9.5 Construction Claims & Disputes

Despite the best efforts in planning and management, the complexity of construction virtually guarantees that disputes will arise. A claim is a formal demand or assertion by one of the parties seeking, as a matter of right, adjustment or interpretation of contract terms, payment of money, extension of time, or other relief. Managing and resolving these claims is a critical function of the Construction Manager.

Types and Causes of Claims

Claims typically stem from deviations from the contract documents or unexpected events. Common types of claims include:

• Differing Site Conditions (DSC): Claims arising when subsurface or physical conditions at the site differ materially from those indicated in the contract documents (Type I) or from conditions ordinarily encountered (Type II).
• Delays and Disruptions:
  • Excusable Delays: Unforeseeable events beyond the contractor's control (e.g., severe weather). Usually grants a time extension but no monetary compensation.
  • Compensable Delays: Delays caused by the owner or CM (e.g., failure to provide site access, late RFI responses). Grants both time and money.
  • Inexcusable Delays: Delays caused by the contractor. Grants neither time nor money, and may trigger Liquidated Damages.
• Scope Changes (Directed or Constructive): A directed change is formally issued by the owner. A constructive change occurs when the owner or CM's actions (or inactions) force the contractor to perform extra work without a formal change order.
• Acceleration: When a contractor is required to speed up work. Directed acceleration is ordered by the owner. Constructive acceleration occurs when a contractor faces an excusable delay but the owner refuses to grant a time extension, forcing the contractor to accelerate to meet the original deadline.
• Defective Documents: Claims based on errors, omissions, or ambiguities in the architect/engineer's drawings and specifications (the Spearin Doctrine holds the owner implies a warranty that the documents are adequate).

Analyzing a Claim: Entitlement vs. Quantification

When a CM receives a claim from a contractor, they must analyze it objectively using a two-step process:

1. Entitlement: Does the contract actually allow for this relief? The CM must trace the issue back to the contract documents. If the contractor hit rock but the contract explicitly stated they bear the risk of all subsurface conditions, there is no entitlement. If there is no entitlement, the claim is rejected.
2. Quantification: If entitlement is proven, how much time or money is owed? The CM must rigorously review the contractor's pricing (labor, materials, equipment, overhead) and schedule impact analysis (Time Impact Analysis) to determine a fair and equitable adjustment.

Notice Requirements

Contracts contain strict notice provisions. For example, a contract may state that a contractor must provide written notice of a claim within 14 days of the event giving rise to it. If the contractor fails to provide timely notice, they may waive their right to the claim entirely. CMs must enforce these provisions to protect the owner from stale claims where evidence has been lost.

Dispute Resolution Mechanisms

When a claim cannot be resolved through standard change order negotiations, it escalates into a dispute. Modern contracts feature tiered dispute resolution clauses designed to avoid the courthouse.

1. Negotiation

The first step is always direct negotiation between the project-level representatives. The CM plays a crucial role here, facilitating discussions based on facts, documentation, and the contract.

2. Dispute Resolution Board (DRB)

A DRB is a panel of three neutral construction experts appointed at the beginning of the project. They visit the site regularly and stay informed on project progress. When a dispute arises, they hear presentations from both sides and issue a non-binding (or sometimes binding) recommendation. DRBs are highly effective because they resolve issues contemporaneously while the project is ongoing.

3. Mediation

Mediation is an Alternative Dispute Resolution (ADR) process where a neutral third party (the mediator) helps the disputing parties negotiate a settlement. The mediator has no authority to force a decision; their job is to facilitate compromise. Mediation is confidential, relatively inexpensive, and highly successful.

4. Arbitration

If mediation fails, parties may proceed to arbitration. Arbitration is a formal, binding process where a neutral arbitrator (or panel) hears evidence and testimony, much like a trial, and issues a final, legally binding award.

• Pros: Faster than litigation, keeps the dispute out of public court records, and utilizes arbitrators with construction industry expertise.
• Cons: It can still be very expensive, and there are very limited grounds to appeal an arbitrator's decision.

5. Litigation

Litigation is formal legal action in a public court of law before a judge or jury. It is generally considered the last resort due to its extreme expense, lengthy timelines (often taking years), and the risk of having complex construction issues decided by a jury with no industry knowledge.

The CM's Role in Disputes

The most effective way a CM manages claims is by preventing them. This is achieved through rigorous constructability reviews, clear documentation, timely RFIs, and proactive communication. When disputes do occur, the CM must maintain meticulous records—daily logs, photos, meeting minutes, and schedule updates—as these documents will form the factual basis for defending or resolving the claim.