Early Resolution of Claims

Introduction
Claims are a natural part of construction projects. Contracts are complex, sites are unpredictable, and many stakeholders are involved, so disagreements over time, cost, scope and responsibility will happen. What separates successful projects from troubled ones is not whether claims arise but how quickly and effectively they are resolved. The PMI Construction Professional (PMI-CP) certification puts strong weight on early resolution of claims. This means dealing with potential and actual claims at the earliest possible stage, at the lowest possible level, and with the least escalation.

1. What Is Early Resolution of Claims?
Early resolution of claims is a proactive approach to managing claims and disputes. Its aim is to identify, communicate, assess and settle issues as soon as they emerge, before they grow into formal disputes, arbitration or litigation.

A claim is a demand or assertion by a contracting party for additional time, money, or other relief under the contract. A dispute arises when a claim is rejected or not resolved and the parties remain in disagreement.

Early resolution sits at the front end of the claims lifecycle. It covers:
• Early identification of potential claim events, such as delays, changes, differing site conditions, or design errors.
• Timely notification in line with contract requirements.
• Prompt joint assessment of entitlement and quantum.
• Negotiation and collaborative problem-solving at project level.
• Use of structured mechanisms, such as Dispute Avoidance Boards, Dispute Review Boards, standing neutrals, partnering, and step negotiations, before escalating to binding processes.

2. Why Is Early Resolution of Claims Important?
a) Cost Savings
Formal disputes are expensive. Arbitration and litigation bring legal fees, expert witnesses, management time and lost productivity, and these costs can sometimes exceed the value of the original claim. Resolving issues early keeps these costs to a minimum.

b) Schedule Protection
Unresolved claims often slow work, cause resource demobilization, or lead to suspension of work. Early resolution keeps the project moving and protects the critical path.

c) Preservation of Relationships
Construction depends on trust and collaboration among owners, contractors, subcontractors, designers and suppliers. Long, adversarial disputes damage relationships and future business opportunities. Early resolution keeps partnerships intact.

d) Availability of Information and People
Facts, records and witnesses are freshest early on. Months or years later, staff may have left, memories fade, and documentation becomes harder to reconstruct.

e) Cash Flow and Financial Certainty
Contractors need predictable cash flow, and owners need budget certainty. Early settlement lets both parties forecast accurately and update contingency and reserves.

f) Contractual Compliance
Many contracts (for example FIDIC, NEC, AIA and ConsensusDocs) include strict notice periods and condition precedent clauses. Acting early protects entitlement and avoids time-bar problems.

g) Reduced Risk Exposure
Claims that are left unresolved tend to accumulate. Small issues combine into large global claims that are harder to analyze and resolve.

h) Alignment with PMI Values
PMI's Code of Ethics stresses responsibility, respect, fairness and honesty. Early, transparent and collaborative resolution reflects these values.

3. How Early Resolution of Claims Works

Step 1: Prevention and Planning (Before Claims Arise)
• Draft clear, balanced contracts with well-defined scope, risk allocation and change procedures.
• Include a dispute resolution clause with a tiered or stepped process.
• Establish a claims management plan within the project management plan.
• Set up document control, daily logs, progress records, photographs and correspondence registers.
• Conduct partnering workshops and kickoff meetings to align expectations.
• Hold constructability reviews and risk workshops to reduce ambiguity.

Step 2: Early Identification
• Monitor performance through schedule updates, earned value, RFIs, change logs, and risk registers.
• Train site teams to recognize claim triggers: owner-directed changes, late information, access restrictions, differing site conditions, force majeure, suspension, and acceleration.
• Use early warning mechanisms. NEC contracts, for example, require early warning notices and risk reduction meetings.

Step 3: Timely Notification
• Issue written notice within the contractual timeframe, even if the full impact is not yet known.
• Describe the event, its cause, the contractual basis, and the anticipated impact.
• Keep contemporaneous records from that point forward.

Step 4: Prompt Assessment and Substantiation
• Establish entitlement: is there a contractual or legal basis?
• Establish causation: did the event cause the impact?
• Quantify quantum: time (using techniques such as Time Impact Analysis or windows analysis) and cost (direct costs, extended overheads, disruption).
• Share substantiation transparently with the other party.

Step 5: Negotiation at the Project Level
• Bring the parties together quickly, starting with the project managers.
• Focus on interests rather than positions (principled negotiation).
• Look for win-win solutions, such as scope trade-offs, time-for-money exchanges, or shared savings.
• Document agreements promptly through change orders or settlement agreements.

Step 6: Structured Escalation (Stepped Dispute Resolution)
If the issue is not resolved at project level, escalate in a controlled sequence:
1. Project manager level negotiation.
2. Senior management or executive negotiation.
3. Non-binding facilitated methods: mediation, Dispute Review Board recommendation, early neutral evaluation, standing neutral.
4. Interim-binding methods: adjudication, Dispute Adjudication Board decisions.
5. Binding methods (last resort): arbitration or litigation.
Each step usually has a defined time limit, so issues do not stall.

Step 7: Close Out and Lessons Learned
• Formalize settlements through change orders and releases.
• Update the schedule, budget, risk register and forecasts.
• Record lessons learned to prevent recurrence.

