CLAIM &

CHANGE PROPOSAL
EVALUATION AND PREPARATION
 CLAIM

• “To say that something is true or is a fact, although you

can or cannot prove it and other people might not believe
it.”
• Example:
He claims to have met the president Xi, but I don't believe
him.
 1. INTRODUCTION
• Claim defined in American Standards as
“Claim is a demand or assertion by one of the parties seeking, as a
matter of right, payment of money, or other relief with respect to terms
of the contract. The term ‘Claim’ also includes other dispute and
matters in questions between the Owner and Contractor arising out of
or relating to Contract. The responsibility to substantiate Claims shall
rest with the party making the Claim.”
• A claim is a demand, request or application for a benefit for which
the Claimant believes or contends he is entitled, but agreement has
not been reached. In other words, claim may be defined as a failure
to fulfil obligations under the contract or law by either of the parties.
2. CLAIM DEFINITION IN OUR CONTRACTS

• If the contractor considers himself to be entitled to any

extension of time for completion and / or any additional
payment, under any Clause of these Conditions or
otherwise in connection with the Contract, the Contractor
shall submit a notice to Project Manager, describing the
event or circumstances giving rise to claim.
 NOTICE OF CLAIM
• The party (Claimant) the Contractor shall give notice of breach to
the defending party (Defendant) the Employer, immediately upon
discovering the breach; and such notice should specify the nature
of the breach. Most of the Construction Contracts contain a
requirement of notice to submit a claim both for time extension
and for money. The purpose of the notice is to enable the other
party to be aware of and to mitigate the effects of the breach
causing the claim. Failure to give prescribed notice is a breach of
the contract conditions and while such breach may not deprive
the Contractor of his rights under law, such breach may lead to a
defense by the Employer that lack of knowledge about the breach
had prevented actions to mitigate the effects of the breach and
had also prevented proper evaluation of the effects of the breach.
 TIME FOR CLAIM NOTICE
• Our contracts with NTDC state that “The notice shall be
given as soon as practicable, and not later than 28 days
after the contractor become aware, or should have
become aware, of the event or circumstance.
• If the contractor fails to give notice of a claim within such
period of 28 days, the Time for Completion shall not be
extended, the Contractor shall not be entitled to additional
payment, and the Employer shall be discharged from all
liability in connection with the claim.”
 EVALUATION
• Evaluation is the process of assessing the quantum in money
value and for the extension of time. As Burden of Proof is on the
contractor, the contractor must show that there is a direct link
(causal link) between the breach (cause) and the loss (effect)
thereby sustained. When there is more than one competing
causes, then it is necessary to ascertain and define such
competing causes and responsibility, the timing and effect, and
losses actually and properly sustained.
• e.g. soil condition change, design change, civil works delay,
equipment delivery should delay etc.
3. CONTRACT ‘BASE LINES’ THE BASIS OF
CLAIM EVALUATION
• Firm Fixed Price (FFP) or lumpsum contracts are most
common and are more open to to claim due to its natures.
While lumpsum contracting provides the lowest possible
financial risk for the Employer, it provides the highest risk
for the Contractor, because any variance in scope,
schedule, or conditions affects the Contractor’s costs.
When the work is changed, the Contractor is expected to
perform the work as a result of which he may sustain
additional costs.
• Obviously, the Contractor will attempt to seek additional
compensation based upon each such change, which will
lead to claims and disputes. All changes in the scope,
schedule or conditions under which the Contractor's work
will be performed, which result in payment or time-related
claims, should be considered in terms of their deviation
from the ‘baseline’. As explained below, the contract
defined scope, schedule, and conditions constitute the
‘baseline’.
 BASE LINES

• Time Schedule
• Scope
• Price
• Contract Conditions
• Time is money, Schedule is the most easily affected
element of the lumpsum contract baseline, because any
delay, acceleration, disruption, or distortion of
performance constitutes a change which may entitle the
Contractor and obligate the Employer to pay additional
compensation.
• The Contractor's right to obtain time related compensation
must be proven against the contract's ‘baseline’, which
should be accurate and verifiable with the contract scope,
schedule, and condition.
• A claim consisting of a request by the Contractor for
money or time, due to a change in any of the three basic
elements of the contractual baseline, given that each
change is beyond the control of the Contractor.
 4. EVALUATION PROCESS
• Evaluation is the process of quantifying the amount or extent of
the additional costs sustained due to the breach, and establishing
that the subject losses were actually and properly sustained as a
result of the breach. As the Contract Price of the lumpsum
contract is equated to the elements of ‘baseline’

