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Most Frequently Construction Projects Claims in Iraq: Causes and Types  

Alaa K. Shadhar

Assistant Lecturer

Civil Engineering Department Wasit University

Wasit, Iraq

[email protected]

Buroog B. Mahmood

Assistant Lecturer

Civil Engineering Department Wasit University

Wasit, Iraq

[email protected]

Abstract- The construction industry in Iraq is one of the important areas because now we needs to develop and set up a lot of projects in the scope of services and infrastructure as well as establishment industrial projects advanced to support the Iraqi economy. Usually projects development and complexity becomes a companion to a lot of claims, so it became necessary for us study and diagnosis the most important claims faced projects in Iraq and identify which of more frequently and opening the way for researchers to develop appropriate solutions to those claims.

This research presents the results of a study of the types, causes, and frequency of construction claims in Iraq using a data from more 80 claims for a variety of Iraqi projects. The data were analyzed and the results of this analysis along with recommendations on how to reduce/prevent those claims.

Keywords— Claims, Causes, Frequently, Iraq, Projects.

I. INTRODUCTION

Construction industry is complex and unique compared to other industries because it involves the impact of many participants in all trends. Therefore, any event or circumstance that impacts on the construction industry has the potential to affect the whole economy.

Disputes and claims are common due to the increasing complexity of the construction process. Owners used to transfer major risks to contractors. These risks include; inflation, accidents, labor low productivity, adverse weather, shortage of materials and skilled labor, and unforeseen site conditions. Thus, the construction contracts are becoming more complex.

Construction contracts are very often long and have complex documents. Consequently, disagreements or disputes can arise regarding contractual obligations or expectations. When one party feels that the contractual obligations or expectations have not been met, then they may submit a “Claim,” when they feel that they deserve financial and/or time compensation. Therefore, ‘Claims’ represent a legal form but do not establish an entitlement.

In Iraq, claims have become a repetitive phenomenon in the construction industry.  Such phenomenon, if not managed efficiently, would hinder the success of many construction projects and thus slow down the wheel of development.

Usually the solution of problem of claims lies in the establishment of partnership between the owner and the contractor. The adversarial attitude that owners take while dealing with their contractors should be changed to that of teamwork. The contractor should be invited to work as a member of the owner’s team and an arm of the owner’s company in order to utilize the contractor’s strengths, identify deficiencies in the plans and specifications, and to help eliminate claims.

II. SCOPE OF THIS STUDY

Information for 36 claims related to different construction projects in Iraq was collected. The data were collected from 61 different entities (26 contractors, 21 consultants, and 14 owners) see (Fig. 1).

Fig. (1) Distribution of Respondents Entity

Based on their main area of specialty, the profiles of the 61 entities are shown in Table 1. The 61 owners and firms were asked to provide information related to types of projects and classified the claims according to main area of specialty see figure 2. The data for the 36 claims were mainly extracted from owners, consultants, and contractors’ claims database.

Table 1 Respondents Profiles

Type of Respondent Owner Contractor Designer Total

Number of Respondents 14 26 21 61

Company main area of Specialty Heavy Sewage 4 8 5 17

Water Supply 3 8 4 15

Roads 5 4 6 15

Residential and Commercial 2 6 6 14

  Owners and firms were asked to provide information related to types of claims, causes of claims, and frequency of each type by filling a questionnaire, in which they choose one of five possible options for the frequency of each type and cause of claims: (1) not frequent; (2) little frequent; (3) occasionally frequent; (4) frequent; and (5) most frequent. The data were then analyzed and a detailed analysis of the data is shown in the following section.

Fig. (2) Area of Specialty of Respondents

III. DATA ANALYSIS

   The data collected represent various types of projects constructed over a period of around five years (from 2004 until 2014, inclusive). The types of projects include buildings, roads and highways, water and sewer lines, power plants, in addition to a variety of other types.

IV. EFFECT LEVEL

   The effect level was assumed for each category of answer as explained in table I. This category of answer was assumed in order to facilitate the process of analyzing data results.    

Table 2 Evaluation of Answer Category

Effect Level Category of Answer

0 Not Frequent

1 Little Frequent

2 Occasionally Frequent

3 Frequent

4 Mostly Frequent

 The arithmetic mean for answers calculated as follow

(Mean) = (total of number of iterations in the effect multiplied in the number of effect divided by the size of the sample).

   The arithmetic mean is used in the analysis for each factor of the sectors and it is calculated as per Equation 1.

   n                    n                                                                                             

   M =  ∑Xi *Fi    /   ∑ Fi           ............................................. ( Eq. 1)

  i=1                i=1

Whereas:

M = Arithmetic mean of the answer.

Xi = the level of category effect (i) for the questionnaire factor.

Fi = repetition of the answer category (i) for the questionnaire factor.

n= number of answers.

