Justice - Avoiding Disputes and Claims

How To Avoid Disputes From the Outset

Hewitt Decipher Partnership recently presented a webinar on international arbitration. Panel members included a barrister, an arbitrator, and a solicitor. They were joined by HDP employees who provide expert advice to legal professionals working on construction disputes. The aim was to look at how to avoid claims.

Whilst these professionals earn fees from disputes, the overwhelming consensus was that the best way to deal with disputes is to not have them in the first place.

So, what can we do to avoid disputes right from the start of the project?

General Points

  1. Appoint competent consultants to advise you and manage your projects. Any possible savings on fees will soon be eaten up when things go wrong on the project.
  2. Make sure that the consultant appointed to administer the contract has adequately trained, qualified and experienced professionals working on your project.
  3. Employers and Consultants: Select an appropriate form of contract for the project and the Employer’s needs. Do not introduce changes that substantially alter the risk profile or obligations contained in standard forms of contract. When compiling contract conditions, or changing standard contracts, use a qualified and experienced professional.
  4. Employers Consultants and Contractors: The contract documents should reflect any changes introduced to the tender documents because of tender clarifications and negotiations between the parties. Avoid including volumes of ‘other documents’ as appendices to the contract. This is not good practice.
  5. Employers and Contractors: If things start going wrong, bring experts in to advise you as soon as possible. Avoiding expert advice until after disputes have crystalised will be significantly more expensive in the long run.

Tips for Contractors

  1. Contractors: Make sure you have properly trained, qualified and experienced professionals on your project to administer and manage the contract. Not doing so is definitely ‘penny-wise, pound-foolish’.
  2. Contractors: Create and submit a programme in accordance with the contract time frame. On complex projects, prepare an initial short-term detailed look ahead programme. But update as soon as possible with a detailed programme.
  3. Contractors: When it becomes necessary, revise the programme to take into account changes to the project or to your plan to complete the work.
  4. Contractors: Prepare programme updates on a regular (minimum monthly) basis to show actual progress and the current projected completion date. Do not falsify the results to paint a more favourable picture. Quite apart from providing inaccurate advice to the Employer, this will hurt you if you have entitlement to extensions of time.
  5. Contractors: Follow your contractual obligations around giving notices. Make sure notices contain appropriate information. Prepare them in accordance with good practice (see advice in our other articles).
  6. Contractors: Submit claims in the contractual time frame. Make sure they are well-written, clear, and easy to understand.

Tips for Contractors and Engineers

  1. Contractors and Engineers: Keep good records. Make sure that they are easy to find and retrieve.
  2. Contractors and Engineers: Maintain separate registers for Notices of Claims and for Claims. Review and discuss them regularly.
  3. Engineers: Submit responses to claims within the contractual time frame and communicate your findings clearly.

I hope this advice helps your projects to avoid claims and costly and time-consuming disputes. And remember, our friends at HDP can help you resolve disputes. Or with our help, why not learn how to avoid them yourself.

Construction Cost Escalation Increases

Increases in Material & Other Costs

The consultancy side of our business has recently received enquiries along the lines of the following: “We have come to the end of our project and are facing a huge loss due to increases in the cost of materials and shipping and because of measures that we have had to adopt to control COVID-19. What can we do?”

Our immediate thoughts are, why have you only just realised that your project is losing money when you have been incurring additional costs due to COVID-19? Since early 2020 and the cost of materials, shipping and the like have been increasing. Surely contractors must have been aware of the effects on their bottom line for many months.

Check the Contract

Nevertheless, clients work with us because of our expertise. We need to advise them correctly. So the place to look to find out “What can we do?” is, as always, in the contract.

If the Contractor is very fortunate, the contract will include provisions to allow adjustments for changes in cost. This is, however, a clause only usually included in contracts during times of high inflation. Such a clause allows the Employer to potentially save money by agreeing to compensate the Contractor for actual increases. This saves the Employer paying to include the risk of inflation within the tender price. I have not seen such a clause included in a contract for many years.

Many increases in the prices of materials, shipping, transport and even labour may be linked directly to COVID-19. If the contract allows the Contractor to claim additional costs for an event such as COVID, this would be claimable. Most contracts that we have examined, however, tend to allow claims for extensions of time due to COVID-19, but not for costs.

Change in Law?

Some of the contracts we have examined give entitlement to claim for costs due to government legislation or government actions. Such a clause would provide a gateway to claim costs mandated by the government in dealing with COVID-19. This would not, however, entitle the Contractor to claim for any increased costs of completing the work due to price escalation.

We have also had to advise several clients that if they are only now thinking about pursuing any claims for entitlement, they have left it too late to make life easy for themselves. Notices should have been submitted when the costs began (almost 2 years ago). Claims should have been submitted many months ago and not left until such time that they have finally realised that they have incurred huge losses.

However, all may not be lost. If you find yourself in difficulty get in touch with us to see how we can assist. And if you want to know how to avoid such issues going forward, why not take up one of our e-courses?

interim claims

Interim Claims

How To Deal With Them

One of our Claims Class students asked for some advice on interim claims. It is a topic that often crops up, so I thought that readers of this blog might also benefit from some practical advice.

