Construction Law/CHARGES LEVIED GENERALLY ON PREPARATION OF CONSTRUCTION CLAIMS
QUESTION: Dear Engr. Mohsen,
I am grateful, if you would provide me a clarification for the following too, for which I have not received satisfactory reply to date.
1. In this connection, one point I presume correct is, the Claim Consultant can never ensure, that his Claim will definitely be accepted by the Client. Therefore I think, he should clear this point to the Contractor at the beginning itself.
2. Irrespective of this fact, what should be his fair/acceptable charge, based on the value of the Claim he prepared ?
3.If it is a percentage of the value of the Claim, what is its percentage generally used in practice ?
4. Is there any other way of charging say, based on the time consumed in preparing the claim ?
ANSWER: Dear Basil
There are numerous ways to compute charges for preparation of Claims and each individual has its own formula. Once the invoiced amount is acceptable to the Client then its immaterial how you worked out your remuneration. It is correct that you can never ascertain before hand that your claim will be approved and your client(entity for which you are preparing the claim) will be paid; it is also very difficult to ascertain what amount is approved for payment.
Secondly, the amount you invoice for preparation of Claim totally depends on your payment arrangement with your client. You may work for him on a retainer-ship basis or man-hours basis or the percentage of Claim basis.
Even if you are working on percentage basis it is the mutual negotiation that decided the percentage that could range from 0.1% to 3% depending upon nature of the claim. Once the claim is approved by the "Engineer" you get 60% of your total payment and upon approval from "Employer" remain 40% is claimed; irrespective of the time of payment of Claim amount to your client because once the claim is approved by the Employer it becomes a legally accepted right of the contractor.
Engr. Mohsen Islam Khan, PMP
---------- FOLLOW-UP ----------
QUESTION: Thank you very much for the reply.
Please be good enough to clarify one more point.
Say our Claim Consultant says,
1.0 I am dead sure, my justifications in claiming are 100% correct.
2.0 Nevertheless, I can't assure it will be accepted by the Engineer, because his subordinate officers may not recommend it to the Engineer, since either they are not impartial or they do not accept my justifications due to some reason/s.
3.0 This same habit may lie with the Engineer too.
4.0 Anyway If I see this situation is not claimable, I will not accept the case.
5.0 If I accept the case to prepare an accurate claim, I should be paid as follows, whether it will be accepted or not by the Engineer.
5.1 A non-refundable payment of Rs.---.00, to study, whether the case is
claimable or not.
5.2 If I am sure it is claimable only, I would accept the assignment.
5.3 Then my total charge will be --% of the total amount of claim.
5.4 I should be paid an advance payment of Rs.----.00 before commencing work.
5.5 Balance to be paid in full, to submit the full claim, whether it will be
accepted or not by the Engineer.
The above is an actual situation.
Definitely, it is OK, if both parties agree.
May I kindly receive your impartial opinion on this.
Well the situation you have posed appears quite dubious.
1. The Claims consultant should (or may) say for EVERY CLAIM that it is 100% correct as his livelihood depends on his capability to transform even a non-claimable sum into a claimable amount.
2. Practically the "Engineer" and his staff are always tilting towards the Client because the Client is their pay master.You see, the Engineer's decision is only the first step even if the Engineer disregards your claim; it can still be a genuine & valid demand. Then the contractor transforms the claim into a dispute and invoke the dispute resolution mechanism. The claim consultant then should get his full payment once the matter is decided by DR Mechanism; irrespective of the fact that the payment of claim is released to Contractor or not.
3. The client has hired a claim consultant because he lacks the expertise in the matter thus he should not make the full payment to the claim consultant until the claim is approved & conceded by the Employer.
4. The process you have mentioned in Para 5 onward looks reasonable except I would pay the Claim Consultant in full; once any competent fora approves the Claim (Client, Engineer, Arbitrator, Mediator or Judge) and the payment will be made or adjusted on pro-rata basis in accordance with the approved amount of the Claim; which can be less than the original claim prepared by the consultant.
You should study "Construction Claims & Responses; Effective Writing & Presentation" by Andy Hewitt if you have keen interest in this area.
Thanks & Take Care.