Negotiating Construction Claims: Strategies and Preparation

In the construction industry, claims are common occurrences and can arise from a variety of events that affect the timeline, cost, or scope of a project. Typically, after the initial tendering process and once a project is underway, unforeseen events such as variations, delays (triggering extension of time or EOT claims), or breaches of contract can lead to a claim. For example, a variation claim may arise when changes to the original project scope are necessary, such as altering materials or methods due to unexpected conditions. Similarly, EOT claims become relevant when delays caused by factors beyond the contractor’s control threaten the project schedule. These events often disrupt the flow of the project, and contractors must seek compensation for the additional time or cost involved.

Another common scenario leading to claims is when a breach of contract occurs. This may be due to the client failing to fulfil contractual obligations, such as providing timely access to the site or delivering project-critical resources. Breaches, like delays and variations, can put considerable strain on project resources and timelines, making it essential for contractors to seek appropriate compensation. In such cases, submitting a claim allows the contractor to recoup costs and minimise losses while ensuring that the project continues to progress effectively. However, the success of these claims depends on adherence to strict contractual procedures, which play a pivotal role in claim outcomes.

Due to the high value often associated with claims, the negotiation of claims has become a strategic process within construction management. A well-managed negotiation process allows for a balanced resolution that addresses the contractor’s entitlement while considering the client’s project objectives. However, the success of these negotiations is heavily influenced by how well the contractor preserves their entitlement to the claim and the level of preparedness they bring to the table.

Importance of Maintaining Entitlement and Contractual Processes

One of the critical aspects of negotiating construction claims is the contractor's ability to maintain entitlement. This requires a rigorous approach to meeting contractual conditions, including issuing notices within specified timeframes, providing evidence of the claimable event, and following the procedures stipulated in the contract. By ensuring compliance with these requirements, contractors strengthen their position in negotiations, as they have preserved their entitlement to claim. This attention to detail also prevents time bars and other contractual defences that clients may use to deny or reduce claims.

In addition to preserving entitlement, contractors benefit by quantifying claims using the contract’s agreed rates and methodologies. These predefined rates simplify the valuation process and reduce ambiguity, making it easier for both parties to agree on the quantum of the claim. When contractors adhere to the contractual methods for pricing claims, they not only strengthen their position but also expedite the negotiation process. This approach mitigates disputes over valuation, as the pre-agreed rates and methodologies set a clear basis for determining claim value, fostering a more transparent and efficient negotiation process.

By preserving entitlement and following the contractual framework, contractors ensure that they have a legally sound and well-supported basis for their claims. This robust foundation is crucial in situations where clients are inclined to rely strictly on the contract terms in defence, especially for larger claims. With this groundwork in place, contractors are better equipped to enter negotiations with confidence, as they can present their claim in alignment with the contract’s terms and substantiate their request for compensation.

Smaller Claims: The Role of Relationships in Negotiations

In practice, smaller claims are often negotiated at the project level, where there is more flexibility and reliance on interpersonal relationships. These minor claims typically do not strain the project's contingency funds significantly, allowing clients and contractors to reach agreements based on trust and mutual understanding. Since both parties are generally motivated to keep the project moving smoothly, smaller claims are resolved with minimal formalities, making relationships a powerful tool in these negotiations.

For these smaller claims, clients are often willing to make concessions, knowing that keeping the contractor content can contribute to a more collaborative project environment. Contractors, in turn, may leverage these relationships to gain quicker approvals without having to escalate the claim formally. However, as the claim size increases, informal negotiation methods become less effective, and the contractual terms take precedence. This shift is often driven by the higher financial stakes and the need for rigorous accountability.

For larger claims, clients are more likely to lean on the contract as a means of defence, often demanding strict adherence to contractual requirements. Due to the potential financial impact, clients aim to minimise payouts while avoiding costly disputes. In such cases, both parties recognise that a prolonged dispute could be detrimental. Negotiating a settlement becomes an economically sound option, where both sides are motivated to reach a compromise that meets the contractor’s cash flow needs and the client’s cost control objectives. Here, a strong negotiating strategy is essential for contractors to maximise their claim while keeping the process amicable.

The Negotiation Process

The Negotiation Process

When preparing for negotiation meetings, it’s essential for each party’s representatives to approach discussions with a thorough understanding of the contractual and factual basis of the claim. Typically, contracts will specify that the client is responsible for assessing entitlement, scope, and quantum of any proposed variation. Prior to reaching a formal position, clients may initiate discussions to clarify these details and potentially reach an agreement informally. Contractors should be well-prepared for these preliminary discussions, as a well-informed approach can significantly impact the outcome.

