Q&A: Delays, Notice, and Force Majeure

The following questions, related to contractual issues arising from COVID-19, were posed during our second Construction Clinic, held in April 2020. The entire webinar may be viewed on-demand on YouTube.

Question 1

Question: Where is the coronavirus categorized under FIDIC Red Book with regard to the payment of costs?

Answer: When it comes to payment of costs associated with the EoT, or any other costs associated with the coronavirus, the most appropriate place is Sub-Clause 19 (Force Majeure), but there are some qualifications and FIDIC aren’t really clear about epidemics here. Sub-Clause 19 (Definition of Force Majeure) states, “Force Majeure may include, but is not limited … of the kind listed” and the kinds that FIDIC refer to in the list are all man-made things such as hostilities, war, taking over of power, etc. etc. So, it doesn’t tick that box. Where it says it’s not limited to those things, does that mean there are other man-made things, or does that mean it could be anything whatsoever? It is not clear.

If we look at the further qualification for payment of Cost, Sub-Clause 19.4 (Consequences of Force Majeure) says that the effects of the event have got to have happened in the country of the project or site (or most of it) is located.

If we’ve got a situation whereby we are procuring plant materials or equipment from China for a project in the UK, and there is a delay in manufacturing which delays the project, that’s probably not claimable for costs. If we’ve got a situation where the UK government restricts travel or closes business down, that does occur in the country, so you may be entitled to claim for costs.

As you may see FIDIC is not very clear here. I would say, if you’re a Contractor, give it a try. Of course, you’ve got Engineers on the other side who will say that it is not clear-cut and may reject your claims. I can see quite a few disputes coming, so if we can sit down and try to sort things before slinging claims or disputes about, that would be preferable.

Question 2

Question: What would you suggest we include in contracts to deal with potential coronavirus-related disruption to supply chains, etc.?

Answer: As stated above, FIDIC is grey on the matter. I have seen a bespoke contract which clearly spelled out in cases of epidemic or force majeure, that an EoT was allowed, but not costs. There is no ambiguity there. I would suggest adding this type of clear statement creating provisions for plague or mass epidemic to future contracts.

Question 3

Question: Whenever the Client/ Consultant initiates a variation order or change, does it mean that the Contractor should input extra resources to complete the work?

Answer: No, it doesn’t. If the Client or Employer wants a variation to be undertaken, the Contractor is under no obligation to increase resources to undertake that variation, unless there is a mutual agreement on associated costs, etc.

Regardless of the form of contract, if a variation order is received and if it will delay the project, or result in additional cost associated with delay, the Contractor should submit a Notice stating that the instruction will cause a delay and incur costs. Then, follow up with a claim.

Question 4

Question: (First of three parts). What factors should be taken into account when deciding the best method of delay analysis?

Answer: This is quite simple: what does the contract say and what records do you have available? The answer to those questions will determine the methodology you will use.

At the beginning of a project, it is quite straightforward: Impacted as Planned. You can’t start the work, so the whole programme shifts.

Midway through a project, a window form of analysis records actual data. The SCL will give you a list of records that should be available for the different types of methods.

Question 5

Question: (Part two) What happens when the parties cannot agree on a revised programme?

Answer: If the parties can’t agree on logic, then the Contractor’s construction methodology should win the argument if it’s sound. If it’s down to duration of activities, then the Contractor’s productivity rate to show that quantity can be produced by that many men in that duration, that should win that argument.

If one party doesn’t agree because they don’t like the sequence, FIDIC and the SCL both state that it is up to the Contractor to produce his programme to comply with the contract. As long as he complies with the contract, the programme should be accepted.

Under FIDIC 1999 8.3 (Programme), the Engineer should reply within 21 days with a Notice that the programme does not comply with the contract.

Question 6

Question: (Part three) Who owns the float in the programme?

Answer: Whoever uses it first. Float is a by-product of the programme logic.

Question 7

Question: Under the FIDIC contracts, can the Engineer reject a Contractor’s Notice? How should we respond if the Engineer does so?

