Earlier this week, a settlement was reached in dispute where the contractor and designer were alleged to have filed false claims with the U.S. Government on two road projects in South Carolina. The issue raises an important question: What should a contractor do during negotiations to allow for some “bargaining room” so as to avoid any appearance of filing a false claim?
Although this question may seem contrary to the common sense approach to never overstate the claim amount, it’s actually not. To be clear, the claim should never be false, unreliable, misleading, or overstated. In today’s environment, such a claim might give rise to a criminally false claim accusation.
On the other hand, equitable adjustments are, by definition, adjustments based upon judgmental factors, estimates, opinions, and conclusions that are sometimes incapable of mathematical certainty. Equitable adjustments are based on many subjective variables, and it is only natural that they can vary in range substantially. This variance is particularly true when the claim involves delay or impact costs.
Contractor’s Perspective. A contractor’s interpretation of the claim-causing events and financial impact of those events should be as reasonable as truth and fair dealing allow. It should be able to support each judgment or subjective variable it has made.
Owner’s Perspective. Owners often begins negotiations from the opposite end of the spectrum for the same reasons. Owner representatives apply their judgment as conservatively as truth and fair dealing allow. Consequently, each side typically gives a little in negotiations to reach a mutually agreeable settlement.
Here are some helpful tips for contractors include:
- Always tell the truth. Once a contractor loses its credibility, it will have difficulty regaining it, not only for this particular claim, but for years to come.
- Include visuals in the presentation of the claim. Any time a contractor can represent a point visually, the chances are greater that the point will be comprehended and remembered. For example, linear schedules can be used to visually demonstrate inefficiency at certain places on the job.
- Be prepared. A contractor must know the terms of the contract and the contract plans in great detail. In addition, it should be able to explain its plan of building the project and how that plan was upset by the claimed events. Finally, a contractor should be prepared to explain and visually demonstrate the effect of those events on costs and time to construct the project.
- Do not negotiate against yourself. Most negotiations between private parties involve some sort of stair-step approach, with each side giving a little until an agreement is reached. Some public owners don’t negotiate that way. They expect the contractor to guess what number they have in mind to resolve the matter. That approach puts the contractor in a difficult negotiating position.
- Seek mediation as an alternative. When negotiations are not going well between the contractor and the owner, a contractor should suggest mediation as an alternative. In mediation, an independent third party listens to each side’s position and at tempts to work with the parties to reach a resolution of the claim. The mediator may offer his or her ideas on the strengths and weaknesses of each party’s position. Sometimes, hearing it from an independent third party will cause a reassessment by both parties.
Question: What tips do you have for negotiating claims?