“Anti-Claims-Management” vs. “Claim Management”
A plea for fair cooperation in project execution.
2016-05-26. In the past 4-5 years, the term “anti-claims-management” has attracted more and more attention from those that deal professionally with the execution of complex projects in construction, plant engineering and custom-built machinery. In the present article, the term “anti-claims-management“ is examined as to whether, in our opinion, it is well-chosen or perhaps actually counterproductive for joint projects of Employers and Contractors.
Findings from the World Wide Web.
Let us start with some texts found on the World Wide Web. In 2012, the Court of Auditors in Austria issued a report with entitled “Anti–Claim Management und Korruptionsbekämpfung bei Straßen– und Bahnbauvorhaben“ [“Anti–claims-management and the fight against corruption in road and rail construction projects”].
The summary to the report of the Austrian Court of Auditors stated the following:
“In some of the audited construction projects, the audited public clients implemented their measures to avoid unjustified compensation claims by Contractors somewhat inadequately (so-called anti-claims-management).”
As we read this sentence word for word, it becomes clear that the authors of this report see “claims management“ as a common method used by the Contractors to push through unjustified compensation claims against the public Employers. Is this really true? We looked further.
A further finding from the World Wide Web. A website of the HafenCity University Hamburg, summarises the lecture “Anti-claims-management for architects” by Professor Reinhold Johrendt (course: Construction Economics) as follows:
“Yet again, major projects have got out of hand extensively. Cost calculations, scheduling and contracts do not hold what they promise. While the uncompromising protection of interests on the Contractor side in the construction industry has long since been penetrated by professionalised claims management, the Employers still have some catching up to do, in order to get back to eye-level and enforce budgets and deadlines. Public Employers in particular require professional anti-claims-management.“
In our view, the summary of Professor Johrendt’s lecture sounds as though “extremely heavily armed” Contractors want to secure advantages using unfair means. To put it flippantly: “The Employers bring a knife to a gunfight“. Or not?
Still another text finding. At the 1st BBB Congress (Baubetrieb, Bauwirtschaft und Baumanagement) [“Building Operations, Construction Industry and Construction Management”] on 15.09.2011 at the Technical University of Dresden in Germany, Mr. Mag. Markus Schlamadinger, then active for the Steiermärkische Krankenanstaltengesellschaft mbH [hospital association in Austria], held a talk that included the following:
“(…) The second issue the public Employer faces, in the sense of the Austrian Public Procurement Act, is that ultimately individual persons – employees of the Employer decide whether such a claim [author comment: of the Contractor against the Employer) is justified or in what amount this claim justifiably exists. By coming to a decision, the respective employee assumes the responsibility for this decision, so to speak; however, what is even more important is the risk that the respective employee exposes himself to suspicion of breach of trust §153 Strafgesetzbuch (StGB) [Criminal Code]. According to §153 StGB, the person who by law, by order of the authorities or by legal transaction knowingly abuses the power conferred on him to dispose of third party’s assets or to engage a third party, and thereby causes the third party a pecuniary disadvantage, shall be punished with imprisonment of up to 6 months or a fine equivalent to 360 day’s income (…).“
Here, even the applicable law (Criminal Code) in Austria is now used to argue the necessity of anti-claims-management. Is this approach really conducive to achieving a project culture where Employers and Contractors work together for the benefit of the project, which is subject to the dynamics of day-to-day project work?
Partnership assumes that the realities are known and rules are set up accordingly.
In our view however, claims management is not a defamatory or even criminally relevant procedure between contracting parties in the industrial project business. Claims management rather represents the entirety of organisational, methodical, commercial, contractual and procedural instruments that make it possible to deal with impediments to the planned progression of a project based on applicable law and valid contracts. How can it then be that claims management – in our examples above – is understood as an unfair, even as an illegitimate “weapon“ of the Contractors of Employers? Do these Employers not also apply the instruments of claims management against their Contractors in the projects? And if so, does this then qualify as “anti-claims-management“ and are its instruments all of a sudden fair in the hands of the Employers?
After all, “claims management“ among other things means that claims for compensation for impediments that a contracting party suffers through no fault of his own must be dealt with in the project. What caused these impediments in the first place is a different kettle of fish. It goes without saying that it is annoying when something during the project turns out differently than the contracting parties expected when they signed the contract. Of course, it is equally annoying when an Employer only has a budget of X for the execution of the project. Still, is it not just as annoying when an experienced Employer has failed to consider in his budget calculation for the project that complex industrial projects are subject to impediments and changes, and that he should have made provisions for these? Does the Austrian Court of Auditors not rather mean, when it describes anti-claims-management as “measures to avoid unauthorised payment claims of the Contractors “ (see above), that “anti-claims-management” means to take measures to avoid payment claims of the Contractor that have taken the Employer by surprise because he had insufficient knowledge of his contracts?
The Employer has a different point of view.
Before this article creates the impression of singing the song of the “beleaguered Contractor” too loudly, let us examine the Employer perspective. Based on market conditions where no one has any money to give away and which – in many segments – constitute a buyer’s market, the contract price counts at first glance for a comparable scope of performance by the Contractor. If sales organisations operate on the Contractor side, they also appear at first glance to act cleverly and keep the offered scope of performance as vague as possible, so the Contractor side should not be too surprised about intensification of discussions on the project. This is when the term “anti-claims-management“ comes into play on the Employer side. The same is true if the sales organisation of the Contractor puts loopholes into the contract with the Employer. However, this no longer has anything to do with a cooperative partnership between Employer and Contractor and developing/maintaining a long-term relationship between the parties.
The arena of the conflict is elsewhere.
It is clear from the above presentation of the different perspectives that it is not necessarily the course of action taken by the Employer and the Contractor during project execution that fuels problems; rather it is their approach to designing the project contract. Ultimately, it comes down to the necessity of intelligent concepts to find ways of proceeding in sales and the procurement for both contracting parties, which make it possible for the individual parties to clearly assess what they will face in the day-to-day of the project after signing the project contract. In plain words, this means that the performance targets to which each party is bound must be specified more clearly in the contract, and must create a contractual instrument that is equally fair to both parties. Likewise, this means that major agreements in the industrial project business should contain unambiguous rules that make it possible for the parties to deal with progress impediments, deviations, changes and their consequences. Not least, this also means that intelligent concepts must be established in sales and procurement – concepts that consider that day-to-day project dynamics can involve conflicts already when drafting a contract, and that this conflict must be resolved appropriately in order to avoid interfering with long-term relationships between Employer and Contractor.
Conclusion: which corner does the term “claims management” belong in?
In our opinion, not in the defamatory corner. If the terms “claims management“ and “anti-claims-management“ are replaced by “troubleshooting“ and “anti-troubleshooting“, it quickly becomes clear that the term “anti-claims-management“ does not correctly describe the framework conditions in project execution; rather it contributes to putting a legitimate management tool into a corner where it simply does not belong. Claims management should be a tool for both contracting parties to fulfil a contract. And the term “anti-claim management“? As far as we’re concerned, it belongs in the corner that you no longer have to worry about when contracts are fair and clear for both contracting parties.
(Author: Jürgen Hahn)