Tuesday, 3 August 2010

Claim Management and Analysis: Case Study of Hydropower Plant

Construction projects may seldom be performed exactly as it was planned during project design. In addition, the underground conditions on the site are not quite exact as it was considered by the contractor or the designer at the outset to this project. Small differences have little importance to the parties involved but when the economic consequences of these differences are significant, they are of great interest. Therefore, many construction contracts, in particular those issued by governmental entities, comprise two significant clauses: a 'changes clause` and 'different conditions of the site clause". The names of these clauses can vary, but the content is generally the same.

In general, there are stated processes, often with legal requirements and keeping records, contained in the contract to facilitate the use of these clauses.

Entitlement, Cost, Documentation Sections and participation satisfaction have reflected the success of any construction claim management.

The entitlement is usually presented in two parts. First, the claim description must clearly establish the law of the part of the party of relief. This part of the narrative should always flow from the contract. Secondly, as part of the law section, there is usually a technical description which links the facts of the evolution work or failure to perform the right theory. It is generally substantial in detail describing this subject. It is the story of the project, which uses of journalists classic 'who, what, when, where, why and how' method in both quantitative and qualitative terms.

The cost section concerns the costs incurred by the party or owner to the following changes. This section is generally organized in such a way that it goes hand in hand with the organization of the technical description. The costs are directly related to each element detailed in the technical description.

Documentation is the ultimate success of a construction claim. Even a claim to merit may be failed if it fails to show itself in this section. Generally, the right description will mention contact provisions and appropriate case law, copies of which would be established in this section. The technical description could probably be supported by copies of relevant correspondence, calendars, the reports, agendas, newspapers, etc. Documents submitted in support of the cost section could include invoices, compensation, time sheets, delivery tickets, etc.

In addition, the claim management success is based on an interdisciplinary method, involving project managers, engineers, lawyers, construction site managers. This broad range of expertise is necessary to the analysis of often complex claim situations whose origins and scope might, at first sight, resemble a maze.

Therefore, by company audit, you may discover possible weaknesses of your claim management so you may close the gaps. After solving those gaps, the strengths of your claim management can be demonstrated. Strengths that your company may use can complete projects with the maximum profit.

Audits typically, but not exclusively focus on:
- Integrating claim management into your project design and handling.
- Internal and external communication of your company in claim situations
- Complete, court-proof and transparent project documentation.
- Efficiency of existing contracts and vehicles for securing payment.
- Decision-making processes in strategic claim situations.

In construction claim management, the most potential problems affecting project entitlement, document and cost in construction claim related with:
- Incomplete and inadequate definition of scope
- Lack of mutual understanding of scope
- Contract document
- Owner does not complete any conditions which are necessary for contractor’s to work
- Accelerating the time of completion.
- Constructive acceleration
- Owner asks the contractor to accelerate the progress to meet the planned completion schedule. In other words, no time extension is given.
- Delay with excusable and non-excusable or compensable and non-compensable
- Disruption with Incomplete and incorrect contract drawings or changes in the work.

Mrs. Truc Thi Thanh Nguyen made a research which main purposes were to: (1) develop a framework on claim analysis approach; and (2) study the application of the framework in Hydropower Construction Project Claim.


The design process for the development of framework on claim analysis is evolutionary and informal. The claims analysis approach was adapted to offer a simple framework for describing the claimant activities and goals, framing them in a way that supports the claim reasoning. The claim format set forth in this article is a general outline of what should be comprised in a claim. The actual framework should be modified to present the claim in a persuasive manner.

In addition, in the hydropower plant construction project, the contractors followed the specifications closely and keep good documentation. As the owner strives to improved contract quality, the contractor followed the contract and specifications very closely, found out the deficiency of the contract, and keep good documentation. Therefore, the contractor has received a higher offer from his claim. Besides, the contractor was aware that the litigation opportunity cost is more than the direct litigation cost. The contractor understood that opportunity cost also includes indirect litigation costs, such as schedule interruption, idle labor, idle equipment, damaged reputation, and contractor-owner relationships.

In this case study, force majeure claims become complicated when there is a major event that not only directly impacts the work but also creates potentially changed working conditions after work resumes. Therefore, several questions regarding the contractual language with respect to allowable project extensions, responsibility for mitigating the event’s impacts, as well as the costs associated with mitigation efforts create complications when preparing and analyzing force majeure claims. The primary challenges associated with complex force majeure claims relate to continued impacts and mitigation responsibilities. Certain continued impacts may result from severe natural disasters, including idling cost of manpower, plant and machinery.

It is our sincere hope that all construction projects will be executed without claims. However, if claims are inevitable, the claim framework may attend as a template to analyze a claim situation and help to bring quick solutions to an interruptive event.

Her thesis abstract is copied and posted


In general, construction claim happen on various reasons. It is required to understand the dynamic nature between construction claim and opportunist tender. Therefore, negotiation is a significant stage in construction claim management process. Unluckily, most construction claim negotiations are conducted inefficiently due to various reasons. The recent development of multi-agent systems supplies an innovative method of facilitating various negotiations. Besides, standard forms of contract supply for extensions of time (EOT) due to excusable delays, and EOT claims are frequent in many construction projects. The contractor and the supervising engineer commonly spend important time proving and estimating such claims. However, a variety of different techniques has been employed for such evaluations.

Only a small number of contractors fail to utilize some form of a scheduling device to determine the sequence of construction activities and events. A correctly though out schedule permits a contractor and owner to correctly coordinate the work with resources that are required to finish the project on time. Therefore, the cost of scheduling software is reducing and at the same time the level of complexity of the completed schedule is increasing. However, the correct usage of such software demands a basic understanding of construction scheduling concepts.

The idea of delay and disruption within projects is well-known and is frequently the subject of litigation claims. However, the term is not clearly explained, and it is difficult to justify such claims within a legal process. This paper shows a well-developed method that is a reasonable, translucent, auditable and sustainable means of presenting such a claim.


Miah Charley said...

More and more companies are trying to get nimble to enable them to respond to change with agility. Over the years, there has been a clear shift in momentum about the ways how companies manage projects. So, the project manager should be a PMP certified, who can better handle the planning, execution, and closing of any project. To get yourself prepared for PMP Certification , http://www.pmstudy.com is the best source.

Apu Mridha said...

Thanks for sharing such an amazing and informative post. Really enjoyed reading it :)



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