Construction Lockdown 2: COVID and The Four Corners of a Successful Claim

In our latest guest blog, Bill Bordhill from our partner Decipher consulting, discussing the “four corners of a successful claim”.

On 6^th January 2021, the Minister for Housing, Local Government and Heritage announced that construction in Ireland would once again close down, to address the latest outbreak of Coronavirus.

The likelihood is that this will almost certainly have an impact upon costs and time for projects already underway and those which were scheduled to start in the coming weeks. The ideal scenario would be for parties to come together and work towards an agreed route to dealing with the challenges that face us.

However, in contractual terms, it is a reality that employers will want to minimise the increased cost and time overruns. Contractors will also want to ensure they are correctly compensated for any problems encountered that are not at their risk.

Whilst the ideal situation will be to collaborate and work together, there is an inevitable disparity between the two positions. So what should people consider, in the event that a claim or dispute arises?

What is a Claim?

Often folk think of ‘claim’ as a dirty word, something they ought not to get involved with. This may be, in part, a result of adverts seen on TV, ‘had an accident? Not your fault…’.

But it is important to remember that a claim is only an assertion of a contractual right. It’s something you’re entitled to. It should not be seen as a dirty word.

For the purposes of this article, we’ll split claims into informal and formal. An informal claim would be something such as a variation. Usually there’s a straightforward mechanism to automatically adjust the contract sum in the case of a variation, and there’s no need for a formal resolution process.

A formal claim would be something that falls outside the standard mechanisms of the contract, or which cannot easily be resolved. Examples might include an unexpected change or circumstance that leads to loss and expense or prolongation.

In the case of COVID there has been much discussion over whether the pandemic counts as a ‘Force Majeure’ issue [https://byrnewallace.com/news-and-recent-work/publications/covid-19-impact-on-construction-contracts.html] – as it could not (in 2020 at least) have been reasonably foreseen. There may also be the added complexity of any contracts entered into or amended since the start of the pandemic, which may include clauses intended to manage the risk of lockdowns and outbreaks. In all instances, good legal advice should be sought.

What are the Procedures?

Firstly, and most importantly, you have to issue a proper notice. Often known as a ‘condition precedent to entitlement’, it’s important to ensure a notice of claim is issued correctly. Make sure it complies with the contract. Ensure it’s issued in the right form, and the content is kept as broad as possible. It must be delivered to the right address, in paper or by fax if required. Most importantly, it must comply with any specific requirements set out and agreed to in the contract. Get this stage wrong, and the rest of the process might be pointless.

The Four Corners:

There are four key elements which must be demonstrated in order to successfully claim your entitlement. These are:

• Cause
• Effect
• Entitlement
• Substantiation

The Cause:

What was the Event? The change or the circumstance that led to the loss? The cause can range from exceptional weather conditions to a delay or event caused by the Employer. In the current scenario, it might be COVID-19, but consider, were there any other issues at play before the lockdown?

Whatever the cause, there must be a demonstrable link from the cause to the event. These might be problems such as exceptional weather conditions, delays caused by the employer, or changes in legislation.

The Effect:

This needs to be a direct result of the event and a loss needs to be incurred. Often the most challenging area for most people who’ve been involved with a project is explaining why the cause created the effect and proving a direct link between the two.

It may not be good enough to say, ‘lockdown started on 8^th Jan and ended on 28^th Jan, therefore the project and associated costs have been interrupted for the duration of that period’. Many more factors may be at play. Shut-down and start-up costs may need to be accounted for. Overheads are likely to be ongoing. Delays to the programme may be complicated by displaced resources diverted to other projects. Many factors will complicate the extrapolation of cause and subsequent effect upon the project costs and timeline.

Entitlement:

There needs to be an entitlement to the claim in the contract or a similar statutory legal entitlement you’re able to claim. This would, again, be a legal issue and good legal advice is necessary to ensure entitlement exists.

Substantiation:

To paraphrase Max Abrahamson, the eminent Dublin lawyer, ‘records, records, and more records’ are key to a successful claim. Ideally, the records need to be those made and shared at the time the event occurred (contemporaneous) in order to ensure they can be successfully used in a claim. Strong evidence is crucial to a successful claim.

This element of a claim is particularly important in the case of the lockdown. Keep all records of delay, all records of instructions from engineers, architects etc. And ensure that where any matters contribute to a delay, cost escalation or disruption that the associated records are flagged as such.

Presenting the Claim:

Should you need to present a claim to your employer, first and foremost – keep it simple. Write a claim as though it’s being addressed to a fourteen-year old. This should be someone intelligent but completely unfamiliar with your story.

Do not start with what you want and justify it. Start with what the plan was and explain the story of the things that led to the claim. Explain the cause and the resulting effect you wish your reader to understand. Whatever you do, don’t pretend to be a lawyer. There’s no need to fill sentences with long and complicated language or terminology. It should be short, punchy and to the point.

Structuring the Claim:

• Start with an Executive Summary: Compress the dispute into two pages
• Include a Statement of Claim: expand upon the summary – describe the amounts claimed, etc.
• Define any specific relevant contract terms and particulars
• The cause-and-effect narrative then begins. You need to craft a story that explains the causal link between the events that led to the effect creating entitlement in your dispute.
• Your claim narrative (story) should be brief and should be supported by both Appendices and Exhibits.

The above guidance should help you to put together a successful claim, but seek help if it’s something you’re not experienced with. Like most things, success comes with experience and understanding of the process.

Bill Bordill is a Director at Decipher Consulting – www.decipher-group.com.  Join their webinar with Shane Dempsey and leading construction experts on 20^th January.