Restoration Insurance: Claims Management
Contractors are skilled problem-solvers with the knowledge and expertise to successfully complete today’s complex construction projects. Experienced contractors understand that early identification and evaluation of disputes and timely resolution of subcontractor and supplier claims are critical components of efficient and cost-effective project management.
Disputes cost money and divert critical resources. Contractors that leverage their existing skills in identifying and mitigating risks, and that take steps to proactively and thoughtfully manage claims, will minimize their claim-related costs and optimize claim outcomes. Contractors take different approaches to problem-solving, but the process involves common elements:
investigation and evaluation;
plan formulation;
identification, allocation and management of resources; and
periodic reassessment and resolution.
INVESTIGATE AND EVALUATE CLAIM STRENGTHS AND WEAKNESSES
Cost-effective claim management requires an early assessment of the strengths and weaknesses of the parties’ positions. Once the contractor has verified compliance with any claim notice requirements, its attention should be focused on a timely analysis of the merits of the claim.
An accurate assessment requires consideration of all available and relevant facts. All claim-related material should be gathered and organized so that it reveals the claim’s underlying factual narrative, and explains the “who, what, when, where, why and how” of the dispute. This will enable the contractor to quickly identify any holes in the documentation and take steps to obtain any supplemental information that it might require.
The contractor should incorporate these facts into a written explanation of why its position should prevail. The contractor should be able to present a coherent narrative that supports a meritorious request for relief or a legally supported basis for a claim denial. If the contractor cannot craft a persuasive narrative, this may indicate that the claim is problematic and that additional investigation and consideration is required.
At this stage, the contractor also should try to anticipate its opponent’s narrative. In doing so, the contractor should ask:
What will the other party contend?
Is the other party’s interpretation reasonable?
If the other party’s position has merit, what impact does it have on the contractor’s position?
FORMULATE A CLAIM RESOLUTION PLAN
Once the contractor collects, organizes and evaluates the claim information, and determines what result it wishes to achieve, it should formulate a claim resolution plan. The plan should take into consideration the relevant facts and legal theories, any applicable contract dispute resolution provisions and any business realities that might affect claim prosecution or defense. As early as possible in the claim process, the contractor should also identify plan implementation costs.
As part of this process, the contractor may wish to seek assistance from both in-house personnel and outside advisers. Project personnel will be the closest to the situation and may provide the best information on how the plan may impact job completion. Home office personnel will be better situated to incorporate customer, marketplace and overall business concerns into the plan. Outside advisors can provide a more neutral assessment of the claim and its legal and technical aspects.
If the claim involves a surety bond, the contractor should make its surety aware of its claim resolution plan early in the claim process. The importance of engaging agents, brokers and sureties in this process cannot be overstated. The surety is a valuable resource for contractors seeking to develop workable solutions that will protect their interests and their assets. Early surety involvement also ensures that any surety-specific issues or defenses are given appropriate and timely consideration. Most surety companies have sophisticated claim departments that are staffed by knowledgeable claim professionals who can share pertinent technical information, legal theories and claim analysis.
IDENTIFY, ALLOCATE AND MANAGE REQUIRED RESOURCES
The contractor should designate a claim “manager” who is capable of coordinating the implementation of the claim resolution plan and who can provide consistent leadership. Many contractors find that their claim plans require the retention of attorneys or consultants. In these situations, the contractor’s surety is a valuable resource. Most sureties have years of experience with multiple attorneys, accountants and technical experts. The surety’s claim department can assist the contractor in identifying and evaluating potential claim resources.
Cost management is an integral part of claim management. Just as contractors use job cost accounting procedures to manage their construction costs, they should identify and monitor claim-related costs. Consultant and attorney budgets and retention agreements can help the contractor manage these costs. In addition, when paying claim-related invoices, the use of claim expense cost codes can help the contractor maintain accurate cost accounting information.
REASSESS AND RESOLVE
As claim prosecution or defense proceeds, contractors may find that new or additional facts are discovered that alter their views of the claim. Pertinent case law may be discovered, or the contractor may determine that its initial claim resolution plan did not adequately anticipate costs. Business concerns that impact the contractor’s initial claim evaluation may develop.
It is important for the contractor to reassess its position frequently during the claim process. Successful construction contractors are expert problem-solvers, and they align skill sets with tasks every day. Contractors that effectively leverage their existing expertise to manage construction claims will minimize their claim costs and maximize their claim recoveries.