Types of Claims Q&A

In 2019, the ICCP's training partner, Claims Class, presented a series of monthly webinars on claims for the CIOB, based on the Construction Claims e-courses.* There were a good number of attendees. At the end of each webinar, participants were invited to ask questions. If time ran short during the webinar, attendees each received a collection of written responses to any questions which could not be covered in the allotted time. Hopefully, this will provide some useful insight to readers of our blogs. The following are questions and answers from the webinar on Types of Claim.

This is a follow-up to the previous post, Contract Administration for Claims.

Question 1

Question: Under the FIDIC suite of contracts (1999 edition) could you please advise what options the contractor has in case of force majeure conditions (i.e. Arab Spring in North Africa) if they continue to incur charges for the project. For instance, should the contractor continue to pay for renewing his Advance Payment guarantee and performance bond that are obtained from a Local Bank?

Please consider that the Contractor cannot perform his duties under contract in concern due to the status quo in the country. Based on this, you are kindly requested to comment on the following:

  • Does this situation provide enough grounds to submit a claim?
  • If yes, could this case be considered as Owner's risk?
  • If the Contractor is in a position to submit a claim, what would be your recommendation to the Contractor to put into the body of the claim as a supporting document?

Answer: If the Contractor is prevented from performing his duties because of events such as those associated with the Arab Spring, then this would qualify as a force majeure event under the provisions of Sub-Clause 19.1 (Definition of Force Majeure). Sub-Clause 19.4 (Consequences of Force Majeure) allows the Contractor to claim for Cost incurred. If the Contract has not been terminated, the Contractor is obliged to continue to provide the guarantees and bonds, so the costs of doing so may be claimed.

The situation would probably provide sufficient grounds to claim for an extension of time and the recovery of any Cost incurred.

FIDIC provides entitlement to the Contractor to claim, so yes, this would be an owner’s risk. As far as the compilation of a claim is concerned, it is difficult to advise you in sufficient detail in this forum, but we will be discussing this in forthcoming webinars.

Question 2

Question: If you experience concurrent delay are you entitled to prolongation costs?

Answer: The general principle is that if a concurrent delay occurs, the Contractor is entitled to time but not prolongation costs. This is based upon the principle that had the Contractor not caused delay, the project would have been delayed anyway because of the Employer risk events, so delay damages may not be applied. The Contractor, however, may not benefit from his own mistakes so may, therefore, not recoup costs when he has also contributed to the delay.

Question 3

Question: Can we refer to UK common law in the GCC, especially in the case of concurrency?

Answer: The Contract should state the applicable law to which it is subject. The GCC countries are based on civil law, so UK law would generally not be applicable.

Having said that, case law may sometimes be applied across legal jurisdictions, especially when it deals with technical, rather than legal, principles. A good source of reference which may be used to justify claims and technical matters contained therein is the Society of Construction Law’s Delay and Disruption Protocol, which deals with concurrent delay.

Question 4

Question: What is a global claim?

Answer: A global claim usually occurs when the contractor has not performed his obligations to submit claims for each delay event and panics at the end of the project when he realises that he will not complete on time and will soon have delay penalties imposed. Basically, in this situation, the Contractor cites all delay events that have occurred and attempts to claim an extension of time for the completion date that he achieved. In other words, the Contractor is saying that ‘all these delays occurred so we are entitled to an extension of time to when we finished the project’.

This is not a good strategy for several reasons. First, contracts usually require claims to be submitted within a strict time frame. Second, in order to prove an extension of time is warranted, it is necessary to link the cause with the effect. In other words, it must be demonstrated that each particular delay event had a direct effect on the Time for Completion. This is the reason that arbitrators and the courts will seldom favour the Contractor if his submits a global claim.

Question 5

Note: this is a comment rather than a question. It has been included here for the presenter’s response/comment.

