Claim management

Change Management Construction Consulting

Manavasi Ramesh PM II| Powergrid Corporation of India Mumbai, Maharastra. India, India

Any agreement or contract is for a specific project scope with defined time and cost for completion of the project between two parties . Due to change in scope / project constraints/ risk elements , if the owner is decided to close the contract prematurely , then if the affected party i. e contracting agency is eligible for claims against loss of Business profit against this project closing . In my view definitely there will be some loss due to premature closing , as the agency is investing money in the project with a anticipation of return on investment on their project cost invested for this project . How to quantify such claims if the agency is claiming the component of loss of profit ? Secondly whether it is admissible as a general principle for EPC contracts ?

Posted: Aug 30, 2023 4:02 AM

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Kiron Bondale Retired | Mentor| Retired Welland, Ontario, Canada

Manavasi -

This situation is normally covered under early termination clauses in the contract. Sometimes these clauses are based on how much time has elapsed since the contract was signed or how much of the contract value has been spent/accrued.

Kiron

Posted: Aug 30, 2023 7:36 AM

Manavasi Ramesh PM II| Powergrid Corporation of India Mumbai, Maharastra. India, India

Thanks. In most of the time owner is not admitting this type of claim as the loss can't be worked out in realistic sense.

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1 reply by Kiron Bondale

Aug 30, 2023 11:27 AM

Kiron Bondale

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That is why it is better if the contract has a defined termination penalty rather than something tied to potential profitability.

Kiron

Posted: Aug 30, 2023 8:55 AM

Kiron Bondale Retired | Mentor| Retired Welland, Ontario, Canada

Aug 30, 2023 8:55 AM

Replying to Manavasi Ramesh

...

Thanks. In most of the time owner is not admitting this type of claim as the loss can't be worked out in realistic sense.

That is why it is better if the contract has a defined termination penalty rather than something tied to potential profitability.

Kiron

Posted: Aug 30, 2023 11:27 AM

Abolfazl Yousefi Darestani Manager, Quality and Continuous Improvement| Hörmann-TNR Industrial Doors Newmarket, Ontario, Canada

I agree with Kiron. Every scenario should have been discussed and agreed on Contract phase.

Posted: Aug 31, 2023 8:32 AM

Ridvan Senturk Scheduling Lead| Houle Electric 12, Canada

To quantify claims for loss of profit due to premature contract termination, consider:

Direct Costs: Sum up all costs incurred until termination.
Overheads: Add a share of overheads based on work done.
Anticipated Profit: Use the contract's profit margin to calculate profit on work done or total project value.
Legal/Admin Costs: Include fees related to termination.
Interest: Add interest for late payments if applicable.
As for EPC contracts, the admissibility of such claims largely depends on:

Contract Terms: Review your contract's clauses on termination and claims.
Jurisdiction: Laws on claiming lost profits can vary.

Posted: Sep 14, 2023 5:20 AM

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