Can an Integrated Construction Claims Solution Protect Project Relations?

Thirty years ago during the early days of CMCS, our first client was one of the major contractors in Kuwait who had an impressive 100% return client rate. This contractor was awarded a very prestigious project where it must be completed in 365 days even when the scope was not complete. The CEO of the company was sure that no one can complete this project but him, nevertheless he needs to win the project as it was a public project that most go through competitive bid process. The project was one and I was asked to do the construction claim for the project. The CEO was sure that the project had many assumptions that most will prove to be wrong and change to the contract will happen. The CEO was visionary enough to see that the project will be completed on the intended target date but at a much higher cost than the bid price because of the changes. He was visionary enough to understand that even if the Project Owner will appreciate the timely completion but this Owner will have tough time asking for the additional funds without complete and justifiable documentation. The company CEO understood that failing to do so will harm him and the Project Owner. So simply, our role was to prepare a fully documented construction claim report that a layman will fall in tear when he reads it when he sees what this contractor have achieved. The CEO was very clear in requesting that the construction claim report to be all based on factual data and be fully documented. To cut the story short, more than 350 change orders were issued on the 12-month project, contractor completed the project 10 days ahead of schedule and more 60% over budget. The contractor got his claim settled and continued to be the market leader.

Funny enough, few months CMCS was approached by another international contactor whom we have worked with for more than 20 years asking us for a similar request but at a global level. The requirement was very simple. Our Clients trust us and they know that we are the only one who can deliver their projects. They have no issues in paying all of our claims but we also understand if we do not provide them with the complete factual documentation and justification, we will be harming them and will not find them next time. Their decisions to grant us our claims could be questioned and challenged by the Audit, Finance, Legal and other departments. Therefore, they asked us to come with a complete solution to manage their construction claims.

Assumptions Are Part of Every Project

Every project stakeholder regardless what role he or she is playing on a project, understands that there are many assumptions need to be made to address the many unknowns that could or could not happen during the project execution. Those assumptions are the risks that could impact the project schedule, budget and other project objectives. When those risks occur they become issues that need to be managed to reduce their negative impact on the target project schedule and budget.

Assumptions are needed on every project to address the absence of facts relating to what would the project encounter while being developed as well as to the benefits it is supposed to generate upon its completion. Only time will prove if those assumptions were correct or not. In other words, every project stakeholder will be always faced with the risks that those assumptions he or she made as well as other assumptions made by those he retained to help him to develop the project might prove to be incorrect. Failing to manage those risks effectively might mean that the anticipated benefits from the project investment will never be realized.

Understanding Project Risk, Issue, Change and Claim

A Project Risk is the possibility of a problem that has not occurred yet, and if it occurs it would have a negative impact on a project budget, schedule and scope. A Project Issue is a problem that is currently occurring.  An issue must be resolved as soon as possible, otherwise it will have detrimental effects on the project budget, schedule and scope. A Project Change is a problem that has changed the project original scope, schedule and/or budget for which an equitable adjustment might be needed. If this adjustment is disputed, then we have a construction claim.

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Some of the most common causes of risks that might result in construction claims include:

  1. Acts of God
  2. Acts of Government
  3. Actual Acceleration
  4. Adverse Weather Conditions
  5. Cardinal Change
  6. Commercial Impracticability/ Performance
  7. Commercial Impracticability/ Supply
  8. Constructive Acceleration
  9. Constructive Change
  10. Defective Specifications
  11. Delay of Approvals
  12. Delayed Issuance of Change Orders
  13. Delayed Notice to Proceed
  14. Destruction of Work
  15. Destruction of Materials
  16. Differing Site Conditions
  17. Early Completion Prevented
  18. Impossibility of Performance
  19. Improper Inspection
  20. Inadequate Supervision
  21. Inadequate Utilities
  22. Interference
  23. Labor Shortage
  24. Lack of Access
  25. Lack of Information or Decision
  26. Lack of Permits
  27. Lack of Right of Way
  28. Late Drawings
  29. Late, Defective Material, Etc.
  30. Payments Not Made
  31. Scheduling Difficulties
  32. Stacking of Trades
  33. Strikes
  34. Subcontractor Delay
  35. Superior Knowledge/ Misrepresentation
  36. Supplier Delay
  37. Suspension of Work/Delay
  38. War and Other Hostilities

For those who are involved in executing projects fully understand that projects that have disputed construction claims is bad for the business as:

