking much earlier than the formulation of Contracts and need closer attention. On going processes may be carried out along with Contract Management to ensure the desired outcomes envisaged in the purpose of the endeavor. Billions of dollars are wasted in mismanagement of the construction claims that lead to fatal-damages to parties or undertaking or both. The key is a win/win approach for success together.


PMI(2000) Construction Extension to A Guide to the Project Management Body of Knowledge (PMBOK® Guide) 2000 Edition. Newtown Square, PA: Project Management Institute.

Scrvin, J., Pritchard, N. & Delmon, J. (1999) A Contractual Guide to Major Construction Projects Ed-1999 London: Sweet & Maxwell Limited.

Carnell, N. J (2000) Causation and Delay in Construction Disputes. Blackwell Science Ltd.

Sykes, J. K. (1999) Construction Claims Sweet & Maxwell.

Knowles, R. CLAIMS: Their Mysteries Unrevelled 2nd Ed, by. Published by James R. Knowles-Construction Contracts Consultants

Rubin, R., Fairweather V., Guy S. D., & Maevis, A. C. (1992) Construction Claims Prevention and Resolution 2nd NY:Van Nostrand Reinhold,.

Macfarlane, J. Rethinking Disputes – The Mediation Alternative.

© 2005, M. Aslam Mirza
Originally published as a part of 2005 PMI Global Congress Proceedings – Singapore



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