Comment: Changes in Legislation is an Adjustment pursuant to Sub-Clause 13.6 of the FIDIC conditions, i.e. it is a Variation/Adjustment but not a Claim as presented in this webinar. As a thorough contract professional, I can confirm that there is a lot of difference between the terms "Variation/Adjustment" and "Claim". Please let me add, we do not have claims for variations. "Variation" is Clause 13 of the FIDIC conditions, whereas "Claim" is Clause 20. Both are completely different.

Answer: As mentioned in the webinar, ‘A claim is an assertion of a party’s right under the terms of a contract or at law’. If a Variation or other adjustment to the Contract Price are paid for without having to assert such a right, then that is fine and is actually how it should be under FIDIC, but if the Engineer does not do so, then it will be necessary to ‘ask’ for payment. It may be just semantics, but in my view, ‘asking’ for something is the same as making a claim for something.

Question 6

Question: Can the Contractor claim for opportunity cost? By this, I mean that the Contractor could miss taking another potential project using his resources had he not been delayed by the employer of the current project owing to his resources being blocked for more than he had foreseen. Does the Contractor have to prove this? Thanks.

Answer: Generally, yes and this would typically be calculated as part of a prolongation cost claim by using one of the recognised formulas for calculating head office overheads and profit such as Emden, Eichleay, or Hudson’s.

Question 7

Question: Thank you Andy for your wonderful presentation. Where can we buy your book in Qatar?

Answer: I am glad you enjoyed it. My book can be bought online via Wiley-Blackwell and Amazon (UK) and delivered to Qatar. Direct links can also be found on our Member Area Bookshop page.

Question 8

Question: Regarding Notice, can a delay event which was not formally notified but later turns out to be a critical delay event be considered for EoT claim. The Engineer was made aware of the delay in progress meetings along with many other various delay events in a construction project.

Answer: According to Sub-Clause 20.1 (Contractor’s Claims) of FIDIC, if a delay event leading to a claim is not notified within 28 days for the event then ‘the Time for Completion shall not be extended, the Contractor shall not be entitled to additional payment, and the Employer shall be discharged from all liability in connection with the claim.’ This is very clear and Contractors should ignore it at their peril.

Giving and recording advice to the Engineer in meetings does not satisfy FIDIC’s requirements for the submission of notices as set out in Sub-Clause 1.3 (Communications) so this cannot be regarded as a notice.

Depending on the circumstances, there may be situations under civil law jurisdictions whereby an argument may be put forward to defend against a time bar such as this, but my recommendation to contractors is always to submit formal notices that are required by the Contract and submit them in the way prescribed in the Contract. This will avoid you having to employ specialists to help get you out of the hole that you have dug yourselves into by disregarding your obligations.

Question 9

Question: Our Contractor is claiming for road tax increases on material suppliers affecting concrete supply costs. Our view is, this is a rate increase which is a Contractor’s risk but the Contractor claims a change in legislation is an Employer risk. What’s your view?

Answer: If the causation is the increase in road tax, then this would fall under change in legislation, so in my opinion, this would be a claimable cost. However, from the point of view of the Engineer, I would only be prepared to pay for cost incurred as a direct result of the road tax increase on the basis of:
Annual increase in tax/ number of working days per truck per year/ number of deliveries per day per truck x each delivery to the project.

On this basis, I would doubt that the amount claimable would amount to very much and am somewhat surprised that the Contractor would make such a claim unless he is attempting to incorrectly pass on supplier increases under the guise of the increased tax.

Question 10

Question: How do we deal with client-nominated Contractor’s delay? And what is the procedure for claiming delays due to client-nominated Contractors?

Answer: It would depend on the contract and how it allocates delays caused by nominated subcontractors. Sub-Clause 5.2 (Objection to Nomination) of the FIDIC Red Book allows the Contractor to object to a nomination at the time of nomination. FIDIC is somewhat grey about the situation where the Contractor has not objected and a nominated subcontractor delays the project, but I think a reasonable interpretation is to look at Sub-Clause 4.4 (Subcontractors), which states that: ‘The Contractor shall be responsible for the acts or defaults of any Subcontractor, his agents or employees, as if they were the acts or defaults of the Contractor.’ This does not exclude nominated subcontractors, so would not allow the Contractor to claim against the Employer. The correct recourse would be to claim against the subcontractor for losses or costs incurred due to the subcontractor’s delay.

