Dilemma 2:  Submitting a contract claim for a variation - Answer

 

The position is the same as given in the answer to Dilemma 1.  In submitting the claim, you are making a representation as to the reasonable payment that your company is owed.  It can be a criminal offence to make a representation which you know is false, or which you know might be false, or which you do not honestly believe is true in order to gain some financial advantage for yourself or another person or organisation.  If you believe that US$20,000 is a reasonable payment, then it would be a misrepresentation to claim that US$30,000 is a reasonable payment.  In particular, it is a false statement to show the additional labourers as working on the variation.  Consequently, if you submitted this claim to the project owner alleging that US$30,000 is a reasonable payment, and that the labourers who did not work on the variation were working on the variation, then you personally, and your company, may be liable for fraud.  

 

The correct and safe approach is always to state in a claim only what you honestly believe to be true.  In this regard, you clearly know that the additional labourers did not work on the variation, so that element of the claim is definitely false.  You are not entitled to add an additional unjustifiable amount as a “negotiating margin”.  You are only entitled to claim what you honestly believe to be due.  You can during a negotiation reduce a valid claim in order to achieve a commercial settlement.  However, you are not entitled falsely to inflate the claim so as to give the false impression that you are reducing a valid claim so as to achieve a settlement.  There are other parts of your claim which may not be so clear-cut.  For example, are you entitled to add a higher overhead and profit percentage to your claim than you did to the original contract price?  Do you have to use the original labour rate on which you based the contract price as the labour rate for variations, or can you increase this rate?  There is no definite answer to this.  The rate you can charge will depend on the contract, and may be affected by other circumstances (such as movement in market prices since you were awarded the contract).  The guiding principles are (1) only claim what you honestly believe is true (then it is very unlikely that you are committing a criminal offence) and (2) disclose your methodology and calculations to the project owner (then you cannot be misleading him). 

 

What do you do if the project owner knocks down your accurate claim from US$20,000 to US$15,000?  You could tell the project owner that (1) you are not a company which artificially increases its claim - you have strict ethical policies, and only claim what you reasonably believe is due; and (2) that US$20,000 is a reasonable and accurate claim, and you cannot accept US$15,000.  If the project owner reduces your claim to US$15,000, and refuses to pay more, then the project owner and its relevant staff could be committing a criminal offence against your organisation unless they honestly believe that they are justified in reducing the claim.