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Claims Management is, for many, a dark art. But you can master it by applying some simple disciplines to the process of managing claims. Even without a crystal ball to warn you of impending disputes, you can still succeed in avoiding the claims if you are prepared.
Paul Mallory, VP Professional Development for IACCM
Know the warnings of claims or disputes.
Make sure your delivery teams, your project managers, and others who interact with customers or suppliers appreciate the most common causes of claims and disputes. IACCM's recent research on the most common claims or disputes is reflected in the figure below titled, The Costs of Misalignment. All such claims can be avoided.
Make sure your teams understand the importance of notifying you of an incident or a failure to comply with the contract, or process, or expected plan, which may lead to a claim arising, either incoming (a claim on your organization) or outgoing (a claim by your organization on another organization, customer or supplier).
Don't compromise contractual obligations
Educate your delivery teams, project managers and others on the key obligations and rights in the contract, both on your organization and on your customer/supplier. Ensure that they apply those rights and obligations and contact their commercial contract management specialist when the contract is not being applied.
For example, Sales organizations are often reluctant to enforce certain clauses in the contract for fear of upsetting a relationship with a customer. This commonly happens with, for instance, clauses that allow for price increases or variations, perhaps due to inflation of costs, or currency exchange rate fluctuations. We have to educate our teams that this was the agreement reached, that the customer was completely comfortable with it when the contract was signed, and that not enforcing our rights under the contract is giving money away without receiving any benefit in return. Ask your teams to treat the organization's money as though it were their own…
Control and record goodwill – a plus for you and customers
An account team may choose not to enforce a particular right under the contract, on the grounds of goodwill (i.e. doing a favour, for the relationship). This might sometimes be the correct decision, in context. A professional contract/claim manager will record such instances of goodwill, and ensure that such goodwill receives recognition by the customer/supplier concerned, and also that our register is up to date in case our customer/supplier produces their own register at some point and tries to make a contract claim against it! Goodwill has a value, and it should be recorded and treated as an asset/potential liability (as appropriate).
Treat the other side with respect – be professional
Claims are not emotional or vindictive. They are simply about seeking to obtain your rightful commercial position/redress for loss suffered. As such, we should always act calmly, professionally and with courtesy and consideration towards the customer/supplier we are seeking to make the claim on. We must strive to maintain a professional working relationship; it is likely we will want to continue to do business with this organization in the future. So be robust in making your case, but do it in a professional way.
Prove your legal case clearly when filing a claim
If you are going to make a contract claim on another organization, be thorough in your preparation, be clear in your statement of why you are legally entitled to the amount you are claiming, and provide full evidence to justify your position. Your aim should be to show beyond reasonable doubt that the other organization is legally obliged to pay your claim. This means that a lazily compiled claim is unlikely to succeed.
If you argue your case badly, or fail to provide convincing contract/legal references to justify your entitlement, or fail to substantiate your grounds for claiming or fail to provide evidence of the facts, your claim will be rejected, or you will find yourself in a never-ending round of questions asking for more detail.
Get it right first time, be thorough in your preparation, remove as much doubt and ambiguity as is possible, in a very clear, detailed written statement of your claim.
If you are dealing with an incoming claim from another organization, require that organization to be as professional in dealing with claims as you are! Ask for the same standard of information as set out above.
Prepare for negotiation
Most claims are settled by negotiation and do not make it into the courts. The outcome you achieve in a negotiated settlement will in large part depend on the quality of your preparation before the negotiation. Since negotiations are usually between two teams, ensure that team roles and strategy are worked out, role-play the negotiation, ask 'what-if's', decide tactics for meetings and team signals (take time-out's whenever you feel it would help), decide your desired outcome for the meeting, your best and worst case, your best alternative to a negotiated agreement, and work out what you think the other side's position on all these points will be.
Most negotiators agree that thorough preparation is key to the success of negotiations, and most negotiators agree that they do not prepare thoroughly enough…
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ABOUT THE AUTHOR
Vice President of Professional Development for IACCM, Paul Mallory is responsible for designing and developing IACCM's global training, skills assessment and certification services, enabling contract and commercial managers to attain higher levels of professionalism. Educated in Business Studies and Management Studies, his background has been primarily focused in Commercial Management, training and business development.