Construction projects are complex, involving multiple stakeholders, contracts, and unpredictable variables. Despite careful planning, claims often arise due to delays, payment disputes, unforeseen site conditions, design changes, or damage claims.
This guide provides an in-depth look at the types of construction claims, their causes, prevention strategies, and resolution methods to help you navigate claims effectively.
What Are Construction Claims?
A construction claim is a formal demand made by one party in a construction contract against another, typically for additional time, compensation, or resources. These claims can arise from breaches of contract, unexpected project conditions, or disputes over performance.
Why Construction Claims Matter
- Financial Impact – Claims can cause cost overruns, cash flow problems, and financial instability.
- Project Delays – Unresolved claims can stop progress and lead to missed deadlines.
- Legal Risks – If disputes escalate, they can result in arbitration, litigation, or contract termination.
- Relationship Damage – Disputes between stakeholders can harm future business opportunities.
The best approach to construction claims is prevention and proactive resolution. Knowing the common causes and taking early action can help avoid costly disputes.
Types of Construction Claims and How to Handle Them
1. Delay Claims
What Is a Delay Claim?
A delay claim arises when a project is not completed within the agreed timeline due to factors beyond the contractor's control. These claims seek additional time or compensation for the extra costs incurred.
Common Causes
- Weather conditions (rain, snow, extreme heat affecting labor and materials)
- Design errors or late approvals (changes that require rework)
- Material shortages or delivery delays
- Labor shortages or strikes
- Owner-driven changes or slow decision-making
Impact of Delay Claims
- Increased costs due to extended labor and equipment rental
- Contractual penalties or liquidated damages
- Loss of trust between contractors and clients
Prevention Strategies
- Include delay clauses in contracts that outline responsibility for different types of delays.
- Regularly update project schedules and maintain clear communication with stakeholders.
- Use buffer time in project timelines to account for unavoidable delays.
- Document every delay with photos, daily logs, and written notifications to clients.
How to Resolve Delay Claims
- Identify the cause and responsibility – Was it the owner, contractor, or unforeseen events?
- Negotiate an extension instead of financial compensation – Clients are often more willing to allow more time than to pay extra.
- Use mediation – A neutral third party can help reach an agreement.
2. Payment Disputes
What Is a Payment Dispute?
A payment dispute claim occurs when a contractor, subcontractor, or supplier is not paid as per the contract terms.
Common Causes
- Unclear or vague contract terms regarding payments
- Disputes over work quality or completion
- Failure to submit proper invoices or supporting documents
- Financial difficulties on the owner’s end
Impact of Payment Disputes
- Cash flow issues that can stall ongoing projects
- Strained relationships between contractors, subcontractors, and suppliers
- Possible legal action or liens on the project
Prevention Strategies
- Ensure contracts clearly outline payment terms (milestones, due dates, and dispute resolution steps).
- Submit payment applications with documentation (photos, reports, and signed approvals).
- Follow up on payments immediately after the due date rather than waiting for months.
How to Resolve Payment Disputes
- Send a formal demand letter requesting payment with proof of completed work.
- Negotiate structured payment plans if the client has cash flow problems.
- File a mechanic’s lien (if legally allowed) to secure unpaid amounts.
3. Unforeseen Site Conditions Claims
What Is an Unforeseen Site Condition Claim?
This claim arises when unexpected physical or environmental conditions on-site increase project costs or delay construction.
Common Causes
- Poor soil conditions requiring reinforcement
- Hidden underground utilities or structures not shown on surveys
- Hazardous materials (asbestos, lead, contaminated soil)
Impact of Unforeseen Site Conditions
- Additional excavation, redesign, or remediation costs
- Delayed project schedules
- Disputes over who should cover additional costs
Prevention Strategies
- Conduct thorough pre-construction site investigations (soil tests, ground-penetrating radar).
- Include contingency clauses in contracts to handle unexpected site conditions.
- Request detailed surveys from the owner before bidding on a project.
How to Handle These Claims
- Notify the owner immediately with documented evidence of unforeseen conditions.
- Propose fair cost-sharing agreements instead of placing full blame on one party.
- Negotiate contract modifications to accommodate new conditions.
4. Damage Claims
What Is a Damage Claim?
A damage claim is filed when construction activities cause harm to people, property, or the environment.
Common Causes
- Defective work or materials (cracked foundations, water damage)
- Accidents on-site (equipment failure, worker injuries)
- Structural damage to adjacent buildings due to excavation or heavy machinery
Impact of Damage Claims
- Additional repair or replacement costs
- Increased insurance premiums
- Potential legal liability if negligence is proven
Prevention Strategies
- Conduct regular inspections and follow safety protocols.
- Use quality control measures to avoid defective work.
- Ensure proper site protection for neighboring properties.
How to Handle Damage Claims
- Investigate the cause and gather evidence (photos, witness statements, expert reports).
- Negotiate repairs rather than compensation to minimize disputes.
- Engage in mediation to find a fair resolution.
How to Prevent Construction Claims
While claims are inevitable in construction, taking proactive steps can significantly reduce their likelihood.
Frequent Communication
- Hold weekly progress meetings with all stakeholders.
- Keep written records of agreements and changes.
Clear and Detailed Contracts
- Specify scope, timeline, payment terms, and dispute resolution methods.
- Use standardized change order procedures to document modifications.
Proper Documentation
- Maintain daily logs, invoices, photographs, and progress reports.
- Ensure all payments are documented with signed approvals.
Effective Risk Management
- Perform detailed site assessments before starting work.
- Allocate contingency funds for unexpected costs.
Prevent Construction Claims with Smarter Budget Management
Managing construction claims efficiently starts with having full visibility into project finances. With Planyard's construction budgeting software, contractors, project managers, and subcontractors can stay on top of project costs in real time, ensuring that financial risks related to claims are minimized before they escalate:
- Real-time cost tracking – Monitor project expenses as they happen to prevent budget overruns.
- Automated budget updates – Keep financials accurate without manual data entry or outdated spreadsheets.
- Streamlined approval workflows – Ensure every cost, invoice, and change order is properly reviewed and approved.
- Prevent overbilling – Track subcontractor commitments and payments to avoid disputes.
- Centralized financial control – Manage all project costs, invoices, and claims from one easy-to-use platform.
- Reduce risks related to unforeseen site conditions and damage claims – Properly track and approve variations to prevent financial disputes caused by unexpected changes on-site.
By replacing spreadsheets with Planyard’s intuitive construction budgeting software, you gain full visibility into project finances — ensuring every expense aligns with the budget and contract terms. Book a demo with our team or try 14 days for free.