Answer: The Engineer can’t reject something that the contract says you must send. He might disagree with the outcome of the Notice. The time for him to disagree is when you follow the Notice up with a claim. Remind the Engineer in writing of the clause in the contract which requires Notice to be given.

Question 8

Question: In case you’re working under a reimbursable contract and the contract days are already delayed, what is the entitlement under the force majeure event knowing that the contact entitles the Contractor to additional time and costs?

Answer: If you’re already delayed because of Contractor delays, the force majeure event won’t cover that period. You’ll be able to claim time for the force majeure, but not for the previous delay event. A delay analysis will determine the amount recoverable.

Question 9

Question: What happens if the Contractor did not give formal notice but stated in a formal letter that he intends to claim for time and additional costs incurred but with no references to the clauses provided in the Contract?

Answer: FIDIC 1999 doesn’t specify what a Notice should look like, other than it should be in writing, delivered to the addresses stated in the appendix to tender, and transmitted in the form stated in the appendix to tender. As long as you comply with that, it should constitute a Notice.

FIDIC 2017 is more stringent. It specifies what a Notice should look like and what information it should include, otherwise, it can’t be considered a Notice.

Question 10

Question: In the COVID-19 situation, is it necessary to issue a Notice for delay due to the pandemic during the disruption period, or can we issue the Notice when the total disruption period is over?

Answer: Most contracts oblige you to give Notice as soon as possible, not to wait. The 28-day allowance is actually to decide whether or not costs were incurred and a claim will be pursued. My advice is to submit your Notices in a timely fashion, in accordance with the contract and best practices.

Question 11

Question: Under FIDIC 1999, how do we deal with the indirect impact of coronavirus where the works have not stopped, but due to panic among the workers, efficiency is significantly reduced?

Answer: This is disruption. You will need to show what your production was before the panic started and compare this to after. You’ve got to have records to show the works you’ve carried out as planned and then show the variance after the panic began. The Measured Mile approach depends on accurate record-keeping.

Question 12

Question: According to FIDIC 1999, Sub-clause 20.1 (Contractor’s Claims), notice shall be given within 28 days and detailed claims within 42 days. What happens if the Contractor delays the detailed submission of claim for more than 42 days?

Answer: FIDIC is very specific about Conditions Precedent: if you don’t submit your Notice of entitlement to claim within 28 days, you can’t have anything. However, it doesn’t make the same requirement for the submission of claims. That being said, our advice is always not to wait to submit your claims. if you can’t submit within 42 days, at least submit within a reasonable period of time.

Question 13

Question: Is it acceptable to use a meeting minute to prove that a Contractor has notified the Employer?

Answer: If it’s in writing and has been given to the Employer and Engineer, it can be argued as being a Notice, but it is bad practice. Sending a compliant Notice is not very time-consuming, so just do it.

Question 14

Question: Is Clause 20.1 (Contractor’s Claims) a procedure that has to be applied to any claim application by the Contractor, such as for a Variation Extension of Time?

Answer: A claim is just asking for what you are entitled to and evaluating the amount that you are entitled to, in terms of number of days Extension of Time or amount of money. If you’re not getting paid for a Variation, because the Engineer doesn’t agree with it being a Variation, the only way you can pursue that is to submit a claim. That claim should include all of your arguments as to why it should be a Variation.

Question 15

Question: In a Clause 19 (Force Majeure) event, is it acceptable to issue Notice as per 19.2, 19.4, 8.4, and 20.1 in the same letter?

Answer: Yes, if one or more clause is relevant, put them all in there.

The questions covered in this blog were answered by ICCP Executive Officer and Fellow, Andy Hewitt

If you would like to learn more about claims, check out our training partner, Claims Class.

Enjoying the ICCP's articles? Why not sign up to our mailing list and receive new articles straight into your mailbox. Or, want access to a library of members-only content on contracts and claims, check out our Membership page and join the ICCP community today.


Q&A: Delays, Extension of Time, and Force Majeure

The following questions, related to contractual issues arising from COVID-19, were posed at the end of our first Construction Clinic held in April 2020. The entire webinar may be viewed on-demand on YouTube. In the webinar, these questions are preceded by a brief presentation on the general Notice requirements that exist regardless of the form of contract.

