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AACE INTERNATIONAL CONTRACTING FOR CAPITAL PROJECTS

after project acceptance. It is not uncommon for warran- additional money, an adjustment to the time of perform-
ty clauses to require a warranty for 1 year after project ance, or some other change to the terms of the contract
completion, during which time, if any portion of the arising under or related to the contract.
project fails, the contractor is obligated to return to the
project and make it right or agree to some commercial • Universe of Claims—Under most contracts, there is a
settlement of the issue. finite number of claim types possible. While the causes
of claim situations are numerous, the clauses of the con-
As noted above, all clauses in a contract are important and tract under which relief may be sought are limited.
must be complied with in order to avoid any allegation of Typically, there are only eleven types of claims in most
breach of contract. Good contract administration requires contracts. They are the following.
knowledge of and compliance with all clauses. Some clauses,
especially those identified above, are more important than oth- • Directed Changes—Claims resulting from directed
ers. Cost engineers and project controls personnel must become changes ordinarily involve a dispute over the time
intimately familiar with the terms and conditions of any con- and/or cost of an owner directed change. That is, while
tract they work on. In reading and interpreting contracts, it is a change to some aspect of the work has clearly been
a fundamental rule of law that contracts must “be read as a directed by the project owner there is a dispute concern-
whole.” That is, it is a rare situation for a single clause in a con- ing the time and cost impact of the changed work.
tract to be definitive of an issue. Therefore, people dealing with
contracts must read the entire document many times in order • Constructive Changes [1]—Unlike directed changes, a
to fully understand and appreciate all terms and conditions. constructive change is an owner action, which has the
unintentional effect of requiring the contractor to do
more than is required by the contract and results in addi-
CHANGES tional cost or time being incurred. It is an accidental or
unintended change to the work.Owner comments per-
A frequent occurrence on almost all contracts is change. All taining to a contractor submittal, not intended to be a
contracts contemplate the probability of changes to the work. change, may bring about a change to the work and result
It is incumbent upon both the owner and the contractor to in time and/or cost impacts.
establish formal systems to identify change as soon as it aris-
es, and to estimate and negotiate the full time, cost, and • Differing Site Conditions—These are classically
impact of the change as quickly as possible. Projects that do described as encounters with latent (hidden) physical
not deal adequately with change as it occurs are destined to conditions at the site differing materially from the condi-
end up with major end of job disputes. On almost all con- tions indicated in the contract documents or conditions
tracts, changed work involves cost and may involve time (as normally encountered and reasonably anticipated in
in a delay to the end date of the job). Of equal importance, work of this nature in this area.
and perhaps at even greater cost, is the impact of change
including such things as follow on work being delayed into • Suspension of Work—This is an owner directive to stop
bad weather periods, increased labor or material costs, and some or all of the work of the project for a limited period
impact to unchanged work. All such elements of change of time.
should be dealt with as promptly as possible in order to • Constructive Suspension of Work—This is an acciden-
avoid later disputes. tal or unintended work stoppage caused by some owner
action or inaction which, while not intended to cause a
work stoppage, has the effect of doing so. For example, a
CLAIMS failure by the owner to act on a contractor submittal con-
cerning a piece of equipment that is on the project’s crit-
ical path. While the owner probably did not intend to
It is not infrequent that disputes arise on projects that cannot stop work, their failure to approve the submittal may
be resolved easily. Typically, such disputes are referred to unwittingly cause the contractor to not purchase, deliver
under the rubric of a “claim.” Claims, like changes, should be and install the equipment in a timely manner.
addressed promptly and resolved in accordance with the
terms of the contract and as soon as possible. It is almost a cer- • Force Majeure—Force majeure events are usually
tainty that the longer a claim remains unresolved on a project described as unforeseeable events brought about or
the harder and more expensive it will be to resolve later. caused by third parties over which neither the owner nor
the contractor exercise any control. For example, an
• Definition—The term claim is generally defined in law areawide strike of operating engineers may shut down
as a written demand or assertion by one of the contract- work for a period of time.
ing parties seeking, as a matter of legal right, payment of

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