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ConstructionPro Week, Volume: 2 - Issue: 45 - 11/08/2013

Do Overreaching Claims Give the Process a Bad Name?

By Bruce Jervis

 

There are many legitimate reasons for contractors to submit claims for increased compensation. Construction contracts, which essentially allocate risks and responsibilities between project owners and constructors, spell out the circumstances under which the contractor may be entitled to additional time or money. This is why aspersions such as “claim monger” are offensive to contractors.

 

Sometimes, however, contractors overreach. These lapses in judgment are harmful to the image of the industry and give the entire claim process a bad reputation. An example is found in a recent federal court case in Wisconsin.

 

A gas pipeline was being installed in an open cut trench in an area of high groundwater. The bid schedule called for off-site disposal, at a permitted facility, of an estimated 15,000 gallons of contaminated groundwater. The contractor bid $1.50 per gallon. The contractor pumped almost 5 million gallons of water from the trench, but the level of contamination was so low that all of the water could be pumped into an existing on-site manhole that led to a municipal treatment facility. The contractor claimed unit-price payment for “disposal” of all that water.

 

Have you seen claims that don’t pass the straight-face test? These would include claims that are grossly exaggerated or claims that are simply not supported by the facts or the contract documents. Do claims such as this harm the reputation of the claim process and make it harder for ethical contractors to recover on legitimate claims? I welcome your input.

 

COMMENTS

All construction projects have claims. As in the case above, it involved indefinite quantities. I can't say it harms the reputation of the claims process, that is what it is for. We usually see excessive claims when there is a big difference between the low and next low bid prices. Contractors want to make that money up and they use the claims process to do it. I can tell you that it definitely harms the reputations of both the contractor and the engineer involved. I can also tell you that it is a definite strategy with certain contractors to allow them to under-bid their competition and it adversely effects their reputations.
Posted by: Mark Lentz - Friday, November 08, 2013 11:01 AM


Claims are a neccessary part of the process to allow contractors to voice a position that they feel that they have been wronged or recover costs for items not included in project scope. I have seen the gammit run from excessive as aformentioned to reasonable request for items not included in the scope of the work. In the above the claim could have been avoided if the specification indicated a level of contamination and gave a clear definition. At the end of the day claims reflect the quality of the documents, the due dilligence of the contractor to follow those documents. If a contractor sees during the bidding process holes in the project scope that he can turn than into an advantage during the project, that is unfortunate but a reality of our bussiness climate today. I only expect a contractor to provide what is indicated in the project scope an no more, if additional work is determined he should be fairly compensated and not allowed to abuse the process to gouge the project.
Posted by: Chris A Addington, FARA, AIA - Friday, November 08, 2013 11:22 AM


On its face, the contractor apparently bid a unit price for the disposal contaminated groundwater and was neither paid that price nor able to negotiate an equitable adjustment for the changed condition (i.e., lower level of contamination). Hence, this claim is straight-forward (i.e., "Pay me what I bid for off-site disposal at a permitted municipal treatment facility"). All construction claims rest upon three essential proofs (i.e., proof of liability, proof of causation, and proof of damages). Proof of liability is a question of the contract and the law. Proof of causation and damages are questions of fact. What can be more is that ambiguities in a contract are construed against the drafter, the law can have unintended consequences, and the facts can prove entitlement to what can appear to a respondent as unfair or unethical.
Posted by: Richard Bull - Friday, November 08, 2013 11:28 AM


The aforementioned points notwithstanding, the author fails to point out that one of the most basic legal tests of even the existence of a contract is whether the parties had a 'meeting of the minds'. No such 'meeting', no contract. Construction Management courses at ABET accredited universities include curriculum that describe changes in excess of 20% as "cardinal". Since when is it reasonable to assume a 33,233.3% increase in contract price (and volume) reflects such an agreement? Just plowing on and demanding the bill be paid, without making a substantial effort to alert the owner and seek resolution on such an extravagent expenditure, reflects an effort on the contractor's part to not have that 'meeting of the minds', and just ring the register at the expense of the owner. Only contracts, explicit or implied, have liability. I see no explicit or implied contract for such an extensive difference, hence no liability. Would you return your car to the dealer because your Impala doesn't fly? Would you take your TV to your car mechanic because the sound is awful? Some differences are glaring, others not as much, but a 33,233.3% difference? Really? That's not a contract.
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