Technology and Innovation for Sustainable Development Conference (TISD2006)Faculty of Engineering, Khon Kaen University, Thailand

25-27 January 2006

Information System for Managing Employer’s Construction Claims

Visuth Chovichien1* Kongkoon Tochaiwat2

1Department of Civil Engineering, Faculty of Engineering, ChulalongkornUniversity,

Bangkok10330

E-mail: *

Abstract

Construction claims have such high impacts on construction projects’ cost and time that an effective claim management system in an employer’s organization deserves serious attention. This research attempts to describe how an information system can help a project employer in managing claims arising in a construction project and how it can be implemented.

To acquire a construction of the claim management processes adopted by project employers, 29 key staffs from both public authorities and private consulting companies were asked about the processes they perform in managing construction claims and their experienced problems. Based on the information acquired from reviewing literature and interviewing, the framework of the employers’ claim management information system was designed. The transactions from all parties serve as inputs into the system, consisting of several sub-systems: claim transaction processing system (TPS), claim management information system (MIS), or other special-purpose claim information systems such as claim decision support system (DSS), claim executive support system (ESS), or claim expert system (ES). The acquired framework can be used in developing claim management systems which enhance the employers’ claim management efficiencies. Effective claim management of all project parties supports fairness and success of projects, leading to the sustainable development in the construction industry.

Keywords: Claim management/ Claim/ Information/ Information system/ Project management

1. Introduction

With the aid of information technology, large organizations generally implement an effective information system in their organization in order to collect, manipulate, and disseminate data and information.

However, such an adoption of technology seems to be given less attention in construction industry, compared with other manufacturing industry. Documentation is still paper-based without sufficient document code. Records available on sites seldom allow an “as-built” schedule to be constructed easily while the majority of construction supervisors are faced with accessibility, legibility, continuity, and consistency problems with their site daily records [11].

2. Research Objectives and Methodology

The objective of this research consists of:

1) Reviewing the basic concepts related to construction claim management and information system in construction,

2) Describing how an information system can help a project employer in managing claims arising in a construction project and how it can be implemented.

This research was performed by the following steps:

1) Review the basic concepts related to construction claim management and information system in construction.

The related topics comprise construction claim, construction claim management, information in construction, components of information system, types of information systems, advantages and disadvantages of an information system in a construction project, and System Development Life Cycle (SDLC).

2) Survey theexisting claim management processes adopted by project employers.

Twenty-nine key staffs from 21 public authorities and private consulting companies were interviewedthe processes they perform in managing construction claims and their experienced problems. Details of the interviewees are shown in Table 1 and Table 2.

Table 1. Types of the Construction Works Referred

by the Interviewees

Types of the Construction
Works Referred / Number of Interviewees
(Organizations)
1. Public Project / 15
2. Private Project / 4
3. Both Private and Public / 2
Total / 21

3) Design the framework of an employers’ claim management information system by the information acquired from reviewing literature and interviewing can be used to design.

Table 2. Interviewees Classified by Their Field of

Expertise

Field of Expertise / Number of Interviewees
(Persons)
1. Engineering / 23
2. Architecture / 2
3. Procurement Officer / 2
4. Lawyer / 1
5. Accountant / 1
Total / 29

3. Construction Claim and Construction

Claim Management

Construction claim is defined as a demand or assertion by one of the parties seeking, as a matter of right, adjustment or interpretation of contract terms, payment of money, extension of time or other relief with respect to the terms of the contract. Construction claim has high effect on project’s cost and time. From a study, some projects suffered the increased cost of more than 30 percents for solving claims while some projects experienced delay longer than their original time for completion [12].

Because of their high impacts on the project’s success, the construction project employers should establish an effective claim management in their organizations. Construction claim management process comprises six sub-processes as follows [15]:

1) Recognition and identification of the change

Construction change recognition and identification involves “timely” and “accurate” detection of a change. It is the first and critically important ingredient of the claim process [8].

2) Notification of the change

This sub-process involves alerting the other party of a potential problem in a manner that is non-adversarial. Time limit requirements are very crucial and critical [8]. Normally, the contract specifies such duties to both parties.

3) Systematic and accurate documentation of the change

Records and documentation play a very important role in the settlement of contract claims. However, the importance of record management is not realized as much as it should be [10].

4) Analysis of time and cost impacts of the change

The objective of this sub-process is to determine the impact of the change that occurred. The analyzer shall perform schedule analysis to calculate the time impact and break down the cost into various cost components to calculate the cost impact.

5) Preparation of the claim

The purpose of this sub-process is to give the other party in the contract a substantive description and detail of the extra costs incurred or to be incurred due to a contract change. This detailed cost description is necessary for understanding, negotiating, and justifying extra contract costs. There are two types of claim pricing: forward pricing and post pricing [15].

6) Negotiation of the claim

This sub-process concerns the process of presenting the claim to the employer, and mutual finding the solution of such claim. If an agreement cannot be reached and any party believed his position is correct, he should propose an alternative dispute resolution method. If this fails, the choice remaining is to implement the contractor’s “disputes” mechanism or take the matter to court.

