Claim quantum and Variation evaluation

Unlike the subject of sale in a purchase agreement, where we can inspect a finished product, the work in a construction project is not completed at the time of signing the contract. In design-build contracts, it isn’t even fully designed. At the time of signing the contract, the anticipated subject of the work for large construction projects in design-bid-build contracts is primarily described in detailed project documentation (drawings, bill of quantities, and specifications). For design-build projects, it is described in the employer’s requirements for function and performance (and in the subsequent winning proposal from the contractor).

Adhering to this anticipated subject of work will depend on many circumstances. The basic fact is that certain variations in the subject of work (clarifications of the anticipated work and related impacts on price and time) are inevitable for the successful completion of large construction projects.

Simultaneously, large construction projects carry significant risks that need to be addressed when they arise. Managing risks (and thus claims) is inevitable and cannot be considered unacceptable, nor should it be viewed as aggressive behaviour. FIDIC contract conditions address claims primarily when one party fails to meet its obligations or when events beyond the control of the parties occur during project execution. From the contractor’s perspective, the aim of a claim is generally to inform the employer (and the Engineer) in a contractually anticipated manner about an adverse situation and subsequent request for an extension of time for completion or an increase in the price of the work, so that a fair settlement of this request can be reached in a timely manner.

These variations and claims processes require a sensitive, professional, and above all, competent managerial approach to the construction project. This is the main goal of contract management and contract managers. Contract management is like playing chess against an opponent, where the contract is the basic playing field. The contract sets the rules, defines the playing area, and contains the pieces that each party can strategically place and use. Unlike traditional chess, in contract management, the aim is not to defeat the opponent but to achieve a draw with a higher number of pieces.

All parties share a common goal – to finish the contracted work. The employer and the Engineer aim to complete the work as economically, efficiently, and cost-effectively as possible – meaning high quality, quickly, and for a reasonable price. The contractor aims to complete the work with the highest possible profit and experience for future projects.

Each party should make deliberate moves to achieve this goal. Practically every sub-clause is a form of move with a piece that the party uses. Parties must monitor each other to ensure they do not break the rules and to avoid deadlock situations they cannot resolve.

The aim of the webinar is for participants to understand the established rules of managing contractual processes (Contract Management – Claim Management – Variation Management) that can impact the time for completion and project price. Participants should learn how to apply these rules, refer to them, and avoid disputes and inefficient management of the project.

Claim quantum and Variation evaluation is the fourth of four webinars in webinar series about Contract management.