1. Introduction

All too often, things go wrong on construction projects for reasons beyond the control of a contractor or subcontractor and for which they should be compensated under the terms of their relevant Contract. Yet our experience shows that too frequently because of a failure to give the appropriate notice or due to the inadequacies of the records, they fail to achieve a satisfactory financial settlement. Unfortunately, it is not usually possible to remedy such a situation retrospectively.

These notes are designed to help contractors and subcontractors avoid the kinds of problems described in the last paragraph and to put them in a position where a proper settlement is achievable provided that a properly presented submission is prepared. The notes should not be considered comprehensive for every project or for every type of contracting organisation and may require adapting for special needs. They should not be considered to be a treatise on 'claimsmanship' but as good project management practice. Claims are considered by many to be rather underhand but this can only be true where the claims are improperly based or supported by inadequate evidence. Contracts apportion risk and set down the rules which must be followed if additional costs are to be recovered. The contracting parties tender for work on the basis that the rules in the Contract will be applied.

Claims should not be viewed as a means of recovering a loss. A loss in itself does not entitle one to additional payment. Equally, the absence of a loss or time overrun does not mean that a contractor or subcontractor may not have a contractual entitlement to additional payment. It is to be hoped that these notes will assist in the better identification of situations where notices should be given.

The notes are arranged in three sections:

• Pre-commencement of work;
• Post-commencement of work; and
• Overheads.

The pre-commencement section sets out those matters which should be attended to prior to commencement of work or at least at a very early stage - in essence the groundwork. The post-commencement section deals with the management of contract-generated data. Finally, a section is included on overheads and their treatment.

2. Pre-Commencement

2.1. The Tender

It is not unknown for it to be impossible to trace and hence demonstrate how a tender has been constructed. This statement applies both to the tender total and to individual rates within the contract. Problems can arise particularly where last minute tender reductions are made. In the event of a dispute, and depending upon its nature, credibility is lost if the claimant is unable to satisfactorily demonstrate what has been included in the tender and the basis upon which it has been prepared.

All information used to formulate the tender should be filed together and properly indexed so that it can be followed by someone other than the estimator. This information would include:

• the documentation including drawings provided to the tenderer on which to base the tender;
• the estimator's tender make-up including all his notes and workings;
• all quotations including those not actually used;
• all correspondence including internal notes;
• notes and minutes of meetings;
• copies of internally produced drawings;
• copies of any programmes produced together with the intended resource details; and
• a copy of the tender as actually submitted and any subsequent amendments.

2.2. The Contract and Sub-Contracts

A not uncommon problem is to find that no proper contract documentation exists. In these circumstances, it can prove extremely difficult to determine what the parties have agreed and which documents were intended to comprise the contract. It is therefore essential to ensure that the documents forming the contract should be listed in the contract agreement which should itself be properly executed.

It is also important to ensure that the documents included in the contract bundle or referred to in the contract are the same as the ones on which the tender was based and not subsequent revisions of those documents, or other documents not available at tender stage. Particular care should be taken in the case of drawings.

If instructed to start work on a project prior to terms being agreed, make your position clear by detailing your understanding of the terms and conditions under which work is to be carried out before commencing work. Failure to do this can result in a contract by performance on unacceptable terms.

Where the contract includes design or an element of design, it is important to agree the precise extent of the responsibility for the design. A common problem is for the construction owner or his representatives to make changes to a contractor's design. The effects of such changes reflect in the time taken for the construction, the ultimate performance of what is constructed and its cost.

Other key terms which must be agreed include precise details of the works comprising the Contract, the price, the basis of the price (e.g. remeasurement, lump sum, fixed price, firm price, etc.), access, programme and terms of payment. Beware of non-standard forms of contract where the terms are usually one-sided.

The same attention as is given to the main contract should be paid to the invitation of sub-contract tenders and the preparation of sub-contract documentation. A particular problem area is where a tender is qualified and subsequent discussions take place concerning the qualifications. In these circumstances it is best to draft or amend a clause setting out the agreed position rather than to incorporate correspondence and/or minutes of meetings into the sub-contract.

