346 CHAPTER TWENTY
Estimates
Invariably, every claim seems to include some form of esti-
mate. An objective review of the source material and methods
upon which the estimate was based will often show weak-
nesses or deviations from accepted industry practice. In any
case, it is extremely difficult to determine the amount of a
claim or counterclaim without preparing careful estimates of
the work involved.
Schedules
Another facet of construction that seems to contribute to
the most controversy is scheduling. Scheduling controver-
sies arise not only from poor planning, on occasion, but
also from disagreement over construction methods or
sequences of operations. Often, these disputes occur where
a project is constructed under multiple prime contracts,
such as those commonly experienced in a professional con-
struction management (PCM) contract. The absence of
any contractual relationship between the individual prime
contractors or the architect/engineer has been the root
cause of numerous disputes.
Scheduling techniques such as CPM or other net-
work scheduling systems and their associated computer-
generated printouts have only served to compound the
problem. Often the owner has stacks of computer print-
outs that it either does not want or does not know how to
read. Yet, somewhere in that stack of paper may well be the
key to success in the defense of claims being made against
it. The question of scheduling methods of operation and
the impact of deviating from the anticipated schedule
requires a careful analysis to determine the reasonableness
of the originally anticipated schedule in conjunction with
the planned methods of operation. The analysis of every
schedule-related problem is unique, and every such analy-
sis should include a review of the anticipated sequence
and schedule together with a review of the actual progress
of the work. The review must include an analysis of any
delay and impact caused by all parties to the progress of
the project.
Costs
It is in the presentation of cost data and their supporting
documentation that most construction claims are the
weakest. A carefully detailed reconstruction of all con-
struction activities and their related costs must be made
and presented so that they can be clearly identified for use
in negotiating affirmatively or defensively. Construction-
related organizations are reported to be poor in their cost
record-keeping systems (or lack of systems) and to lack
the ability to relate costs to possible claims areas. An
accounting firm is not the answer either, as often those
cost items relating to potential claims are not identified by
an accounting firm because most accounting firms are not
familiar with the cost control procedures for construction
contracts.
Claims Administration
There are several common forms of settlement of contractor
claims costs. Principally, these include lump-sum settle-
ments with or without qualification, and time and materials
settlements. The type of settlement generally favored under
Clean Water Grant Projects is the lump-sum approach. With
that type of settlement the owner and the contractor reach
an agreement on the total amount of money and time
required to complete the work. This agreement may be
reached either before or after the work has been completed,
with the advantage that it places a price ceiling on the entire
dispute, and on Clean Water Grant Projects facilitates the
grantees application for funding from the administrators of
the funding.
The most desirable form of a lump-sum settlement is
the so-called no fault settlement, which allows resolution
of the dispute without determination of fault. With this type
of settlement, in exchange for the issuance of a change order,
the contractor gives a full accord and satisfaction and a
waiver of all claims arising out of the incident.
A variation of the no-fault settlement is one wherein the
owner may obtain a unilateral reservation of legal rights that
will enable the owner to sue for a portion of the claim settle-
ment after full payment has been made to the contractor
upon completion of the project. This type of solution is of
special value on Clean Water Grant Projects by helping to
solve the contractors cash flow problems related to the claim
and gives the owner a chance to recover funds that may later
be determined to be ineligible for payment by the adminis-
trators of the grant funds.
With the time and material settlements, the contractor
performs the work and submits documented charges for all
materials, labor, and equipment used on the affected work.
This type of settlement has one advantage, namely, the
opportunity for the contractor to begin work without prior
negotiation of costs involved. It has a disadvantage as well.
By this method a contractor can artificially increase the cost
and time required to complete the work and inflate the costs
submitted to the owner for payment.
A similar approach is sometimes referred to as force
account. This is based upon a contractual agreement whose
terms are generally spelled out in the General Conditions of
the contract for payment of extra work. It is generally
applied in conditions involving an unexpected condition
that leads to extra work and involves a prearranged formula
for reimbursing the contractor for the costs of labor, materi-
als, and equipment plus a fixed percentage for overhead
expenses and profit, and the allowable surcharge that will be
permitted to be applied to the billings of its subcontractors
and suppliers. A contractor does not waive its rights to claim
extra costs over and above the amount allowed by force
account, if it can be justified and verified; however, it is