  1. They will result in Project Cost Overrun
  2. They will result in Project Delays
  3. They will result in Distracting Project Management Team as well as Senior Management from Achieving Project Objectives
  4. They will result in Reduced Resources Efficiency and Waste of Effort
  5. They will result in Damaging the Relation Between the Project Stakeholders; Project Owner, Project Management Firm, Consultant, Contractors, Subcontractors, Suppliers among others
  6. They will result in Creating Stressful and Tense Project Environment
  7. They will result in Turnaround of Good Resources
  8. They will result in Lost Opportunities for The Contractor to Win Other Projects with Same Clients and Others
  9. They will result in Lost Opportunities for The Project Developer and Owner to Generate Income from Customers and Tenants

The Proposed Enterprise Construction Claims Solution

CMCS proposed an integrated Enterprise Construction Claims Solution based on the PMWeb enterprise Project Management Information System (ePMIS) for which will formally manage the three processes of risk, issue and change management while integrating with all other relevant project management processes and documents. The project management processes need to be aligned with the Project Management Institute (PMI) Project Management Body of Knowledge (PMBOK) standards and best practices. The web-enabled solution needs to be report performance and status at project, program, portfolio and enterprise level. He wanted to stop the “watermelon” dashboard reporting that is currently place where MS Excel is used to capture projects’ information and then use this data to report to management. Not only no one trusted the dashboards but they were always week late. It was also requested that there should be a single point access for the whole solution with no Data Silos. Our client viewed Silos are perfect to store wheat but not data. The schematic chart below explains the solution.

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The Enterprise Construction Claims Solution required three interrelated project management processes that will be formally implemented and managed.  Those are Identify, Assess, Mitigate, Monitor and Control Risks, Manage and Resolve Issues and Manage Changes and Delay Events.

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Identify, Assess, Mitigate, Monitor and Control Risks

A process was developed to capture all possible risks that could happen on a project. A detailed document template was created to serve the purpose of Risk Identification and Assess and Mitigate Risks. To protect the particular requirements of our client, we are using sample forms and reports that although are from other projects or examples but they help to explain the objectives of ArticleClaim3the solution.

A custom form was created in PMWeb using the Custom Form Builder to map the data that must be captured. The form has set access rights to limit who can fill what from the project team. The form was linked to a workflow to detail the steps for document template submission, review and approval. It was also a must requirement that each Risk Document Template should have all supportive documents attached or linked to it. A Risk Document Template should be self-explanatory. They did not want to create a new risk of having an incomplete risk submission.

The custom form has most of the data fields to be completed available for a pre-defined dictionary list. This was a must requirement to ensure consistency and single terminology to be used globally across all of their projects. Also they want standardization to be able to summarize and report on risk data from multiple projects. Some of the standard fields included:

  1. Risk Breakdown Structure
  2. Risk Titles
  3. Risk Types
  4. Likelihood range
  5. Impact range
  6. Risk Score grading
  7. Risk Response Actions for both negative and positive risks
  8. Countries and Locations

The information captured from the risks in the pre-defined document templates where presented in online risk register that details the impact of risks before and after the approved mitigation actions. The risk register report was available in a single format but with flexible options to sort, group and filter risk records. The report was designed to present information at project, program, portfolio and enterprise level.

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Manage and Resolve Issues

An Issue Form was created to immedarticleclaim5iately capture all problems that have occurred where they were already identified in the risk register or not. The issue form record the participants involved, submission and resolution dates, status, identify and record issues clearly, issue type which is aligned with the risk types, related risk record, which activity in the project schedule it will impact.

A custom form was created in PMWeb using the Custom Form Builder to map the data that must be captured in the Issue Form. The form has set access rights to limit who can fill what from the project team. The form was linked to a workflow to detail the steps for document template submission, review and approval. It was also a must requirement that each Issue Document Template should have all supportive documents attached or linked to it.

The issue form was a very important process in the enterprise claims management solution. It was at this stage where all related documents, records and events were captured. It was the process were proper contractual correspondence to be written to protect the interest of the company and increase their chances for getting the change order approved should this be needed and without confrontation.

The information captured from the issues in the pre-defined document templates where presented in online issues register that details the status of all issues and their criticality on the project objectives. The register also showed the proposed solution, whether it was implemented or not and whether it has solved the problem or not and whether it has resulted in a change request or not. The Issues register report was available in a single format but with flexible options to sort, group and filter issue records. The report was designed to present information at project, program, portfolio and enterprise level.

This Issue Register was designed to help the contractor to:

  1. Prioritize issues and report on their status
  2. Review all issues and decide on a course of action
  3. Monitor the outcome of the actions taken
  4. Report on the status of issues to management, for example Open, Investigating, Implementing, Escalated and Resolved.