Question 11

Question: If a recovery schedule is submitted by the Contractor to recover the delay in the project for a particular data date and after the data date there was a delay in the schedule caused by the Employer, will the recovery or baseline be used for the time impact analysis?

Answer: Presumably the recovery programme would include all delays that have occurred and extensions of time that have been awarded and would have been agreed as a revised programme. In such a case, the Contractor’s original programme (or baseline) would no longer be relevant and the recovery programme would be the programme against which to measure the effect of any further Employer delays.

Question 12

Question: Conditions of the contract say the value of the Advance Payment Bond shall be reduced by the amount of the Advance Payment recovered under Sub-clause which regards issue of Interim Certificates. What is the timeline for the reduction of advance payment bond based on this condition of contract? Follow up question, the above-referred sub-clause regarding interim payment, does it mean that this reduction should happen every month? What is your opinion on this matter?

Answer: The value of the advance payment steadily reduces as the advance is repaid through the interim payments. The timeline for full recovery depends on the conditions of contract-- maybe it is calculated based on a specific time, or possibly as a percentage of the value of work executed over a period of time.

It would be worth checking the terms of payment with the bond provider to see if premiums may be reduced as the amount of the advance reduces, but whilst I am not an expert on this subject, it is probable that the premiums will have been calculated based on the reduction of liability as the project progresses.

Question 13

Question: What are the limitations of the term defined as ‘experienced contractor’?

Answer: This is almost impossible to define and will therefore always be the subject of debate, particularly when time or money is involved.

Question 14

Question: Please elaborate on prolongation claims.

Answer: Claims for prolongation costs are where the contractor claims for time-related costs incurred as a result of an extension of time and will include for such things as site management and administration, non-productive personnel, site establishment, non-productive plant and equipment, transport, insurances, bonds and head office overheads.

*The 2020 series of webinar modules is currently underway. CIOB - Understanding Claims Under the FIDIC Contracts, Module 4 is scheduled for 12-13:30 on 14 December.

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.

Contract Administration for Claims

In 2019, the ICCP's training partner, Claims Class, presented a series of monthly webinars on claims for the CIOB, based on the Construction Claims courses.* There were a good number of attendees. At the end of the webinar, attendees were invited to ask questions. All attendees received written answers to the questions that could not be answered during the webinar's allotted time. The following are questions and answers from the webinar on Contract Administration for Claims. Hopefully, this will provide some useful insight to our readers.

Question 1

Question: Would it constitute a claim event if the Engineer, within a reasonable time-frame (3 months), fails to review and respond (approve/disapprove or comment) to a Variation for additional cost and time submitted pursuant to an Engineer’s Instruction and after the Contractor implementing the change at site?

Answer: You have not explained what it is that you have submitted, so I am going to assume that this consists of an evaluation of the additional payment and extra time required due to the instruction. I am also going to assume that this is a lump sum contract.

Whilst you may not have named it as such, effectively this is already a claim for an extension of time and an adjustment to the contract price. It would have helped if you had submitted the evaluation as a formal claim because in that case, the Engineer has an obligation to respond within the time-frame included in the Contract.

Question 2

Question: The variation's first approval is mainly for the cost impact, and it is clearly informed that the contractor will submit a separate claim for the time impact. In that case, when submitting the updated program to the Client/Employer do we need to show the time impact of the said variations though the EOT is not yet assessed by the Engineer?

Answer: If you have submitted a claim for an extension of time, it would be sensible to include any projected delays within your updates. This will show that the completion date has been affected by the delay event and put the Engineer under pressure to respond to the extension of time claim and to formally set a revised completion date.