2.3. The Programme

In order to be able to demonstrate the effects of subsequent events upon the contract period, it is essential to have a base programme. Sometimes, a programme is included as a contract document although in these instances it is usually a fairly simple affair with the minimum of detail. More commonly, it is a requirement of the Contract that the contractor shall produce a detailed programme within a set time. Such a programme should contain as much detail as possible as it will be the one against which both the contractor and the employer's professional team will monitor progress. It should also be carefully checked for accuracy since future amendments to it can result in disagreement.

When producing the detailed programme post contract award, care should be taken to ensure that it reflects any programme that may form part of the Contract. Failure to pay attention to this point will result in an ambiguous contractual situation. If it should be necessary to change the logic in the detailed programme compared to that included in any programme within the Contract (this could arise where it was found that the original construction sequence was not feasible for some reason) then the reasons for the changes should be recorded. It will also be necessary to agree the changes with the other party since such changes are changes to the Contract. A further point that has to be watched when producing the detailed programme is that it has to reflect the position at the date of the award of the project and that it does not incorporate events, including progress, which may have occurred after that date and which may influence the programme. Failure to observe this point will mean that the programme produced is not a true base programme and hence will not form a proper basis against which to monitor change.

The degree of detail, form and complexity of the detailed base programme will depend upon the size and nature of the project being constructed. Except for the simplest minor projects, simple bar charts (constructed from start dates and activity durations only) are not recommended since they do not show the inter-relationship between the various activities and in particular the activities' criticality; as a consequence of this it is not possible to demonstrate the effect of events upon the programme without first agreeing an underlying critical path network. In the case of a moderately simple project, it is possible to show links between the activities on a bar chart. However, it is strongly recommended that for any reasonably sized or complex project, whatever its nature, a critical path network programme should be developed from the outset; and indeed this is often a requirement of the Contract on many projects. Such programmes are almost invariably produced using proprietary computer software programmes and for presentation purposes, 'hammocked' versions of bar charts can easily be produced giving a summary view of the construction sequence.

The level of detail included in a critical path network programme will to some extent depend upon the complexity of a project. In general, as much detail as is reasonably possible should be included in such a programme in order to facilitate the demonstration of the effects of subsequent events upon the programme. It is recommended that all activities in the programme should be coded preferably with a unique activity number or with what is known as a "Work Breakdown Structure" or "WBS" (a means of coding an activity by geographical means or by trade, etc.) and that all other documentation (e.g. correspondence, labour and plant allocations) should be cross-referenced in a similar way. The actual copy of the programme issued to the other party need not show the wealth of detail underlying the base programme: it is, however, essential for that information to be available in the event of a dispute arising.

The usefulness of a programme can be enhanced by the addition of resource and cost information. This can have considerable benefits in the administration and monitoring of a project. In particular, if these principles are followed through into other documentation it becomes a much easier task to demonstrate the link between cause and effect relative to any single event.

Programmes should always be produced in full consultation with the operational staff. This applies both to the sequencing and to the resourcing of the activities. In the case of resourcing, it is essential that this accords with the tender allowances. A programme produced by a planner in isolation from other staff merely to satisfy a Contract requirement to provide a programme is likely to be of very little use thereafter.

An important exercise to be carried out when resourcing the base programme is to ensure that any peaks in demand for a particular resource can actually be met (e.g. if the demand for a class of tradesman derived from the programme is 50 men for a particular week and it is only possible to obtain 30 men, then the sequence of activities within the programme will need to be adjusted accordingly), or if there is a peak in demand for a class of tradesman for a very short period it may be more cost-efficient to reschedule the activities creating the peak. In both cases, this is known as 'resource levelling'.

The importance of a comprehensive base programme cannot be over-emphasised.

3. Post-Commencement

3.1. Correspondence, Minutes of Meetings, Drawings and Programmes

Common problems met when investigating the causes of a dispute are missing correspondence and minutes of meetings and the discarding of superseded drawings and programmes. In the case of correspondence, it is common for there to be no chronological records of correspondence actually received and despatched while the original correspondence has been distributed among a number of individual members of staff without any comprehensive central filing system. This can lead to a situation where it becomes impossible to determine what documents should exist; a situation which becomes even more serious should a dispute be referred to litigation or arbitration and previously unknown documents come to light at the 'discovery' stage.

