Over the years, a significant portion of constructionliterature has been written on claims. Frequentlydiscussed topics include causes of constructionclaims, disputes avoidance and resolution, calcu-

lation and assessment of construction changes and presentationand analysis of time impact claims and damages. Whereas themajority of this literature has been the result of research con-ducted in Europe or North America, yet very little research hasbeen conducted in the Middle East. In light of the propagationof recent ideologies such as globalization, and the increasingnumber of Western construction companies conducting busi-ness in the Middle East, it has become necessary to bridge thisgap in construction literature. With the intent of providing aninsight and an understanding on the nature of the constructionclaims activity in Egypt, this paper serves as one of those bridg-ing blocks.

A claim may be defined as “a request, demand, applicationfor payment or notification of presumed entitlement to whichthe (claimant), rightly or wrongly at this stage, considers himselfentitled and in respect of which an agreement has not yet beenreached” [2]. By 1981, the dollar value of claims activity in theUS had reached over $ 376 million—not counting the estimat-ed $600 million in claims that were either litigated or resolvedwithin a short period after project completion [11]. By 1992, itwas reported that construction disputes in the United Stateshave reached their peak and that construction contractors lookforward to the dispute phase of the project (as opposed to proj-ect completion) so as to make up for lost pre-tax profit marginswhich have reportedly declined to a net range of 1.0-1.4 percent[19]. By 2000, it has been reported that, predominantlybecause of poor planning and project management, “longerschedule delays and cost overruns are being experienced morethan ever before with an exponential rise in related claims anddisputes in current years [14].”

The situation in the Middle East is not that much different.It has been reported in the Gulf newspaper Al Khaleej Timesthat, in 2004, construction claims in the United Arab Emiratesreached $4 billion, nearly 10 times its reported figure in 1999[1]. Ranking 36th in the global construction market by the year2000 ($12.711 billion in value), and accounting for 48.2% ofthe country’s total investments [17], the Egyptian constructionmarket is very competitive and attracts a significant number ofconstruction companies from all over the world. Needless tosay, such a competitive market is saturated with disputes and

claims; yet, at present, information regarding the nature of con-struction claims in Egypt is very scarce.

In this paper, several topics which have been subject to dis-cussion in construction management literature are discussed inlight of their agreement or disagreement with the research con-ducted on the nature of construction claims in Egypt.Similarities and contrasts will be identified then elaborated onso as to provide the reader with an insight on the extent of vari-ance between the Egyptian research and other published papersworldwide.

Seven construction claims topics are under discussion in thispaper, and they includethe following.

• the magnitude of cost and time overruns in constructionclaims;

• the weight of change orders vis-à-vis other causes of claimsin a project;

• the lack of contract awareness of a project’s site team and itsimpact on claims propagation;

• the prevalence of the ‘reservation of rights’ approach inconstruction claims;

• the association of privately owned projects with cost andtime overruns;

• the relationship between poorly coordinated designs andclaims propagation; and

• the impact of adversarial relationships between contractorand designer on a project’s claims.

OBJECTIVE The objective of this paper is to discuss several topics

addressed in construction claims literature in light of their har-mony to, or contrast with, a research conducted on constructionclaims in the Egyptian construction sector. Such a discussionwould supplement the current literature, and would give inter-national Western companies conducting business in Egypt, aninsight on the nature of claims activity in that country.

APPROACH

METHODOLOGY IMPLEMENTED BY THE EGYPTIAN RESEARCH

General Research Objectives and ApplicabilityThe primary objective of the Egyptian research was to pro-

vide an insight on the general status of claims management in

2007 AACE International Transactions

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Construction Claims in Egypt: Contrasts andSimilarities With Published Literature

Amr A.G. Hassanein and Dr. Waleed M. El Nemr

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2007 AACE International Transactionsthe aggressive Egyptian industrial sector and, thereon, to pro-vide solutions and suggestions for improvement [6]. Morespecifically, the research was aimed at fulfilling the followingfour main objectives.