Question 3

Question: I would like to know about the time-barring factor for claim notice. As per the contract, the Contractor is required to provide notice to the Employer within the stipulated time for claim. Is the Contractor entitled, if he has not provided the notice on time?

Answer: We will deal with notices in detail on an upcoming module, but on strict contractual grounds if submission of the notices is a condition precedent to entitlement, failure to do so will remove any entitlement to make a claim (if your contract is FIDIC, refer to Sub-Clause 20.1).

There may be legal arguments to counter this in civil law jurisdictions, but this is not always a certainty. My advice is to always comply with the notice requirements contained in the Contract.

Question 4

Question: Are there any golden rules for subcontractors submitting claims against main contractors?

Answer: We will deal with claim submissions in upcoming modules, but everything that applies to a contractor submitting a claim to an employer will apply equally to a subcontractor claiming from a contractor.

Question 5

Question: If the Contractor submits a programme update which is commented on by the Engineer, can the programme update be used by the Contractor as part of a claim, or would the Contractor have to use a revised programme update in his claim?

Answer: It depends on the reasons for the Engineer’s comments. For example, if the comments were related to inaccuracies in the update, it would be better to correct the update and resubmit it so that an accurate and agreed record exists. If the Engineer’s comments were not valid, I would record your disagreement and state the reasons. It would however be proactive if both parties discussed the matter and agreed on the update contemporaneously because this would avoid any future contentions if it was subsequently used in a claim.

If you need to include an update that has not been agreed within your claim, you would need to explain exactly why you consider it to be a true record within the claim.

Question 6

Question: In practical terms, how does the signing of the contract documents take place? i.e. as good practice, which party should initially collate the tender documents for signature by both?

Answer: I would like to reiterate what I said in the webinar – the tender documents are not the contract documents. The contract documents should contain any changes and amendments that occurred during the tender and negotiation periods.

There is no contractual requirement (in FIDIC at least) for preparation and signature, but in practice, it is usually the Engineer who collates the contract documents and arranges for signature by both parties. If the Contactor notices any errors, conflicts, or ambiguities within the documents when they are issued for signature, it is at this stage that he should draw them to the attention of the Employer and Engineer and request that they be resolved.

Question 7

Question: Whilst off-topic, do retrospective and prospective analyses for EOT claim give two different answers?

Answer: Yes, this It is likely because a prospective delay analysis will be based on best estimates and a retrospective delay analysis will be based on actuals. An example of a prospective analysis would be where a delay is associated with a delivery of a piece of equipment or the like for which a delivery date has not been finalised.

This is why FIDIC requires contractors to submit interim claims until such time as the final effect may be ascertained.

Question 8

Question: How often is the contra proferentem rule term referred to in claims?

Answer: Osborn’s Concise Law Dictionary offers the following definition of “contra proferentem”: ‘The doctrine that the construction least favourable to the person putting forwards an instrument should be adopted against him’, where “instrument” is defined as ‘A formal legal document in writing’. Simply put, this means that the drafter of the document had every chance produce a clear and unambiguous document and if any mistakes, ambiguities, or conflicts exist in the document, they must be interpreted in the favour of the other party. This is often used in claims where conflict or ambiguity exists in the contract documents.

Question 9

Question: FIDIC 1987 requires the Engineer to provide his consent to the Contractor's Baseline program submitted under Clause 14. What is the difference between 'consent' and 'approval'?

Answer: It has been held in several legal cases that “consent”, “approval”, “no objection” and the like all have the same meaning. Any attempts by engineers to try to absolve themselves of any responsibility by using non-specific wording, are therefore fruitless. Be aware, however, that many forms of contract contain provisions to the effect that approval or consent, etc. does not absolve the contractor from performing his contractual obligations.

Question 10

Question: If the contractor couldn't meet up with the submission of the program with the specific date as mentioned in the contract, and there are some activities that have elapsed in the program during the submission, should those activities be adjusted to reflect the true site condition?

