15 of 19: Dealing with the Claims Oriented Contractor

Part 15 of Our Series on Construction Project Management Skills

XV. Dealing with the Claims Oriented Contractor

A. Common Claims Manufacturing Techniques

Claims oriented contractors use similar devices in order to manufacture claims of dubious validity. Contractors count on their ability to distract the owner's representatives, their creation of a unilateral paper record, and a surprise claim to catch project personnel surprised and anxious to resolve claims.

1. Papering the Project; RFI Loading and Related Techniques

A common element of claims is the assertion that unanswered RFIs delayed the project. The claims oriented contractor presents a dozen RFIs all at one time, every one marked urgent, and each one delivered right before critical work is to begin. The project manager and staff stay in the trailer, working with design professionals to craft responses, and are not on site to track what is going on.

A related technique is to send off a constant stream of correspondence. The objective here is again for the project management team to become overwhelmed, and fail to respond to some of the letters. The contractor's correspondence then becomes the only record on a particular issue.

The paper wars must be fought. If needed, additional personnel should be recruited to ensure that there are rapid responses to correspondence. In addition, the project manager should consider whether to begin documenting the issues that the contractor has failed to address. The only solution to the paper wars is to show the capability to respond to every issue promptly, and raise additional issues in response. Once the contractor learns that this is not an effective method, the contractor will usually back off, but will return to this device when it provide the contractor with an advantage.

2. Presentation of Cheaper Substitutes as "Or Equal" Products

In order to shave off a few dollars, but perhaps more to distract project personnel, claims oriented contractors tend to favor an ongoing series of proposed substitutions. In most instances, the proposed substitutions are of inferior products. Each request, however, takes the project management staff hours of research to note product differences.

3. Characterizing Suggestions as Directives

A common means by which contractors manufacture claims is to ask the project management staff for suggestions on how to approach a particular problem. In responding to this request, the project manager suggests a method to the contractor. The contractor then sends a letter, confirming the directive of the project manager, and requests additional compensation for the change in the contract. This letter usually arrives on the project manager's desk a day or so after the suggestion has been received, and the work that was the subject of the purported directive is by that time already completed.

Project managers need to respond swiftly and decisively to any attempt to characterize suggestions as directives. The date of receipt of the notification should be noted, the events and discussions that took place on site should be described in detail, and there should be reference to the procedures used to provide directives to the contractor. The contractor should also be reminded that the only directives provided by the project manager are made in writing and are labeled directives.

4. Misdirection in the Cause of Delays

Contractors often use delay claims as a cover to disguise the impact caused by delays that originated with the contractor. The contractor, for example, may have to pull personnel off the project for a week to address a crises on another project. The contractor then claims that the slow progress over the past week is because there has been no response to an outstanding RFI or other request of the contractor.

Project management needs to keep a constant presence on the jobsite, and be on the lookout for sudden changes in staffing, equipment demobilization, or frequent absences from the jobsite by construction superintendents. At the time that these events arise, it is usually a simple matter to ask where the personnel and equipment are going, or where is the superintendent, and learn of other projects or events that are causing these circumstances. The name of the other projects and the circumstances leading to the personnel shift should be noted in the daily reports.

5. Much Ado About Nothing

Another common technique is to deliver a stream of complaints about problems affecting productivity and causing delay impacts at a time when there is normal or reduced activity on the site, but no significant impacts preventing the contractor from proceeding with work.

In response to this tactic, the project manager should be ready to note in detail the work that is available to the contractor on the project site and the absence of any impacts causing delays or disruption.

6. Ignoring Claim Submission Requirements

Claims oriented contractors will often attempt to ignore or provide minimal information in giving notice of claims. Claim notification will rarely provide the details of costs or other impacts. There is usually a statement to the effect that a certain cause has resulted in a delay, and when the contractor determines the costs, the contractor will notify the owner. This notification is often buried in a letter with a litany of other complaints.

This form of minimal notice poses significant risk to the continued management of claims at the project. If the project manager does not take steps to force the contractor to comply with the contract claims submission process, the contractor will then have the argument that there was a tacit waiver of the claim submission requirements.

Upon receipt of any document that has the slightest odor of the intent to file a claim, the project manager should respond by reminding the contractor that if it intends to file a claim, it should follow the claim filing requirements of the contract. If the contractor has attempted to characterize a non-complying notice as notification of the claim, the notification should be rejected in writing, with a request to follow the provisions of the contract concerning claim notification.

7. Providing Grossly Overstated Requests for Additional Compensation

Another claims manufacturing technique arises when the contractor is requested to provide pricing for the performance of additional work. The contractor presents a price that is many times greater than what the work merits, and begins a back and forth exchange with the project manager concerning the reasonableness of the pricing.

The true intent emerges later, when the contractor announces that the owner's failure to approve the change order is now delaying the project, and a substantial delay claim is then added to the already inflated cost quotation.

This is where force account provisions in a contract can be of great benefit to the project manager. Upon receipt of a quotation that appears substantially overstated, the project manager should consider directing to proceed with work on a force account basis, and not be drawn into a dispute concerning the compensation requested by the contractor.

9. Strained Interpretations of the Contract Documents

Another common distraction technique is to raise interpretations of the contract documents that justify additional compensation. Generally, these interpretations may be alluded to at some point early in the project, but are not clearly stated until after the work that is the subject of the interpretation has been completed. The contractor then claims that this interpretation had been previously addressed with project management, and that project management had raised no issue with the contractor's interpretation.