• To define the status of claims management, in general, andchange order claims management, in specific, with respectto contractors operating in the Egyptian industrial construc-tion sector.

• To determine the main causes of change order claims inthe Egyptian industrial construction sector.

• To identify the factors associated with project cost and timeincreases within this sector. And,

• To generate means of improvement regarding the problem-atic areas outlined in the results of the previous three objec-tives.

An extensive literature review of 26 references and a samplesize of 21 projects constituted the backbone of this research.After fulfilling each of the four research objectives above, theresearch concludes with a comparison between the resultsobtained and their concurrence and difference with the litera-ture review. This paper primarily focuses on that concludingcomparison.

Sample SelectionThe Egyptian contractors chosen for this research included

middle to large sized Egyptian contractors, whose cumulativeindustrial work volume exceeded LE 50 million, and cumula-tive construction work volume exceeded LE 100 million. Sincethere are a limited number of Egyptian contracting companiesthat fit those criteria, six major companies were chosen for thisresearch. From the six companies chosen, 21 industrial projectswere extracted that constituted the sample size for this paper.

Questionnaire Construction and Literature ReviewComparison

The process by which the questionnaire was formulatedinvolved conducting extensive literature research on the mostnoted claims and change order areas discussed in reputableconstruction management journals, keeping in perspective thefour main objectives of the research. Consequently, questionswere grouped into three different sections, each section involv-ing the objective that it aims to fulfill, and each question with-in the section having its own referenced document support.The integration of the three objectives results with the literaturereview would then form the grounds on which the fourth objec-tive would be based.

The idea behind each question is a published paper, a “doc-ument support” as termed in the questionnaire. Hence, afterinterviews were carried out and the results were compiled andanalyzed, it was fairly straightforward to pinpoint the consisten-cies and inconsistencies of the conducted research with thepapers identified in the questionnaire (and other sources notmentioned in the questionnaire but which discuss the same orsimilar topics).

RESULTS AND ANALYSIS The results of the Egyptian research are discussed below in

light of the seven construction claims topics mentioned in theIntroduction.

MAGNITUDE OF COST OVERRUNS BECAUSE OF CLAIMS

Although it has generally been reported that constructionclaims significantly impact the project’s price, yet little researchaimed at quantifying this impact. One research that did quanti-fy the impact of claims with respect to both cost and time usedthe general project information of 24 construction projects inWestern Canada to generate one comprehensive table, fromwhich several relationships were drawn [13]. This project infor-mation included the type of contract (prime or subcontract),type of ownership (private or public), type of payment (lumpsum or unit rate), type of industry, original contract amount,total claimed amount, original contract duration and magni-tude of contract delay. By analyzing this information, theauthors of that paper managed to calculate the cost and timeoverruns for these projects and the project parameters associat-ed with these overruns. Influenced by this research, theEgyptian research included a similar analysis which aimed atquantifying the magnitude of, and the factors associated with,the cost and time overruns of the claims in the project sampleunder study.

A comparison of the cost increase percentages reveals that41.7 percent of the construction claims studied in the Canadianresearch resulted in cost overruns of over 50 percent of the proj-ects’ initial contract value. The selected Egyptian sample, how-ever, resulted in only 14.3 percent of the projects studied result-ing in cost overruns of over 50 percent of the original contractvalue. On average, the percent increase from the original con-tract value reached 90.13 percent in the Canadian research,while reaching only 24.1 percent for the Egyptian research.

It may reasonably be deduced from these results that con-struction claims activity in Canada is by far more intense thanin Egypt. However, there are other plausible rationalizations tothese results. Interviews with the respondents revealed thatbusiness relations for Egyptian contractors may be held far moreimportant than pursuing one’s rights in a construction claim.One significant result from this Egyptian research as a whole iswhat was termed “fear of the consultant (or owner) phenome-non.” Essentially, several respondents stated that they waivedsome of their contractual rights due to a fear of bruising theirbusiness relations with the owners and consultants, which couldaffect their chances in being candidates for future potential proj-ects. Written timely notices, documented minutes of meetings,written confirmations of oral changes would purposely not beimplemented by Egyptian contractors in light of the adversarialimpact such practices would have on the owners. This situationis strikingly different in Western countries where constructionclaims are a normal pattern that is addressed and expeditiouslyresolved in arbitration tribunals and litigation courts.Construction owners are not offended, nor are business rela-tions severely bruised, by proper contracts management prac-tices.

