Claims Committees and Disputes in the Construction Industry

May 28, 2020

Written By John Craig, Jason Roth, Charlene Hiller and Justin Duguay

As the construction industry adapts to operating in a COVID-19 world, the effects of the pandemic will continue to be felt as the economy moves from crisis to recovery. Projects have taken an array of unexpected turns during emergency shutdowns and modified working conditions, leading to unwanted outcomes such as delay, cost overruns, and ultimately, disputes.

One of the most effective ways that owners, consultants and construction companies can prepare for and respond to disputes is by creating a claims committee. This team consists of a company’s in-house legal counsel, contract administrator and projects manager—as well as a claims consultant and outside legal counsel as required.

There are a number of strategic advantages to creating a claims committee. Meetings and communications involving the committee are subject to legal privilege (primarily solicitor-client privilege, but generally litigation privilege as well). Going through the exercise of a contemporaneous claims review process also potentially avoids disputes by enabling companies to efficiently address issues as they arise rather than after the fact. Furthermore, timely review of potential claims allows contemporaneous documentation to be gathered, and witness interviews to be taken, while recollections are fresh.

Below are the key steps a company can take in creating a claims committee and issues that should be considered.

Key Steps in Creating a Claims Committee

Protect privilege: Identify protection of privilege protocols with management and the company's administrative team.

Confirm project status and identify the issues potentially in dispute: The claims committee coordinates with the company's project team to assess the impact of a potential claim and develop an overview of the current status of the project (such as the current date for completion and budget).

Claims consultants/experts: Prepare a short list of claims consultants and experts. An independent claims consultant can be used to provide an initial assessment of the status of the project, and could also assist in ongoing oversight, assessment and management of the project as a result of potential claims. A claims consultant should be retained fairly early in the process. If retained by outside counsel, the consultant’s advice can be protected from later disclosure by claiming privilege.

Confirm legal rights and obligations: Identify the key rights and obligations of both the company and its suppliers under the construction agreements. This includes a close review of the construction agreements and terms such as change order provisions, exclusionary clauses, dispute resolution provisions and other relevant terms. In-house and outside counsel can direct this review, assisted by contract administrators.

Project documentation: Companies should develop a broad understanding of what documents generally exist and where they are located. A list of personnel charged with custody of documents should be generated so the claims committee can know where relevant documents are, what they are, and who to contact—in the event document review needs to be completed by external counsel or experts. A collection of key documents can be organized for the claims committee to allow for easy and timely reference to important documents. The contract administrator can play a key role in this.

Cost and schedule evaluation: Develop an understanding of where a project stands from a cost and schedule point of view, and how it has evolved from the original schedule and estimate. Projected final costs and schedule should also be determined. This can be led by the claims consultant, assisted by the project manager and others that are identified with relevant information.

Trend and change order and/or claims review: Develop an understanding of the trends and change orders prepared and requested on a project and their status. This can include a review of key change order documentation and identification of the particulars of each trend or change order—such as value, what it pertains to, whether the notification periods in the contracts were complied with, and the status of the change request.

Initial assessment: Prepare an initial assessment of the current project status and each claim that identifies potential areas of weakness and strength from both a legal and technical perspective. This may help a company focus its position in any potential settlement talks. It may also help identify areas where the company can take steps now to mitigate weaknesses.

Identify future steps: Identify steps that will need to take place should a dispute formally arise. This allows a company to strategically prepare for such steps—which can include conducting witness interviews; collecting and reviewing relevant and material documents; and developing a settlement and litigation/arbitration strategy.

To discuss the creation or operation of a claims committee further, please contact a member of the Bennett Jones Construction team. For other COVID-19 related materials please visit our COVID-19 Resource Centre.

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