The Importance of Due Diligence when Examining Claims

If you are tasked with examining claims and producing an assessment or determination, the importance of undertaking a complete and comprehensive examination of the matter cannot be overstressed. This was emphasised to me recently when I was producing an assessment of a contractor’s claim for an extension of time. Towards the end of my information gathering I found a document, which turned the whole claim on it’s head and resulted in a rejection of the claim.

The contractor’s claim was based on the fact that a nominated subcontractor delayed entering into a subcontract agreement for several weeks whilst they negotiated the final terms of contract and did not start work until the agreement was signed. This delayed the project. The contract provides that the contractor does not become responsible for the subcontractor’s actions until a contract is entered into, so the claim appeared to justify the matter and on the face of it, the contractor was entitled to the claimed extension. Upon checking additional records to those included in the claim however, it became apparent that the subcontractor’s bid to the engineer, which the contractor was instructed to accept, was qualified and the contractor did not incorporate the qualifications into the subcontract. The reason for the subcontractor having to negotiate the conditions of the subcontract was therefore attributable to the contractor.

The point I am trying to make here is that, it is unlikely that a claimant will include records within his claim that are not helpful to his case. Had I not undertaken a careful examination of the project records, the letter could have been missed and the claim could have incorrectly been approved.

So, how do you exercise due diligence in such matters?

Firstly, when undertaking a review of the claim, I will check all the records that are submitted as substantiation. If no substantiation is provided, I will request the claimant to provide substantiation of the facts relied on in the claim. When the claimant has provided substantiation, I will check for cross-references included within the records. For example, if a letter refers to another letter reference 1234 dated 1 January, I will require to be provided with a copy of this letter. If letter reference 1234 dated 1 January refers to other documents, I will also request copies of the other documents and so on.

Secondly, as a consultant, I will speak to my client or his representative and ask for their view of the matter and for copies of all records relevant to the issue in question. If I were an employee, I would speak to those involved with the matter to illicit this information.

Depending on the level of information obtained from the above, I may also undertake an examination of the project records to check for other relevant information. Depending on the document management systems used, this could be quite a painstaking task, but may be necessary if you need to further investigate the facts of the matter.

Whilst we are primarily discussing the assessments of claims here, this matter is also relevant to those who are preparing claims, because all matters must be carefully investigated before the claim is finalised and submitted. Failure to do this could at best result in a lot of effort being wasted in submitting an unjustified claim and secondly, the claim could be rejected resulting in loss of credibility for your company and damaged relationships on the project.

Do you have any similar examples that you could share with us?

This blog was authored by ICCP Executive Officer, Andy Hewitt.

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