4. Key Early Resolution Tools and Mechanisms
• Partnering: A collaborative charter and regular workshops that build trust and include an issue resolution ladder.
• Issue Resolution Ladder / Escalation Matrix: Defines who resolves what, at which level, and within what time.
• Dispute Avoidance/Adjudication Board (DAAB) or Dispute Review Board (DRB): Independent experts appointed at project start. They visit the site regularly and give informal opinions or formal recommendations and decisions.
• Standing Neutral: A single expert available to hear disputes quickly.
• Mediation: A neutral facilitator helps the parties reach a voluntary agreement. It is non-binding unless a settlement is signed.
• Early Neutral Evaluation: An expert gives a non-binding assessment of the merits of each side's case.
• Adjudication: A fast, interim-binding decision, required by statute in some jurisdictions such as the UK and Australia.
• Early Warning Notices and Risk Reduction Meetings: Common in NEC contracts.
• Collaborative Contracting Models: Integrated Project Delivery (IPD), alliancing, and design-build, which align incentives and reduce adversarial behavior.

5. Roles and Responsibilities
• Project Manager: Leads identification, notification, documentation and negotiation. Promotes a no-surprises culture.
• Contract Administrator: Ensures compliance with notice and procedural requirements.
• Scheduler and Cost Engineer: Provide time and cost impact analysis.
• Senior Management: Handles escalated issues and has authority to settle.
• Owner's Representative / Engineer: Evaluates claims fairly and promptly.
• Neutrals (DRB, mediators): Facilitate impartial resolution.

6. Common Barriers to Early Resolution
• Lack of documentation or poor record keeping.
• Missed notice deadlines.
• Adversarial culture, or fear that admitting fault shows weakness.
• Lack of authority at project level to settle.
• Unclear contract language.
• Emotional involvement and entrenched positions.
• Holding claims back as leverage for the end of the project.
Good project managers recognize these barriers and address them proactively.

7. Practical Example
A contractor discovers unexpected rock during excavation that was not shown in the geotechnical report. Under an early resolution approach:
1. The site engineer records the condition with photographs and daily logs and stops affected work safely.
2. The PM issues written notice of a differing site condition within the contractual period.
3. A joint site inspection is held with the owner's representative within days.
4. The contractor submits a preliminary impact estimate, then a fully substantiated time impact analysis and cost breakdown.
5. The parties negotiate and agree on a change order covering the added rock excavation cost and a time extension.
6. Had they failed to agree, the matter would have gone to the DRB for a recommendation within the contract-specified timeframe.
The outcome: the issue is settled within weeks, work continues, and the relationship is preserved.

8. Exam Tips: Answering Questions on Early Resolution of Claims

Tip 1: Always Favor the Least Escalated, Most Collaborative Option First
When asked what the project manager should do first or next, choose direct communication, negotiation, or review of the contract over arbitration or litigation. Litigation is almost never the correct first step.

Tip 2: Check the Contract First
Many correct answers involve reviewing the contract's terms, change clauses, notice requirements, and dispute resolution provisions before taking action. The contract governs the process.

Tip 3: Notice and Documentation Are Critical
If a scenario describes a potential claim event, the best answer often involves issuing timely written notice and keeping contemporaneous records. Watch for traps where the PM delays notice until the full impact is known. This is usually wrong, because notice should be given promptly.

Tip 4: Know the Hierarchy of Dispute Resolution
Remember the typical order: negotiation, then mediation or DRB, then adjudication, then arbitration, then litigation. Be able to tell binding methods from non-binding ones:
• Mediation is non-binding.
• DRB recommendations are usually non-binding.
• Adjudication is interim-binding.
• Arbitration is binding.

Tip 5: Resolve at the Lowest Possible Level
PMI favors empowering the project team to resolve issues before involving senior executives or external parties. Escalate only when project-level efforts fail.

Tip 6: Focus on Interests, Not Positions
Negotiation questions often reward answers that seek mutual benefit, understand the other party's needs, and preserve relationships.

Tip 7: Look for Proactive, Preventive Answers
If a question asks how to reduce claims or disputes, look for options such as partnering, clear scope definition, risk workshops, early warning systems, and setting up a DRB at project start.

Tip 8: Do Not Ignore or Postpone Issues
Answers suggesting the PM wait until project completion, ignore the issue to preserve the relationship, or proceed without telling the owner are almost always wrong.

Tip 9: Ethics and Professional Conduct
Never choose answers involving inflating claims, concealing information, or acting in bad faith. PMI's Code of Ethics requires honesty and fairness.

Tip 10: Watch the Keywords
• FIRST, BEST, NEXT, MOST appropriate: think about the right sequence and the least escalated suitable action.
• Avoid, prevent, minimize: choose proactive measures.
• Binding, final: think arbitration or litigation.
• Neutral third party, facilitate: think mediation.
• Panel established at project start: think DRB or DAAB.

Tip 11: Update Project Documents After Resolution
After a claim is settled, the correct follow-up includes processing the change order and updating the baseline schedule, budget, risk register, and lessons learned.

Tip 12: Situational Thinking
Put yourself in the role of a pragmatic, ethical, collaborative PM. Ask: Which action protects the project's objectives, complies with the contract, preserves relationships, and resolves the issue fastest at the lowest cost?

9. Sample Exam-Style Question
During construction, the contractor encounters a design conflict that will likely delay a critical activity. The owner's representative is unaware of the issue. What should the project manager do FIRST?
A. File a claim for arbitration.
B. Continue work and address the issue at project closeout.
C. Review the contract requirements and issue timely written notice to the owner.
D. Escalate directly to the contractor's executive team.
Correct answer: C. It respects the contract, ensures timely notification, and enables early collaborative resolution. A is premature, B postpones the issue, and D bypasses project-level resolution.

10. Key Takeaways
• Early resolution of claims saves time, money and relationships.
• Prevention, early identification, prompt notice, and good documentation are its foundations.
• Use a stepped approach that escalates only when necessary.
• Tools such as partnering, DRBs, mediation and early warnings are central to the process.
• In the exam, favor collaborative, contract-compliant, timely and ethical actions, and treat arbitration and litigation as last resorts.