Answer: The initial (baseline) programme should reflect the intentions of the parties at the time that the contract was entered into, even if it is prepared several weeks after commencement. It should therefore not contain any post-contract events.

If events have occurred post-contract, then these should be captured in a revised programme once the baseline has been agreed.

Question 11

Question: Would e-mail correspondence and Minutes of Meetings (MOM) be regarded as contractual documents? My concern is that many Engineers tend to reject MOM as evidence for claims.

Answer: Neither are contract documents. Such documents however are contemporaneous records that could be used in substantiation of a claim. If the minutes of meetings have been accepted as being contemporaneously accurate, there is no reason for them not to be used in support of a claim and it would be unreasonable for the Engineer to argue otherwise.

Question 12

Question: Is there a maximum timeline where the baseline programme needs to be approved? Which programme in the meanwhile would the contractor use for his EOT claim?

Answer: FIDIC (1999) says that the Contractor should submit his programme within 28 days and allows the Engineer to give notice if it does not comply with the Contract. If no notice is given within 21 days, the Contractor shall proceed in accordance with the programme. Consequently, if no notice is given, the programme would be a suitable programme on which to base a claim.

Proactive contract administration would be to write to the Engineer after the 21-day period had expired to confirm that as no notice has been given, you are proceeding in accordance with the submitted programme.

Question 13

Question: Can a claim be rejected if notices have not been issued?

Answer: Under many forms of contract, yes. FIDIC, for example, makes the submission of notices a condition precedent to entitlement. Failure to submit notices is one of the most common errors that contractors make and may be fatal to any claims.

I will repeat what I said in answer to a previous question. Contractors should always submit notices that are required by the Contract.

Question 14

Question: Since Minutes of Meeting is acceptable for substantiation, what do we do in a case where the parties argued with the conclusion of such a meeting? For example, the main subject matter expert was not present in the meeting and later disagreed with the minutes' conclusion.

Answer: If the contents of the minutes were recorded as being inaccurate, then they could not be used to substantiate a particular point. Good contract administration would include a statement at the end of the minutes to require any disagreement with the minutes to be sent in writing within a certain period otherwise the minutes would be regarded as a true record. If comments are received, then the minutes should be reissued in a case a correction was necessary and agreed. Alternatively, the disagreement should be recorded.

Question 15

Question: Can we fix a logic that makes no sense in the baseline but can be fixed later during progress of work?

Answer: Yes, you can. Common sense says that errors should be corrected. The error should however be drawn to the attention of the Engineer and the correction agreed and recorded to avoid any future conflicts or misunderstanding. Problems occur when contractors don't admit to their mistakes and try to change things without advising the Engineer.

*The 2020 series of webinar modules is currently underway. CIOB - Understanding Claims Under the FIDIC Contracts, Module 3 is scheduled for 9am GMT on 9 November.

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 That a Dispute Adjudication Board is Formed Correctly

A blog subscriber recently asked how to set up and organise a Dispute Adjudication Board (DAB) and particularly what may be done when one of the parties refuses to agree to the appointment of the DAB in order to frustrate the dispute procedure. The following advice is related to the FIDIC contracts but may be equally applied to other forms of contract that have dispute board or adjudication provisions.

A proactive action would be to include a list of several potential DAB members in the Contract. If the list has been prequalified in terms of qualifications and experience, particularly for the type of project being undertaken, then agreement of the board members should be straightforward.

The Contract should state the time frame for the appointment of the DAB. FIDIC provides that the date should be stated in the Appendix to Tender. Contractors would be well advised to check that a reasonable date is included therein.

If no list of potential DAB members is included in the Contract, FIDIC offers the following directions: ‘each Party shall nominate one member for the approval of the other Party. The Parties shall consult both these members and shall agree upon the third member, who shall be appointed to act as chairman.’

