International Feature: Global Claims In Construction

Table of Content

Vladimir Vencl, Independent Construction Contracts Management Consultant

QED Construction Consulting Services LLC

Global Claims In Construction

There are a lot of uncertainties surrounding global claims on construction projects. Most importantly, there is no widely accepted, crystalized and firm approach for their presentation and resolution. For these reasons, this article will not put much weight to any current standings that could apply in particular countries or legal systems. Instead, it will attempt to identify universal and recurrent issues and common sense approach in addressing these claims. Although both parties may find themselves on the global claims receiving end, this article addresses contractors as claimants and clients as respondents, as it is a much more common scenario.

Global claims are those claims where the contractor does not attribute specific delays or losses to the client’s individual contract breaches or risks that eventuated. Instead, the contractor alleges composite adverse effects occurring as a result of the totality of all these matters for which the client is allegedly liable.[1]

Most common reasons leading to the submission of global claims are inadequate records keeping, insufficient personnel assigned to claims administration and lack of contemporary claim submissions. All these factors usually go hand in hand on construction projects. Once contractors become significantly exposed to the important delays, associated delay damages and their own additional costs, global claims often remain as their only available defence and recovery option. This as project history cannot be accurately recreated anymore and contractors collate what they retrieve from deficient records and present such submissions to the clients. Occasionally, contractors choose to conceal their own defaults that contributed to the project delays and losses, under the umbrella of global claims. They ‘forget’ matters within their own responsibility and roll-up complete losses to the set of client’s defaults with the aim to get paid above what genuinely could be attributed to the client.

Traditional construction contracts normally foresee defined scope of works, contractor’s receipt of construction designs, access and possession to whole of the site and various permits on or soon after the first day of the agreed time for completion. However, this is rarely reality as commonly:

  • access to and possession of the site is given in parts and at different dates;
  • designs are delivered on a piecemeal basis and are unsynchronized between each other;
  • various permits are split and not provided in a timely manner;
  • variations to specifications are continuously instructed by the client;
  • the client’s other contractors need to perform on the same site at the same time, usually due to delays on their own projects;
  • certified payments are late.

In these circumstances, the highly adverse cumulative effect of these project disintegrating factors is suggesting that the contractor’s global claim may be its only option for getting additional time for completion and compensation for its losses.

If the additional payment claimed is calculated as a difference between the total costs incurred for the performed works and a sum allowed under the contract for the same works, global claims are often referred to as the ‘total cost’ or ‘total loss’ claims.[2] However, chances for accepting such claims, whether by the client or through the dispute resolution processes, are, understandably, low. Considering the complexity of construction projects, it would not be fair and reasonable to attribute all contractor’s losses to the client except in exceptional, almost only theoretically probable circumstances. As an example, it often can be established that:

  • the contractor’s tender contained pricing errors due to misinterpretation of ground conditions which resulted in the adoption of wrong construction technologies which later had to be changed;
  • certain unit prices were far below reasonable market prices and can’t be justified in any other way;
  • some of the delays are not compensable as they were caused by the contractor itself or third parties for which the client does not bear liability.

In such circumstances it is clear that the ‘total cost’ method would not be the correct approach in presenting claims against the client.

For these reasons, and in order to create the perception of fairness in the claim calculation and presentation, ‘modified total cost method’[3] is developed for the preparation or assessment of global claims. Under this method total costs incurred are reduced for costs that cannot be attributed to the client and only then what is paid for works under the contract is deducted. What remains is the amount of the corrected claim. This method is an attempted compromise between two extremes: ‘proper claim’ with attribution of particular segregated losses to particular individual events and ‘total cost’ claim. Such middle ground approach contributes to the perception of fairness applied to the presentation and resolution of the contractor’s composite claim and increases the chances of its acceptability, whether by the client or through agreed dispute resolution process.

In case of global claims being adjudicated, referred to arbitration or courts, they will be judged according to the specific circumstances of each case. In general, global claims are not barred. An exception to this could be if the parties somehow specifically regulated global claims within their contracts. However, this normally does not happen. Beside many factors which may impact the analysis of global claims, the threshold for global claims to be seen as valid claiming approach is high. The claimant’s choice to submit global claims has to be necessitated by ‘difficult’, ‘impracticable’ or ‘impossible’ preparation of segregated, apportioned to individual events, claims.[4]

What is also often the cause of disputes between the parties is the level of detail which has to be contained within the claim. As to particularization, it has been said that each case is to be observed on its own facts but that there must be balance between excessive particularity and basic information, with due regard to cost effectiveness.[5] However, oversimplification can have disastrous consequences for the claimant even if it has established its entitlement in principle. Where the contractor claimed significant delay costs on the basis of the percentage rate of ‘preliminaries’ within the contract price, the claim failed for several reasons, including lack of evidence of expenses.[6]

As to the standard of proof required, the ‘balance of probabilities’ standard has often been referred to i.e., the alleged matter needs to be proven to be more probable than not (P>50%). In  Costain Ltd v Charles Haswell & Partners Ltd[7] , a global sum put forward as a claim was rejected because the judge was unable, on a balance of probabilities, to identify any claimed amount to relate to the respondent’s breaches established by the claimant. In Walter Lilly & Co Ltd v Mackay and another[8]  the judge considered on an obiter basis that if the contractor is putting forward a global claim this does not necessarily result in the loss of entitlement, emphasising the need for the claimant to prove its case on a balance of probabilities.

