Abstract
The significantly increasing number of construction claims indicate the need for the implementation of an effective construction claim management. Claim is a specific requirement of one contracting party for time extension for completion and/or additional payment that could be notified to the other contracting party on the base of an event or circumstance that is foreseen in a contract clause or otherwise in connection with the contract.
Construction claims have high impacts on the project’s cost and time performance that the contractor should establish the effective claim management in their organizations. Claim management is a system for monitoring and assessment of risks, variations and their economic impact for the purpose of claim preparation and enforcement. And it is also a system for the early solution of problems, obstruction and complications.
Claim management is becoming a crucial subject given the recent economic situation in the construction.
The fact that the contractor is able to claim in conformity with the contract is a question of survival. Nowadays, it is very important to be able to implement claim management in a construction company quickly and efficiently. This research aimed at presenting the key concepts of construction claims, and construction claim management, focusing on the contractor’s point of view and the researcher sought to discover current practice employed by Nigerian construction contractors in claim management analyzing the relevant literature, theory and recommended claim management process. In addition, a questionary survey was done to assess the efficiency of the contractors in managing their claims. Also as a method of improvement measures the researcher tried to set forth various mechanisms which can assist in the advancement of the current practices of claim administration or management.
In terms of research methods, the author chooses a quantitative method using a given set of questions to gain answer from experts, and finally the result from this research can help the contractors improve their weakness and maintain their strengths of their claim management process.
CHAPTER ONE
Introduction
1.1 Background of study
In the most recent years, the Nigerian construction industry has witnessed a remarkable progress. The demand for housing, infra-structure and hydropower projects lead to the appearance of mega projects which were complex and of great value. With this complexity came the need for fast tracking which usually results in rework, change orders, delays and site modifications. Accordingly, there was a need to have proper contracts put forward to allocate the risk between the owner, the contractor, and the consultant.
The majority of construction projects comprises of binding agreements or contracts that are drawn up for the sake of minimizing conflicts and disputes at the execution level or post completion of these projects. These contracts are usually signed between the two main parties: an Employer or Owner and a Contractor who undertakes the execution of that particular project. Such a contract includes general clauses and specific clauses which govern the relationship between the Employer and the Contractor.
In the Nigerian road construction sector for the international contract, FIDIC or “Federation Internationale des Ingenieurs Conseils”is the known form of contract used to administer construction contracts. Many of the clauses included in road construction contracts are directly extracted from FIDIC which Employers greatly rely on in Nigeria.
FIDIC acknowledges an additional involved party which is known as the Engineer. The Engineer’s essential role is to administer the contract impartially between the Employer and the Contractor. Once the works are awarded to the Contractor through the proper form of a letter and signing of a contract document, the contractor engages within a duration of 14 days in providing what is defined by (FIDIC,1987) as clause 14 baseline program. This work program is a very crucial document that is subsequently used to evaluate delay caused, regardless of the party responsible, and becomes the basis on which the claim put forward by the contractor against the client or vice versa is substantiated. The process involves the investigation of the reasons behind the delay whereby a comparison is conducted between the impacted program and the baseline to determine the amount of time the contractor might be entitled to.
According to Kartam, 1999 completing a project on schedule is a difficult task to achieve in the uncertain, complex, multiparty, and dynamic environment of construction projects .[37]Because of this, the industry is always open to disputes. It is common for the claimant pursuing claim for work or services for defective work, delayed completion, changes of scope, etc. The number of construction claims and disputes has been increasing and has become a burden to construction industry. [41]Even with the most expert understanding of construction contract and the most reasonable risk-allocation system, claims will continue to present problems if they are poorly managed in practice. It is very important for contractors to submit claims according to the steps specified in the contract conditions, provide a detail of the additional costs and time, and present satisfactory evidence.
Construction claims in Nigeria are common in almost every road construction project and are direct results of the rapid growth in the construction industry. Therefore, the occurrence of claims is a commonality perceived in many road construction projects and can be attributed to a set of factors which can cause considerable delays in a project and consequently result in a rapid increase in that project costs.
A survey of construction claim management practices in Nigeria by Girmay (2003) and Abdissa (2003) showed that the lack of awareness of claims of on-site people is considered the major problem of claim management.
In addition the Nigerian construction industry lacks an appropriate guidance or training on the handling of claims on international contracts.[28]And other problems associated with claim management vividly seen by Abdissa (2003)during his study on the local contractors were:
• Lack of experience in processing claims
• Lack of knowledge of legal aspect of claims
• Lack of awareness of claims and
• Deficiency of detail pre contract planning. In general the study shows that claims management in Nigerian construction industry is at very low and infancy stage and need great input for improvement.[1]The inadequacies of supporting evidence, stemming from unaware project personnel as well as improperly designed documentation systems, are also the most serious shortcomings causing loss of opportunity to recover incurred damages. So that all management level in the construction pay more attention to these aspects in order to have an effective claim management system.
