Construction contracting businesses have the second highest bankruptcy rate for a private business. There might be several reasons like a late payment, one unpaid change order, an expensive rework or an unanticipated legal claim which can hamper the progress of your company.
Construction claims are a hassle and the best way to deal with them is to avoid them. Spending a lot of resources like money and time on a long litigation process would affect your business as well as impact the budget plans for the year. In this article, we’ll look at different types of construction claims and what can be done to avoid them.
Most Common Construction Claims
There are several types of construction claims that a construction company might encounter. Below are the few types which the sources of disagreement between clients and a construction company might be.
Construction Change of work order Claims
Change of work order claims are related to the scope of work and these changes are typical when a client requests a contract variation or when the contractor sees an unforeseen condition and is required to respond. These claims involve the scope of work and whether the change requested falls within the pre-existing agreement.
Price Acceleration Claims
Sometimes contractors are required to exceed the pre-proposed budgets to complete a project as per the construction schedule or ahead of the construction schedule. These claims arise when there is a disagreement between contractors and clients on who is supposed to bear the additional costs incurred for accelerating the work.
Delay in Construction Claims
If the completion of the project is taking more time than the pre-agreed timeframe the client might file a construction claim against the contractor. The client may file a claim because of the delay in the project and the delay is resulting in financial or productivity loss to the client.
From time to time, construction contractors damage the property while completing the project as per the construction schedule and may be held liable for such damages. The client can file a damage claim against the contracting company.
Different Site Conditions Claims
The different site-conditions claims arise when there are variances in the way the client has described the site in the contract and the actual condition of the job site. For example, the client says the site is a grass field, but it turns out to be a plateau, the contracting company can file a claim against the client.
How to Avoid the Claims
Preventing construction claims won’t be a cake walk or as easy as just following a few steps. There are a lot of things that a construction company can do avoid these claims. Below are the few things that your company can do to avoid claims against your contracting company.
Prepare Great Contracts
A contract with a clearly defined scope of work will help in mitigating the claims related to any work not being finished or any extra work needed. When it comes to the contract, be transparent about the offerings and what the customer should expect from you.
Build Relationships with Clients
Building a strong relationship with a client can go a long way when things are not going your way. The possibility of reaching a resolution would be way higher when you have a great relationship.
Most claims are a result of a simple misunderstanding that could have been resolved just by having better communication. Most of the project management software available now make it easier for communication to have a smooth flow. Having documentation of all the communication would help in future discussions.
Have Good Insurance
It is better to be insured for property damage liability than undergoing the long legal processes. By having a good insurance plan, you can completely avoid the consequences of accidental property damage. It is a good idea to have insurance and pay the premium than having to deal with all the hassles associated with the claims.
Construction claims are like facing lawsuits in other businesses. Avoiding these claims is like avoiding lawsuits. At the end, it all comes down to communicating effectively with your clients and meeting the expectations. Maintaining detailed contracts, good relationships and ensuring your business will go a long way to keep your contracting firm safe. All of this can be achieved through effective construction planning.