To better understand the importance of each type of claims, an importance index percentage was then calculated as follows:

Importance Index = Arithmetic Mean * 100/ 5        ................ ( Eq. 2)

V. TYPES OF CLAIMS AND THEIR FREQUENCY

   The data received indicated that the types of claims in construction projects in Iraq can be classified into four main types: Financial Compensation; Work Duration Extension Financial Compensation and Work Duration Extension and Re-Pricing.

In order to assess the effect of each types, the answers were collected from all surveyed samples (employers, engineers, contractors) whereas the questionnaire form number that been successfully received was sixty one (61).  

    The results have been analyzed and discussed depending on the “mean” of these results which is one of central tendency (tendency of value to center on the optimal value).

    Responses for the ‘‘financial compensation’’ type of claims, for example, indicated that one firms responded as ‘‘never’’, 2 responded as ‘‘little’’, 9 responded as ‘‘occasionally’’, 21 responded as ‘‘frequent’’, and 28 responded as ‘‘mostly frequent’’.

Fig. (2) Frequencies of Financial Compensation Claims

  Data were analyzed and a weighted average was calculated for each type of claims and the frequencies for each type of claims received are listed in Table 3:

Table 3 Frequency of each type of claims

Mostly Freq. Freq. Occas. Freq. Little Freq. Not Freq. Types of claims

28 21 9 2 1 Financial Compensation

Work Duration Extension

Financial Compensation And Work Duration Extension

Re-Pricing

VI. CAUSES OF CLAIMS AND THEIR FREQUENCY

  The data received indicated that there are 32 possible causes of claims. Similar to what is explained in the previous subsection for types of claims; firms were asked to choose one of five possible options for the frequency of each cause of claims: not frequent, little frequent, occasionally frequent, frequent, and mostly frequent with a weight for each in a scale from 0 to 4. Responses for the frequency of the ‘‘change orders negotiations’’ cause of claims, for example, indicated that 2 firms did responded as "not frequent", 10 responded as ‘‘, little frequent’’, 12 responded as ‘‘occasionally frequent’’, 21 responded as ‘‘frequent’’, and 15 responded as ‘‘mostly frequent’’.

   Arithmetic mean was calculated using Eq. (1) for each cause of claims and the importance index percentage was then calculated using Eq. (2), as shown in Table 4. The results of this analysis indicate that ‘‘change orders negotiations’’ are the most frequent cause of claims with an importance index of 55% while ‘‘delay caused by owner’’ was ranked second with an importance index of 52.5%. ‘‘Planning errors’’ cause of claims was ranked last with an importance index of 32.7%. The ranks of all causes of claims are listed in Table 4.

   The importance index values for each cause of claims are shown in Table 4. For example, the weighted average for the ‘‘political’’ type of claims = (0 · 4 + 1 · 9 + 2 · 22 + 3 · 21 + 4 · 14)/71 = 2.42. The importance index for this type of claims = (2.42 · 100)/5 = 60.5%. The results of this analysis indicate that ‘‘changes’’ claims are the most frequent type of claims. This type of claims was ranked first with an importance index of 60.5%. ‘‘Extra-work’’ claims were ranked second with an importance index of 60.2% while ‘‘contract ambiguity’’ claims were ranked last with an importance index of 32.70%. The ranks of all causes of claims are listed in the last column of Table 4.

Table 4 Ranking of each cause of claims based on their frequencies

Causes of claims Importance

Index (%) Rank

1. Occurrence of accidents and poor safety procedures

2. Supplies of defective materials

3. Varied labor and equipment productivity

4. Difficulty to access the site (very far, settlements)

5. Adverse weather conditions

6. Differing site conditions

7. Defective design (incorrect)

8. Not coordinated design (structural, mechanical, electrical, etc.)

9. Inaccurate quantities

10. Lack of consistency between bill of quantities, drawings and specifications

11. Awarding the design to unqualified designer

12. Labor, material and equipment

13. Scope of work defining

14. Accuracy of project program

15. Inflation

16. Delayed payments on contract

17. Financial failures

18. Permits, regulations and Legislation

19. Labor disputes

20. Third-party delays

21. Delayed dispute resolution

22. Change order negotiations

23. Quality of work and time constraints

24. Changes in work

25. Actual quantities of work

26. War threats

27. Project complexity

28. Organization and change management

29. Coordination with sub-contractors

30. Resource management

31. Information

32. Communication

VII. RECOMMENDATIONS

Industry practitioners and experts from Planning Department were asked to provide recommendations on how to prevent/reduce claims and how to deal with such claims in case they happen.

Based on their recommendations, the following are some rules-of-thumb on how to reduce/prevent claims in construction projects:

1. Allow reasonable time for the design team to produce clear and complete contract documents with no or minimum errors and discrepancies.

2. Establish efficient quality control techniques and mechanisms that can be used during the design process to minimize errors, mismatches, and discrepancies in contact documents.