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Manage Changes

The process of Manage Changes was more to ensure that there is a proper coordination between the project team members involved in change management. Contractually, the contractor was obliged the change management document templates developed by the Project Owner. Therefore, the needed change management form was to capture the details the needed details from the Project Owner change management document templates and details of changes the Contractor needs to do internally and with his subcontractors, suppliers and other stakeholders.articleclaim7

Similar to the earlier forms, a Change Request Form was created to capture the details of the change which will be the basis for the claim submission. The change request form will be used to record the claim statement and justifications, relevant contract clauses, cost implications, schedule implications (based on the Delay Event Form) among others.

A custom form was created in PMWeb using the Custom Form Builder to map the data that must be captured in the Change Register Form. The form has set access rights to limit who can fill what from the project team. The form was linked to a workflow to detail the steps for document template submission, review and approval. It was also a must requirement that each Change Register Document Template should have all supportive documents attached or linked to it.

In addition, another custom form was created to capture the details of the time impact delay analysis associated with the change. The contractor fully understands that the issue in change orders is not whether there an increase or decrease in the project scope of work as this can be easily quantifiable. Rather the issue with changes is to quantify the delay associated with the change, whether this delay was critical to the project completion date or not, is this delay with compensation or not depending on the contract conditions, was this delay concurrent with other delays, did the contractor needed to accelerate to recover the delay or not, was there any impact on the resources efficiency among others. The Delay Event Form was designed to capture all of this information.ArticleClaim8

It was also a requirement that for each Delay Event Document Template to have all supportive documents attached or linked to it. Those included project schedule, contract clauses, site work instructions (SWI), daily reports, meeting minutes, time sheets, progress photos, videos from the time lapse camera and any other document or record that explains the impact of the delay on the project’s execution and resources needed to execute this work.

The information captured from the Change Register and Delay Event where consolidated in an online changes log that details the status of all changes with their cost and time impact. The register also showed the status of those changes and whether if any is disputed by the Project Owner. The change register report was available in a single format but with flexible options to sort, group and filter change records. The report was designed to present information at project, program, portfolio and enterprise level.

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Integrated Construction Claims Dashboard

To provide the project team members with a single version of the truth for managing, monitoring and controlling the construction claims solution, they needed a single dashboard that will report on risks, issues, change requests and delay events status. PMWeb was used to develop the dashboard where a claims management dashboard was created based on the information captured in the risk register, issues register and change request log. From those tabular reports the authorized user can drilldown to the specific risk, issue, change request and delay event record.

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Document Management Repository

Another important feature of the integrated construction claims management solution is that although PMWeb Document Management Repository was used to store all projects documents, the contractor wanted a separate folder for each claim heading. The contractor wanted the folder for any specific claim to provide a single location for the reviewer to have the complete picture of everything that relate to the claim without the need to search and locate. All relevant exhibits or documents need to be available under the appropriate claim heading even if it means that the same document will be available under different claim folders. Those documents could include drawings, CPM schedule, pictures, videos, meeting minutes, daily reports, correspondence, emails. Site Work Instructions (SWI) among others. The contractor wanted the documents included in those folders to be scanned from the original from the original communication showing signatures and stamps thus fulfilling the contractual obligation of showing formal communications. In addition, PMWeb redline function was used to highlight and add comments to the specific sections of those communications.

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The contractor was fully aware of the fact that many of those who get involved in reviewing claims on a project are not aware of the project particulars or what has happened on the project. He wanted to be sure that there will be no excuse for having missing documents for any claim submission. He wanted to provide the level of supportive documentation that will be needed by all those from the Project Owner team who will be involved in reviewing the construction claims. Those could include the technical, financial, legal, audit, lawyers among others. This ensured that no one can doubt what is been presented as well as shows that the contractor is ready to go all the way to get paid for his due claims. It is that level of trust as well as confidence the contractor wanted to convey to the Project Owner team as well as the seriousness that the contractor is ready to pursue arbitration and/or litigation to get the construction claims settled.

Construction Claims is an Integral Project Management Process

The contractor looked into Construction Claims as one of the project management processes that need to be managed like managing project scope, schedule, cost, quality, human resources, procurement among others. Actually, the Project Management Institute (PMI) Project Management Body of Knowledge (PMBOK) extension for engineering and construction has added Construction Claims as one of the four additional areas that need to be managed. Those included Safety, Environment, Financial and Claims. The project dashboard included relevant details from the construction claims dashboard, which was in turn summarized to the projects enterprise dashboard.

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The integrated construction claims solution will help in reducing the tension and subjective arguments that usually happens when trying to settle construction claims. It ensures that there is objective and contractually correct process for managing and resolving those construction claims before they become disputes and harm the relation between the project stakeholders.

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