There was a case study how a consulting company supported their clients and they ask for opinions: A well-known plant engineering Contractor was nearing the end of the project and the Project Management reported a foreseen loss of about 60% of the original contract price. In addition, the project management reported to their management that there were numerous claim opportunities which had not yet been exploited. Management gave us the task to give an opinion on whether the “claim opportunities” could be still realized. In our initial assessment, we considered the potential value of the future claims and the efforts required to pursue these. As the project was also delayed and there were indications, that this delay was not (solely) in the risk sphere of the Contractor we considered it necessary to analyze the delay. We then compared the costs of preparing the claims and delay analysis and negotiating these claims with the possible outcome. Consequently, our client then instructed us to prepare all the necessary documentation. Although time was very limited, we set up a small team and fulfilled all the tasks necessary. The financial outcome for our Client was even better than anticipated. However, this approach is not what we recommend. The financial outcome of the project would have been even better if the contractor had made his claims immediately. This is, what we will help him with his next project. Some people say, claim opportunities are like fallen fruit. If you do not follow up instantly, they rot. Their question was, what is your opinion about that?
Here is my opinion and answer:
The analogy of "claim opportunities being like fallen fruit" is apt and accurately reflects the situation described. Here's a breakdown of my opinion, incorporating the details provided:
Agreement with the Analogy:
Time Sensitivity: Just like fruit rots over time, claim opportunities diminish in value and become harder to pursue as time passes. Evidence can be lost, memories fade, and contractual deadlines expire. The case described clearly demonstrates this. The contractor had numerous claim opportunities, but waited until the project was nearly complete, making the process significantly more challenging.
Difficulty of Retrieval: Rotten fruit is unpleasant and difficult to salvage. Similarly, pursuing old claims requires significantly more effort to reconstruct events, gather evidence, and overcome counterarguments based on delays in notification. The effort required in the described case to set up a team and work under immense time pressure highlights this difficulty.
Lost Value: Rotten fruit is essentially worthless. Likewise, unpursued claims represent lost revenue and profit. The contractor in the scenario was facing a substantial loss, which could have been mitigated significantly by timely claim management.
Why Immediate Claim Management is Crucial:
Preservation of Evidence: Prompt action allows for the immediate documentation of events, preservation of evidence (photos, emails, reports), and securing witness statements while memories are fresh. This is vital for a successful claim.
Contractual Compliance: Most contracts have specific notification requirements and timeframes for submitting claims. Failing to adhere to these can invalidate the claim entirely.
Maintaining Positive Relationships: Addressing issues promptly allows for open communication and potentially amicable resolutions, minimizing disputes and preserving working relationships. Delaying claims can foster resentment and lead to protracted and costly legal battles.
Improved Project Financials: Timely claim management ensures that the contractor is compensated for legitimate changes and variations, preventing losses and maximizing project profitability. The case study demonstrates that even late action can yield positive results, but emphasizes that earlier action would have been far more beneficial.
Proactive Approach: A proactive approach to claim management, where potential claims are identified and addressed early, is far superior to a reactive approach. This allows for better control of the project's financial outcome.
The Contractor's Situation and the Lessons Learned:
The contractor's situation exemplifies the negative consequences of delayed claim management. While the intervention of the consultant yielded positive results, it was a costly and inefficient process. The key takeaway is that the contractor should implement a robust claim management system for future projects, focusing on:
Early Identification of Potential Claims: Implement procedures for identifying and documenting potential claims as they occur.
Timely Notification and Submission: Adhere to contractual notification requirements and deadlines for submitting claims.
Thorough Documentation: Maintain detailed records of all events, communications, and costs related to potential claims.
Proactive Communication: Communicate openly and proactively with the client regarding potential claims.
Conclusion:
The analogy of "fallen fruit" is highly relevant. Claim opportunities are perishable and must be addressed promptly to maximize their value. Implementing a proactive claim management system is essential for any contractor to protect their financial interests and ensure project success. The case study serves as a valuable lesson in the importance of timely action and the potential consequences of delay.
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