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Claims and Dispute Management

Claims and Dispute Management. 24 September 2019. : Gyanendra Prasad Kayastha General Secretary Nepal Council of Arbitration(NEPCA). Claims. Introduction to Claims Reasons for Claims Source of Claims. Introduction to Claims.

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Claims and Dispute Management

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  1. Claims and Dispute Management 24 September 2019 :Gyanendra Prasad Kayastha General Secretary Nepal Council of Arbitration(NEPCA)

  2. Claims Introduction to Claims Reasons for Claims Source of Claims

  3. Introduction to Claims • A claim is a request by Contractor/Supplier/Consultant for additional compensation or extension of time for occurrences beyond his control including: • change in scope • delays caused by the Employer F

  4. Introduction to Claims Claims are mostly initiated by the Contractors/Suppliers against Employers due to a multitude of Employer’s actions or inactions in construction contracts/Supply contracts Claim can also be initiated by the Employer against the Contractor/Supplier for the defaults

  5. Reasons for Claims • Employer has the duty to provide adequate, accurate data to the bidders • Employer is liable to Contractor/Supplier when: • inaccurate data are given • extras develop because of improper design • scope is changed • and due to the existence of any of the Employer’s risk elements

  6. How do claims arise? • Delays in construction & completion of the contract • Delays in delivery and supply of materials • Weather which slows down or prevents Construction/Delay in delivery • Owners’ requested changes • Changes which occur not at the request of owner • Site conditions which differ from those expected • Insufficient plans and specification • Failure of one party to disclose information • Termination of the contract • Acceleration of work

  7. Sources of Claims in the Construction Contract Clause related to Drawings Clause related to Suspension Clause related to Possession of Site Clause related to Physical Obstruction Clause related to Extension of Time Clause related to Variation and its Valuation Clause related to Termination of Contract Clause related to Price Adjustment Clause related to Insurance Policy

  8. Types of Claims • delay claim • extra work claim • acceleration

  9. Delay not caused by a party • Site conditions which differ from what was expected • Severe weather • Strikes • Natural Disasters such as floods, fires and earthquakes • Act of Government Authorities

  10. Delay caused by the Owner • Excessive changes in requirement or design • Defective or insufficient plans and specification • Failure to provide adequate access to the site • Failure to obtain necessary permit for the work • Failure of the Consultant to provide or approve drawings in a reasonable time

  11. Delay caused by the Contractor/Supplier Contractor/Supplier’s management and performance problems Failure to properly man and perform the job Failure to order materials and equipment in a timely manner Delays due to the fault of the Contractor/Supplier Unavailability of labor, materials or equipment

  12. Preparation of Claims Three elements needed for Merit Establishment: Liability (Entitlement) • Contractual duties and obligations • Notice provisions • Site access, accurate plans and specs • Adequate resources, workmanship Causation • “Cause and effect” • Link between delay and damages Damages (Quantification) • Substantiating documentation for extended costs • Actual costs or daily rates

  13. Preparation of Claims The burden of proof is on the Contractor/Supplier

  14. The Claim Mechanism (FIDIC) Sub Clause 20.1 - “If the Contractor considers himself to be entitled to any EOT for completion and/or any additional payment, under any Clause of these Conditions or otherwise in connection with the Contract, the Contractor shall give notice to the Engineer, describing the event or circumstance giving rise to the claim. The notice shall be given as soon as practicable, and not later than 28 days after the Contractor became aware, or should have become aware, of the event or circumstance.

  15. The Claim Mechanism (FIDIC) “If the Contractor fails to give notice of a claim within such period of 28 days, the Time for Completion shall not be extended, the Contractor shall not be entitled to additional payment, and the Employer shall be discharged from all liability in connection with the claim. Otherwise, the following provisions of this Sub-Clause shall apply.”

