Don't leave money on the table: A claims management primer

By Randy Bonnecaze

For contractors, claims are a fact of life - not a pleasant fact, but a fact nonetheless. You may train your project managers how to handle them. And you've probably spent hours pulling them together. In fact, you likely feel that you've been handling claims for so long that you have claims management down pat.

That may well be, but many experienced attorneys and accountants will tell you that they see a lot of money left on the table by contractors who think they know claims management but really don't have a disciplined and consistent method for managing this thorny area.

Develop a process. Claims management begins with a thorough review of each new contract. You need to look for contractual items related to potential claims, including:

• How you are required to document potential claims
• Whether any notice of filing is required
• Whether the contract includes a fixed, per-day delay claim amount.

Once the job in question is underway, you want to put your management team in a position to make an informed decision about whether to pursue a claim. And that calls for a reliable and consistent claims process.

If it appears that slowdowns have occurred for which you and your subcontractors are not responsible, you don't necessarily want to dive into developing your claim right away. Rather, ask several questions before investing that time, including:

• Has the owner been reasonable to deal with?
• Will a counterclaim be filed?
• How much will the claims process cost?
• Can you collect? That is, is the party at fault solvent and bonded, and have all appropriate liens been filed?

If the answers to most of these questions aren't in your favor, you will need to assess whether the claim is significant enough to justify the effort required to clear the known barriers. In some instances, the amount recoverable via a claim may be less than the cost to collect - so pursuing the claim under these circumstances may be a mistake.

Analyze the claim. Let's say you determine that you may have a viable claim. Then you'll need to define how you've been damaged and to what extent. Should the claim include increased overhead, heightened material storage costs, additional labor or boosted Eichleay damages (costs related to home office overhead)?

If it appears that your claim is headed for litigation, there are several other factors to keep in mind. First, assess the credibility of your key personnel involved in the claim. Will they be effective witnesses? Also look at the quality of your documentation and the projected expense of litigating the matter - including the cost of expert consultation or testimony.

Ask for help. With a timely, thorough and consistent approach to tackling claims, you should be able to pinpoint when a claim is worthwhile and incur less cost pursuing it. Yet, you still need to consult your accountant and attorney early in the process.

Editor's Note: Randy J. Bonnecaze is a Certified Public Accountant (CPA) with Hannis T. Bourgeois LLP, Baton Rouge.