Michael Seyoum Construction Contract & Law

Assessment number 2:
Assessment on Construction Claims and Disputes

1. What do you understand by the concept of construction claims & remedies thereto;
including types of construction claims & their base;

The concept of construction claim is that the contractor requests the employer for additional
time or cost due to the employer fault or unforeseen force measure. Construction claims is
legal right of the contractor to demand for time, financial or other remedies.

Time claim: is to be initiated by the contractor for lost time due to the employers risk or other
force measures. Time claim related with the addition of time on the original contract period.
This type claims are caused by; delay on supply of design, delay on obstruction clearance,
adverse physical conditions, and others.

Financial Claim: is to be initiated by the contractor for lost time and finance. When there is
an occurrence on the project for finance related issues; such us variations, adverse physical
conditions, measurement change, delay on effecting payments, and others.

Other Remedies: when the contract is terminated, suspension of the construction works,
reduction of the progress of the execution of the works.

2. What are the underlined causes for the construction claims & disputes?

The causes of construction claims and disputes are the deviation from the promises made
under the construction contract during the performance of the construction contract.

There are also causes for construction claims:

 Unclear contract document/bid document: during the tender period or later this might
occur on construction contract.
 Inadequate administration of responsibilities: this type of construction claims are
caused by the leaders of the contracting parties’ performance.
 Unforeseen or uncertain situations during the execution of the construction project
 Changed conditions: when the expected ground condition is not available. For
example during design period the ground condition of the underneath material to be
excavated was common soil, but when constructing the road the material found is
rock. So this leads to construction claim.
 Addition of works: addition of work might leads to construction claims
 Delay for cost overruns and time extension
 Breach related construction claim: when the construction contract is breached by the
contracting parties.
3. What are the requirements for the valid construction claims to exist?

The requirements of a valid construction claims to exist:

Michael Seyoum Construction Contract & Law

 Procedural requirement: the claimant should give prior notice to the other party about
the intention of the claim. This intention claim should have enough contractually
designated time. Not following this procedural requirement may result on total/partial
loss of the construction claim.
 Substantive requirement: means giving justification of the construction claim by
specifically referring to the Construction contract of by the applicable law. The
construction contract means the all the relevant clause in the contract. The applicable
law means the relevant article of the law that is related to the contract (like civil code,
commercial law)
 Proof requirement: means the submission of the relevant documentation which
supports or corroborates the construction claim under consideration. The relevant
documentations are delay justification, weather data, variation claims, additional
payment and others. In case of disputes the proof requirements in addition to the
relevant documentation, also includes factual witness, experts opinion, site visit and
inspections, and other mode of proof.
4. Briefly describe the construction claims management process;

According to Dr. Wubishet; construction claim processes have the following:

 Claim submittal: this is the first process of the construction claim. In order to get the
construction claim the claimant has to submit the construction claim within
reasonable time frame prearranged by the contract document. This claim submittal
process has three sub-process; claim notification, claim preparation and claim
submittal. On submitting the construction claim the claimant should prepare all the
necessary relevant documents, legal aspects, and other supporting documents for
submission and submit it.
 Claim processing: claim processing process has three sub-process; claim handling,
dispute resolution, and claim approval. Claim handling is a process of checking the
claim if it legally or contractually supported or not, documents provided are valid and
reliable to substantiate the claim for consideration or not, and overall procedural
requirements have been followed or not. After verifying the validity of the claim
proper computations & evaluations will be carried out to present the proposed
compensation for the contractual parties the claim is applicable to. Dispute resolution
means solving the claim. the contractual parties will pass through different dispute
resolution system depending on their acceptance over the proposed compensation
varying from the simplest mediation by the consulting engineer to the final court
ruling in the form of litigation. There are three types of dispute resolution systems are
well applicable. Preventive dispute resolution system, Amicable dispute resolution
system and Judgmental dispute resolution system. Claim approval is the acceptance
of the claim resolution by the contracting parties. Once the contracting parties agreed
on the final result of the claim process then they will approve the claim.
 Claim enforcement: this part is divided into two parts: namely claim enforcement and
claim closure. Claim enforcement means implementation the approved clam to
Michael Seyoum Construction Contract & Law

payment certificate or other modes, such us time extensions. Once the claim is
enforced then there will be claim closure.

