![]() When we look at the frequency of claims associated with risk, there is a clear distinction. Mixed is engineering and procurement performed on a reimbursable basis with predominantly fixed-price construction. Also included are projects that are incentivized, i.e., where the contractor’s profit fluctuates based on project overruns or cost savings. Reimbursable contracts include those where both the engineering and construction procurements are done on a reimbursable basis. Reimbursable under which essentially all work is performed on a cost-plus fee or cost-plus incentive fee basis. Lump-sum EPC is detailed engineering, procurement, and construction performed on a fixed-price basis by the same firm or consortium. IPA groups contracting strategies or practices into three categories: In the case of a low bid, contractors will still submit a claim to recoup their costs or restore profitability to a job. These data indicate either that contractors are purposefully being aggressive in their bid and attempting to make up the profits later with a claim, or they did not understand the scope of work and submitted a low bid. There is a clear trend that for projects where the contractor significantly underbids the competition, there is a significantly higher frequency of claims: 70 percent of projects that fit that category will have a claim ( Figure 8.4). ![]() The data support the finding that competitive contractor bids are more likely to result in a claim ( Figure 8.3). This finding is qualified because the result is only significant to about a ten percent confidence level, meaning there is a ten percent chance that the aggressive cost projects and the conservatively scheduled projects have the same frequency of claims. Projects with aggressive costs-projects using costs per square meter or for materials processes that are significantly lower than industry norms-tend to have more claims. This is not surprising since meeting the schedule depends on equipment delivery and other external factors. We found that 33 percent of aggressively scheduled projects have claims as compared to 7 percent of conservatively scheduled projects. An aggressive schedule is defined as one that is 70 percent faster than the industry average (we were able to benchmark how long a project should take based on industry experience). The good news is that there are strategies to address each of these issues.įast-track or schedule-driven projects have significantly more claims than conservatively scheduled projects. Overly aggressive schedules: 10 percent, and Inadequate owner involvement: 10 percent, Increasing risk allocated to contractors: 20 percent, Poorly developed or executed contracts: 20 percent, Increased profit pressures on contractors: 30 percent, In a formal survey owners identified the following as primary drivers of claims: Even disregarding the skew caused by several projects with very large claims, the difference between the claim and settlement amounts is as much as half. The study found a significant difference between the amount submitted for a claim versus the amount actually paid at settlement ( Figure 8.1). The study objective was to identify practices that reduce claims by understanding the main drivers of claims so that performance of capital projects improves. I make that statement based on a recent study completed by my organization, Independent Project Analysis (IPA), Inc. Strategies and practices can be used to reduce the frequency of claims, because a number of claims appear to be unwarranted. Claims are costly, lead to delays and damaged relationships, but they are avoidable. One in four projects in the construction industry has a claim. Summary of a Presentation by Paul BarshopĬhief Operating Officer, Independent Project Analysi, Inc.
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