Category:113 Construction Inspection Guidance for Contractor's Claims
Assure the contractor that project personnel are available and willing at all times to discuss and give decisions on all questions that may arise concerning interpretation of the plans and specifications. When agreement cannot be reached at the resident engineer level, inform the District Construction and Materials Engineer of the misunderstanding. If agreement cannot be reached at the district level, the disagreement should be referred to the State Construction and Materials Engineer, through the District Engineer. Personnel of Construction and Materials are available to attend any discussion of problems and assist in settlement of disagreements. If questions arise between the resident engineer and the contractor about established policy, design features or standardization of procedures, refer the matters to the District Construction and Materials Engineer for a decision. In all cases, immediately inform the contractor in writing of the final decision and that the problem may still be appealed to higher authority.
When it becomes evident that a claim will be filed, inform the district office at once and start preparation of a detailed record. The RE should thoroughly document all conversations and circumstances involving the dispute. Cover the situation in detail each day in the resident engineer's diary.
The following are guidelines that shall be followed by contractors in filing a claim with the Secretary of the Commission.
113.1 Procedures for Handling Contractor Claims
1. The claim is received by the Commission Secretary, logged in, and forwarded to Construction and Materials Division. The division is responsible for providing all required reports and other documents to the Claims Committee, which is comprised of the Asst. Chief Engineer - Chair, Chief Financial Officer, and a District Engineer appointed by the Asst. Chief Engineer.
2. CM Division reviews the claim for compliance with specifications and may consult with the Chief Counsel’s Office (CCO) regarding compliance with specifications relating to timely filing and sufficiency of the claim documents submitted.
The division provides a preliminary copy of the claim to the CCO and the Audits and Investigations Division (AI) to facilitate this review as a notice of issue and for informational purposes. CM will continue to evaluate if further evaluation is needed by AI or CCO. In all cases of federally funded projects, the Federal Highway Administration (FHWA) will be provided a copy of the claim and the letter to the contractor.
3. If the claim is accepted by the Commission, the division assigns a claim number (year, sequential number, district; example: 03-01-07) and assigns the claim to a claim reviewer (Reviewer) in the CM Division for review and evaluation. The claims reviewer is a Construction and Materials Liaison Engineer who has no previous extensive involvement with the issues presented in the claim. The liaison engineer’s goal is to provide an independent review of the facts and merit of the claim. The reviewer maintains all correspondence and documentation associated with the assigned claim.
CM Division advises the contractor by letter if the claim has been accepted and provides the contractor with the claim number and the reviewer’s name. If the claim is not accepted, CM Division advises the contractor by letter citing the reason(s) the claim was not accepted and provides a copy of the letter to the CCO and AI.
When notification of a claim is received the district personnel and Resident Engineers office should not discuss the claim with any outside parties. Any inquiries should be referred to the Chief Counsels office. All appropriate files, diaries, records, etc. should be assembled and stored in a safe location at the project office or district office.
4. Claims and controversies that qualify for Arbitration or Mediation (Sec 105) must complete the review process including final notification to the contractor within ninety days from date of receipt by the Commission Secretary. At that point the contractor is eligible to submit these issues to binding arbitration or mediation. For claims that exceed the amounts provided by the Arbitration and Mediation laws, the State Construction and Materials Engineer may extend the time for review in order to provide time to adequately review the claim. The review of these claims should not extend beyond twelve months.
5. The following time lines will apply to the normal claims process:
- a) CM shall notify the contractor of acceptance or denial of the claim upon completion of a review.
- The reviewer will meet with the contractor for the purposes of clarifying the claim and developing a better understanding of the contractor’s position regarding the claim. If required, a written request for the additional records will be made. If after this initial meeting with the contractor, the assigned reviewer determines there are grounds for a negotiated contract adjustment, the reviewer will obtain approval from the State Construction and Materials Engineer to proceed with the negotiations. This meeting should take place within 28 days of the acceptance of the claim.
- b) CM prepares a letter to the district, furnishing two copies of the claim (one for the District Construction and Materials Engineer and one for the Resident Engineer) for investigation and requests the district report to be submitted by a specific date. The district is further advised to retain all project records. The district report is prepared by the District Construction and Materials Engineer in consultation with the Resident Engineer Office directly associated with the claim. For claims on projects that have not been finalized, no adjustments to disputed items or time for completion of the subject project may be made without prior agreement with the State Construction and Materials Engineer.
- In concert, the district and resident engineer are to review the claim and provide both a report on the facts of the claim and a separate recommendation regarding settlement to the State Construction and Materials Engineer with 28 days of the date of acceptance of the claim.
