Nina Hewitt

Early Warning Signs of Claims on Hydropower Projects: Lessons from the Field

Hydropower projects are, by their nature, complex, interface-driven, and highly sensitive to external factors such as geology, weather, security conditions, regulatory constraints, and stakeholder coordination. While most contracts attempt to allocate risks clearly, the reality on site often evolves differently.

This article draws on practical project experience to highlight how seemingly manageable delays can evolve into formal claims if early warning signs are not addressed.

Based on experience from a hydropower project in South Asia, this article further highlights some of the early warning signs that, if not addressed in time, can escalate into formal claims and disputes.

Project Context

The project in question was a mid-sized hydropower development in South Asia with an original contractual duration of approximately three years. Like many such projects, it involved multiple interfaces, including civil works, electro-mechanical installations, and a separate transmission line component.

The project experienced significant delays due to a combination of factors, including:

1. Security challenges at site for expatriate personnel
2. late issuance of drawings and approvals,
3. variations and scope changes,
4. unforeseen site conditions,
5. delays in access and right-of-way (particularly for the transmission line), and
6. coordination issues between different project stakeholders.
   Individually, these events appeared manageable. Collectively, they had a compounding effect on the project timeline.

When Delays Become Claims

A key observation from this project is that delays do not immediately become claims, rather, they evolve into claims when they are not properly managed, recorded, or addressed.

In this case, while delay events were occurring throughout the project, their full contractual impact was not crystallised until near the expiry of the original completion period. By that stage:

1. the Contractor had accumulated multiple delay events,
2. the critical path had shifted several times, and
3. the overall completion date had effectively extended beyond the original contractual timeframe.

At this point, the Contractor formally submitted Extension of Time (EOT) claims along with associated claims for prolongation and other indirect costs.

Employer’s Response and Escalation

The Employer rejected the EOT claims and proceeded to impose liquidated damages (LDs) for delay.

From a contractual perspective, the rejection was primarily based on the following arguments:

1. Insufficient contemporary records: The Employer argued that the Contractor had not adequately demonstrated the cause-and-effect linkage between specific delay events and the impact on the critical path.
2. Late submission of claims: Some notices and detailed substantiations were submitted significantly after the occurrence of the events, weakening their contractual standing.
3. Concurrency arguments: The Employer contended that certain delays were concurrent with Contractor-responsible delays, thereby reducing or negating entitlement to EOT.
4. Inadequate delay analysis: The methodologies used by the Contractor were challenged as being retrospective and not sufficiently aligned with the contract requirements.
5. While these arguments are not uncommon, what is notable is that many of these issues could have been mitigated earlier through timely and proactive contract administration. At this stage, the absence of a contemporaneous and structured claims strategy significantly reduced the Contractor’s ability to demonstrate entitlement in a clear and persuasive manner.

From Claims to Arbitration

With the rejection of EOTs and the imposition of LDs, the performance guarantee was coincidentally approaching expiry, and the Employer required its extension. At the same time, the Employer withheld certain payments due to the Contractor, leading to suspension of works and escalation of the dispute. This situation significantly strained the working relationship between the parties.

However, from both sides, a more pragmatic approach prevailed, and the parties engaged in discussions to agree on a structured way forward. The performance guarantee was extended, outstanding payments were released, and the Contractor resumed works at site.

The Contractor subsequently initiated arbitration proceedings, seeking:

1. recognition of entitlement to EOT,
2. recovery of prolongation and indirect costs, and
3.  reversal of liquidated damages.However, by this stage, the dynamics had shifted. The project was nearing completion, and the commercial and operational pressures on both parties had increased significantly.

Ultimately, although the project was completed after approximately four years, following considerable difficulty and prolonged negotiations, the Contractor had to compromise on several aspects of its claims, particularly:

1. indirect cost claims, and
2. certain variation-related entitlements.

This outcome is not unusual. Even where a Contractor may have a technically valid case, weak or inconsistent early-stage claim management often leads to reduced recovery at the dispute stage.

Early Warning Signs: What Could Have Been Done Differently

Reflecting on this project, several early warning signs were evident well before the dispute formally arose:

Delays Without Structured Documentation
Delay events were occurring regularly, but records were not consistently maintained in a structured, claim-oriented manner.
Lesson: Contemporary records are not just administrative tools, these are the foundation of any future claim.

Late or Incomplete Notices
Notices were either delayed or lacked sufficient detail to clearly establish entitlement.
Lesson: Timely and well-drafted notices are critical. Even valid claims can fail if procedural requirements are not met.

Reactive Rather Than Proactive Approach
Claims were prepared retrospectively, rather than being developed in parallel with project progress.
Lesson: A proactive claims strategy, including regular updates to delay analysis, significantly strengthens entitlement.

Weak Interface Management
Delays arising from interfaces (particularly the transmission line) were not effectively integrated into the overall project programme.
Lesson: Interface risks must be actively managed and reflected in programme updates and contractual communications.

Misalignment on Contract Interpretation
The Contractor and Employer had differing interpretations of key contractual provisions, particularly regarding EOT entitlement and concurrency.
Lesson: Early alignment, or at least early identification of disagreements, can prevent escalation later.

Conclusion

Hydropower projects, especially in developing regions, present unique challenges that make delays almost inevitable. However, disputes are not inevitable. The experience from this South Asian project demonstrates that the transition from delay to dispute is often gradual and predictable. Early warning signs are usually visible, but only if the project team is sufficiently attentive to them.

Effective contract administration, timely notices, robust record-keeping, and proactive claims management are not merely procedural requirements; they are essential tools for dispute avoidance.

For practitioners, the key takeaway is simple:
 claims are rarely lost at the arbitration stage, these are often lost (or significantly weakened) during project execution. This reinforces the importance of embedding claims awareness within project teams from the outset, rather than treating it as a reactive, end-of-project exercise.

This article was contributed by ICCP Fellow, Azhar Magsi.

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by Nina Hewitt