One justifiable explanation for the significant difference ofthe impact of claims on the original contract values with respectto projects in Egypt and Canada is the different prevailing atti-

tudes and norms in dealing with claims. The Egyptian trendmentioned earlier results in a dampening of the cost increaseeffect, but does not necessarily mean that claims are not preva-lent or that Egyptian contractors are not subjected to significantfinancial losses as a result of lost or waived contractual rights.

A similar trend is apparent with respect to the time overruns.The Canadian research indicates that 45.83 percent of the stud-ied projects experienced delays for more than 50 percent of theoriginal contract duration. The Egyptian sample, however,resulted in 19 percent only of the sample projects being delayedfor more than 50 percent of the original contract duration.These results demonstrate that construction claims in Canadahave a greater impact on the project duration than in theEgyptian industrial construction sector. This helps explain theincreased cost impact in the Canadian claims as well, as costimpacts associated with delay are expected to increase withincreased project durations. Not surprisingly, the Canadianresearch recorded that “site overheads” was ranked as the high-est category for the contractors’ assertions for compensation(used in 13 claims), and that the most quoted contract clauseswere those for contract delays (used in eight claims). It will be noticed, however, that for the Egyptian research, theaverage time overrun percentage (32 percent) is slightly higherthan that of the average cost overrun (24.1 percent). This canbe attributable to the fact that the delayed status of a project isnot within the contractors’ control, as opposed to the cost over-run factor which is affected by the contractors’ reluctance topursue claims against the owners or consultants. It is clear thatthe Canadian construction claims experienced notably greaterdelays (and consequently greater cost impacts) than those of theEgyptian claims.

WEIGHT OF CHANGE ORDERS VIS-À-VIS OTHER CAUSES OF

CLAIMS

Nearly 53.3 percent of the sample projects under theEgyptian research indicated that change orders were the mostprevalent causes of claims. These results are in agreement withnumerous published research, as it has previously been report-ed that change orders, especially those associated with designerrors and mandatory/discretionary changes, are the most preva-lent sources of claims (constituting 72 percent of all claims stud-ied in that research) [4]. Similarly, a research conducted on 24construction claims in Canada revealed that “increases inscope” (which are usually formalized as change orders) consti-tuted the highest cause of claims, as it accounted for 20 claims(the highest number of claims referenced for a single causereported in the research) [13]. In fact, the relationship betweena “claim” and a “change order” is so close that the terms havebeen used interchangeably in numerous construction claims lit-erature. One source explains the relationship in that “the spill-over effect of change orders is what gives rise to constructionclaims” [3].

Lack of Contract Awareness of a Project’s Site TeamIt has become common practice for site engineers to carry out

field work without carefully reading the contract documents.This practice results in a lack of awareness of the contractor’sscope of work under the contract, as well as his rights and obli-gations vis-à-vis the owner and consultant. Consequently, ver-

bal change orders communicated on site by an owner’s repre-sentative or consultant are at times executed although such aninstruction may not be within the contractor’s scope of work.The inevitable outcome is heated controversy and claims prop-agation. This problem has been recognized in numerous pub-lished research, such as that of Vidogah and Ndekugri andJergeas and Hartman [8, 18]. The existence of this phenome-non in the United States since 1980-1981 until today was illus-trated recently in a paper which highlighted the results of aninvestigation conducted by a large mechanical contractor in1980-1981 to uncover the factors behind the substantial profiterosion encountered on a number of the company’s projects.One of these factors, which the author described as being“applicable to today’s projects as it was to the construction workand the industry in 1980-1981” is: “The project managementteam was found to be doing changed work or scope increasework for free. They did not ask for and did not receive changeorders for the extra work and/or were performing work not read-ily recognizable as scope change on a no cost basis [10].”