Project managers should be attuned to subtle statements in correspondence or other communications that suggest that an issue concerning the contract, the work, or purported delays exist. The contractor should be repeatedly reminded that if there is an issue concerning the interpretation of the contract, that an RFI should be issued, and if there is a claim that the contractor wishes to assert, the claim notification procedures should be followed.

When the "gotcha" letter from the contractor finally arrives, the project manager should go through the history of correspondence concerning the repeated notifications to follow the RFI and claim notification process, and note the contractor's repeated failure to comply with those requirements, as well as describe when the work in dispute was completed, if relevant to the discussion.

B. Traps, Tricks and Ploys

1. The "Cease Fire" on Letter Writing.

A surprisingly common ploy by contractors is to lull the project management staff to believe there has been an agreement to stop the letter writing wars. Immediately after a barrage of correspondence, the contractor will contact the project management staff and request that an end be put to all the letter writing. The project manager is all to pleased to accept this offer, and in the spirit of this new found cooperation, does not write the contractor to confirm this understanding.

Anywhere from a couple days to a few weeks pass, and the contractor unleashes a barrage of correspondence, complaining about the project manager's failure to respond to his last five letters. When the project manager inquires regarding the agreed "cease fire," the contractor denies that any such agreement ever existed, or that the "cease fire" did not apply to issues that were outstanding.

If this proposal is made by the contractor, the best response is to continue to respond to issues fully and completely, but invite the contractor to conduct his own "cease fire" on submitting correspondence.

2. Requests to Modify Contract Requirements

Another common refrain of the claims oriented contractor is the attempt to modify contract requirements. If the project manager declines the proposal, the contractor claims that he is being treated unfairly and that the project manager is being unreasonable. If the project manager does decide to show some lenience to the contractor, the contractor's requested change is usually a springboard to a substantial claim.

The significant risk when a contractor attempts to change contract requirements is that this will lead to an argument that there were so many changes to the contract, that the contract no longer resembles the agreement originally reached, and that the contractor should be entitled to full compensation under a "total cost" method of damages. A total cost method involves the contractor's submission of a claim for all of the costs incurred in excess of the compensation received. The total cost method is a method of presenting a claim without demonstrating any link between the claim amount and the cause. These type of formula claims are very commonly used by claim oriented contractors, because it avoids having the contractor specify the actual impact of a particular delay.

Project managers should stick to the contract in dealing with a troublesome contractor. There is no benefit to bending the contract to assist the contractor. Contrary to the contractor's ravings to the contrary, there is nothing "unfair" about requiring the contractor to comply with the requirements of the contract, in the absence of some extreme and unjust hardship.

3. Personal Insults

Claims oriented contractors count on getting project managers upset with their antics. Part of the plan to set up unsuspecting project managers is to paint them as hysterical, biased and unreasonable. A good way to do this is to make personal attacks against the project manager's competence. Contractors will often take something that they find out about a project manager, and create stories that are very difficult to refute and personally embarrassing. One contractor claimed that a project manager was drinking on the job, and went into the jobsite trailer to kill himself. On another occasion, a contractor used his knowledge of the project manager's recreational pursuits to claim that the manager was never at the project site in the afternoon, he was always taking off early to go windsurfing.

The outrageousness of these accusations lend credence to the contractor's position, and undercut the credibility of the only person on site who could contradict the contractor's contentions.

4. Going Up the Ladder

There comes a point where the relationship between the contractor and the project manager begins to break down. The project manager has gotten wise to the contractor's claims oriented approach and refuses to participate in any more of the contractor's games.

The contractor reacts by claiming that the project manager is incompetent or that the contractor is being treated unfairly. The contractor begins sending correspondence to the supervisor of the project manager. The supervisor is surprised to receive communications directly from the contractor detailing various problems with the project management, and begins an inquiry. Now, the project manager starts getting attacked on both flanks. The investigation by his supervisor is personally embarrassing, and there may be concern that the attacks by the contractor may ruin the project manager's career.

5. The Cascading Stream of Consequences

Claim oriented contractors employ a variety of techniques to create the illusion that the project has constantly been disrupted as a result of all of these issues, creating a justification for a wildly overstated claim. Correspondence continually repeats the litany of issues that has resulted in protracted delays, which has pushed the contractor into wet weather, which has delayed completion of the project for several months.

C. Defending Against the Change Order Machine

1. Keep Project Documentation Consistent

In dealing with claims oriented contractor, the most important objective is to gather as much data as possible concerning the performance of the contractor and the site conditions. During periods of on again and off again rain, the contractor will often try to get a free time extension by claiming there were rain days on days when the site was suitable for construction activities. The project manager should go to the site and record conditions on a daily basis, noting the work that is available, the number of personnel and equipment in use on the site, and the presence of supervisory personnel for the contractor. Take photographs every day at the project site.

In addressing project correspondence, the objective is to fully and completely respond to every issue raised by the contractor. When claims are received, the response to claims should not end at a discussion of whether there is entitlement to any compensation. The project manager should go on to address the items being claimed by the contractor.

The tone of all communications should be professional. Avoid the temptation of employing the contractor's claims manufacturing techniques back upon the contractor.

2. Stay with the Contract Requirements

Repeated reference to the contract requirements is generally the safest route in dealing with the claims oriented contractor