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.

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