The unsolved claims from the last claim management sub-process, claim negotiation, will be settled in the disputes resolution process.

4. Information System

4.1 Information in Construction

Information is a collection of facts organized in such a way that they have additional value beyond the value of the facts themselves. Information differs from data in that it was organized or arranged in a meaningful manner [16].

There are tons of pieces of information flow between parties in a construction project. They serve both project controlling process andresolving conflicts, claims, and disputes [11]. The examples of the important documents are: supervisor’s daily and weekly reports, contractor’s progress reports, job diary, change-order log, purchase orders and delivery receipts, correspondence, photographs, drawing logs, project schedule, meeting minutes, payroll registers, cost ledgers, balance sheets, invoices, material or equipment logs, financial statements, etc. [2, 3]

4.2 Components of an Information System

Because of the huge amount of information in construction, a system for managing themamong relevant parities is necessary.

The information system is a set of interrelated components that collect, manipulate, disseminate data and information, and provide a feedback mechanism to meet an objective. Information system can be either manual or computerized. Several information systems begin as manual systems and become computerized [16]. Similar to other systems, information system has four major components: input, processing, output, and feedback, as shown in Figure1.

Figure1. Components of a System

For a computerized information system, its components consist of hardware, software, people, databases, telecommunications, and procedures. [16]

4.3 Types of Information Systems

Information systems can be categorized into several types by their purposes [16]:

1) Electronic Commerce System: e-commerce

E-commerce is any business transaction executed electronically between parties such as companies (business-to-business), companies and consumers (business-to-consumer), business and the public sector, and consumers and the public sector.

2) Transaction Processing System: TPS

TPS is an organized collection of people, procedures, software, databases, and devices used to record completed transactions.

3) Management Information Systems: MIS

MIS is an organized collection of people, procedures, software, databases, and devices used to provide routine information to managers and decision makers.

4) Decision Support System: DSS

DSS organized collection of people, procedures, software, databases, and devices used to support problem-specific decision making.

The examples of DSS application for managing construction claims are: “WEATHER” by Moselhi and El-Rayes (2002) and that can identify and solve the workspace conflicts proposed by Guo (2002).

5) Executive Support System: ESS

ESS, or “Executive Information System (EIS)”, is a specialized DSS that includes all hardware, software, data, procedures, and people used to assist senior-level executives within the organization.

6) Special-purpose Information System

One of these special-purpose information systems is based on the notion of artificial intelligence (AI) where the computer system takes on the characteristics of human intelligence. The field of artificial intelligence includes several sub-fields. These are Expert Systems (ES), Artificial Neural Networks (ANN), learning systems, natural language processing, vision systems, and robotics.

ES is a system that gives a computer the ability to make suggestions and act like an expert in a particular field. The examples of the ES application in claim management are the “Differing Site Conditions Analysis System (DSCAS)” by Diekmann and Kruppenbacher (1984), “DISCON (Differing Site Condition)” by Kraiem and Diekmann (1988), “DELAY EXPERT” by Alkass and Harris (1991), “SUPER CHANGE” by Diekmann and Kim (1992), “SITE EVENT ADVISOR(SEA)” by Diekmann and Gjertsen (1992)

4.4 Advantages of Information System

There are several advantages of applying the information system in the claim management process:

1) Faster calculation or processing

2) Ability to learn more about the claim patterns

3) Ability to distribute information instantly

4.5 System Development Life Cycle: SDLC

The system development process is called a “Systems Development Life Cycle(SDLC)” because the activities associated with it are ongoing. There are four common systems development life cycles: traditional, prototyping, Rapid Application Development (RAD), and end-user development.

The traditional systems development life cycle can be applied from a small project to a major undertaking. The steps may vary from one project to the next, but most approaches have five common phases [13]:

1) Investigation phase

This phase can be classified by its functions into two sub-phases: project initiation, and project management.

2) Analysis phase

System analysis is the process of (1) gathering information about the as-is system(current system), (2) identifying its strengths and problems, and (3) analyzing them to produce a concept for the to-be system(new system).

3) Design phase

The design phase is the phase of the systems development life cycle(SDLC) in which the blueprint for the new system is developed from the requirements identified in the analysis phase, and it contains a number of steps that guide the project team through planning exactly how the system needs to be constructed. These steps are 1) Converts the logical diagrams into the physical diagrams, 2) Architecture design, 3) User interface design, 4) Data storage design, and 5) Program design.

4) Implementation phase

Dennis and Wixom (2000) classified the activities need to be performed in this phase into two groups: construction, and installation.

5) Maintenance & review phase.

After the new system is installed and conversion is completed, the system will be reviewed by both users and technical specialists to determine how well it has met its original objectives and to decide whether any revisions or modifications are in order. Changes in hardware, software, documentation, or procedures to a production system to correct errors, meet new requirements, or improve processing efficiency may be necessary.