My suggestion: each party nominate more than one member in case the other party has an objection or in case the nominated member has a conflict of interest or is unavailable. When selecting potential members for nomination, it is not enough to select someone experienced in adjudication. It is very important to ensure that the person is properly experienced and qualified in terms of discipline and type of project.

Also consider the type of expertise required from the DAB as a whole. A good mix is to have the three members from engineering, quantum, contractual and legal backgrounds. In this way, they can all add value; there would probably be a gap if three people of the same discipline were appointed. When reviewing nominated members, selection should be undertaken in a spirit of agreement and cooperation between the parties with the intention of appointing the best board possible.

Impartiality is vital. FIDIC’s General Conditions of Dispute Adjudication Agreement contains the following obligation: ‘The Member warrants and agrees that he/she is and shall be impartial and independent … The Member shall promptly disclose ... any fact or circumstance which may appear inconsistent with his/her warranty and agreement of impartiality and independence.’

The Parties would be well advised to determine any potential conflicts of interest in the early stages of the process.

To return to the question posed by the blog reader, what happens when one of the parties is trying to wriggle out of the formation of the DAB? FIDIC deals with this under Sub-Clause 20.3 (Failure to Agree Dispute Adjudication Board), which provides that either party may request the ‘appointing entity or official named in the Appendix to Tender’ to make the appointment and that ‘This appointment shall be final and conclusive’.

For this to work, however, there must actually be an appointing entity or official named in the Appendix to Tender. If not, it is going to be a challenge to reach resolution.

It seems that our reader is a Contractor with a dispute and is facing an Employer who is reluctant to appoint the DAB because the Employer realises that a decision given by the DAB would go against him. Additionally, there was no list of DAB members, or an appointing entity included in the Contract. This is a common situation and my advice to contractors is: before signing any contract, always carefully check the whole contract for errors, omissions and conflicts. If any such thing exists, approach the Employer and request that it be corrected. Once the contract is signed, you will be stuck with it for better or worse, and it’s usually worse.

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.

Notices: Should a Contractor Submit if He is Not Sure Whether He Intends to Make a Claim?

A blog follower recently asked for advice on the correct interpretation of FIDIC Sub-Clause 20.1 (Contractor’s Claims) with regard to situations where the Contractor is not sure if he will submit a claim or not.

It’s not unusual for the Contractor to become aware of an event that may cause delay, the occurrence of additional Cost, or entitlement for additional payment. However, he may not be aware of the final effect of the event at the time that he becomes aware of the issue.

For example, perhaps a delay will end before it affects the Time for Completion or perhaps an instruction received will not constitute a variation which will change a lump sum contract or, possibly, the Contractor will just decide that the value of the claim will not justify the time and cost involved in preparing it.

The wording of the first part of this clause is as follows:

‘If the Contractor considers himself to be entitled to any extension of the Time for Completion and/or any additional payment, under any Clause of these Conditions or otherwise in connection with the Contract, the Contractor shall give notice to the Engineer, describing the event or circumstance giving rise to the claim. The notice shall be given as soon as practicable, and not later than 28 days after the Contractor became aware, or should have become aware, of the event or circumstance.’

Consequently, the Contractor is obliged to submit a notice within 28 days after he became aware of the event or circumstance. This may sound like a long time, but many contractors fail to meet this requirement. They may not have become aware of the event when they should have, or they may not have had enough time or resources to investigate the matter sufficiently enough to make a decision on whether a claim would be justified.

Paragraph 2 of Sub-Clause 20.1 goes on to explain the consequences of failing to give notice as follows:

‘If the Contractor fails to give notice of a claim within such period of 28 days, the Time for Completion shall not be extended, the Contractor shall not be entitled to additional payment, and the Employer shall be discharged from all liability in connection with the claim.’

So, if the Contractor does not submit a notice within 28 days, he loses all entitlement to make a claim. This may sound very harsh, but the notice provisions are included so that the Employer and Engineer are made aware of the Contractor’s intentions, so that mitigating actions or cost and time provisions may be made as soon as possible.

