The construction industry is filled with complexities and complications. No one has it easy, not even the construction companies and the contractors are the ones who often bear the brunt. There are times when contractors aren’t liable for everything but due to numerous incidents (including natural disasters and other unavoidable incidents), a lot of things can happen.
Construction companies and the industry faced a difficult period during the COVID-19 pandemic of 2020 and 2021. The pandemic rattled the industry, shook it from top to bottom and raised the costs of a lot of variables and deliverables. It raised construction claims through the roof.
Moreover, contractors had a tough time as they had to look after the well-bring of workers, along with the safety of materials. Moreover, if any theft occurs at the site then the contractor is liable for it. Moreover, with pandemic induced lockdowns sending the whole world in a lockdown, contractors had to risk everything to make sure sites were secure.
For Which Reasons do Contractors Find it Tough?
Last year, a consultancy practice based in the United States was asked to play a role in dispute avoidance, in Miami. The project was a condominium complex for working and middle class families. Moreover, a dispute of around USD$ 350 million came in.
This amount included variations, costs of prolongation of the project, costs of acceleration, disruption expenses and penalties pertaining to delays. Moreover, the dispute arose when the contractors submitted their final accounts.
This reminded a lot of experts in the industry and the consultancy that a large proportion of disputes take place when the project is either nearing completion or when it has been completed. In the latter, and even in the former, the cases can be both simple, complicated and moderately complicated.
Here are some of the reasons why this is often the case. As usual, FIDIC definitions have been adopted for all participants in the contract. However such an advice applies to all forms of the contract:
- Contractors often do not submit notices of claim, early warnings or both. This thus prevents either the employer or the engineer (or both) from taking action to mitigate the risks or from making financial provisions.
- Contractors do not give notice when they consider that an instruction comprises a variation giving entitlement to an additional payment. This thus prevents either the employer or the engineer (or both) from either reversing the instructions, making financial provisions, or both.
- Contractors do not submit detailed particulars of claims within the contractual time frames and often leave the submission to the end of the project. This prevents either the employer or the engineer (or both) from accessing the liability accurately.
- Contractors don’t submit evaluations of variations in an orderly manner. This prevents either the engineer or the employer (or both) from accurately assessing the cost of the variations present and also from making any adequate provisions for payment.
- Contractors do not submit extension of time claims within the needed contractual time frames. They often leave such matters at the end stages of the project. Therefore it allows employers to consider that they will be entitled to make claims for delay penalties.
Anyone can assume that all construction projects are subject to budget constraints. Having denied employers the chance to reduce costs or to manage budgets of projects throughout its life cycle through submission of claims on a timely basis only put employers with claims issues at the end.
This thus raises a question: Are contractors surprised when employers do not wish to, or possibly are not able to pay what might constitute a large overspend for a project?
In such a case, any employer having no remaining budget should be able to manage things in the best defensive manner as possible. This indicates disputing the final account of the contractor regardless of any justifications present.
Contractors often wish to avert such situations. They must also avoid waiting until the project’s final stages and must submit their notices and claims timely throughout the project’s life cycle. This helps them avoid any unnecessary disputes in settlement of final accounts.
If contractors do not do this, then they will be stuck in legal and financial conundrums thus putting the whole project at risk.