- c) The district will submit the District Report to the claims reviewer on or before the date set by the division. A maximum of 28 calendar days will be allowed from the date of the letter of acceptance to the contractor. The first part of the report contains a factual analysis of the claim with no recommendation regarding disposition. This report should answer the claim in the same order or format as presented by the contractor. This is so that each allegation and response can be compared side by side. All allegations made by the contractor should be responded to. The second part of the report is a recommendation regarding disposition of the individual items in the claim.
- The reviewer will meet with the district to listen to their version of events after receiving the District Report. This meeting should be held after the contractor meeting. This should happen within 2 weeks after receiving the District Report.
- d) The reviewer will discuss the amount and complexity of the claim with the attorney assigned by the CCO for preliminary advice on additional research or evaluation is needed before proceeding. The reviewer will submit the Division Report within two weeks after the meeting with the district.
- e) The division final report prepared by the State Construction and Materials Engineer will be completed within 5 calendar days of receipt of the reviewer’s report. This report will be provided to the Claims Committee immediately upon completion.
- f) The Claims Committee meeting will be scheduled by the claims reviewer once the Claims Committee has received the Division Report.
- g) The contractor may have legal counsel present, but it is not required since this is not a legal proceeding. MoDOT will have someone from CCO present at the meeting. Their role is to advise the Claims Committed on the legal merits of the case. They will not be presenting or asking questions at the presentation. MoDOT personnel attending the claims committee meeting will be the reviewer, the State Construction and Materials Engineer, a representative(s) of the affected district (District Construction and Materials Engineer and /or Resident Engineer) and any other State Engineers that the Claims Committee Chair may deem necessary.
- The contractor will present their case to the claims committee. In the presence of the contractor, the reviewer, and other personnel deemed necessary will make oral presentations. The contractor may ask questions after the oral presentation and present any additional information as they wish. The Claims Committee will evaluate the contractor’s information and the information presented by MoDOT’s representatives. The Claims Committee will then make a decision regarding disposition of the claim (acceptance, partial acceptance, denial or the need for further deliberation) on the day of the meeting. The contractor will be given the option to remain in the building while the Claims Committee deliberates privately and will be advised of the Claims Committee’s decision if the individual remains.
- If the Claims Committee’s decision is to make an offer to resolve the contractor’s claim by negotiated contract adjustment, the reviewer and division engineer will determine the basis and amount of the proposed adjustment. If the Claims Committee approves the amount, the contractor will be advised by letter, prepared by the division, stating the basis and amount of the offered adjustment. If the Claims Committee decides to deny the claim or make a unilateral adjustment under the contract, the contractor will be advised by a letter prepared by the division. The Claims Committee Chair will sign each type of letter. Subject to Delegation of Authority limitations, noted in Commission policy, the claims committee may act upon concurrence of any two of the three member Claims Committee. The Claims Committee has 7 days from the date of the Claims Committee meeting to respond to the contractor with a final decision including any offer of a negotiated contract adjustment or directed equitable adjustment. The above letters will be reviewed by the CCO before mailing.
6. The Commission policy on settlement of claims will outline authorization levels.
7. Upon resolution of a claim that results in an award to the contractor, either by action of the Claims Committee, by court action, or by negotiating, the division will submit information to the FHWA, if federal participation is desired. The information to the FHWA shall be in accordance with Attachment “A”.
Attachment “A”, CONTRACT CLAIM PROCEDURES
|A. Contract Disagreements|
|1. Contract disagreements which are resolved informally between a contractor and Missouri Department of Transportation project or district personnel should be submitted to the Federal Highway Administration in the form of a change order for non-certification acceptance projects. Change orders for certification acceptance projects should continue to be approved by the Missouri Department of Transportation.|
|2. The change order should provide sufficient detail for the Federal Highway Administration to determine that the settlement between the Missouri Department of Transportation and the contractor is justified.|
|B. Formal Claims|
|1. If federal-aid participation is desired in a contract claim payment, early coordination between the Federal Highway Administration and the Missouri Department of Transportation is required for all claims handled through the Missouri Department of Transportation Claims Committee, or court adjudication.|
|2. If federal-aid participation is desired in a contract claim settlement for either a certification acceptance or a non-certification acceptance project, the Missouri Department of Transportation should transmit a copy of the contract claim, the legal and contractual basis for the claim, an analysis of the merits of the claim, and the results of the Missouri Department of Transportation Claims Committee review to the Federal Highway Administration Division Office for review and approval.|
|3. The Missouri Department of Transportation’s request for federal-aid reimbursement on an adjudicated contract claim award should include an explanation of the legal and contractual basis for the claim, the cost data and other facts supporting the award, and an audit by ABA or an independent consultant of the actual costs incurred by the contractor. A legal opinion from counsel should accompany claims with complex or novel legal issues.|
8. If the contractor provides written acceptance of the negotiated contract adjustment offer, Financial Services is notified of the amount with appropriate documentation and requested to process payment to the contractor. This completes the claim process.