Failure then to submit a notice could be very costly for the Contractor. Some people say that time bars may not be applied in Civil Law jurisdictions and, in some cases, I agree with them. This is not a clear-cut matter; it takes a lot of time and effort to develop a case that justifies the Contract conditions are contrary to the law. It’s much less risky-- and certainly more cost-effective-- to just comply with the Contract.

My advice, therefore, is that Contractors should submit a notice of claim within 28 days, even if they are not sure at the time whether they will follow it up with a claim. It’s very easy to subsequently write to the Engineer to advise that having investigated the matter further, they will not be submitting a claim and the Contractor will not have made life difficult for himself if he does decide to pursue the matter.

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.

5 Tips For Success When Claiming for Variations

During CPD talks and training courses, I am often asked if it is necessary to submit claims for a variation. Unfortunately, I am going to have to give a lawyer’s answer to this and say it depends.

If the party responsible for administering the contract follows the procedure set out in most forms of contracts for instructing variations, then the answer is “no”. The variation has been acknowledged and it will either be measured and evaluated as part of the remeasurement (on a remeasureable contract) or as a separate evaluation leading to a change of the contract price of a lump sum contract.

We all know, however, that in many cases, consultants do not formally issue instructions for variations to the contract and often give instructions which are not acknowledged as being variations. Examples can often take the following forms:

  • Issue of revised drawings;
  • Comments on shop drawings which require changes to the contract drawings;
  • Comments on materials submittals which change the specification;
  • Instructions given during site meetings;
  • Verbal instructions given on-site as the work is being carried out.

Very often the above occur as a result of design errors or omissions. If, as is often the case, the consultant responsible for contract administration is also the designer, they understandably do not wish to draw the employer’s attention to their failings. They especially do not want to have to advise the employer that because of these failings, the project is going to cost more and/or be delayed.

Bearing in mind that most forms of contract oblige the contractor to comply with instructions, the contractor has no choice but to proceed with the varied works, but what should the contractor do if he considers that the instruction comprises a variation, although no formal acknowledgment has been made? Here are our 5 tips:

  1. Firstly, he should consider whether the variation is going to result in significant additional cost and/or delay. If not, it is probably something that may not be worth pursuing for the sake of good relations.
  2. Is the contract remeasureable or a lump sum? If remeasureable, payment will be picked up in the remeasure and unless the variation will delay the time for completion, there is no need for a claim. If, however, the contract is a lump sum, there must be a mechanism for increasing the contract price, so a variation needs to be established.
  3. If the Contractor decides to pursue the variation, then it is vital to send a notice to the contract administrator that the instruction constitutes a variation under the contract and that the contractor intends to claim additional payment, an extension of time, or both. The contractual time-frames for the submission of notices should be respected here to avoid any time bars. The reason that this notice is vital is to allow the contract administrator or employer to revoke any instruction which he may have previously considered had no time or cost implication, or at least to make provisions against it. Hopefully, at this point, the contractor will receive an acknowledgment of a variation, although, in my experience, contractors should not hold their breath whilst waiting for this.
  4. If no acknowledgment is forthcoming, then the contractor should submit a claim for the variation. The claim should follow good practice for claims and should set out the following as a minimum:

a. Establish that an instruction has been given.

b. Establish why the instruction comprises a variation. This can usually be achieved by comparing the works included in the contract to the work that has been varied by the instruction.

c. Establish the contractual provisions for variations and demonstrate that the instruction comprises a variation leading to additional payment or time.

d. Quantify and evaluate the variation – either the additional payment or extension of time or both – and explain how all calculations have been carried out.

e. Substantiate everything.

f. Our followers will know that the above comprises the essential elements to a successful claim i.e.:

i. Cause;

ii. Effect;

iii. Entitlement and

iv. Substantiation.

I hope this helps.

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.