Approach to claim settlement- A Professional’s Outlook:

• General

The success of the system for settling all claims and solving all disputes relies heavily on the one hand upon strict compliance by the Contractor with the proper and adequate details/justification for making claims, and on the other, strict compliance by the owner/ engineer in an impartial way, with the proper and open minded analysis for settling claims.

In a project where the engineer is also the owner, he has a particularly difficult task because he has to step outside of his everyday role (of being or representing the owner) into this intermittent role of being a completely independent umpire judging claims without bias or any lack of integrity.

There may be occasions when the Contractor does not accept the analysis/decision of the owner/ engineer. In such situations, the engineer has to assume the responsibility of convincing the contractor that the owner/ engineer has acted in an unbiased manner and the owner’s/engineer’s decision is as per contract.

Resorting to litigation, arbitration or even the alternate Dispute Resolution (ADR) procedures can be an expensive proposition. More importantly, the time and effort the owner/engineer and the contractor are required to devote in litigation proceedings can have a significant impact on its ongoing business and may adversely affect the progress of works. Therefore, it is usually desirable to explore all settlement opportunities.

The management of claims is thus not only to settle the claims but also to avoid or at least, minimize the same. This is an art and ability to handle contracts for its effective implementation. The Engineer has the fundamental role to administer the contract including the interpretation of various contract provisions and their implication. He has to act in a judicial and impartial manner.

• Presentation of claim

The claim should usually be presented in a claim package. Its purpose is to advantageously build-up the merits of the claim. If the claim package is convincing, that is if it is realistic, based on sound facts and arguments, accurate in its calculation and organized in its presentation, this will assist greatly in the resolution of the claim.

• Review and evaluation of claims

On thorough analysis of the contractual provisions if it is proved that the claim is not based on a sound theory in accordance with contract requirements, the Engineer should respond promptly, requesting the contractor to revise, supplement or withdraw the claim.

• Negotiation 

The next step after the evaluation of the claims is usually a meeting to where supplementary explanation of the claim can be given/obtained. Such meetings create a mutual belief of willingness towards a settlement.

Should the owner/ engineer have a potential counter claim it can also be “traded off” from a Contractor’s claim. Such approach can often lead to a settlement satisfactory to both parties.

• Preparing for negotiation 

There is no substitute for preparation for negotiation. The party who is better prepared will invariably come out with a settlement closest to what he originally desired. Negotiation most benefits the party who prepared the most effective attack or defense and presented it in a persuasive and planned manner. Even the most careful and thorough preparation by the contractor will not overcome a valid defense by the owner/engineer, but it will ensure that the Contractor receives what he deserves.

• Team selection

The best negotiating team is the one which works together and covers all aspects of the dispute. The size and level of the members in the team is dictated by the magnitude and complexity of the issues involved. The team must include member’s having sufficient experience in the interpretation of the contractual provisions and exposure to actual works.

In an organization which is governed by Government policies, there may be restriction on negotiations. In such a case, estimate should be prepared with the expected or allowable variation limits and offered to the contractor for the settlement.

• Few tips for a successful negotiation

Must keep in mind that:

1. Both the Contractor and the owner are on equal footing.
2. Don’t assume that one wants to cheat the other Good faith is essential.
3. Don’t assume that the opponent has not understood your point of view.
4. Understand the opponent.
5. Don’t browbeat or act over smart- the opponent is strong in his field.
6. Build confidence and try to elicit more information.
7. Evaluate objectively and do not get carried away by sweet talk.
8. Learn from mistakes and slip-pages. Try to avoid repeating the same.
9. Don’t make agreements which are too harsh and impossible to follow later.

• Making the Deal:

The most important part of making the deal is knowing how and when to conclude. One rule is that all information should be updated and continually verified in order to indicate the strength of the claim as well as assuring that the appropriate amounts are being discussed. Also a negotiator should realize that everything is not always going to go his way. Compromising or conceding a point to an opponent is not always a sign of weakness but, conversely, can be a good tactical move when the opponent is acting in good faith. Finally the negotiation agreement should be properly documented.

The designer has also a great responsibility in avoiding claims. Construction projects are rarely completed without the need of alter or revise some portions of the original design. The design engineer should however, ensure that the design/construction drawings are consistent with contract specifications.

The orders/instructions should always be in writing without prejudice to the terms and conditions of the contract.

The owner’s/engineer’s interest in avoiding claims is served by the recognition and resolution of valid claims as they arise during performance. When a decision is made to pay a claim on a variation, the owner/engineer must ensure that payment forecloses any opportunity to assert the variation or claim event as a basis for later payment requests.