In Egypt, the situation is no different. Numerous cases hadbeen reported about site engineers who received direct instruc-tions from the owner’s representative or consultants and theresult was additional incurred expenses as a result of poor orinadequate supporting documentation. Similar to the above-mentioned 1980-1981 investigation in the U.S., one respondentin the Egyptian research highlighted that the problem was expe-rienced especially in the electromechanical work.

One of the solutions offered in the Egyptian research toimprove this problem is the development of a contract noticechecklist which the site team would fill in and provide to thecontracts team (in the absence of an on-site contracts team),such as that provided by Jergeas and Hartman [8]. Another solu-tion offered in the Egyptian research is educating the site teamof the contract requirements through periodic orientations con-ducted by knowledgeable members from the company’s con-tracting department. This concept was mentioned recently asone of the factors for controlling cost overruns, as one authordescribes the contractually required timely notice provision as“the most important detail to remember” and concludes that“every contractor should be sure all field supervisors are trainedto understand the contract terms and properly identify theseconditions (i.e., for which a timely notice must be given underthe contract) [16].”

The ‘Reservation of Rights’ ApproachOne topic that was addressed frequently in literature as a form

of contractor’s claims administration is that of the ‘reservation ofrights.’ In this approach the contractor’s target is to reserve hisrights for any change order or claim at the time of the changeand leave the settlement of this claim until the end of the proj-ect. Although this procedure had been cited as a tool for prop-er claims management, it has also been referred to as a tool formaking up any losses that have been incurred in the project byfiling delay, damage, or disruption claims [8, 19]. The contrac-tor promptly reserves his rights to claim and presents a detailedaccount of the claim only at the end of the project, where hecan take advantage of any losses and delays and incorporatethem in his claim.

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2007 AACE International TransactionsThe Egyptian research demonstrated that this practice is also

very prevalent. Nearly 28 percent of the sample projects understudy mentioned that the form of claims management used isthat the site team would reserve their rights at the time of achange or claim, then forward the relevant information to thecontracts team at the head office who would settle all issues atthe end of the project. One reason for this late settlement ofclaims is a cultural one, as it was reported that Egyptian ownerswere offended whenever contractual notifications or reserva-tions of rights were made by Egyptian contractors. The contrac-tor then, in fear of bruising business relations with the owner,either stops making these notifications and reservations (therebywaiving his right to pursue these claims) or reserves his rightsand saves settlement of these outstanding issues until the end ofthe project. It should be noted that, whereas recent US literature on changeorder management stresses the need for reservation of rightswith respect to the “cumulative impact” of change orders or, ona more general level, to “the right to request an equitable adjust-ment to cost, fee, and other terms and conditions, as may beapplicable,” the ‘reservation of rights practice’ addressed in theEgyptian research pertains simply to direct costs and the associ-ated overheads [7, 9]. In this respect, it is noticed that theclaims to which rights are reserved vary in complexity betweenthe US and Egypt, with the US having the more complex type,in respect of which several court decisions were made [7].Notwithstanding this observation, it should be noted that thiscannot be taken as a general trend since, within the US andwithin Egypt, complexity of a ‘reservation of rights’ notice mayvary with the complexity and nature of the project. However,discussion on this aspect is beyond the scope of this paper.

Privately Owned Projects And Cost/Time OverrunsOne of the parameters associated with the cost and time over-

runs addressed in the previously mentioned Canadian researchis that of ownership type [13]. In this respect, private ownershipin the two researches is the type of ownership associated withthe highest project cost overruns on the two researches, result-ing in an average percentage increase of 45.53 percent increasefor the Canadian research, and 31.21 percent increase for theEgyptian research. The same trend carries on with the averageincrease in project duration, whereby the Canadian researchexperienced an average duration increase of 70.11 percent andthe Egyptian research an average duration increase of 39.19 per-cent. One justification for this trend, which was given by oneof the respondents of the Egyptian research, was that publicprojects by their nature are subject to tight and fixed budgets,which consequently places a larger constraint on any authoriza-tion for changes. Projects owned by private organizations, onthe other hand, experience more room and flexibility in thatregard and therefore tend to experience more change ordersand extra work than projects owned by the government. Theresult is a notable cost and time increase with respect to theplanned project value and duration. In the Egyptian research,this link between privately owned projects and change orderswas verified, as 53.3 percent of the sample projects stated thatchange orders were the main cause of claims in that sector.

