(A) Terms of Agreement. The city is subject to claims by the contractor who performs the work. The terms of the project between the city and the contractor exist in the contract, the specifications and the plans. There are certain terms that are not stated in the contract documents. These are known as implied terms. For instance there is an implied warranty that the plans and specifications are free from defects and, unless stated otherwise, that there will be safe and continuous access to all areas within the project’s boundaries. Claims arise from both stated and implied terms.
(B) Claims Management Process. The city’s claims management process must meet the general framework and intent of ODOT’s Proposal Note 25, Dispute Resolution and Claims Process. This proposal note has formalized a claims management process at ODOT that requires progressive administrative reviews of a contractor’s claim prior to a filing in the Court of Claims. By requiring administrative reviews beginning at the project level, construction contract claims have been reduced. Likewise, a process for the fair hearing of a claim or dispute reduces a contractor’s risk and ultimately results in more competitive bids.
(C) Formalized Claims Process. It is required that the city formalize a claims management process that includes progressive administrative reviews prior to formal legal action by the contractor. The city’s claims management process must be prepared and approved by City Council prior to the contract award. Preferably, the claims management process would be included in the city’s bid documents.
(D) Use of Process Required. Resolution of all claims must be according to the project’s approved claims management process and approved the Service Committee or CE if the resolution affects the contract completion date and/or increases project costs.
(E) Who Can Make A Claim. The only entity that may assert a claim against the city is the legal contractor of record. If the project is being performed by a joint venture, then only the joint venture may assert a claim. A single party to the venture cannot assert a claim. Likewise, a subcontractor may not assert a claim against the city, but may make a claim against the prime contractor who, in turn, may assert a claim against the city for damages incurred by the subcontractor.
(F) Elements Of A Claim. Every claim has two distinct elements: entitlement; and damages. Entitlement is the theory under which the contractor asserts the claim. The contractor must prove entitlement. Examples are work not shown on plans, conflict between plans and specifications, third party delays, and unforeseen conditions. Damages are the cost impacts incurred by the contractor which are over and above normal costs and which are caused by the claim event. Each claim must have both of these elements. If a contractor encounters a situation where there would be an entitlement but incurs no monetary impact, there is no claim. Likewise, a contractor may state that he or she has incurred additional costs but cannot establish an entitlement, then there is no claim.
(G) Types Of Claims.
(1) The contractor shall make a reasonable effort to mitigate damages. Mitigation might include re-sequencing, reducing, re-mobilizing or changing manpower. The contractor is entitled to recover the costs of mitigation. Certain types of disputes by their nature may result in a claim. Claims may be due to plan discrepancies or omissions, allowable costs in calculating change orders, unforeseen site conditions, quantity variations, interferences and delays. Delays require careful analysis to determine who is responsible. The contractor must demonstrate that the delay was critical. It should be demonstrated that the delay in question affected the overall project schedule and was a controlling operation with respect to project completion.
(2) Delays that are unforeseeable and beyond the control of the contractor are excusable delays. Excusable delays may be either compensable or noncompensable. Delays caused by the city, such as lack of site access, late approval of shop drawing, and redesign, may be compensable. Delays caused by third parties outside the contractor’s control, such as area-wide labor disputes, floods, transportation industry delays, fire and vandalism may be noncompensable. Non-excusable delays are always noncompensable. These delays, such as subcontractor delay, late mobilization, production longer than scheduled and equipment breakdowns are caused by the contractor or under his or her control.
(3) Very often delays may occur from various sources at the same time. These delays are known as concurrent delays. The city-caused compensable delay occurring at the same time as an excusable delay that is noncompensable should result in a time extension but no recovery of costs. The city-caused delay occurring at the same time as a contractor delay should result in a time extension but no recovery of costs. Both cases relieve the contractor from liquidated damages for the time in question.
(4) The contractor is entitled to plan and pursue the work in order to finish ahead of the contract completion date. If the city delays the contractor, the contractor may be entitled to impact costs.
(H) Proof Of Claim. Proof of entitlement and proof that additional costs were incurred rests solely with the contractor. The contractor should put the city through the DOE on notice of each instance where the contractor intends to file a claim (§ 104.02 of the Ohio Department of Transportation C&MS). This notice requirement allows the DOE the opportunity to mitigate the claim situation and to begin to keep careful and specific records of the contractor’s activities, manpower, equipment and materials that are related to the claim.
(I) Analyzing A Claim.
(1) To analyze a claim the following steps should be taken.
(a) Determine the element of entitlement.
(b) Was the claim filed timely and was the DOE given the required notice?
(c) Identify the contractor’s position.
(d) What does the contract plans and specifications say about it?
(e) What do the contract documents say?
(f) Determine the actual conditions giving rise to the claim.
(g) Identify each specific claim issue. What is the position of both sides on each issue?
(h) Identify responsibility. If delay related, is it excusable vs. non-excusable, compensable or is there an issue of concurrent delay?
(i) Was there actually an impact?
(2) At this point of the analysis if there is no entitlement, then there is no claim. If there is entitlement, then continue on.
(a) Determine the element of damages.
(b) Review the contractor’s cost.
(c) Compare with the DOE records.
(d) Analyze the damages.
(J) Claim Avoidance. The avoidance of claims is best affected by proper contract management practices. The city can help prevent claims by practicing the following activities:
(1) Constructability reviews;
(2) Prequalification of contractors;
(3) Proper scheduling;
(4) Prompt resolution of change orders;
(5) Pre-bid and pre-con meetings; and
(6) Partnering.
(Ord. 131-05, passed 10-17-2005)