• The basis of the pricing is usually referred to as the ‘Price

Analysis’, given that the Contract Price usually aggregated from
the total of a Bill of Quantity, the rates which in turn are broken
down or analyzed into the primary cost elements of :
 PRIMARY COST ELEMENTS
• Labor
• Material
• Equipment
• Subcontractors
• Overheads & Profit
The more detailed the price analysis the more accurately
and quickly any variance from the original contract price can
be ascertained.
 RECORDS
• While it is important to have an accurate and detailed
makeup of the contract price it is equally important to
keep accurate contemporary records of the usage of key
resources of labor, equipment and material.
• Any project documents related to schedule, cost, risk or
quality including correspondence between various
stakeholders can be used as Detailed and Extensive
Records in the evaluation and preparation of claim.
 MORE IMPORTANT RECORDS
• Tender and contract documentation
• Daily record of labour and plant staff etc.
• Materials received and issued
• Site diaries
• Program of Performance
• Measurement sheets and Invoices
• Delay notifications
• Consultant or Client Instructions
 5. HEADS OF CLAIM

• New or changed conditions or circumstances

• Prolongation costs due to delay
• Disruption or Suspension
 NEW OR CHANGED CONDITIONS OR
CIRCUMSTANCES
• Any change in conditions or environment, where the
contract is operating has a corresponding change in other
factors and may be measured in money terms, i.e., cost.
This change can be adjusted with a different factor or
factors without changing the cost.
• The following are the main constituent of changed
conditions:
• Ground conditions, obstructions etc.
• Occurred Risks not mentioned, not quantified or
excessive
• New or changed laws, regulations, duties, taxes etc.
• Unforeseen problems of supply and/or delivery of
resources
• Loss due to carrying out work at a time of the year
involving special factors
• Particular climatic conditions
 PROLONGATION COSTS DUE TO
DELAY
• It may be identified that the act of postponement is the
‘cause’, and hindrance is the ‘effect’ of delay. Primarily
construction activities may be delayed but not disrupted
i.e., duration of activities may be postponed in
commencement, hindered or slowed down in achieving
regular progress, and hence prolonged in completion.
• The following are some of the expenses due to delay:
• Plant and scaffolding retained on site
• Temporary office and storage accommodation
• Utility Bills for the delay period
• Additional insurance and Bond premiums
• Attendances on sub-Contractors over a longer period
• Increased costs due to inflation of labor, plant and
material
• Extended equipment warranties
• Head office overheads & Profit Loss
 DISRUPTION OR SUSPENSION

• Delays and prolongation are time related, but disruption /

suspension is resource related. Construction activities
may be disrupted in regular progress or logical sequence
but the experience of disruption of progress may not
result in a delayed completion of activities. It is often that
more resources are committed to the activity to achieve
completion in time.
 6. OVERHEADS AND PROFITS

• Site Overheads
• Head-Office Overheads
• Profit
 7. METHOD OF CLAIMS

• Global Claims
• The correct way of presenting a claim to the Engineer or
before a Court or Arbitrator is by using causation, i.e.,
rational and logical linking of the effect with the cause. If
the Engineer is 14 days late in issuing the drawings for
the foundations and as a result the completion of the work
is delayed by 14 days, will illustrate cause and effect
linkage.
• To avoid a great deal of argument over a global claim,
Contractors and Subcontractors establish the linkage
between cause and effect of every event, which may lead
to a claim, at the time of occurrence itself. As well as
producing the cause and effect matrix, it will be
appropriate to highlight major delaying events in the text
of the claim by making reference to progress of works and
effect on other trades.
 TOTAL COST METHOD

