The Top Four Types of Constriction Claims and How to Effectively Prevent Them
Construction projects are complex, fast-paced, and involve many parties, creating many instances at which a claim can arise. Construction claims are a hassle and can lead to a lengthy litigation process, or 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 look at the common types of construction claims you’ll see.
- Construction Delay Claims: Delay claims arise when unforeseen circumstances push a project past the initial agreed-upon deadline, in turn disrupting the intended schedule. There are lots of causes for delays like defective plans, permit approvals, weather conditions, etc. These claims normally 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 increases to complete the job on time or ahead of schedule. The client is the one to 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 the client conveyed in the contract a different site conditions claim could arise. For example, if the client said the job site is grass and the contractor shows up to a sandpit, it’s going to be more expensive to build the foundation on the sand and the general contractor can file the claim.
Now that we’ve reviewed the common types of claims, let’s dive into real-world data on the value of construction claims.
- The global average of a construction dispute raised to $54.26 million USD and the average length of a dispute dropped to 13.4 months in 2020 according to the 2021 Global Construction Disputes Report.
- In 2020 the American Arbitration Association administered 9,538 Business to Business cases. The largest mediated construction case was for $105 million USD, while the largest arbitration case was $1.4 billion. The total value of all claims and counterclaims in 2020 was $21 billion.
How to Prevent Construction Claims:
The Global Construction Disputes Report 2021 reveals the top three causes for disputes in 2020 were:
- Owner/contractor/subcontractor failing to understand and/or comply with contractual obligations.
- Owner-directed changes.
- Third-party or force majeure events.
The results relay “the importance of owners providing well-thought-out contracts that address dispute resolution. It is equally important that the project participants fulfill their obligations under the contract.” These findings also show the importance of more accurate certificate of insurance tracking, and a better understanding from all parties on the contractual obligations.
Construction Claims Management Solution:
Certificate of insurance (COI) tracking solutions, like SmartCompliance, can help general contractors manage subcontractor insurance requirements per the contracts, keep up-to-date COIs, and avoid expensive claims against the firm.
Our easy-to-use, web-based COI tracking software makes avoiding claims effortless. With our platform, your company can manage COIs and endorsements in one location, automate collection, and end manual data entry. 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!