Question 1

Question: Does the Contractor have any duty or obligation to mitigate delays and costs and, if so, to what extent? (related to FIDIC Red Book 1999).

Answer: FIDIC doesn’t give any explicit obligations to the Contractor to mitigate. However, in most jurisdictions, it’s an implicit requirement that both parties work together proactively for the benefit of each other. So there is an implicit obligation to do what you can to mitigate the circumstances.

The SCL protocol goes further than this and actually says that mitigation should take place but not to the extent that the Contractor should incur additional costs or mobilise additional resources.

Question 2

Question: Should the Engineer instruct the Contractor to carry out mitigation measures if the Contractor is not doing so?

Answer: If I were to put my Employer-side Project Manager hat on, I would be very, very careful about giving the Contractor an instruction to do so, because that could be termed as a Variation. The Contractor could then come back with a claim for the Variation.

Question 3

Question: In addition to claiming an Extension of Time under 8.4, should the Contractor issue Notice of Claim under Sub-Clause 13.7 (Adjustment for Changes in Legislation)?

Answer: I’ve had this question before. Clause 13 deals with Variations, and 13.7 deals with adjustments for changes in legislation that would affect the design or the construction of the works. For example, if the building regulations changed to require something more expensive before the building can be completed and signed off by the local authority that would be a change in legislation that would lead to a Variation. Is it then an argument that does that Variation entitle you to an Extension of Time? Well, this is not really relevant to coronavirus.

Question 4

Question: Under Sub-Clause 19.2, should we give a Notice of force majeure?

Answer: The jury is still out under FIDIC if the coronavirus actually qualifies as a force majeure event. My pendulum is swinging both ways. First of all, FIDIC has five conditions that have to be satisfied, which it does, but then it goes on to qualify “of the type listed” and goes on to name events such as war, volcanoes, etc. etc. My initial thoughts were, it’s not of the type listed, but doing a little bit more research, FIDIC are saying in their User’s Guide that it does not have to be of the type listed. I need to do a bit more research, but my pendulum is now swinging a bit more the other way.

I’m also in the middle of looking at various statements and papers put out by lawyers and trying to get a handle on what they think of the legal application of force majeure. If you think it might qualify as a force majeure event, go ahead and submit a Notice.

If you submit a Notice, there’s nothing wrong with then going back and saying the events being delayed weren’t on the critical path; we won’t be pursuing a claim.

Question 5

Question: At what point should the Engineer consider Sub-Clause 8.8 (Suspension of Work)?

Answer: With the virus, projects could be on lockdown or on delay for whatever reason. If we consider it a force majeure event, possibly the Contractor might be wanting to claim his costs for prolongation. If it’s not a force majeure event, possibly the Contractor won’t be entitled to claim for costs. I think the Engineer and the Employer have got to sit down and think about at what point it is better to instruct the Contractor to suspend and possibly pay for demobilisation and remobilisation costs.

Really what I want to advise everybody: this is an extraordinary occurrence. It’s going to affect everybody. We can’t apportion blame to any party. So, one of the things I want to encourage everybody to do is to start a meaningful dialogue. Sit down with the Engineer, the Contractor, and the Employer, and try to work out what is best for each other and what is best for the project. Pulling out the contract and submitting claims at this point could make a bad situation worse.

The questions covered in this blog were answered by ICCP Executive Officer and Fellow, Andy Hewitt

If you would like to learn more about claims, check out our training partner, Claims Class.

Enjoying the ICCP's articles? Why not sign up to our mailing list and receive new articles straight into your mailbox. Or, want access to a library of members-only content on contracts and claims, check out our Membership page and join the ICCP community today.


How to Manage and Minimise the Submission of Spurious Claims

One of our blog readers asked for some suggestions as to how to effectively manage and minimise the submission of spurious contractor’s claims, which I thought would make an interesting subject for other readers, as well.

Consultants need to spend a lot of time and effort to manage and respond to contractor’s claims, so to avoid wasted effort, it is worth making sure that this time and effort is devoted to justifiable claims and is not wasted on reviewing and responding to claims for which the contractor has no entitlement, or to those that have not been submitted in an appropriate manner to enable a proper review and response to be made.