All correspondence must therefore be given a unique reference (e.g. an alphanumeric reference based upon the party with whom one is corresponding is a simple solution). In addition, it is recommended that the programme activity reference or WBS be included. Correspondence, both incoming and outgoing, should be recorded with brief particulars in a log or on a database. It is a relatively easy exercise to include a 'field' in the database noting whether a letter has been replied to. Using this 'field', a report can be produced at a site meeting, for instance, noting any correspondence awaiting a reply.

Originals of incoming correspondence should not be distributed but should be date-stamped, referenced and an action copy produced. The original should then be placed in a central file. The action copy should be marked up with requisite action by the appropriate person, usually the Project Manager, and copies distributed accordingly. It is important to keep attachments with the originals or have a system whereby they are recorded and can readily be traced. Outgoing correspondence should also be centrally filed.

It is also important to reply to all incoming correspondence, at the very least acknowledging its receipt if it is not to be immediately answered in detail. All too often, potentially damaging correspondence remains unanswered on file weakening one's case. Protracted correspondence on a topic should be avoided: it is best to simply record one's position on a disputed matter. Similarly, when a letter is answered, it is vital to ensure that only one such reply is sent - emanating from one person only - to reduce the likelihood of contradictory correspondence being sent.

All revisions to drawings should be kept irrespective of whether they originate from within the organisation or have been received from outside the organisation. A useful refinement is to mark the changes from the previous revision. It is also useful to have a system whereby the reasons for the revision of an internally produced drawing are recorded.

Similar rules apply to revisions to the programme. It is not unknown for superseded programmes to be discarded or lost due to inadequate filing systems and procedures.

3.2. Notices

Most forms of contract contain provisions requiring a contractor to give notice of any causes of delay or additional expense being incurred and state the period within which such notice must be given. It is essential that these notice provisions are complied with in all respects as failure to do so can, and frequently does, prevent the successful pursuit of an otherwise legitimate claim.

In practice, one of the prime reasons for failure to give notice is that an event is not recognised as having any adverse effect. This can be avoided by closely monitoring progress, the sequence of the work and the resources being utilised against the programme. In the event of any divergence, the reason should be investigated: where this is found to be attributable to matters for which the contractor is not responsible, a notice should be given.

A potential source of events having an adverse effect upon the progress of the project is verbal instructions. A system should be established for confirming all verbal instructions including instructions arising out of meetings. It is not uncommon for the recipient of such verbal instructions to be unaware of the repercussions they will have on other parts of the work affected and on subsequent activities. It is therefore important to cultivate greater commercial awareness amongst all staff working on a project through adequate training.

A commercially aware member of staff should have sight of all correspondence, confirmations of verbal instructions and site diaries on a regular basis with a view to identifying any events which might potentially cause delay and/or result in additional expense. It should be recognised that any event that affects resources in any manner can potentially have such an effect.

The notices themselves should be concise but factual: they should record the event and its anticipated effect. They should avoid being provocative although any attempt to dissuade one from giving a requisite notice should be resisted. Since, in the absence of any express obligations to the contrary, one has a duty to mitigate the effects of any breaches (events), it is sensible to refer in the notice to any mitigation measures which one may be taking. Such measures could include changing the sequence of work. There is generally no contractual mechanism or requirement to take accelerative measures: these would include increasing the labour force, working additional overtime, increasing plant and other resources or instructing subcontractors to take any such measures. One should state in the notice that you will be maintaining records and these should be passed to the other party on a regular basis.

While it is helpful to get records agreed, the absence of agreement should not deter one from issuing such records to the other party.

A system should be established whereby at contract award, a schedule of dates by when information is required is submitted to the design team. At regular intervals such as at site meetings, or where a particular piece of information is required urgently, a request should be made for any such information. Where absence of such information is causing, or is likely to cause, delay, a formal notice must be given to protect one's interests.

3.3. Records

Good, comprehensive, contemporaneous records are essential to the successful presentation of any claim. Without records there is usually nothing in the way of proof. So far as is possible, records should be capable of being linked to individual events. Where this is not done, there is a risk of being left with no alternative but to produce a global claim. Global claims are not viewed favourably by Arbitrators or by the Courts except in special circumstances, as a number of recent cases show, and should therefore be avoided. A failure to maintain adequate records does not represent 'special circumstances': it is therefore vital that detailed and systematic records are kept.