Poorly Coordinated Designs and Claims PropagationWhile addressing the most common cause for change orders,

the construction claims literature seems divided between addi-tional scope of work and poorly coordinated designs. As men-tioned previously, the research conducted on the 24 construc-tion claims in Canada attributed “increases in scope” as themost common cause for claims in these projects [13]. On theother hand, earlier research indicated that changes ordersbecause of design modifications accounted for 72 percent of theclaims under study [4]. In one research, the impact of poorlycoordinated designs on claims propagation was further empha-sized on the grounds that design conflicts and errors, when clar-ified after contract award, may lead the contractor to performdifferently than originally intended at the time of the bid [5].Although this is a valid and common source of claims andchange orders in Egyptian projects, yet additional scope of workwas by far the most prevalent cause of change orders (quoted by67 percent of the sample projects as the most dominant type ofchange orders). A viable explanation for this result is that theprojects studied under the Egyptian research were predominant-ly industrial construction projects, where the fast track projectnature prevails. This simultaneous progress of design and con-struction entails additional scope of work issued to the contrac-tor as change orders for items that had been under design whenthe contract was tendered. Change orders because of designmodifications was still prevalent, but was overshadowed by addi-tional scope of work.

Moreover, it is worthy to note that design modifications maybe in relation to design changes issued after the contractoraward, or because of design clarifications as a result of errors ordiscrepancies in the bid documents. In the latter case, the issueof whether a design conflict or error was “patent” (readily appar-ent) or “latent” (hidden), and the contractor’s “duty to requestclarification” prior to contractor’s bidding, may also have animpact on the number of change orders issued to the contractoras a result of poorly coordinated designs [15]. The case of addi-tional scope of work, on the other hand, is a fairly straightfor-ward source of legitimate change orders that is rarely contestedby the contractor, unless the frequency or nature of such addi-tions amount to a “cardinal change”, in which case a project isso altered by changes to the extent that it does not resemble theproject tendered [12].

Contractor-Designer Relation and Impact on Project ClaimsIt has also been reported that the relationship between a con-

tractor and designer plays an important role in the propagationof claims in a project, in the sense that if this relationship isadversarial it is sure to “spell disaster” [5]. Nearly 25 percent ofthe sample projects studied in the Egyptian research indicatedthat adversarial relations existed with the Egyptian designers. Itwas a respondent’s opinion that Egyptian consultants act aggres-sively with Egyptian contractors in case of an adversarial rela-tionship. He attributed that to the designers’ not willingness toadmit mistakes, but rather, their willingness to take on a defen-sive position every time a claim attributable to a design mistakeis levied. However, contrary to the aforementioned reference,these adversarial relations were not necessarily “disastrous” interms of claims propagation. The end result was that no effectwas noted because of the settlement between the contractor and

owner of the contentious issues at the end of the project. Thisis in line with the “reservation of rights” settlement approachdiscussed earlier.

I t is unequivocal that construction claims transcend interna-tional boundaries. They are a matter of fact in any con-struction project anywhere around the world. However,

because of differences in culture, the nature of constructionclaims may vary in accordance with the region. To date, thereexists a gap in the coverage of construction management litera-ture for claims activity in the Middle East, which experiencesan abundance of international companies and in which con-struction claims are a prevalent phenomenon. This paper wasmade to give an insight on the nature of construction claims inEgypt in comparison to those reported in numerous construc-tion management references, in an attempt to bridge this gap inconstruction literature and to provide international companiesconducting business in Egypt with an idea on the nature of con-struction claims in the country.