5. What factors should be considered to prevent construction claims & disputes?

The factors that should be considered to prevent construction claims and disputes are:

 A well planned project

 A well studied project
 A well designed project
 Have a clear, accurate and complete tender dossier and document
 Have a clear, accurate and complete contract document
 Have a balanced risk sharing and allocating contract document

6. Identify & discuss briefly the non-judgmental dispute settlement methods including
their common features;

The non-judgmental dispute settlement methods are the dispute preventive and amicable
dispute settlement.

Dispute Preventive: This method will avoid the construction claims and disputes. Disputes
can be prevented by: having well designed project, having well studied project, having well
designed project, having a clear, accurate and complete tender dossier and document, having
a clear, accurate and complete contract document, having a balanced risk sharing and
allocating contract document, discharge the expected contractual & legal obligations by the
contracting parties, have good project governance. There are dispute prevention systems;

 Disputes Potential Index(DPI): It is a predictive tool found in the study of causes of

construction disputes and the characteristics of the construction project that are more
likely than the others to generate disputes. DPI identifies the presence of disputes-
prone characteristics on the project, evaluates them, and reports the result to the
project team members so they can act on to correct them before they actually generate
disputes.
 Intelligent Allocation of Risks: the risk sharing between the contracting parties
should be fair and who is in the best position to manage the risks. If the employer is
on best position to mange some risks, the employer should take the risks. One sided
risk management leads to major disputes.
 Incentive to Encourage Cooperation: Incentive techniques are available to encourage
cooperation among all participants in the construction project By temporarily
subordinating their individual interests to the legitimate needs & success of the project
as a whole, they achieve a greater ultimate benefit for all project participants,
including themselves. An example of such an incentive is the establishment by a
construction manager or general contractor of a bonus pool; that is, upon attainment
Michael Seyoum Construction Contract & Law

of specific project goals, the bonus will be shared among all sub-contractors on the
project

Amicable aspects: The very feature of amicable settlement is that the disputing parties shall
have full control both over the process & the outcome without the influence of third party.
There are some highly recognized amicable settlement methods;

 Negotiation: is a give and take process. Negotiation requires legal power to decide,
knowledge on the dispute, skill on the art of negotiation, and good faith. There are
two types of negotiations, namely deal negotiation and dispute negotiation. Deal
negotiation is a type of negotiation to strike a deal. Dispute negotiation is a type of
negotiation to settle dispute arising out of the deal. Dispute negotiation could be
direct negotiation or assisted negotiation. Direct negotiation is held directly by the
contracting parties. The contracting parities might get assistance form their own
internal advisors.

7. Identify & discuss briefly the judgmental dispute resolution methods including their
common features;

Judgmental dispute resolution methods are method of resolving disputes by incorporating

third body (Judiciary). Where the third body is the decision maker and will be accepted by
the contracting parties. Under judgmental dispute resolution method the following are process
are applicable;

 Adjudication: can be defined as a process whereby an appointed neutral & impartial

party is entrusted to take the initiative in ascertaining the facts & the law relating to a
dispute & to reach a decision within a short period of time. Based on FIDIC
condition of contract board is suggested. Adjudication can be permanent adjudication
or ad hoc adjudication. The permanent adjudication process where the team member
of the board is assigned once and through the project duration. The ad hoc
adjudication is when the team members are formed when there are issues.
 Arbitration: is a process whereby parties in dispute agree to submit the matter in
dispute to the decision of a person or persons in whom they have confidence & trust
& undertake to abide by that decision. According to Article 3325 (1) of the Civil
Code:- “The arbitral submission is the contract whereby the parties to a dispute
entrust its solution to a third party, the arbitrator, who undertakes to settle the
dispute in accordance with the principles of law.” The very nature of arbitration is
that it is fundamentally consensual. Arbitration is based on contract between the
parties to the construction contract & the dispute. The contract to resolve a
construction dispute is known as agreement to arbitrate. Agreement to arbitrate or the
“Arbitration Clause” is independent from the substantive contract. It is called
severability or autonomy of the arbitration agreement from the rest of the
construction contract. There are advantages of arbitration; Neutrality, confidentiality,
procedural flexibility, speed and cost,
Michael Seyoum Construction Contract & Law

8. What are the major differences between the PPA (2011) & the MDB-FIDIC (2006)
standard conditions of construction contracts as related to construction claims &
disputes management?

9. What do you understand by the concept & scope of alternative dispute resolution
(ADR) as applied to construction disputes?

Alternative Dispute Resolution is non-judgmental dispute resolving method. Both preventive

and amicable dispute resolving methods are ADR. The concept of ADR is related to
alternative to litigation or sometimes alternative to all binding decision making process
(including the decision of the arbitrator & adjudicator).