Construction projects don’t fail all at once – they unravel gradually, often under the radar of even the most experienced teams. Missed deadlines, cost overruns, and disputes are typically symptoms of deeper issues, like unclear planning, mismanaged schedules, or incomplete documentation.
When left unaddressed, these challenges escalate into claims, draining time, money, and relationships. The good news is that with proactive, well-documented analysis, you can take steps to avoid construction project claims and subsequent disputes.
It all comes down to a choice between objectivity and subjectivity.
What are Construction Claims?
A construction claim arises when one party on a project believes they are entitled to additional time, money, or other remedies due to a perceived deviation from the agreed contract. Claims often center around delays, disruptions, unforeseen site conditions, design changes, or scope creep.
While these issues are common in the construction industry, how they are managed can mean the difference between a resolved disagreement and a costly dispute. For contractors and owners alike, construction claims can lead to additional costs, extended timelines, and strained relationships.
Beyond financial impacts, claims consume valuable resources—time spent arguing over causation, documenting evidence, and navigating legal channels is time not spent advancing the project or closing it out successfully. By avoiding claims through proper planning, communication, and documentation, companies can focus their energy on delivering projects efficiently and profitably without the distractions and risks associated with prolonged disputes.
Common Types of Construction Claims
Whether you are an owner, general contractor, or subcontractor, understanding the categories of construction claims can help you avoid additional costs, additional time, and the strain of a protracted construction dispute. Below is an overview of the most common claim types, giving project stakeholders the foresight to anticipate and address potential risks.
Construction Delay Claims
These types of claims occur when a project does not proceed as planned, causing an extension of time.
Delay claims often revolve around disagreements over the reasons for delays, such as excusable delays (e.g., unforeseen weather events or acts of God, versus non-excusable delays caused by avoidable factors like mismanagement or resource shortages. Determining whether a delay is excusable is key to deciding responsibility for associated costs or schedule impacts.
Acceleration Claims
Acceleration claims occur when a contractor is required or compelled to complete work faster than the agreed schedule. These claims can arise from direct orders to accelerate (directed acceleration) or situations where the contractor expedites work to mitigate delays without formal direction (constructive acceleration).
Cost Overrun Claims
Cost overrun claims arise when actual project costs exceed the agreed budget. Causes include inaccurate cost estimates, scope changes, or unforeseen conditions requiring additional resources.
Design Deficiency Claims
Design errors or omissions that lead to increased costs, additional work, or project delays are the basis for these claims. They often highlight incomplete plans or conflicts in design documents.
Changes in Scope Claims
These claims stem from disputes over whether additional work is outside the agreed project scope, often resulting from ambiguous construction contracts or evolving project requirements.
Quality of Work Claims
Claims for substandard work or materials arise when the final product fails to meet contractual quality standards, potentially requiring rework and compensation.
Payment Disputes
Payment disputes involve late payments, underpayments, or disagreements about the amount owed for completed work.
Warranty Claims
These claims address defects discovered during the warranty period, holding contractors accountable for their obligations under the contract.
Termination Claims
Termination claims occur when one party prematurely ends a contract, leading to disputes over damages or compensation for incomplete work.
Unforeseen Site Conditions Claims
Site conditions claims arise when actual site conditions differ from those described in the contract, such as hidden utilities, soil conditions, or hazardous materials.
Liquated Damages Claims
Liquidated damages claims involve pre-agreed penalties for failing to meet contractual deadlines or performance targets.
By recognizing these categories, project stakeholders can better anticipate, document, and resolve disputes before they escalate into costly claims.
How Can You Avoid Construction Claims with CPM Schedules? SmartPM’s 10-Step Guide
Embracing an objective, fact-based approach reduces your risk during the dispute resolution process. It also clarifies the genuine impacts on your projects, including causation.
When paired with CPM scheduling, objective analysis paves the way for an iron-clad settlement strategy, offering the dual benefit of addressing internal project issues and minimizing construction claims.
As these challenges are resolved, they lay the groundwork for smoother project execution. Over the course of conducting similar analyses for numerous clients, I’ve gained valuable insights into the root causes of losses and claims.
So, here is a list of things companies can do to minimize losses and mitigate claims effectively.
