Many South African private and public construction projects are experiencing severe cost overruns and delays, which inevitably lead to claims by contractors for a revised or extended completion date and for the payment of additional and associated costs, says independent construction law, new engineering contract and claims consultant Coen Snyman.
Contractors submit these claims, compensation event notices and early warnings to employers to recover losses and extra expenses, he says.
These losses and expenses are attributable to factors such as increased labour costs, strikes, cost underestimates and weather conditions. Some are clearly foreseeable or are expected, whereas others stem from uncer-tainties and unexpected events.
Compensation event notices and early warnings, including other notices given by contractors of their intention to submit claims, generally cause alarm bells to ring and lead to increased hostility, suspicion and mistrust between employers and contractors.
“This is because such claims are, unfortunately, still viewed as negative by employers,” says Snyman, adding that it is regrettable that claims have acquired this negative connotation.
This negative perception exists, as many contractors abuse the claims processes to recover losses and extra expenses, which often occurs as a result of their own fault or poor performance, he notes.
Compared with last year, during which Snyman received claims assistance requests every other month or so, he currently receives assistance requests about every other week. “The number of contract claims will probably increase proportionally to the number of new contracts,” he adds.
However, the number of claims and subsequent disputes can be reduced if there is a proper understanding and assessment of claims and better decision-making with regard to the claims process as a whole, says Snyman.
“Firstly, claims are simply part of the process of dealing with risks that materialise during a project’s execution. Secondly, contractors cannot generally claim anything which the contract – and, hence, the employer – does not specifically allow him or her to claim. Claims are thus the outcome of the manner in which the parties (in many instances, it is only the employer) allocate and assign risk.”
Since the advent of the New Engineer Contract (NEC), launched by the Institution of Civil Engineers in 1993, the terms ‘compensation event’ and ‘early warning’ have become familiar to most of those involved in the construction industry, but, Snyman says, many of these terms have been included in other contracts currently in use and in International Federation of Consulting Engineers (Fidic) contracts, through changes and amendments made to these contracts by employers.
But claims, disputes and con-tractual issues are becoming more frequent, owing to relatively low profit margins and scarce work opportunities and resources, says Snyman, noting that “hav-ing a good understanding of one’s contract and the rights and obligations of the parties involved, as well as the procedures applicable to notices and claims, is becoming an essential and indispensible business tool”.
Construction law and claim consultants assist with these claims processes and help com-panies to avoid disputes to save management and time costs, Sny- man says, adding that the key to success is their early involvement.
It is equally important to have a thorough understanding of the claim procedures and processes set out in the various construction contracts to avoid the submission of spurious or poor claims, asserts Snyman.
“Considering the various build- ing contracts currently used in the industry, which include the NEC, Fidic, the Joint Building Contracts Committee (JBCC) and the General Conditions of Contract for Construction Works (GCC), there is clearly a huge overlap between the grounds for claims and these are largely common to all the aforementioned contracts,” he adds.
There are, however, clear procedural differences among contracts, including between the periods within which claims and notices must be submitted, whether claims are subject to one or more time bars and to whom notices must be addressed, he says.
According to Snyman, most users of these contracts understand these differences and, hence, they generally do not fall foul of these provisions, but there are several other “much more subtle differences which are frequently overlooked – often by both parties – to the detriment of the claimant, or both”.
Owing to many claims failing and the subsequent disputes and general unhappiness in the industry, contractors and employers have made renewed attempts to better understand the types of contracts being used, notes Snyman.
“These parties have not only a desire to understand Fidic, NEC, JBCC and GCC contracts better but also a huge interest in the types of claims that could be brought, the proper administration and management of contracts, and procurement.”
Owing to ongoing demand by and for contractors and employers ‘to lift their game’, Snyman recommends regular training courses such as those which he runs in conjunction with Alusani Skills and Training Network.