The form records take will to some extent depend upon the nature of the project. The categories of records which should be kept on all projects are, inter alia:

• an as-built programme;
• labour and plant allocations;
• site diaries;
• time sheets;
• a drawing register;
• an information schedule;
• cost records (including purchase orders, delivery notes and invoices); and
• photographic evidence.

A system should be maintained whereby all labour and plant are allocated to a specific operation or recorded as standing if not working productively. The allocation should accord with the activities in the programme. Where work is additional (e.g. a variation or claim item), then it should be allocated to that item. In those cases where labour or plant is standing, the reason should be recorded. Such reasons could include weather conditions, suspension orders or non-availability of work. Where resources are transferred from another operation to carry out additional or delayed work, it should be possible to trace from which operation the resources have been moved. It is equally important that similar records are maintained with respect to any work which is sub-contracted.

Diaries should be maintained by all operational site staff. Probably the best diary system is one using a duplicate-type book where the top copy is handed in daily and collated with the diary entries of other staff, thus producing an overall diary for each day. Information recorded in the diaries should be as comprehensive as possible and include the following:

• the date;
• the project (this could be just a number);
• the author (initials may be sufficient);
• the weather conditions (where there are a number of diary writers, one of these should be nominated by the project manager to record weather);
• the areas of work being supervised (preferably coded with a programme activity reference);
• progress on an area-by-area basis including information as to work completed (whether to programme or in delay), causes of delay and disrupted working (whether self-inflicted or caused by others);
• any problems encountered together with any steps taken to overcome them including resources deployed along with those of supervision; and
• any verbal instructions received.

In essence, the diaries cannot be too comprehensive. Once the diary entries for the day have been collated, they should be reviewed by the project manager or other appropriate person to ensure their completeness and clarity of meaning and for the identification of any matters for which formal notifications should be given. The author's copy of the diary should also be collected centrally when full or when the author ceases to be involved with the project. In this way, one will finish up with a comprehensive project diary as well as a series of personal diaries.

Time sheets should be maintained for head office staff. The level to which time should be allocated will depend upon the category of staff member and the work being undertaken. Drawing office staff should allocate time to a particular drawing revision and the same applies with planning staff allocating their time to particular programme revisions. A contracts manager, on the other hand, may only be able to allocate time generally to a particular project rather than to individual aspects of it.

A drawing register should be maintained identifying any drawings and sketches produced either by the contractor or the design team and any revisions to them. The register should also identify those drawings which formed part of the contract documents. It should continue to note any superseded drawings or drawings which may no longer form part of the works due to their omission.

As noted above, a system should be established whereby at contract award, a schedule of dates by when information is required is submitted to the design team. At regular intervals such as at site meetings, or where a particular piece of information is required urgently, this schedule should be updated and reissued to the design team. The dates when information noted on the schedule is received should also be included on the reissues in order to produce a fully comprehensive record of the flow of information from the design team.

Comprehensive cost records must be maintained. It is useful if all invoiced costs can be allocated to the programme activity reference. Labour costs must be available for each operative and staff member involved with a project and this includes labour-only subcontractors. These records should include overtime worked and premium time paid.

Photographic evidence is extremely useful to amplify and prove other disputed documentary evidence. Photographs must be properly identified and the following information should be recorded on the reverse:

• the date and time when taken;
• the photographer;
• a photograph reference number;
• the programme activity reference; and
• complete details of the subject matter including the position from which the photograph was taken.

The above information should also be recorded in a book - to be kept with the site camera - at the time the photograph is taken and transferred to the photograph when it has been developed. The completed photographs should be indexed and filed. Where there are a large number of photographs, it is often useful to enter the index and details on a database to assist retrieval at a later date.

There may be occasions when it becomes worthwhile making video recordings of operations. Again the basic details noted above should be recorded as with photographs but with the added benefit of voice recording to amplify and explain the subject matter of the tapes.

If possible, records should be made jointly, or at least agreement of the records made by one party should be sought. In the event that submitted records are not agreed, the practice of keeping records should continue and not be thought of as being a waste of time simply by virtue of a lack of response or rejection.

3.4. Filing

It is one thing to maintain the correct records and quite another to be easily able to retrieve them when required. Nothing is more frustrating for staff than to discover that contemporaneous records which they have painstakingly kept cannot be found.

