A contractor in dispute with the client at final account wants to know how to prepare a claim. Luke Chamberlain explains.
The question
We’ve come to final account and the employer argues the amount due is substantially lower than our costs, so we need to prepare a claim. We’ve never been in this situation before, so don’t know where to start. What are the key things we need to include?
The answer
To prepare a robust claim for submission at final account stage, perhaps consider first: why has a difference between valuations become prominent at this stage of the contract?
Examples of notification time bars
Clause 4.20.1 of the JCT Design and Build 2016: This sets out an obligation for the contractor to notify the employer “as soon as the likely effect of a relevant matter… becomes (or should have become) reasonably apparent”.
Clause 61.3 of the NEC4 ECC Option A: This sets out an obligation for the contractor to notify the project manager of an event believed to be a compensation event “within eight weeks of becoming aware that the event has happened”.
Clause 20.2.1 of the FIDIC Yellow Book 2017: This sets out an obligation for the claiming party to give a notice to the engineer “as soon as practicable, and no later than 28 days after the claiming party became aware”.
We assume the disputed values are likely to centre around the assessment on variation claims and any entitlement to loss and expense. However, the recovery of such monies is generally dependent on certain conditions of the contract being met, both in terms of timing and content. If variations are being raised for the first time at this stage it is a cause for concern. This is because across most forms of contract, there are notification time bars to follow (see box).
A failure to comply with these provisions could have a detrimental effect on a contractor’s claim. In some cases it could lead to a loss of entitlement. This is particularly significant in the case of the NEC form of contract.
RICS guidance supports this. It notes that the “process must adhere to the contract requirements for notification and approval of change by the identified parties”. This helps avoid the scenario in our question.
It is also worth noting Essential Living (Greenwich) Ltd v Elements (Europe) Ltd [2022] EWHC 1400 (TCC). In that case, in consideration of the final account assessment, it was held that, under the contract, variations could not be reopened at the final stage. The only exception is if either party identifies a fresh basis of claim permitted under the contract.
Several things to include in a claim
Assuming the above procedures have been correctly tackled, there are several things the contractor needs to include in a claim. Construction Claims and Responses: Effective Writing and Presentation by Andy Hewitt suggests a submission should consist of two parts:
- The narrative: Deals with the details of the project and sets the circumstances of the claim. It demonstrates the effects of the claim and explains the basis of any supporting documents. These should help demonstrate the effects or quantum of the claim.
- Appendices: Contain documents such as programmes, calculations and project records, to support, illustrate and substantiate the claim.
For success, a claim must include
- Cause: The event that has given rise to the claim – generally, a statement of fact.
- Effect: It will be necessary to show that an event caused the effect forming the basis for the claimed compensation.
- Entitlement: It is necessary to demonstrate that the event on which the claim is based is something for which the contract or the law provides entitlement to the claimant.
- Substantiation: This is the basis for providing, to a reasonable level, that all statements made, points relied on etc, are correct.
It is important to remember that the object of any such claim is to provide an adequate demonstration that, “on the balance of probability”, the claimant is entitled to compensation. Any claim must be demonstrated, substantiated and justified (see box).
When parties want to settle the final account, the key to success is giving proper notice of claims. These should be fully supported by demonstrating cause, effect, entitlement and substantiation. The RICS Final Account Procedures guidance advises that if costs are properly tracked, such issues should be minimised. It is recommended all parties look to achieve this.
Consistent cost reporting will avoid any last-minute surprises. It should also ensure necessary time bars are satisfied.
Luke Chamberlain is senior consultant at Decipher – A DeSimone Company.
