Why Construction Arbitration is Complex? (VII)

The contract said one thing, but the reality of the project led us down another way. 

From my experience in construction arbitration, few areas are as fascinating —and as complex— as this one. 

Contracts may look clear on paper, but real projects bring surprises: delays, design changes, unexpected risks… and of course, claims. 

With the purpose of understanding construction arbitration, we have so far analyzed what a construction contract is and the different variables that make it complex. 

Now we will see which are the most common claims in construction disputes arising from different situations arising out of the risks each party assumes. 

Leaving aside the cases in which the dispute consists simply in the interpretation of a contract clause, in most cases the claims have a high technical component that is necessary to know and understand. 

Claims in construction contracts arise from different situations depending on the risks each party has assumed, and they are very different in nature from one another.  

The Queen Mary University of London's 2019 survey on efficiency in international construction arbitrations highlighted as the most relevant causes of claims, among others, the following: 

• Delay 

• Poor contract management 

• Poor contract drafting 

• Contract suspension or termination 

• Unforeseen risks 

• Low bids at the tender stage 

• Inadequate information at the tender stage 

• Defective materials and 

• Disputes between members of joint venture. 

To summarize the most frequent types of claims that arise during the execution of a construction contract, whether they are due to the above causes or to other different ones, we will distinguish between the claims that the contractor usually makes to the client and those that the client usually makes to the contractor. 

Obviously, this is not the right place to explain in detail the scope and complexity of these claims, but we will explain in an illustrative way what they consist of. This will help to complete the picture of why construction disputes are complex. 

1. Contractor's claims. 

These are the most frequent claims. The contractor excites the work, he has to interpret the contract, the drawings, manage a considerable number of activities and collaborators, as we have seen, and he must satisfy his client. 

1.1 Due to insufficiency or interpretation of the project. 

In cases where the contractor has also been the project designer, as we have already seen, this type of claim is rare. There may be a claim if the client wishes to modify the scope of the project or introduce variations pretending not to pay additional costs. 

But in cases where the contractor executes a project drafted by a third-party designer without having participated in its drafting, claims often arise due to differences in the interpretation of the content of the project documents. 

In these cases, the contract often imposes on the contractor the obligation to warn the client of the possible existence of inaccuracies or deficiencies, and to inform the client as soon as they are detected. 

As the responsibility for the design rests with the client, he must ensure that appropriate clarifications are provided to the contractor, through the designer or the engineer, so that the work can be properly executed. 

The lack of agreement as to whether what is being claimed is in fact a deficiency or a proposal to amend the design, is often a cause of conflict. The contractor will argue that the solution to the inaccuracy or deficiency implies additional costs or delay that must be compensated for, while the client will argue that it has no such significance. 

1.2 Due to project variations  

The client can introduce variations in the scope of the work to be executed. They may relate to the quantity or quality of materials or work, changes in dimensions, procedures, sequence of work execution, or even the removal of certain units or parts of the work. Variations may also arise from orders to repair deficiencies - which are not recognized as such by the contractor- or from the need to incorporate obligations imposed by legislative changes arising after the contract was signed. 

The need to introduce modifications may derive from the client's simple desire to modify or improve his project or as a consequence of events beyond his control, such as the discovery of archaeological remains, lack of execution or delay in the execution of previous works by another contractor or the simple supervening need for the client to reduce his costs or for other reasons. 

In these cases, the dispute may arise in relation to the scope of what has to be modified, added or deleted, its price and its impact on the final deadline to complete the works. 

Sometimes the dispute starts because what the client really orders is not a real variation, but the requirement to the contractor to execute certain units of work or parts of the project that must be considered included within the scope of the contract, according to the project and the lex artis. 

The contractor must consider what was agreed in the contract regarding the procedure to be followed for the client to approve the variations. 

Sometimes it will be the contractor himself who will request the variations. They may be also ordered by the client. 

It is essential that both parties carefully observe the established procedure and the agreed terms and conditions for requesting and ordering variations because, in the absence of agreement on the scope, price or time, a claim may be successful or not. 

Occasionally, during the execution of the works, it is necessary to introduce small changes or variations which, taken as a whole, involve a large cost for the contractor and which, due to their apparent initial insignificance, affect the contractor’s cost or delays with the works without the variation having been ordered in advance. 

Therefore, when the claim arises due to variations, the discussion is always about whether the variation is included in the scope of the contract or project, the additional price and the consequences, if any, on the completion date of the works. 

In the next article we will continue to look at the most frequent claims that the contractor usually raises with the clients or owners of the work. 

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