Client’s usual and ‘generic’ arguments against contractor’s global claims are:

  • the contractor’s inadequate initial planning and plans updating;
  • unfulfilled mitigation obligations (which are in the client’s view usually unlimited);
  • that there are events for which the contractor is liable and which were not reflected within the presented global claim;
  • poor claim substantiations without clearly presented individual causes and their effects.

The above client’s arguments are sometimes adequate but this will depend on the circumstances of each case. Where agreement of the parties disintegrates due to the number of the client’s failings in performance of its obligations, the contractor’s failings can’t be put on the same scale as the client’s defaults; the former are often also a consequence of the latter. Global claims may be the proper, legitimate way forward in such a ‘messy’ scenario.[9]

In order to narrow down the issues attached to the resolution of global claims, a list of possible questions parties could initially address is proposed as follows:

  • Can the client assess what claim has been made against it so to be able to put forward its defence?
  • Were procedural steps preceding the claim submission, such as early warnings, claims or any other notifications, followed?
  • Does the contract and/or applicable legislation address global claims, required standard of proof, level of particularization, concurrent delays?
  • Was the contractor genuinely not in a position, or was it highly impracticable for it, to attribute particular costs and time effects to each client’s liability event relied on within its global claim?
  • Were there any contractor caused delays, whether concurrent to those of the client or not? If yes, what is the weight of such contractor’s delays within the totality of claimed delay?
  • Are claim underlying adverse events properly connected to the client’s liabilities? If not, what is the weight of such unconnected parts of the claim?
  • Are the client’s liabilities referred to by the claimant compensable or not? If not, what is the weight of such non-compensable parts within the submitted global claim?
  • Was the contractor’s tender under-priced by reasons that can be attributed to the contractor?
  • Are the claimed actual costs reasonably incurred?
  • Is the contractor in any way responsible for the added costs?
  • Are the claimed actual costs substantiated?
  • Is there any double counting within the claimed costs?
  • Can certain parts of the global claim be isolated and assessed on individual basis and composite i.e., ‘global’ remainder of claim assessed separately?

Each of the above questions and answers to the same could lead to a set of sub-questions or to change of relevancy of other questions and their answers. Where the contractor’s global claim is seen as a genuine and justified approach, clients should identify and ask the contractor for any further details that they see as necessary to narrow or reduce uncertainties and doubts identified through the initial scrutinization.

When the client is satisfied that the claim has been reasonably developed and the chances that there are concealed issues are reduced, a sensible approach for the client would be to propose settlement at % of the claimed losses. Defining the exact % is difficult and it should approximately reflect perceived remained uncertainty and imprecision in the claim quantification. This would be more a business decision and less a matter of absolute precision. Such approach would help avoid costly and uncertain dispute resolution processes. As outcome uncertainty applies both ways, contractors would also most likely prefer early settlement of their global claim, even for sums that could generally be perceived as ‘lower than deserved’. Where answer to the scrutinization questions suggests that contractor’s global claims could be successfully challenged on several grounds, and in particular where it becomes obvious that contractors are intentionally concealing their own defaults under the global claim submission, claims are to be rejected. The client may consider limiting its arguments put forward at this stage in order to avoid contractors using the same to improve their claims in any subsequent dispute resolution proceedings.

These are the views of the author and not of Barton Legal, and should is not to be treated as advice or guidance

[1]  Vivian Ramsey and Stephen Furst, Keating on Construction Contracts (11th Edition, Sweet and Maxwell 2020) 9-

064; John Uff, Construction Law (12th Edition, Sweet & Maxwell 2017) 37-39

[2]  William Schwartzkopf and John J. McNamara, ‘Calculating Construction Damages’ (Second Edition, Aspen Publishers

Wolters Kluwer Law and Business 2001) 14; Robert Clay and Nicholas Dennys (eds), Hudson’s Building and   

   Engineering Contracts (14th Edition, Sweet and Maxwell 2019) 6-078

[3]  Schwartzkopf and McNamara (n 2) 21

[4]  Merton London Borough Council v Stanley Hugh Leach Limited [1986] 2 Const LJ 189 (Ch) 215,216

[5]  Bernhard’s Rugby Landscapes Limited v Stockley Park Consortium Limited [1997] 2 WLUK 117 (QB) [138]

[6]  Christopher Ennis and Dr Wolfgang Breyer, ‘Claims for Extensions of Time and Compensation under the FIDIC

Red Book: Civil and Common Law Approaches Compared’ (2013) SCL Paper D162, 2.1-2.16

[7]  [2009] EWHC 3140 (TCC) [257]

[8]  [2012] EWHC 1773 (TCC) [486]

[9]  Walter Lilly (n 8) [487]