REFERENCES1. Al Bawaba. “UAE: Construction Claims Up 10 Times”

Available: http://www.albawaba.com/en/countries/UAE/184821 (2005)

2. Barber, J.N. and G.A. Hughes. “Building and CivilEngineering - Claims in Perspective.” Great Britain:Longman Scientific and Technical. Second Edition, 1992

3. Clark G., William. “Construction Claims: Justification andNegotiation.” AACE International Transactions, 1984. C-8, Pages C.8.1-C.8.6.

4. Diekmann, J.E. and M.C. Nelson. “Construction Claims:Frequency and Severity.” ASCE: Journal of ConstructionEngineering and Management. 111 (1). 1985. Pages 74-81.

5. Duttenhoeffer, Richard. “Cost and Quality Management.”ASCE: Journal of Management in Engineering, Vol.8No.2, April1992. Pages 167-175.

6. El Nemr, Waleed. “Management of Change Order Claimsin the Egyptian Industrial Construction Sector: Analysis andMeans of Improvement.” Graduate thesis dissertation (theAmerican University in Cairo, Cairo, 2001)

7. Hanna, Awad S. and Justin Swanson. “Risk Allocation byLaw – Cumulative Impact of Change Orders.” ASCE:Journal of Professional Issues in Engineering Educationand Practice, Vol.133, No.1, January 2007. Pages 60 – 66.

8. Jergeas, George F and Francis T. Hartman. “Contractors’Construction Claims Avoidance.” ASCE: Journal ofConstruction Engineering and Management, Vol.120,No.4. December 1994. Pages 785-794.

9. Madgett, Robert Jr. “To Change or not to Change –Managing Contract Changes.” NCMA: ContractManagement, Vol.46, Issue 7. July 2006. Pages 38-44.

10. McCally, Bob M., “The Cumulative Effect of Change.”AACE International Transactions, 2006. CSC.05, PagesCSC.05.1- 6.

11. O’Connor, Michael. “Complex Claims: Cost Principles,Models and Behavior.” AACE Transactions, 1984. C-4.Pages C.4.1-C.4.6

12. Pinnell, Steven S., “How to Get Paid for ConstructionChanges” USA: McGraw Hill, 1998

13. Semple, Cheryl, Francis T. Hartman, and Grorge Jergeas.“Construction Claims and Disputes : Causes and Cost/TimeOverruns.” ASCE: Journal of Construction Engineeringand Management, Vol.120, No.4. December 1994. Pages785-794.

14. Singth, Rohit. “Be Prepared for Construction Claims –Globally.” AACE International Transactions, 2000.CDR.04.

15. Smith, Currie & Hancock LLP’s “Common SenseConstruction Law: A Practical Guide for theConstruction Professional” USA: John Wiley & Sons,Inc. Second Edition, 2001

16. True, Larry. “Costs Overruns: Now What?” ConstructionClaims Online. 8 January 2007. <http://www.construction-claims.com/issues/5_02/tips_techniques/1089-1.html>.

17. The American Chamber of Commerce in Egypt, BusinessStudies & Analysis Center. “The Construction Sector inEgypt – Development and Competitiveness.” September2003.

18. Vidogah, Williams and Issaka Ndekugri. “Improving theManagement of Claims on Construction Contracts:Consultant’s Perspective.” Construction Management andEconomics, Vol. 16 (1998) Pages 363-372.

19. Zack, James G. Jr. “Claimsmanship: A CurrentPerspective.” ASCE: Journal of Construction Engineeringand Management, Vol. 119, No. 3. September 1993. Pages480-497.

Mr. Amr A.G. Hassanein8 El Sad El Aali St., 9th Floor

Dokki 12311, Giza, EgyptEmail: mail@finbi.com

Dr. Waleed El Nemr3 Zaki Osman Street

4th Floor, Apt. 7Dokki, Giza, Egypt

Telephone: +2.010.147.9162Email: waleed@elnemr.com

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