  16. The Claim Mechanism (FIDIC) • Key features: • 28 days starts from the date that contractor becomes aware of the event • Any claim to time or money will be lost if notice deadline is missed • Contractor should produce necessary substantiating records • Contractor should submit substantiated claim within 42 days • The Engineer is to respond within 42 days • Final claim within 28 days of the end of the event • Payment Certificate should acknowledge such claims

  17. The Claim Mechanism (SBD) • Claim management - COMPENSATION Event • Site access • Issuance of drawings, instructions etc • Additional tests for non defective works • Adverse ground conditions • Unforeseen conditions and additional works • Delayed advance payment • Due to Employer’s risks • Force majeure

  18. Settlementof Claim • Fairly and reasonably – realistic assessment of claims • Assessment by following Contractual basis • By appropriate mechanism for valuation of claim • By demonstrating excellent skill for negotiation

  19. Dispute • A “dispute” is a difference, arisen from the Contract which is not solved between the contracting parties; • Any situation where (a) one Party makes a claim against the other party; (b) the other Party rejects the claim in whole or part; • The disputes is to be settled by the third party ;

  20. Meaning of Dispute • If claims are not settled properly in time, they are likely to turn to dispute and will have to be resolved by Alternative Dispute Resolution(ADR) - adjudication, arbitration or litigation. • Dispute is undesirable in projects as they create adverse environment toward project success. • Inappropriate handling of claim and variation may lead to dispute between the parties. • Disputes are better to handle at its earlier stage • ADR shall be practiced to avoid litigation

  21. Dispute / Resolutions Early settlement between parties Alternative depute resolution (ADR) Litigation

  22. Alternate Dispute Resolution (ADR) ADR is a dispute resolution method that is not the court and includes dispute resolution process and techniques carried out outside of the government judicial process. They are • Negotiation, • Mediation/conciliation and • Collaborative law/expert determination • Adjudication/Dispute Review Boards and • Amicable settlement • Arbitration

  23. Benefits of ADR • Imposes fewer cost than litigation • Preference for confidentiality • Greater control over the selection of the individuals who will decide on their dispute

  24. ADR - Negotiation Parties themselves attempt to resolve the dispute through negotiations

  25. ADR-Mediation • Negotiation assisted/facilitated by a Third Party • Parties themselves take the decision • Non binding decision

  26. ADR-Conciliation • Same as mediation, but a Conciliator can propose a solution

  27. ADR-Adjudication • Third party involvement • Third party take the decision • Decision is Advisory • Decision is binding on the parties at least on an interim basis i.e. until a further process is invoked

  28. ADR-Arbitration • Third party involvement • Third party take the decision • Decision is binding • Legally Enforceable • Appeal may be done

  29. Court Referral - Litigation • Court involvement • Court take the decision • Decision is binding • The decision can be imposed through the law enforcement mechanism

  30. Adjudication and Dispute Boards • Negotiation, mediations and expert determination are are usually non-binding but they are proactive towards settling the dispute. Decision of Adjudication, Dispute review boards, if not challenged in time, and arbitration are binding upon the parties • Both parties agrees to appoint an adjudicator to make decision on disputed issues. • Adjudication is a dispute resolution process that is quicker and less expensive. • Adjudicator’s decision is imposed upon the parties, and upon dissatisfaction parties may refer the case to arbitration

  31. Advantages of adjudication…1 • The parties have liberty to choose a learned adjudicator having expertise in the subject related to dispute. • Adjudicator imposes a fair and impartial decision like arbitrator or judge. • It is faster than litigation or arbitration, it could be within 28 days. This would enhance better cash flow in construction if there is an adjudication award. • Disputes can be resolved while works are still in progress that would give opportunity to the adjudicator for better fact finding and on-site studies and investigations.

  32. Advantages of adjudication…2 • Rapport and relationships within the participants could be better maintained. • It is cost effective as use of counsel and expensive litigation can be avoided. • Amicable settlement can be done after the adjudication award. • Adjudication is private and confidential.

  33. Adjudication practices in Nepal • PPA/PPR provisions to keep adjudicator or DRC/DRB/DB mandatorily within the frame of the Contract in the old version of SBD but deleted in the new version. In new version, directly refer to arbitration. • Disputed events materialized in projects are usually not found taken up in time or found knowingly postponed to take them up at the end of theproject • Success rate of adjudication is very less as compared to the practices in other countries.

  34. Lesser success rate of adjudication is due to • The fear of probe by audits, CIAA or other vigilance agencies. • The tendency of the parties towards postponing the award to avoid responsibility of payment by further introduction of arbitration. • Consideration of interim and provisional nature of adjudication award with perception that enforcement of Adjudicator’s decision is not legally standing, thereby reducing the confidence of parties on what has been decided. • Lack of study and research of implication resulted by rejection of adjudication award.