It must be remembered that the onus is on the claimant to prove the case and even though most contracts require the consultant to be fair and reasonable when responding to claims, this obligation does not extend to proving the contractor’s claim on the contractor’s behalf.

Most forms of construction contract support this obligation and require the contractor to submit a formal claim for additional time and/or payment. By way of illustration, FIDIC has this to say under Sub-Clause 20.1 (Contractor’s Claims): ‘Within 42 days after the Contractor became aware … of the event or circumstance giving rise to the claim …, the Contractor shall send to the Engineer a fully detailed claim which includes full supporting particulars of the basis of the claim and of the extension of time and/or additional payment claimed’ (emphasis added).

In my view, FIDIC is weak in this direction, as it does not make any attempt to define what comprises ‘a fully detailed claim which includes full supporting particulars of the basis of the claim and of the extension of time and/or additional payment claimed’, but in accordance with good professional practice, the Contractor must ensure that his claim adequately demonstrates he is entitled to an award by:

  1. Demonstrating the cause, i.e. the event that gave rise to the claim;
  2. Explaining and demonstrating the effect on the time for completion, his costs or the contract price;
  3. Ensuring a demonstrable cause and effect exists; for example, that that the delay actually affected the time for completion and by how much;
  4. Demonstrating that claims for additional payment for varied work have been calculated correctly;
  5. Demonstrating that claims for costs are based on actual costs incurred as a result of the event and have been calculated correctly;
  6. Demonstrating that the contract provides entitlement to an award for the event in question;
  7. Demonstrating that he has complied with any conditions precedent contained in the contract;
  8. Substantiating every statement made or fact relied upon in the claim for verification purposes;
  9. Ensuring that the claim submission is a stand-alone document with everything necessary for the respondent to properly examine the matter and make an award.

One would expect that contractors would know all this because it is just a case of good practice, but when inadequately expressed claims have been a leading cause of disputes for many years, clearly, they don't.

So, how can you, as a consultant or employer, ensure that your contractors comply with these principles and how will this help to prevent the contractor from submitting spurious claims and wasting your time?

Firstly, you could include in your contract conditions specific requirements for claim submissions along the line of the above suggestions and make this a condition precedent to an award. This, of course, would only work on new projects and could not be introduced into existing contracts.

One method I have used very successfully is to meet with the Contractor at the beginning of the project and explain exactly what I consider to be 'a fully detailed claim which includes full supporting particulars of the basis of the claim and of the extension of time and/or additional payment claimed’. Again, this could comprise the above suggestions and the contract will support you in this. At this point, you should advise the Contractor that these particulars are necessary to enable you to carry out your obligations and to make an award in a timely manner. You should also advise that any claims which do not comply with these requirements will be rejected on the basis that the claim does not adequately prove that an award may be made. Once you have persuaded the Contractor to ‘buy-in’ to this, both the agreement and the requirements for claim submissions should be recorded.

If the Contractor follows the guidelines, he must investigate the matters fully rather than adopting the tactic of ‘throwing everything at the wall in the hope that some of it sticks’. If his claim is not a just one, he will, during this process, realise that it’s not worth the effort of preparing and submitting a claim for which he has no entitlement. If he does, however, decide to submit a claim that is not in compliance with the agreement, you will be justified in responding by pointing out areas of non-compliance and advising that. consequently, the claim does not prove that an award is justifiable.

If you consider that the matter may carry entitlement and it is only the claim itself that is inadequately expressed, I would stop short at formally rejecting the claim, because having received the response, the Contractor may well resubmit with a more-detailed claim. You must remember here that, if the Contractor is properly entitled and his claim eventually demonstrates this, you will be obligated to make an award.

I hope this helps any consultants who are tasked with responding to claims.

This blog was written by ICCP Executive Officer and Fellow, Andy Hewitt

If you would like to learn more about claims, check out our training partner, Claims Class.

Enjoying the ICCP's articles? Why not sign up to our mailing list and receive new articles straight into your mailbox. Or, want access to a library of members-only content on contracts and claims, check out our Membership page and join the ICCP community today.


