Site extensions : how do you build a solid claim?

Carrying out a construction project isn’t without financial risk for a general contractor. The contractor's revenue may decrease due to modifications of the terms of the workmanship and changes requested by the client during course of the work, disrupting the construction site. 

Such events can lead to delays in the deadlines specified in the contract and jeopardize the profitability of a construction project as a whole. While contractors have resources, project managers must adopt preventive measures before construction begins to anticipate and effectively manage such situations.

Applicable Law

In a fixed-priced contract, the contractor is primarily subject to two fundamental obligations: (i) ensuring that the structure they construct can serve its intended purpose and (ii) completing the work within the agreed contractual deadlines. These are obligations of results, and their breach gives rise to the contractor's liability to the client.

Despite their best efforts, contractors cannot control every aspect of a site. Clients may request modifications that could affect ongoing construction work. In such circumstances, the contractor can obtain compensation for such unplanned work. Let's explore this further.

In a fixed-priced contract, the legislation stipulates that the price must remain unchanged even if modifications are made to the initially planned execution conditions unless the parties have agreed otherwise.  However, when expressly provided for in the contract, changes made by the client during the execution of the works may, in some instances, justify a modification of the contract price.

As a result, the contractor's right to file a claim for additional work is affected. On the one hand, compliance with the stipulated compensation procedure provided in the contract is required, except under special circumstances. On the other hand, the contractor must be able to demonstrate that this work was requested by the client or resulted from unforeseen execution conditions due to ambiguities, deficiencies or errors in the initial plans and specifications. 

Ultimately, the contractor must demonstrate that the construction delays are attributable to causes beyond their control. To do so, they must establish a direct link between the schedule delays caused by changes and the critical path of the work. These causes must not result from their own fault, their methods or management of the site, their choice of subcontractors, or their own requests to the client; the reasons for the delays must be external to the contractor.

Therefore, modern and effective tools must be implemented to ensure that, during the course of work, links can be established between the delays caused by new site conditions and the critical path of the work. It is no longer appropriate or sufficient to assume that any additional work, delay, change, problem, amendment, or unforeseen modification systematically leads to additional delays on the completion date of the works.  Many requested changes do not automatically translate into an impact on the critical path.  This is why contractors can choose the one that suits them, thanks to the wide range of now-available computer programs. This allows for the evaluation of each change in isolation and understanding its real-time consequences on the project schedule and initial budget.

Practical Suggestions 

As we have established, the contractor bears the risks associated with working on a construction site, except for those not attributable to them. To achieve this, it is preferable to anticipate potential execution difficulties before the work begins and to fully understand the repercussions of any changes that may occur as the work progresses.

Firstly, we suggest proactively analyzing the scope of work to be completed within the contractual deadlines. In this sense, it is considered best practice to evaluate and plan for the following: means, methods, techniques, sequences, work procedures, work teams and schedules, equipment and tools, as well as site conditions. This exercise should be carried out in parallel with developing the project's reference schedule and determining its critical path. Project cost estimation is a serious exercise that requires a concrete approach. The projections should reflect the contractor's intentions for the construction of the work following the terms of the contract.

Secondly, it is essential to establish and maintain a detailed and reliable project schedule that specifies each project activity and its sequencing. Without such a schedule, it will be very difficult, if not excessively risky, for the contractor to justify a compensation claim. Indeed, they will be unable to identify the affected activities on their schedule and the resulting costs. Control of the project schedule is, therefore, crucial for preparing a claim based on changes or unforeseen events during the execution of the work.

Thirdly, we recommend that contractors prepare a comprehensive inventory of all modifications and changes made during the work, such as a table or list. It is crucial to indicate when these changes were requested by the client or otherwise required, as well as the estimated costs of these changes. This inventory should be integrated with cost studies (or cost tracking) to identify cost overruns, activity by activity, and to compare them with the initially planned budgets. These tools facilitate the identification of underperforming activities in real time and allow project managers to adjust their contractual performance during the course of the work.

The integration of these strategies, both in anticipation and during the course of work, positions the contractor in an advantageous position to individualize and quantify the impact of each change.  This will allow the contractor to claim excess costs related to the extension of the site that are not their responsibility. Such a request for compensation can thus be successfully presented to the client.

In conclusion, while the fixed-price contract (absolute or relative) may constrain the contractor, it does not allow the client to make any changes, modifications, or amendments. This assumes that the initial cost for executing the work remains entirely immutable. Ultimately, this type of contractual agreement requires constant communication and collaboration to avoid any dispute between the parties.