  35. Adjudication practice in India • DRB or adjudication recommendations were not accepted in 79% of the cases (44% by the Employer and 35% by the Contractors) • A rejection of DRB recommendation almost always resulted to extensive delays in project completion • Contract dispute resolution processes that happen after the rejection of an adjudication recommendation are very lengthy and costly.

  36. Awards Adjudication Vs Arbitration • Arbitration awards are usually higher may be because • DAB or adjudication process could reopen the files and analyze the case with available facts even if there is a lack of evidence submitted by the parties, whereas arbitration mainly depends upon the evidences produced by the parties. • Arbitration mostly involves legal professionals, who in most cases lack the understanding of tacit complications of engineering projects.

  37. Awards Adjudication Vs Arbitration…….2 • Arbitration awards are higher may be because • Project Employers being government agencies in most of the cases would not be able to produce sufficient evidences of their case and benefit of doubts usually goes to the contractor with higher magnitude of award.

  38. Characteristic of a Dispute Resolution process General characteristics should be: • Settlement in short period/ Minimum delay • Fair Decision • Settlement achieved is final • Minimum costs • Control of process • The ability to preserve the relationships between the parties • Confidentiality • Flexibility

  39. PPA/PPR ProvisionDispute Settlement Mechanism • Dispute between the Contracting parties (Public Entity and Contractor/ Supplier/ Service Provider/Consultants) to be settled through mutual consent • Contract to provide mechanism for dispute not settled by amicable settlement. • Dispute will be settled by Arbitration in accordance with prevailing laws if no mechanism is stipulated in a contract

  40. PPA/PPR ProvisionDispute Settlement Mechanism • Adjudicator: for a contract value upto 10 Crore • Three member Dispute Resolution Committee for contract value more than 10 crore

  41. PPA/PPR ProvisionAppointment of Adjudicator/DRC • Appointment of Adjudicator • by mutual consent of contracting parties • Three Member Dispute Resolution Committee • one member each appointed by each party and thus appointed two member will nominate a person to be the chairman of the committee • failing to appoint Adjudicator or establish the DRC, the appointments to be made in accordance with prevailing laws of Arbitration except otherwise provided in the contract.

  42. PPA/PPR ProvisionQualification for Adjudicator/DRC • shall be Technical Person(s) with expertise in works similar to the nature of dispute & with at least 5 years experience

  43. PPA/PPR ProvisionRights and Duties of Adjudicator(s) • Letter of appointment to define functions, duties and powers of the adjudicator/DRC members • adjudicator(s) to visit construction site in every 6 months interval

  44. PPA/PPR ProvisionCompensation to Adjudicator(s) • Remuneration and other facilities and financing arrangement for the Adjudicator /DRC members shall be as mentioned in the contract. • Contracting parties to bear the cost of remuneration and other facilities on equal cost sharing basis.

  45. PPA/PPR ProvisionAdjudication Procedures • Contract to provide the procedures for Adjudication • Claimant to submit written claim and documents to substantiate such claims • Respondent to be informed of the claim within 3 days of receipt of claim and documents and be requested to respond • Adjudicator may visit site if necessary • Adjudicator/DRC to give reasoned decision within 30 days of referral

  46. PPA/PPR ProvisionArbitration • a party dissatisfied with the Adjudicator’s/DRC’s decision may refer the issue in accordance with the contract within 30 days of receipt of the decision; • by Arbitration in accordance with the prevailing laws, if no such provisions are stipulated in the Contract.

  47. Contract Provisions for Dispute Resolution All contracts provide for Dispute Resolution in the Conditions of Contract • Eg. NCB Contract issued by PPMO (works)-SBD • FIDIC Contract

  48. Contract Provisions for Dispute ResolutionMechanism • Dispute be settled amicably • Amicable settlement period 30 days from the receipt of request by one party of the other for negotiation/amicable settlement • Reference to Adjudicator/DRC be done within 15 days of expiry of amicable settlement period

  49. Contract Provisions for Dispute ResolutionAppointment of Adjudicator • Appointment by consensus • If no consensus reached, the Client will request the Appointing Authority to appoint Adjudicator within 15 days of such request • Appointing Authority • Nepal Council of Arbitration(NEPCA) in PPMO Documents

  50. Contract Provisions for Dispute ResolutionAppointment of DRC • Each party to nominate one member • Two member thus appointed shall select third member to be the Chair man of the DRC

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