In situations where the difference between parties’ positions is minor, early discussions can lead to a quick resolution, avoiding the need for escalation. However, when disagreements are significant, negotiations may be escalated to senior executives from both sides. At this level, discussions become less about technical details and more about broader strategic and financial considerations. It is important that both parties’ representatives are well-prepared, as the outcome at this stage is likely to influence future project relations and financial impacts.

Effective preparation includes gathering evidence, understanding the claim’s valuation, and having a clear narrative of the events leading to the claim. This allows the negotiating representatives to present their position with clarity and authority. In addition, aligning on key objectives and acceptable outcomes beforehand ensures that the representatives can negotiate within predefined limits, avoiding delays and misunderstandings during discussions.

The Importance of Face-to-Face Meetings

For higher-stakes claims, it is highly recommended that negotiations take place face-to-face, allowing both sides to engage in real-time discussions. While virtual meetings via Teams or Zoom are more common in today’s business environment, physical meetings foster stronger communication and rapport. This is especially valuable for contentious claims where non-verbal cues and immediate reactions can significantly influence the negotiation’s direction. Both parties should come equipped with a deep understanding of the other side’s interests, strategies, and negotiation style.

Negotiator Types

In his book Never Split the Difference, Chris Voss describes four distinct negotiator types: Analysts, Accommodators, Assertives, and Empaths.

1. Analysts rely on data, logic, and preparation to support their arguments and are often precise in their language.

2. Accommodators value relationships over outcomes and are generally more collaborative, aiming to maintain harmony.

3. Assertives are results-driven, pushing hard for their goals, often aiming to "win" the negotiation.

4. Empaths focus on understanding the other party’s perspective and are skilled at building rapport, often seeking mutually beneficial outcomes.

Understanding the other party’s negotiation type helps in crafting responses and knowing when to compromise or hold firm. For example, a client with an assertive approach may respond well to a contractor who confidently presents their position, whereas an analyst client may expect thorough documentation and data to support the contractor's claims.

Presenting Positions

Client Strategies

In negotiations, clients typically present their positions first, as they are responsible for assessing the validity of the claim. Clients may strategically start by challenging aspects of the claim, such as the entitlement or the valuation. This can put contractors on the defensive, prompting them to justify each component of their claim in detail. By leading with a critical stance, clients aim to set the tone, encouraging contractors to reconsider or scale back their demands. Alternatively, some clients prefer a more collaborative opening, recognising that an overly adversarial stance may hinder productive discussions.

For clients, presenting first also allows them to frame the negotiation around key objectives, such as controlling costs or ensuring project delivery milestones. This approach can shift the negotiation's focus toward the client's priorities, encouraging the contractor to consider adjustments that align with these goals. This strategy requires that the client is well-prepared, with a clear understanding of the claim's technical and financial implications.

Contractor Strategies

Contractors, on the other hand, may choose to present second, allowing them to assess the client's position before formulating a response. This approach can be advantageous, as it enables the contractor to adapt their presentation to counter the client’s arguments. Contractors may open by reinforcing their entitlement, highlighting compliance with contractual processes, and providing detailed documentation to validate their position. By demonstrating a robust case, contractors can assert their claim’s legitimacy, potentially encouraging the client to consider settlement over prolonged negotiation.

Alternatively, contractors can opt to lead with their position if they anticipate a contentious negotiation. In this case, they may emphasise the economic impact of unresolved claims, such as cash flow constraints, to underscore the benefits of reaching an agreement. Drawing from Chris Voss’s tactics, contractors can employ techniques like "tactical empathy" to acknowledge the client’s challenges, building rapport and fostering a more cooperative atmosphere.

Conclusion

In the construction industry, negotiating claims requires a well-rounded approach that balances contractual compliance with strategic relationship-building. This article highlighted the typical scenarios that give rise to claims—such as variations, delays, and breaches of contract—and underscored the importance of preserving entitlement by following contractual procedures. For larger claims, adhering to the contracted terms strengthens the contractor’s negotiating position, particularly when the client relies on the contract for defence. Contractors who prepare effectively, maintain entitlement, and present claims using pre-agreed rates and methodologies are better positioned for successful negotiation outcomes.

Furthermore, while smaller claims can often be resolved through project-level relationships, larger claims necessitate a structured, strategic negotiation process, typically involving senior executives from both parties. Preparing for these high-stakes discussions involves understanding the client’s negotiating style, defining objectives, and anticipating counterarguments. Drawing insights from negotiation experts, such as Chris Voss, can add a valuable layer of strategy, helping contractors to navigate complex negotiations while fostering a productive relationship with clients.

This article is the first in our series on negotiation in construction. In upcoming articles, we will delve deeper into specific negotiation strategies and explore how to handle various types of claims for optimal outcomes in project management. Stay tuned for more insights on mastering negotiation in construction.