According to Kululanga 2011, Claims management is the process of employing and coordinating resources to progress a claim from identification and analysis through preparation, and presentation, before it proceeds to negotiation and settlement.[40] The key objective of the claim management process is to resolve certain problems in an effective and efficient manner. Avoiding litigation and arbitration in claim settlement is one good practice that successful contractors must keep in mind.[50]
For the contractor, it is a good to establish an effective claim management system so that he can be aware of the potential adverse effects and has opportunity to take proper action to protect the project or reduce losses in advance instead of simply complying with clients’ claims.
The contractor’s claim management system should be able to notify as well as substantiate the claim to the employer by using the data collected by his representative or claim personnel when certain types of claims occur in the project. Moreover, this system should be able to help the contractor prepare claim documents against the employer and prevent claims filed against him. In general contractor’s management level to pay more attention to these aspects for having an effective claims management system.
This research aimed at presenting the key concepts of construction claims, and construction claim management, focusing on the contractors’ side. In addition, a questionnaires survey was performed to assess the current practice and efficiency of the road contractors in managing their claims.
Statement of the Problem
Construction claims and disputes can occur in both public and private projects, and also in small and large projects. In reality almost all construction projects of considerable contract values and significance face delays and cost overrun. This is due to the fact that during certain phases or all phases of a project, certain constraints are imposed by the Employer, Engineer or the Contractor’s ineffectiveness which lead to the occurrence of delays. So an effective claim management system in construction companies have high impact on the projects’ cost and time that deserves serious attention.
However in Nigeria the general lessons on claim management practices of road construction companies, the increasing incidence of claims and disputes imply that, the current claim management process and practice are ineffective in meeting the road construction industry requirements. Hence, there exists a need for an overall step-by-step procedure for claims management and administration which is essential for achieving proper resolutions and for preventing claims from developing into disputes. They also need to be prepared and well-versed in how to identify, prepare, defend, and present a claim. For this reason, the claim management process should be understood by all project parties, especially the contractor so that they know how to present claims in a way that ensures receiving their rights.
The aim of this paper resides with providing a better insight on the process of claim management and provision of guidelines on how contractors should practice and manage the claim effectively and properly.
Aim and Objectives
The main aim of this study is to explore how construction claims are managed and substantiated by road contractors in Minna, Niger state by providing better insight of the current status of claims management. In order to facilitate the research aim, the following objectives have been drawn up:
• To investigate claims management practices and identify the problems related to the current practices experienced by the construction contractors.
• Reviewing and investigating the various types of claims faced in the road construction industry.
• To identify the areas related to claim process that can be effectively improved.
• To recommend how to improve claim management processes in construction contractors in Minna, Niger state.
Scope of the Research
The scope of the research is limited to the study of claim management and targets the road construction sector in Nigeria and is based on ongoing and recently executed road construction projects by different road construction companies mainly focuses on grade one and two contractors and involves three main stakeholders who form parties in a construction contract, which are the contractor, the employer, and the consultant. The focus of the research has therefore been limited to the FIDIC form of contract for local projects, which are gaining wide acceptance in the management and administration of international and local projects.
The importance of this research lies in the fact that it provides guidance to Contractors on the methods by which contractual claims are substantiated and consequently managed in the road construction sector.
Research Questions
Certain research questions have been raised from the main conceptual framework and literature related to claims management and substantiation process in the construction projects. These questions are as follows:
• What are claims and why do they need to be managed by road contractors in the construction industry?
• What are the shortcomings of the current claims management and substantiation practices?
• What are the essential components required for the proper substantiation of a claim in road construction projects?
• How often did any road contractor face major obstacles to prompt or timely settlement of claims for extensions of time and cost claims?
• What are the reasons for failure to provide timely notice of a claim to the other party?
• What are the elements of well-structured claims management?
• What are the key elements to a successful claim presentation?
By addressing the above mentioned research questions, the framework of this research can be structured to ensure an effective approach to the implementation of claims management in road construction projects, and the successful accomplishment of the aim of this study. The questions will be further investigated in chapter 4 which includes the analysis of responses.
Research Structure
This research work has been structured into five main chapters. The first chapter includes a background of the Nigerian road construction industry and how construction claims appear and are submitted by contractors. It also includes a review of the main aim and objectives of this research and the statement of the problem.
Chapter two of this dissertation is the literature review chapter. In this chapter, various opinions written by scholars in the field of claims and claim management processes in construction works are reviewed. Various types of claims and problems related to claim management are also investigated from the points of view of different writers based on the definition of claims. Chapter three includes the methodology used to fulfill the research requirements and the approach used. The nature of this study will be quantitative, since it will include questioners only with claims experts, construction engineering professionals, office engineers and project managers.
Chapter four includes the analysis of the data collected by the means of questionnaire.
Chapter five is the last chapter of this dissertation and comprises of the conclusions and recommendations. In this chapter, further and future suggestions and insights are also given to scholars who intend to complement the findings of this study in further refined or detailed forms.
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