How to Ensure You Avoid Costly and Time-Consuming Disputes on your Projects

In this post, I'll look at ARCADIS' annual Global Construction Disputes Report 2019, as it makes interesting, but, not altogether surprising reading.

For the time period covered in the report, the top three reasons for disputes are:

1. ‘Owner/Contractor/Subcontractor failing to understand and/or comply with its contractual obligations;

2. Errors and/or omissions in the contract document;

3. Failure to properly administer the contract.

Some other interesting noteworthy observations are:

1. ‘Human factors and misunderstanding of contractual obligations continue to be a primary cause of disputes’;

2. ‘With more project participants, it is essential for those involved to understand the contract, their role in the project and how to work with the team’;

3. ARCADIS suggest that ‘at least three building blocks are needed for successful dispute avoidance and resolution: (1) contractual mechanisms whereby risks are identified early and parties are obliged to consider how to address them; (2) appropriate training of staff on the specifics of the contract and ongoing specialist technical support, including legal support, throughout the execution of the contract; (3) a readily available contractual dispute avoidance mechanism in the form of a Dispute Avoidance Panel or a DAAB as under the 2017 FIDIC suite of contracts;’

4. The average value of disputes is $33M;

5. The average length of a dispute is 17 months.

Let's take a moment to think about what this damning report is telling us. If the average value of a dispute is $33M, then the average project value where disputes occur must be several times that figure, so probably $1B plus. Given these huge project values, why is it that the industry manages and administers such projects with people who obviously do not understand the obligations, rights, and remedies contained in the contracts upon which the projects are based? Yes, I say people and not companies, because ultimately, it is individuals who manage and administer the projects and make the decisions.

You may think that employing suitably qualified and experienced people on your project is expensive, but let’s take a moment to consider the cost of employing incompetent people on or our projects.

At a recent FIDIC conference, it was reported that the cost of arbitration is between $150,000 and $200,000 per day of arbitration and could be 10-15% of the project value. Given that, on average, arbitration proceedings could be around 10 days, we have a cost of $2M just to settle the dispute. I would suggest that suitably competent, qualified, and experienced professionals could be employed on the project for a small fraction of that amount and this, according to ARCADIS, would prevent disputes occurring in the first place.

Let’s look at another major reason for disputes (and the No. 1 reason in the Middle East), namely ‘Poorly drafted or incomplete and unsubstantiated claims’. If any of the global top three occur, inevitably, it will result in a claim, so ARCADIS is saying here that when we have a claim situation, we don’t even know how to go about claiming for our entitlement in the correct way. I would suggest that the reasons for this are the same as for the global top three, i.e. the lack of suitably qualified and experienced people on the project. In other words, we are making a bad situation worse.

I usually refrain from advertising on these blogs, but ARCADIS’ suggestion that the players provide ‘appropriate training of staff on the specifics of the contract’ means that I am going to make an exception.

The ICCP works to improve the standard of the construction claims profession. We provide regular educational webinars for CPD. Our Member Area also includes a template library full of templates and accompanying guidance documents to assist our members in their claims.

Our training partner, Claims Class, provide training to companies to help them avoid each and every one of the main reasons for disputes as reported by ARCADIS. Training to individuals is also available to help them acquire the knowledge and skills required to turn them into the type of construction professionals that will become a valuable asset to their employers by giving them the skill sets to understand and manage contracts and claims in an appropriate manner to avoid disputes.

This blog was written by ICCP Executive Officer and Fellow, Andy Hewitt

If you would like to learn more about claims, check out our training partner, Claims Class.

Enjoying the ICCP's articles? Why not sign up to our mailing list and receive new articles straight into your mailbox. Or, want access to a library of members-only content on contracts and claims, check out our Membership page and join the ICCP community today.


The Engineer’s Responses and Determinations: What Should be Included?

Following a CPD talk to RICS members in Dubai on the topic of Engineer’s Responses and Disputes, attendees were polled by show of hands on the following questions:

How many attendees have experienced a situation where the Engineer does not respond to a claim within the contractual time-frame?

Almost everyone confirmed that they had.

