Our latest Contract Clinic question comes from a contractor facing mounting delays and costs resulting from unforeseen issues on a hotel refurb. Mark Rimmer looks at how to approach a claim
The question
We are working on a live project, a refurbishment of a hotel in Lancashire, and a number of unexpected issues have arisen that were not part of the original plan, resulting in delay and additional cost. How do we protect our contractual position and ensure we can recover loss and time under the contract?
The answer
Firstly, the term “claim” is often viewed negatively and is something many people prefer to avoid. However, in construction contracts, a claim simply involves exercising a right provided for under the contract. Once proven, it provides legitimate entitlement, therefore a claim should not be viewed negatively.
Claims can be either informal or formal. An informal claim includes matters such as variations, where the contract usually provides a straightforward mechanism for adjusting the contract sum. In these cases, a formal dispute‑resolution process isn’t normally required.
A formal claim arises when an issue falls outside the usual procedures for adjusting the contract sum, such as a breach of contract or delay event that leads to a financial loss. These matters tend to be more complex to resolve and quite often a formal dispute-resolution process is required.
What are the procedures?
Firstly, and most importantly, you must follow the procedure as described within the contract. This generally includes issuing a notice that details the particulars of the matter and references the relevant clause or clauses. The notice must comply with any specific requirements set out and agreed in the contract. If you get this step wrong, the rest of the claim process may be undermined.
There are four key elements that must be established to demonstrate entitlement to a claim.
- The cause. What was the event? This refers to the change or circumstance that gave rise to the loss. This could be employer‑caused delays, variations or changes in legislation. Whatever the situation, there must be a clear link between the cause and the event.
- The effect. This must be a direct consequence of the event, and it must result in a demonstrable loss. This is often the most challenging aspect for many project teams, as it requires a clear explanation of how the cause led to the effect and proving a direct, evidence‑based link between the two.
- Entitlement. There must be a contractual basis, or an equivalent statutory right, that gives you entitlement to make the claim.
- Substantiation. As we all know, records are essential to a successful claim. Ideally, these should be contemporaneous ie created and shared at the time the event occurred to ensure they can be relied upon as credible evidence. Strong, well‑kept records provide a solid base for any claim.
Presenting the claim
Keep it simple. Don’t begin with what you want and then try to justify it. Start with the original plan and set out the sequence of events that led to the claim. Clearly explain the cause and the resulting effect and, whatever you do, avoid trying to sound like a lawyer, there’s no need for overly complex language. Your writing should be concise, clear and to the point.
Here’s how you should structure the claim:
- Begin with an executive summary that condenses the dispute into no more than a couple of pages.
- Provide a statement of claim that expands on the summary and sets out the amounts claimed and other key details.
- Identify and explain the relevant contract terms and particulars that underpin the claim.
- Present the cause‑and‑effect narrative, clearly setting out the sequence of events and demonstrating how the cause led to the effect and created entitlement.
- Use appendices for all supporting evidence, including records, analyses, and detailed documentation.
The above should help you put together a strong and well‑structured claim, but don’t hesitate to seek expert support if this isn’t something you handle regularly.
Mark Rimmer is a director at Decipher.
