The Top Four Types of Construction Claims and How to Effectively Prevent Them
Construction projects are complex, fast paced and involve multiple parties, creating many instances at which a claim can arise. When a claim is filed, it’s a major hassle, and can lead to a lengthy litigation process, or even worse, bankruptcy.
So how do you avoid the pain of construction claims? Let’s jump in and review some of the most common types of construction claims, real-world data on industry disputes, and how your company can avoid them.
Top Four Types of Construction Claims:
To kick things off, let’s take a look at the common types of constructions claims that you’re most likely to come across.
- Construction Delay Claims: Delay claims are filed by the client when unforeseen circumstances push a project past the initial agreed upon deadline, in turn disrupting the intended schedule. There are numerous causes of delay like defective plans, permit approvals, weather conditions, etc. These claims most often lead to financial or productivity loss on the client side.
- Damage Claims: If a contractor happens to cause any damages to the property while completing the project, the client may hold them liable for these damages by filing a damage claim.
- Price Acceleration Claims: Price acceleration claims occur when the expected project budget is raised to successfully complete the job on time or ahead of schedule. The client will usually file the claim since they’re the ones who carry the costs of the expedited work.
- Differing Site Conditions Claims: When the actual condition of the project site differs from what was conveyed by the client in the contract a different site conditions claim can be filed. For example, if the client said the job site is grass and the contractor shows up to a sand pit, it’s going to be a lot more expensive to build the foundation on sand and the GC can file the claim.
Research Data About Construction Claims:
Now that we’ve reviewed the common types of claims, let’s dive into real-world data on the costly value of construction claims.
- The average value of a construction dispute is $19,000,000 USD and takes up to 17.7 months to resolve according to the 2018 Global Construction Disputes Report.
- In 2015 the American Arbitration Association administered 551 construction industry cases with claims of $500,000 or more. The largest mediated construction case was for $2.6 billion, while the largest arbitration case was $96 million. The total value of all claims and counterclaims in 2015 was $5.5 billion.
How to Prevent Construction Claims:
The Global Construction Disputes Report 2018 reveals the top three causes for disputes in 2017 were: failure to properly administer the contract, poorly drafted or incomplete claims, and contractor failing to understand and or comply with its contractual obligation. The results relay the need for better contract administration, more accurate subcontractor COI tracking, and a better understanding from all parties on the contractual obligations.
Certificate of insurance tracking solutions, like SmartCompliance, are able to help general contractors manage subcontractor insurance requirements per the contracts, keep up-to-date certificates of insurance, and avoid costly claims against the firm.
Our easy-to-use, web-based COI tracking software makes avoiding claims effortless. With our platform, your company will be able to manage COIs and endorsements in one location, automate collection, and eliminate manual data entry. Easily upload, organize, and search endorsements or COIs to guarantee all parties are compliant and ensure subrogation coverage for your company.
Interested in learning more about our insurance tracking services, or want to see SmartCompliance in action? Request a free demo today!