5. The Existing Employer’s Construction

Claim Information System

The interview results showed that claim management responsibilities normally belong to project manager or project director in private projects. On the other hand, “employment supervisory committee”, which consists of a chairman and at least two qualified persons, is responsible to managing claims. The committee has power to 1) review the reports from the contractor and the construction supervisor, 2) perform field supervision and variation order, and 3) approve interim payment

As to the information system, interview results showed that almost all claim management information systems in Thai construction industry are manual. Most of them do not have standard form used for claim management purpose. In addition, surveys found some information-related problems such as:

  • Incomplete document
  • Lack of knowledge
  • Insufficient time
  • Delayed response
  • Unclear regulation
  • Lack of personnel
  • Not knowing what to claim
  • Inconsistency between departments
  • Oral or multi-person instruction
  • No standard form
  • So many documents

These problems affected the efficiency of the claim management system and should be eliminated.

6. The Proposed Employer’s Construction

Claim Information System

To solve the information-related problems found, an effective information system should be implemented in the construction project. The framework of the information system designed for managing construction claims is shown in Figure 2.

The transactions from all parties serve as inputs into the system, which consists of several sub-systems: claim transaction processing system (TPS), claim management information system (MIS), or other special-purpose claim information systems such as claim decision support system (DSS), claim executive support system (ESS), or claim expert system (ES). The input data may be keyed into the system by project staff or downloaded via internet network. The data from the transactions will be processed and recorded in several forms of reports or stored in data storages. When the claim manager requests the routine reports, such as claim identification reports, claim status report, claim details report, claim statistics report, claim analysis report, or claim negotiation report, MIS will retrieve the necessary data from TPS database, internal-data database, and external-data database.

In some situations, the claim manager may have to make a decision or solve some specific problems which are less-structured or need special expertise. The DSS, ESS, or ES system can be the effective claim manager’s helper in performing such tasks. Examples of the said problems are problems related claim identification, claim analysis, and decision to file claim.

Figure 2. Framework of Information System for Managing Employer’s Construction Claims

7. Conclusion

At present, employers’ claim management systems in Thai construction industry have several information-related problems. Information system, one of the effective tools that can facilitate claim management system, was proposed to be implemented in order to eliminate the problems.

Theproposed claim management information system framework can be used in developing claim management systems which enhance the employers’ claim management efficiencies.

Effective claim management of all project parties supports fairness and success of projects, leading to the sustainable development in the construction industry.

References

Journal

[1]Alkass, S. and Harris, F. 1991. Expert Systems: Construction Contractor’s Claims Analysis: An Integrated System Approach. Building Research and Information, Volume 19, Number 1: 56-64.

[2]Bu-Bshait, K. and Manzanera, I. 1990. Claim Management. Project Management, Vol.8, No.4: 222-228.

[3]Cox, R.K. 1997. Managing Change Orders and Claims. Journal of Managing in Engineering, January/ February: 24-29.

[4]Diekmann, J.E. and Kruppenbacher, T.A. 1984. Claim Analysis and Computer Reasoning. ASCE Journal of Construction Engineering and Management, Volume 110, Number 4, December: 391-408.

[5]Diekmann, J.E. and Gjertsen, K. 1992. Site Event Advisor: Expert System for Contract Claims. ASCE Journal of Computing in Civil Engineering, Volume 6, Number 4, October: 472-479.

[6]Guo,S. 2002. Identification and Resolution of Work Space Conflicts in Building Construction. ASCE Journal of Construction Engineering and Management, Volume 128, Number 4, July/ August: 287-295.

[7]Kraiem, Z.M. and Diekmann, J.E. 1988. Representing Construction Contract Legal Knowledge. ASCE Journal of Computing in Civil Engineering, Volume 2, Number 2, April: 202-211.

[8] Kululanga, G.K. et al. 2001. Construction Contractors’ Claim Process Framework. ASCE Journal of Construction Engineering and Management, Volume 127, Number 4: 309-314.

[9]Moselhi, O. and El-Rayes, K. Analyzing Weather-Related Construction Claims. Cost Engineering, Volume 44, Number 8, August: 12-19.

[10] Pogorilich, 1992. The Daily Report as a Job Management Tool. Cost Engineering, Volume 34, Number 2: 23-25.

[11]Scott, S. and Assadi, S. 1999. A survey of the site records kept by construction supervisors. Construction Management and Economics, Volume 17: 375-382.

Book

[12]Callahan, J.T. 1998. Managing Transit Construction Contract Claims: Synthesis of Transit Practice 28, National Academic Press, Washington, USA.

[13]Dennis, A. and Wixom, B.H. 2000. Systems Analysis and Design, John Wiley & Sons, New York, USA.

[14]Laudon, K.C. and Laudon, J.P. 2002. Management Information Systems: Managing the Digital Firm, Seventh Edition, Prentice-Hall, New Jersey, USA.

[15]Levin, P. 1998. Construction Contract Claims, Changes, and Dispute Resolution, Second Edition, ASCE Press, n.p., USA.

[16]Stair, R.M. and Reynolds, G.W. 2003. Principles of Information Systems, Sixth Edition, Thomson Learning, Boston, USA.