All original documentation on a contract including superseded drawings, programmes, etc. should wherever possible be kept in one place. Where this is not possible for security or other special reasons, there should be a clear policy stating where the documents are to be kept.

Filing systems should be well indexed and be as simple as possible to follow. It must be possible to locate any document or group of documents quickly. Responsibility for storing documentation is a very important task and should be under the supervision of a responsible member of staff. Except in very special circumstances, documents held in the central files should not be removed as their replacement is often difficult to obtain in practice. Where documents have to be removed for any purpose and for however short a time, a signing-out procedure should be established and maintained to minimise the risk of a document going missing. It is usually the case that by its very nature the document you most need to obtain is the one that has disappeared.

4. Overheads

Overheads can constitute an important element of any claim and are often a controversial one. The argument against the inclusion of this head of claim, assuming events support such a claim, is that the overhead resources would have been present in any event. It is therefore essential to be able to demonstrate that the overheads being claimed are additional and/or that they could have been deployed elsewhere to commercial advantage but for the problems encountered on the particular project in question. It is therefore advisable to allocate additional resources to individual events as far as possible and to only rely upon formula methods of overhead recovery such as Hudson's or Emden's formulae for those elements which cannot under any circumstances be allocated to individual events. For the purposes of these notes, overheads are considered under broad headings as follows:

• site overheads;
• specific head office overheads;and
• general head office overheads.

Although site overheads are generally dedicated to a particular project, it does not follow that if a project is delayed due to an event on a critical activity then the whole of the site overhead is extended by a period corresponding to that delay. It is therefore essential to be able to identify those site resources associated with the particular event which is the cause of the delay. The identification is best achieved through site diaries in which the author should identify those activities with which he/she is involved. Associated items such as vehicles and office space usually follow on if the individual involved can be identified. Many events will not have a critical delaying effect but will still involve additional supervisory hours being expended; again these should be identifiable through the site diaries. Very often it can be demonstrated that such an event results in an increase in supervisory staff and associated items. Many other site resources are common items and may be claimable depending upon the circumstances.

Specific head office overheads are those which can be allocated to a project either on a full-time or part-time basis. In the case of certain costs (e.g. drawing office and planning resources) it should be possible to relate the use of such resources to individual events. For example, the necessity to produce a revised drawing may originate from instructions received, while planning work may result from delays and the necessity to revise the programme. It will be more difficult to directly link other resources (e.g. a contracts manager) to specific events although it may be possible to show that, for instance, time was spent attending meetings dealing with problems associated with an event. Similarly, it may be possible to show that additional site visits were required. As a general rule where overheads are claimed, these should be specifically identified and allocated as far as possible to individual events. The head office on-costs (e.g. office space and furniture) of such resources should also be treated as specific head office overheads. Formulae should only be used for calculating the cost of those resources that are not specific to a project and could not therefore be allocated on any other basis.

General head office overheads can only be allocated to projects on an apportioned basis and for this reason are the most contentious area of overheads when attempting to recover additional costs. In order to have the best chance of being successful in the recovery of such costs it is necessary to show that there was sufficient work available to one in the general marketplace and that opportunities were turned down because of continuing commitments to a project attributable to claimable events. Comprehensive records should therefore be kept of tender invitations and bids.

5. Conclusion

The recommendations put forward in these notes may appear to be somewhat burdensome to operate on a busy construction site. However, most of the proposals merely represent good practice and should not involve the expenditure of much additional time by site staff and will probably save time in the long term. Equally, they should promote greater site efficiency which one could reasonably expect to be reflected in improved financial performance both in terms of profit and cash flow.

The systems outlined in these notes are capable of being operated using computer-based data management systems although they could also be operated using manual procedures. In the case of a large project, very considerable benefits could be achieved by operating such procedures using project management computer software such as Artemis at the top end or Microsoft Project at the lower end. If operated properly then such a system would enable one to forecast relatively easily the effects of instructions and events in both time and financial terms upon individual activities, combinations of activities and to the overall project.

The development of data collected using systems described above into a properly argued and presented claim is considered to be outside the scope of these notes. In order to maximise the settlement it is essential to present the evidence in a properly structured manner with a logical thread. Best results are usually achieved when such preparation and presentation are carried out by personnel with the requisite experience for this type of work.