1. Prepare a Cost-Loaded or Resource-Loaded CPM Schedule
Developing a cost or resource-loaded CPM (critical path method) schedule is the first step any project should take. These schedules establish and document a workforce plan, timeline, and intended flow for their work. This is beneficial for two reasons:
- It is the basis for measuring impacts and variances to both cost and schedule in a construction project claim setting.
- It serves as a great project management tool.
Thinking through workforce requirements, durations, and workflows at the outset greatly reduces the risk of a project becoming delayed and over budget.
2. Use a CPM Schedule to Manage the Project, Not as a Reporting Tool
The majority of construction claims result from impacts and delays over time. However, as a claims consultant, I noticed that the schedules analyzed on these projects consistently showed a static end date, indicating schedule compression.
While compressing a schedule might seem achievable, many of these projects used this tactic to the point that the schedule was unachievable. When that happens, the schedule is no longer a management tool. Rather, it becomes a means to indicate the project is progressing as planned. Inevitably, the truth presents itself after over-compression leads to cost overruns.
CPM scheduling technology is highly useful, but only if you adopt a realistic approach. If your project experiences delays, take note of the delay within the schedule. Then, discuss it with the teams involved to develop and document a mitigation plan. Do not remove logic and shorten durations unless you’ve discussed it as part of your mitigation strategy.
Crashing your schedule consistently results in silent, unknown losses. Avoid over-compression as much as possible so your schedule can be used to manage your project. Again, to avoid construction project claims, you make your schedule as feasible as possible throughout the project lifecycle.
3. Track Actual Workforce Required in a Detailed Fashion
While the workforce required is tracked on most projects for accounting purposes, it is rarely captured as a way to understand productivity. Productivity should be studied at the activity level as per the CPM schedule. At the least, it should be tracked for every trade in every area of the project–i.e., on each floor.
Productivity data (including productivity losses) should be captured daily for all work on the construction site. If X number of subcontractors worked on an activity, take note of the number of people and duration of time spent. This information is paramount to controlling costs and project schedules. Schedule control software like SmartPM simplifies schedule data analysis, eliminating the need for extensive manual efforts.
4. Build a Detailed “As-Built” Schedule
As a consultant dealing with construction project claims, the first thing I often did was create a detailed “as-built” schedule. This is not your standard software’s “as-built” printout, as these tend to lack significant historical data.
While start and finish dates and monthly percentage completes are useful, they are not enough to handle a claim, much less a dispute. You need data that pinpoints and manages impacts as they are happening.
Detailed “as-built” schedules include this type of useful data, explaining why delays happen and offering clarity for claims or dispute resolution. It only takes 15 minutes daily to construct and is worth its weight in gold.
5. Regularly Study Impacts and Causation
Before you can study impacts and causation, be sure you have done the following.
- Created a cost- or resource-loaded baseline schedule.
- Updated and utilized it to accurately reflect the planned course of action on a regular basis.
- Tracked detailed workforce breakouts on a daily basis.
- Used that information to build a robust “as-built” schedule in real time.
After following these steps, you can understand impacts and causation at any given point of the project lifecycle.
A main contributor to delays and overruns in construction is the lack of knowledge of critical impacts in real-time. Many critical delays and impacts identified during the claims process begin as minor issues and then snowball into major problems from which projects cannot recover. The sooner you identify critical delays and impacts, the better the chance of overcoming them.
6. Discuss Problems When They Arise
While discussing project problems might seem like your worst nightmare, it offers an avenue for collaboration. CPM schedules are highly useful for this. They are an excellent information tool, as they hold the main points of discussion for collaborative project management.
When construction companies maintain honest, timely communication, projects run more smoothly. Greater transparency builds trust, leading to fewer disputes and stronger relationships overall.
7. Document the Outcome of Delay Discussions
Documenting the outcomes of all delay-related discussions is crucial for posterior protection. When millions of dollars are at stake, verbal conversations can be misinterpreted or forgotten.
So, ensure all discussions surrounding impacts, mitigation strategies, acceleration requests, and the like are documented. This ensures you have the necessary information during project closeout. Project correspondence like RFIs, change orders, and letters are great; emails work just as well.
8. Automate Payment Methods
Automating payment processes helps streamline the management of financial obligations on construction projects. With automation:
- Payments are processed faster, reducing the risk of disputes related to delayed or incorrect payments.
