Pricing Construction Claims (continued)

McLaughlin and McLaughlins Project Professional post is the fifth in a Subject Series Construction Claims and Disputes.  This Subject Series contains discussions regarding potential and actual construction claims and disputes situations.  In this series, we focus on the key aspects of construction claims and disputes management (rather than mechanics).  This discussion is a continuation of Part 4 regarding the pricing of claims and disputes.  The compulsion or question is – “How much is a potential claim worth?”  In virtually all disputes, the central issue is the money.  Since it is a win-lose situation, the outcome may be that someone (one party) will pay another party.  Hence, the money is the ultimate issue (sometimes time is at issue, generally presenting itself in money or damages related to the time).

There is an old saying “win the battle, lose the war” which applies to damages in construction claims and disputes.  With facts, logic and analyses on their side, one party (Party A) can prepare and present a very compelling argument regarding the claim (against Party B).  However, winning the argument on the cause (or as it is called, entitlement) is relatively useless without winning the argument on the money related to the effect (or sometimes called damages, quantum, compensation, pricing).

Even more compelling, the decision to proceed with a claim (and potentially spend millions of dollars on expenses such as legal and expert fees) should be heavily driven by the potential recovery (the money).  Consequently, parties must have a reasonable assessment of the true value of the dispute and the ability to successfully demonstrate or prove these damages in the resolution process.  Without the ability to prevail on a suitable and acceptable level of damages, pursuing a construction claim through a costly dispute resolution process could be an unwise managerial decision.

McLaughlin and McLaughlin  has extensive experience and expertise in the strategy and pricing of major construction claims and disputes.  This experience includes work for both owners and contractors.  Further, the experience includes testimony on this topic.

In this discussion, we are guided by another highly useful and well written book.  This reference is Calculating Construction Damages, Second Edition, by William Schwartzkopf and John J. McNamara.

The Forward to this reference contains key information and advice.  The following excerpt contains an essential mindset on money or damages:

“The goal of any construction claim is to recover damages.  This second edition presents a detailed look at damages.  This book is intended to be used by lawyers, contractors, consultants, and other who prepare, present, and defend construction claims.”

“The second edition is intended to serve as an updated reference handbook for these who are preparing, calculating, and analyzing damages related to construction projects.  Although collecting damages is the ultimate goal of a construction claim, it is all too often treated as an afterthought in the preparation of the claim.  Many claims are submitted in which 90 percent or more of the presentation is devoted to the entitlement.  Further compounding the problem, the damages presentation is often assembled and presented in a confusing manner and not tied to the entitlement theories presented.  Approaching damages in this manner, undermines the entitlement and basis of the claim. (Emphasis added).”

Please take serious note of the ideas where emphasis has been added.  In Part 4,  Mr. Ness presents the same admonishment.

In the caption above, the notion that “…goal of any construction claim is to recover damages.” is somewhat misleading and basically a contractor-focused concept.  Owners, on the other hand, may view their object more toward defending against a contractor claim and/or asserting a counterclaim.  Often this owner defensive action attempts to perfect or implement a claim for some form of liquidated damages (e.g. delay, performance).

In Part 2 of this Subject Series, Construction Claims Management Planning, we present the preventive measures for dealing with these sorts of risks.  In thinking through the management plan and during preparation of the plan, a key input to understanding risks is the assessment (preliminary, of course) of the size (money) of the risk and how the damages might be calculated.  Understanding the money side gives the planning a path to managerial options as well as action items.

Referring back to the book cited above, the organization and content is very useful as a desktop guide or reference.

Chapters 2 through 12 deal with preparation and presentation of claim damages by contractors.  The organization is by cost or damage categories, heads of claim, damage, cost accounts, etc.  While this is helpful, entitlement analyses are not normally organized in this manner.  Hence, correlations between entitlement and damages must be addressed.

Chapters 12 and 13 deal with claims by owners, sometimes referred to as counterclaims (of they are responsive to a contractor claim).  Identification of potential counterclaims is a unique skill which is often not present in the owner claim management team.

Appendix B contains extensive Sample Damage Calculations.  This appendix has an extensive and comprehensive example with calculations.

Appendix C contains Examples of Different types of Damage Calculations.  This appendix is very useful if the specific entitlement claim element (head of claim) has been determined.

Regardless, understanding damages/money/quantum/pricing/money is a valid starting point.  From the money, one must work backward (reverse engineer) to the cause and/or risk.  This reverse process will put a clear perspective on potential construction claims and disputes.  Further, to reverse the old saying, this understanding can help “win the war” if you have “lost (or will lose) the battle”.  So, start the process with a preliminary estimate of the type and size of the damages and work backward.

We wish you good luck in your construction claims and disputes challenges and endeavors.  Enlightened understanding of quantum or damages is a fundamental key to success, however you define success.  Develop a Construction Claims Management Plan (owners, prime contractors and subcontractors) and follow the plan.

It is important to note that McLaughlin and McLaughlin [M&M] is not a law firm and is not intending to provide legal advice.  M&M is a consulting firm providing (among other services) non-legal expertise in construction claims, dispute resolution and litigation support.  The Resource Center is for the convenience of blog visitors and M&M does not offer this for commercial purposes.  For further information on M&M services, please see