• Total cost method of claim’ is an extreme form of a Global

claim, consisting of evidence offered by the Contractor,
often from internal sources, as to the total cost of
executing the contract, and then claiming the difference
between that total cost and the contract price. This is very
frequently used in support of perfectly ordinary breaches
of contract or variations, where disruption is alleged.
8. PREPARATION AND SUBMISSION OF
CLAIM
• Usually, the Contractor or the Subcontractor will produce
a claim document to the Engineer, Employer or Main
Contractor. A claim presented in a tidy and professional
manner will often result in a better settlement than an
unprofessional one. It shall be structured logically into
sections, and each one can be divided into subsections
having sufficient details. The following are the most
common sections in a general:
 CONTENTS OF CLAIM DOCUMENTS

• Introduction
• Contractual basis of the claim
• The details of the claim
• The evaluation of the claim
• Appendix
 INTRODUCTION
• As the person, who is responsible for the final assessment may not
be totally familiar with the contract, it is important to give background
details in order to make the document a complete entity in itself. The
minimum required details should be as follows:
• Names of the parties to the contract and the consultants
• Details of the conditions of contract governing the contract
• Contract Signing Date
• Original Contract Price
• Commencement & Completion Date
• Details of EOT
• Details of Variation Orders
 BASIS OF THE CLAIM
• It is important to state precisely about contractual basis of the
claim. The claim will fall under one or both of the following
categories:
• A claim for loss and expense or extra costs or expense flowing
from a remedy contained within the conditions themselves
• A claim for damages resultant upon a breach of the express or
implied terms of the contract or the law.
• It is essential to state clearly the event or events pertaining to the
claim. It is also good practice in this section of the claim to make
reference to notifications which have been made during the
contract.
 DETAILS OF THE CLAIM

• This section of the claim should provide the complete

details as much as possible of all delays with reasons,
responsibility and effect on progress as a whole.
Assistance can be gained to prove this cause and effect
by the use of critical path method (CPM) or any other
graphical method.
 EVALUATION OF THE CLAIM

• In most cases the evaluation will fall into two sections, i.e.,
costs associated with prolongation and costs associated
with disruption. Methodology of heads of claim has been
described earlier in this Paper.
 APPENDICES

• A well prepared claim usually has a large volume of

backup documentation to substantiate the case such as
correspondence, records, photographs, video and
programs. Inclusion of all the details in the main body will
make the presentation bulky and distract the reader.
Hence it is advisable to attach as appendices.
 DISPUTES AND ARBITRATION

• In the event that the contractor and Employer cannot

agree on any matter relating to a claim, either party may
refer the matter to the Dispute Board.
 CHANGE PROPOSAL CLAIM

• Change order claims can be defined as, written

authorization provided to a Contractor that approves a
change from the original plans, specifications, or other
contract documents, as well as a change in the cost.
 DEFINITION
• A change order is a written agreement between the owner,
consultant and the contractor about the scope, price, and time
adjustment required for the change.
• All three must agree and sign-off on the proposal for the
change order to go into effect. A change order establishes
any new terms and basis of payment, becoming part of the
contract once executed and approved.
• Change order claims can be defined as, written authorization
provided to a Contractor that approves a change from the
original plans, specifications, or other contract documents, as
well as a change in the cost.
 ORIGINATION OF CHANGE
Changes Originating from Employer
• If employer proposes a change, it shall send to contractor a
“Request for Change Proposal” requiring Contractor to prepare and
furnish to the Project Manager as soon as reasonably practible a
“Change Proposal” which shall include the following:
• Brief Description of the Change
• Effect on Time For completion
• Estimated cost of the change
• Effect on the Facilities
• Effect on any other provision of Contract.
• Prior to preparing and submitting the “Change proposal”
the contractor shall submit to Project Manager an
“Estimate for Change Proposal” which shall be an
estimate of cost of preparing and submitting the Change
Proposal.
• The pricing of any change shall as far as practicable, be
calculated in accordance with the rates and prices
included in the contract. If such rates and prices are
inequitable, the parties thereto shall agree on specific
rates for valuation of Change.
 CHANGES ORIGINATING FROM
CONTRACTOR
• The contractor may from time to time during execution of
performance of the contract proposes to Employer with a
copy to Project Manager, any Change that contractor
consider necessary or desirable to improve the quality,
efficiency or safety of Facilities.
• Contractor will submit “Estimate for Change Proposal”
and after approval can proceeds for Change Proposal.
THANKS！