- A transparent payment trail is established, making it easier to verify compliance with contractual obligations.
- It minimizes human error, ensuring consistency and accuracy in invoice approvals, payment scheduling, and tracking.
This proactive approach mitigates potential disputes, which are a common cause of claims in construction.
9. Manage Progress Reports and Documents
Efficiently managing project documentation (most notably, CPM schedules) is critical for preventing claims. By ensuring that progress reports and related documents are detailed, accurate, and regularly updated:
- You create a factual record of the project’s status, including milestones achieved, delays encountered, and mitigation efforts implemented.
- This documentation serves as an invaluable resource for resolving disputes, as it provides objective evidence to support claims or defenses.
Using software like SmartPM can make it easier to centralize and retrieve records, avoiding the chaos of misplaced or incomplete files. When records and documents are meticulously managed, you reduce ambiguities that could lead to disputes.
10. Set Clear Expectations in Contracts
The foundation for avoiding claims lies in a well-structured contract that sets clear, precise expectations for all parties. To achieve this:
- Clearly define the scope of work, schedule, payment terms, quality standards, and risk allocations.
- Include clauses in your contract documents that address potential scenarios, such as delays, differing site conditions, and scope changes, specifying how they will be managed.
- Make sure all parties understand their roles and responsibilities before work begins. By setting unambiguous expectations, you reduce the likelihood of misunderstandings or disagreements, creating a collaborative environment that focuses on project success.
These steps, when combined with the proactive use of CPM schedules and a collaborative approach to issue resolution, significantly reduce the likelihood of breach of contract or contract disputes.
How Can Construction Companies Manage Claims?
If you ever find yourself in a claims situation, know that effectively managing claims is all about being proactive, thorough, and collaborative throughout a construction project. By addressing issues as they arise, understanding your contractual obligations, and creating strategies to identify and manage risks, you can mitigate disputes before they escalate into formal claims.
Below are the four essential practices to help construction companies handle claims effectively.
Address Issues Promptly
Tackling problems as soon as they surface prevents small issues from snowballing into major disputes. Open lines of communication among stakeholders ensure that challenges are identified early, enabling timely resolution. Proactively addressing delays, cost overruns, or quality concerns also builds trust and strengthens relationships between parties.
Understand Your Contract Terms
I cannot stress this enough: a clear understanding of your contract terms is crucial in managing claims. Contracts outline the roles, responsibilities, and risk allocations of all parties. Familiarize yourself with key provisions, including clauses related to delays, changes, or unforeseen conditions. When disputes arise, an in-depth knowledge of these terms allows for stronger negotiations and claim defenses.
Learn How to Identify the Root Cause of the Issue
As mentioned above, many claims are symptoms of deeper project challenges, such as poor planning, misaligned expectations, or gaps in communication. Analyzing the root causes of disputes helps address the underlying issues, minimizing recurrence and improving long-term project outcomes. This often involves reviewing schedules, resource allocations, and documentation to pinpoint the source of delays or disruptions.
Create an Emergency Plan for Risk Management
No project is immune to risks, but having a well-prepared emergency plan ensures that issues can be managed efficiently. Develop a plan that includes risk assessments, mitigation strategies, and a process for addressing unexpected challenges. A structured risk management approach reduces uncertainty and equips project teams with the tools to respond quickly and effectively when problems arise.
How Do Claims Affect the Construction Industry?
Claims have a ripple effect across financial performance, stakeholder relationships, project delivery, and the industry overall. Financially, they drain resources and increase costs, sometimes leading to construction lawsuits or arbitration. Relationships between owners, contractors, and subcontractors strain under the weight of unresolved claims, sometimes damaging long-standing partnerships.
On the ground, claims slow project delivery, creating bottlenecks and jeopardizing timelines. Zooming out, the industry as a whole suffers from inefficiencies and distrust as claims become a recurring theme in contracts and operations. Addressing claims early and managing them effectively ensures smoother project outcomes and strengthens trust within the industry.
Conclusion
Overcoming construction claims demands objectivity, detailed planning, open communication, and meticulous documentation. A structured protocol integrating these principles into construction management significantly reduces risks and helps ensure timely, dispute-free project delivery.
Take control of your projects. Equip your team with tools like SmartPM to streamline planning, improve visibility, and proactively manage risks. Learn more and safeguard your projects today.
