Types and Quality of Claims
Claims can be either litigious or non-litigious and generally fall into the following categories:
- additional compensation to recover extra costs incurred by the contractor, resulting from various causes, e.g., change order delay impact, etc.
- Changes in subsurface conditions
- damages due to negligence by Public Services and Procurement Canada (PSPC)
- miscellaneous causes
Areas of Claims
Civil Works Construction Claims
Civil works construction contracts typically deal with roads, bridges and marine works. They are usually carried out by a prime contractor with lesser input from subcontractors. Claims normally include only the prime contractor's additional costs. They are generally based on substantial changes in subsurface conditions or abnormally poor weather.
Building Construction Claims
Building construction contracts typically deal with new office buildings or renovations to existing office buildings. The general contractor's role tends to be substantially managerial and administrative with most of the construction work being carried out by subcontractors. Claims normally include additional costs incurred by the prime contractor as well as the many subcontractors. Evaluation of these claims is difficult and costly, requiring evaluation from PSPC staff and consultants experienced in construction with a good understanding of building construction methods, scheduling and estimating.
Occasionally, due to excessive client demands or site-related changes, consultants will claim for additional compensation. Generally, they are analyzed and negotiated in the same manner as contractor claims.
Quality of Claims
There are several factors which may cause a contractor to incur extra costs, which cannot be accepted as a basis for additional payment under the terms of the contract:
Late Award of the Contract
If the specified period for the award of contract has expired (as stipulated in the contract) the contractor has the right to refuse entry into the contract. Therefore, there is no provision in the contract for additional payment arising out of a late award of the contract (note: If PSPC delays in awarding the contract, then PSPC should have a notice on file from the contractor stating that no additional claims will be made in the future because of this delay).
Errors in Tender
If a contractor has made an error in their tender, they may request to withdraw their tender without penalty. If there is no demonstrable and error in the tender and the contractor refuses to enter into contract, then they must forfeit their bid security. Once the contract has been awarded, the cost of any error must be borne by the contractor.
Subcontractors Refusal to Enter into Subcontracts at Originally Quoted Prices
Any additional costs of this nature must be borne by the contractor. (In some regions, subtrades now have to provide bid security with their tender in accordance with local bid depository rules. In this case the successful general contractor is the obligee. This should help at least for the major trades where bid depositories are used. Where they are not used, the general contractor always has the option to request it from their chosen subcontractors).
Labour Disputes and Inclement Weather
These costs are borne by the contractor unless PSPC has delayed the contractor who, as a result, encounters adverse weather conditions or additional labour costs. It is then that the contractor has a right to claim such additional costs as part of a delay claim. In the past, however, the courts have awarded extra costs to contractors when there was an unusual amount of inclement weather.
These costs are borne by the contractor unless PSPC has delayed work, in which case, PSPC must assume liability for delay costs which may include escalation costs.
Changes in Municipal By-laws or Provincial Statutes
Any additional costs arising as a result of these factors must be borne by the contractor. Similarly, if a change in the by-laws provide the contractor with a savings, the contractor reaps the benefits (note: the standard construction contract provides that the contractor will be compensated for any increased costs due to changes in a Provincial Retail Sales Tax Act).
Well-documented claims, submitted under the terms of the contract, can usually be settled fairly quickly. Complex claims however, may require considerable time. In these cases it is often possible to deal with and negotiate a settlement of individual elements of the claim thereby permitting progressive partial payments. This technique should be utilized where practicable in order to provide settlements as promptly as possible. If the amount claimed is fair and reasonable there is no reason why it should not be paid in full. Usually, however, there are some segments of the claim which may require considerable effort to determine their validity. Valid claims that cannot be resolved at the project manager and contract officer level should be referred to the Regional Claims Representative (regions) or the Claims Prevention and Management Unit (NCA). If the claim is not resolved at this level a comprehensive claims resolution team may be established to negotiate final settlement.
Poorly Substantiated Claims
Poorly documented claims that have a sound basis are sometimes submitted by contractors with limited experience in providing the necessary documentation. PSPC must be fair and reasonable in such cases and allow the contractor the opportunity to provide additional information to permit a proper evaluation of the claim. This will generally enable settlement to occur fairly quickly. On the other hand, most poorly substantiated claims reflect the fact that the claim is tenuous at best. The contractor may generate an enormous amount of paper in trying to justify the claim, and merely obscure the true facts of the matter. These cases are extremely difficult to resolve. They often occur on contracts that were originally awarded at a very low competitive price or in cases where the contractor lacks the necessary skills/experience.
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