How many attendees have experienced a situation where the Engineer’s response has done little to resolve the claim?

Again, almost everyone confirmed that they had.

How many attendees have experienced a situation where the Engineer’s response has caused the matter to be escalated to a dispute?

Over 50% of attendees confirmed that they had experienced this situation.

How many attendees think that failures of the Engineer to carry out their contractual obligations with respect to claims is helpful to projects?

No one thought that this helped projects.

This is clear feedback from RICS members that the Engineers often do not perform their obligations and that this has a detrimental effect on projects.

So, what should Engineers be doing to help projects when responding to claims?

Well, as usual, the contract provides the answers, so let’s have a look at what the FIDIC Red Book has to say on the subject.

FIDIC Sub-Clause 20.1 (Contractor’s Claims) requires the Engineer to respond within 42 days of receipt of the claim. The response may be acceptance in full, rejection, or, presumably, acceptance but with reduced quantum. If the claim does not contain sufficient information for the Engineer to reach a conclusion, the Engineer may request further particulars. If requesting further particulars, however, the Engineer is obliged to respond to the principles of the claim. If rejecting (or reducing the quantum), the response shall contain ‘detailed comments’.

FIDIC Sub-Clause 1.3 (Communications) states that ‘Approvals, certificates, consents and determinations shall not be unreasonably withheld or delayed.’ This obligation reinforces the provisions of Sub-Clause 20.1 (Contractor’s Claims) to respond within 42 days.

Why does FIDIC place such importance on the response time?

  • A response establishes a revised Time for Completion (or not).
  • A response prevents the deduction of delay penalties (or not).
  • A response allows the Contractor to be paid for Costs legitimately incurred.
  • A response allows the Contractor to be paid for work carried out which is the subject of a claim.
  • A response reduces disputes.
  • This all promotes goodwill and cooperation.

Sub-Clause 3.5 (Determinations) provides that the Engineer shall consult with each Party and that the Engineer shall endeavour to reach an agreement. If agreement is not achieved, the Engineer is obliged to make a fair determination in accordance with the Contract, taking due regard of all relevant circumstances. In either case, the Engineer is obliged to give notice to both Parties with supporting particulars.

FIDIC Sub-Clause 3.1 (Engineer’s Duty and Authority) states that ‘whenever carrying out duties … specified in … the Contract, the Engineer shall be deemed to act for the Employer’. Does this mean that the Engineer is obliged to defend the Employer’s position by not making ‘a fair determination in accordance with the Contract, taking due regard of all relevant circumstances’? I think not, and neither did the RICS attendees.

So, what should be included in an Engineer’s Response or Determination in order to comply with the Contract?

Sub-Clause 20.1 (Contractor’s Claims) directs the Engineer to: . . . respond with approval, or with disapproval and detailed comments. He may also request any necessary further particulars, but shall nevertheless give his response on the principles of the claim . . .’. Under Sub-Cause 3.5 (Determinations), the Engineer is obliged to 'make a fair determination in accordance with the Contract, taking due regard of all relevant circumstances'.

The Engineer, therefore, has an implicit obligation to demonstrate to both the Employer and the Contractor that the response or determination is fair and reasonable and in accordance with the Contract and that if either party chooses to raise the matter to a dispute, they will ultimately fail. The Engineer’s response must therefore be a comprehensive document which sets out the findings clearly and includes the same criteria as a claim:

  • Examination of the cause.
  • Examination of the effect and linkage to the cause.
  • Examination of the final effect on the Time for Completion with explanations.
  • Calculations of the additional payment with explanations.
  • Examination of the contractual entitlement.
  • Substantiation of all the above.

The above information helped the attendees to better understand the Engineer’s obligations and provided useful and practical advice as to how these may be performed so as to comply with the contract. Hopefully, it will help our readers, as well.

This blog was written by ICCP Executive Officer and Fellow, Andy Hewitt

If you would like to learn more about claims, check out our training partner, Claims Class.

Enjoying the ICCP's articles? Why not sign up to our mailing list and receive new articles straight into your mailbox. Or, want access to a library of members-only content on contracts and claims, check out our Membership page and join the ICCP community today.