Construction Law Notes
Edward J. Kinberg, Esq.
Melbourne, Florida
Change/Claim Identification and Management Making Your Records Work for You
Introduction
Since retiring from the Army, the majority of my practice has involved assisting individuals and companies with construction and government contract claims and disputes. While serving in the U.S. Army, the last half of my duties were limited to representing the Army in contract claims and disputes as well as various other contract matters. As such, I have had numerous opportunities to analyze claims and defend or prosecute contract disputes.
Over the years I have seen a consistent "flaw" in most contractors change and claims management programs. The most common flaw is simply lack of attention. In the rush to complete a job, many contractors simply over look obvious warnings or do not have a system in place to "flag" developing problems. As a result, by the time an "problem" hits my office, I, or experts I retain, are required to conduct a time consuming and costly analysis.
Most contractors have the tools in place to build a fairly simple and effective and change/claim management system. By this point, many of you are probably thinking "here's another claims person telling us to spend more time and money on something that won't be much help," However, that is not the case.
If you currently develop a cost and time estimates in preparing your bids and use a basic spreadsheet program, you have the tools and knowledge in place to develop and maintain an effective change/claim management system. The only tools I use in analyzing a claim are contractor provided data and Quattro Pro or Excel. I use both as my clients tend to use one or the other, but any spreadsheet program will work.
Setting up the System
Your claim/system begins with the preparation of your estimate. In preparing your claim you need to take the following steps:
Identify the various activities that will be required and give each activity a code number.
Determine a reasonable duration for performing the job. Once you are awarded the contract, you will need to add the actual start and finish dates for the activity.
List the labor hours (use hours and cost) required to complete the activity.
List the materials required to perform the activity. You also need to list the expected lead time to obtain the materials.
If shop drawings and submittals will be required, list the labor hours and overall time expected for various shop drawings and submittals. Many contractors do not do this, occasionally resulting in an unpleasant surprise when they first realize the job is costing more than they thought.
Since these are the basic steps most contractors go through in preparing a bid, this should not require much extra effort.
Once the job is awarded to you, you establish internal accounting codes to ensure the time and cost for the job are accumulated in the same manner as shown on your bid. While these codes may differ from the schedule you provide the owner or prime contractor, they are essential if you are to have an effective change/claim management system.
Your next step will be to develop a change/claim management spreadsheet. You will only need to develop this basic format once, as you will be able to use it on other jobs. As you gain experience with the spreadsheet, you will most likely modify and improve its use. The basic set up for a change/claim management spreadsheet is shown below.
Insert Attached Chart
You should, of course, modify the column titles to meet the needs of your company or a specific project. By using formula's to calculate a % relationship between actual data and your estimate, you will be able to quickly identify developing problem areas.
Using the Data
The key to success in using this system is regular entry of data and taking prompt action when a problem area is discovered. On a short project, this should be done at least once a week, on a longer project it should be done once a month.
Identifying a problem is simply the first step in effective change/claim management. The next step is determining why you are having a problem. In this regard, you need to consider the following possibilities:
The drawings and specifications are defective.
Differing site conditions have caused an increase in cost.
Excess changes have interfered with your ability to perform the work efficiently.
Various trades have come into conflict because of poor scheduling or poor schedule control.
You have experienced unusual weather problems.
Delayed start of your portion of the work has caused an increase in your costs.
Your suppliers are delivering critical items late or erratically.
You are having problems with your laborers.
You are having problems with your supervisors.
Your "blew" the bid.
Once you have identified the cause of the problem, you can then take timely action to minimize/recover your losses. If the problem is not your fault, you need to check the contract requirements for the issue involved (change, delay, weather, failure of owner to approve submittals in a timely manner, etc) and ensure you comply with all contract requirements.
In order to prevent a time consuming examination of the contract each time you discover a problem, you should summarize the key change/claim provisions in your contract and a establish a procedure for ensuring those requirements are met. Your procedure should include provisions to identify, establish and preserve documents that will be required to support your position.
In the event of changes, you need to establish a new activity code for each such item, estimate the costs associated with the change and add the item to your spreadsheet. By accumulating the costs according to the new activity code, you will have an "instant" record showing the actual cost of the change.
Conclusion
Effective change/claim management cannot be achieved if you do not maintain and regularly review your actual time and costs in comparison to your estimated time and costs. While doing so requires an effective time/cost management system, you do not have to spend a lot of time and money on such a system.
By simply using your bid as base line to compare against actual costs, you can quickly and accurately identify problems before they get out of hand. While you may have to put a more effort into your estimating in order to develop the detailed breakdown you need for an effective change/claim management system, you will also be improving the accuracy of your bids.
The bottom line in any construction project is time and money. As such, it is essential that you implement an effective and simple system for monitoring the time and money spent on a job. If you do not think you can afford the time and/or money to do so, you cannot afford to be in the construction business.