9. If the contractor notifies the department that they do not accept the final negotiated contract adjustment offer, or if the contractor does not respond by the date given in the settlement offer letter, the claim will be closed and any unilateral adjustment determined appropriate will be made.
10. All notes and information gathered in the claims process are conducted in anticipation of litigation, to be privileged communications or work product of MoDOT’s or Commission’s representatives and shall also be considered government predecisional memoranda.
113.2 Dispute Resolution
The first step in resolving a contractor dispute is to gather information. The RE should sit down with the contractor and review all the information related to the dispute. Go in with an open mind. Too often people come into this meeting to defend their position instead of truly listening to the other person’s perspective. Resist the temptation to argue points of dispute at this meeting. The purpose of this meeting is to gather information and not to litigate the issue. This may sound basic, but it is invaluable when resolving conflicts because it helps to reveal the real issues.
113.2.1 Time-Related Disputes
If it is determined that there is time due to the contractor, then a method to determine the extent of time should be established. If it is a time delay, make sure the time adjustment is made immediately at the conclusion of the event that is being discussed. Do not wait until the end of the job to adjust days since contractors may be able to claim they incurred acceleration costs to complete the project by the original completion date. The time extension must be made by change order. Verbally telling the contractor is not binding and cannot be verified. A verbal commitment is not part of the official contract that the contractor must honor. Even if the contractor is ahead of schedule and will likely finish by the original completion date, the Resident Engineer will still need to write a change order for additional delays. Without a change order, the contractor may still claim acceleration costs.
Suppose there is a hard commitment on a deadline that cannot be moved. If this is the case, compensation to accelerate the project must be negotiated. If that amount cannot initially be agreed upon, then an agreement on what is compensable should be established, as well as a mechanism to track it. Once again, regardless of where contractors may be on their schedule, they will need to be compensated for acceleration to make up the days that are owed by contract if it really occurred. Do not pay for acceleration unless increases in premium time or other unforced increases in cost can be proven.
Time extensions may also affect any milestones that are on a project. These may need to be adjusted accordingly.
Delays caused by utilities are generally excusable but never compensable. Simply stated, additional time can be allotted, but not additional money. Other delays such as plan errors, differing site conditions, etc. could be compensable. Extended delays may result in higher costs to the contractor. Examples are labor increases, material cost increases, extended traffic control maintenance, equipment rental costs and jobsite office expenses. These delay costs can be extensive, especially on large-scale projects with high overhead and long periods of delays. A delay may push a job into winter or other time periods where critical path work cannot be performed or productivity rates are lower. Besides requiring additional time, this can also lead to additional costs incurred related to the delay periods.
The important thing is to research and determine whether the delay really did result in costs. Only verifiable, auditable costs should be considered.
Delays are very costly. A quick resolution to issues causing the delay is the best way to insulate a project from a large delay claim. Paying a premium to mitigate a delay impact will likely be a better value than paying for a delay claim. When a change order involves settlement and final resolution of an issue with the contractor or when there are concerns that the issue may come up again in a claim or lawsuit, the following language is recommended as part of the change order documentation:
- "The amount being paid to <Construction Company> in this Change Order represents a negotiated settlement and, as such, reflects payment of all claims of <Construction Company> and/or any of its subcontractors and suppliers direct and indirect, including all impacts therefrom starting from the date of execution of the contract until the execution by both parties of the Change Order. However, nothing in this Change Order affects <Construction Company>'s right to file a claim based on an occurrence after the date of this Change Order."
Note: Do not include the last sentence if the change order is final.
113.2.2 Compensation Disputes
If there is compensation due and agreed upon, a change order should be issued immediately. Any delay in payment could be subject to interest owed the contractor as a part of the Prompt Pay Act, RSMo 34.057 (which does not apply if there is a genuine dispute as to causation or amount). If there appears to be a pay dispute, begin keeping thorough records of labor, equipment and materials. It is very difficult to quantify this information after the fact.
Resolution of the entire issue on a single change order is ideal. This prevents someone from repeatedly coming back to request compensation for an item believed to be resolved with other items. The contractor is always paid what the engineer believes is owed. MoDOT will not be penalized for any delay in verifying or resolving disputes. Never pay any amount that is a compromise figure without including in the change order documentation the recommended language found near the bottom of EPG 113.2.1 Time-Related Disputes. Absence of this recommended language could impress a potential jury that the withheld amounts were held as undisputed hostage until the contractor capitulated on the remaining amount. Always be fair. If the contractors errantly do not request payment for something they are contractually owed, inquire why they did not. The goal is to pay what is contractually owed and not how little the issue can be resolved for. These good faith gestures will lead to a more timely resolution. This reduces time and expense for everyone and greatly reduces the likelihood that it will end up in litigation. Litigation is costly and time-consuming for all parties and should be a last resort.