3. Have a clearly written contract with no ambiguity.

4. Read the contract several times before signing it to understand any unclear clauses.

5. Have a third party to read contract documents before the bidding stage.

6. Use special contracting provisions and practices that have been used successfully on past projects, to help us for avoiding and resolving disputes during construction.

7. Develop cooperative and problem solving attitudes on projects through a risk-sharing philosophy and by establishing trust among partners (e.g., the owner and the contractor). This concept is known in the literature as partnering.

8. Implement constructability during the different stages of a project.

9. Establish a strategy on how to deal with tighter scheduling requirements.

10. Have signed change orders before starting doing these changes on site.

11. Maintain proper job records on a timely manner including time sheets, diary records, reports, photographs, records of labors and weather and its effect on progress, progress of the construction, site instructions, etc.

VIII. CONCLUSION

This study can be used to identify several problem areas in the construction process in Iraq. Steps should be taken to clarify any issues or conflicts that may arise in these common problem areas. One of the common problem areas is the ‘‘changes’’ type of claims which, according to this study, was the most frequent type of claims and needs special consideration. ‘‘Extra-work’’ type of claims came second and ‘‘contract ambiguity’’ was ranked last.

It can also be concluded from this study that ‘‘change orders’’ are the most frequent cause of claims while ‘‘delay caused by owner’’ was ranked second. ‘‘Planning errors’’ were ranked last, indicating that it is the least frequent cause of claims.

According to the results of this study, it is recommended that special consideration should be given to contract clauses dealing with change orders, disputes, variations and extra works conditions, and delay. The best means to cope with risk of construction claims is to reduce or avoid them altogether. There are certain fundamental means of reducing the number of claims encountered.

The main and essential steps that can be taken to minimize risks and deal with the aforementioned identified causes include: (1) allowing reasonable time for the design team to produce clear and complete contract documents; (2) having a clearly written contract with no ambiguity by using special contracting provisions and practices that have been used successfully on past projects; (3) developing cooperative and problem solving attitudes on projects through a risk-sharing philosophy between the owner and the contractor.

It is expected that the findings of this research will assist all parties to a contract reduce liability by avoiding the main causes of claims and, accordingly, minimize delays and cost overruns in construction projects. The suggested comments are also necessary for proper project management, which is far more advantageous and profitable than seeking advice of a construction claim consultants after the dispute is entrenched. The latter course often takes place too late and is too costly.

IX. REFERENCES

• ALi_ ozge Ilgar (2005)” Quantification of Acceleration Claims: A Simplified Approach” M.Sc.; Middle East Technical University, Malaysia.

• El-Dokhmasey, Ahmed.M. (2006). “An Expert system For Assessing Engineering –Related Delay Claims in Construction Projects”. Ph.D.; Faculty of Engineering, Cairo University, Egypt.

• El-Mesteckawi.Lobna.M.(2008).“ Managing Construction Dispute in Egypt”.M.Sc.; Faculty of Engineering, Cairo University, Egypt.

• Erik L. Demeulemeester and Willy S. Herroelen.(2002).” Project Scheduling”. Kluwer Academic Publishers New York, Boston, Dordrecht, London, Moscow.

• Hanafy, Amr F. (2003) ”Developing Software Program to Control, Manage and Minimize Claims in Construction Industry” M.Sc.; Faculty of Engineering, Cairo University, Egypt.

• James P. Lewis.(2011).”Project Planning, scheduling& control”, fifth edition, The McGraw. Hill companies.  

• Jonathan F. Hutchings.(2004). “Project Scheduling” Licensed Building Contractor, Santa Cruz, California, U.S.A.

• Maritz;  Schutte ( 2008 ). " A Practical Approach to Calculate Acceleration Costs on Construction Projects in South Africa ", Department of Construction Economics, University of Pretoria, Malaysia.

• Mohamed, M.M. (2007).” Estimating Minimum Acceptable Construction Claims Amounts in Negotiation Process”; M.Sc.; Faculty of Engineering, Cairo University, Egypt.

• Mohammad M. Mohammad (2006)” Developing Management Information System For Controlling and Follow up in The Projects Construction Companies” M.Sc.; Faculty of Engineering , University  of Technology,  Iraq.

• Mohammed, Raad Mounib (2006)” Construction of a Management System for Time Control in Fast-Track Projects” M.Sc.; Faculty of Engineering , University  of Technology,  Iraq.

• Mostafa Khanzadi;Shahin Dabirian;Vahidreza Yousefi (2009). "Application of Analytic Process to Prioritize Causes of Claims Raised on The Effect on The Time and Costs of Infrastructural Projects in The Field of Iran  Oil and Gas" , Iran University of Science and Technology.

• Oon Soon Lee, Dennis( 2006)” Extension of Time and Acceleration Claims” M.Sc.;  University Technology, Malaysia.

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