The principles discussed here are appropriate to many forms of construction contracts. However, for the purpose of this article I shall use the 1999 FIDIC contracts as an example.

Sub-Clause 20.1 (Contractor’s Claims) obliges the Contractor to submit a fully detailed claim with supporting particulars. You must be submit this within 42 days or the event or circumstance giving rise to the claim. However, sometimes you may not be able to ascertain the final effects of a claim event within the 42-day period.

Sub-Clause 20.1 (Contractor’s Claims) deals with such eventualities as follows:

… If the event or circumstance giving rise to the claim has a continuing effect:
(a) this fully detailed claim shall be considered as interim,
(b) the Contractor shall send further interim claims at monthly intervals, giving the accumulated delay and/or amount claimed, and such further particulars as the Engineer may reasonably require, and
(c) the Contractor shall send a final claim within 28 days after the end of the effects resulting from the event or circumstance, or within such other period as may be proposed by the Contractor and approved by the Engineer.

Consequently, if you cannot ascertain the final effects of a claim, the Contractor must submit an interim claim within 42 days. Following this, you should continue to submit monthly interim claims until the final effects are determined.

Each interim claim should be based on the best information available at the time. Each update should be based on additional or more accurate information as it becomes available. The Contractor should submit a final claim within 28 days after the effects have ended.

This procedure ensures that the Engineer and Employer are kept updated. They will have access as to the latest estimates of time and costs to enable them to take appropriate action.

What should a claim include?

In practical terms we have three options when considering what information, the interim and final claims should contain:

  1. The first interim claim will contain the project details, the details of the cause of the claim, a demonstration of contractual entitlement, the latest available information and an interim calculation of the effect in terms of time and/or payment. Subsequent interim claims and the final claim will present information that has subsequently become available. It should include revised calculations of time and payment.
  2. As the above, but the final claim will consolidate everything into a stand-alone document. This one document will contain the complete particulars of the claim.
  3. Each claim submission will contain everything related to the matter that is available at the time of submission. Each will tell the whole story to date.

There are some key points for effective claims that we repeat time and time again on this blog. Firstly, the reviewer’s job should be made as easy and pleasant as possible. Secondly, that a claim should comprise a stand-alone document to enable the respondent to make a fully reasoned response. Therefore, when considering the advice above, it is clear the third option is the best one.

In practical terms, the man-hours to achieve the best and most professional submissions will be about the same as the “easy” options. So, when preparing interim claim on behalf of our contractor clients, our consultancy practice always prepares each submission as a stand-alone document. Our advice to you, would be to do the same.

FIDIC 2017 Notices

A guide to the requirements, content and composition of notices under the FIDIC Red, Yellow and Silver books

Some of the biggest mistakes that contractors make when it comes to claims relate to notices. Such failures include:

  • Failure to give notices when obliged to do so by the contract.
  • Failure to give notices within the time-frames specified in the contract.
  • Failure to properly identify communications as notices.
  • Failure to record the necessary information within notices.
  • Failure to cite the contractual clause under which the notice is given.
  • Failure to address and/or copy the notice to the correct party.
  • Failure to deliver to the notice to the place specified in the contract.
  • Failure to deliver to the notice by the means of communication specified in the contract.

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Claims class student

Claims Class Helps Student Secure US$1 Million

This month I am going to allow myself to pat myself on the back, because of a success story from a recent Claims Class student.

A gentleman from an African country contacted me to discuss enrolling on one of our claims courses. He had found out about Claims Class after purchasing a copy of my Book FIDIC 1999 Notices. This is what he told me.

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Lump Sum Cash Contract

What is Included in 'Lump Sum'?

A simple matter that often causes confusion is exactly what is included in a lump-sum price.

Take a typical contract designed by the employer. The contractor is required under the contract to provide the works defined on the drawings and in the specification. In other words, the drawings show the extent and the configuration of the design. The specification describes the composition and quality of the work. Thus, it is clear that the lump-sum requires the contractor to provide whatever is included in the drawings and specification.

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The Difference Between Claim and Dispute Submissions - FIDIC Omissions

The Difference Between A Claim to the Engineer & A Claim in Arbitration?

A student recently asked, "is there any difference between a claim submitted to the Engineer and one submitted for arbitration?" My response was along the lines of “Yes, there frequently is, but there shouldn’t be”.

The Scenario:

Let me explain why by describing a very frequent scenario related to claims.

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final account disputes

Why do Final Accounts lead to Disputes?

I recently provided advice on a dispute of US$250M. This sum includes variations, prolongation costs, acceleration costs, disruption costs and delay penalties. The dispute crystalised when the contractor submitted his final account. This is a familiar occurrence. In fact, a large proportion of disputes occur when the project is either nearing or after completion.

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Construction contract FIDIC 2017 notice of claim

How Does FIDIC 2017 Affect Claims?

I guess like many of you, I have not had the opportunity to examine the 2017 editions of the FIDIC contracts in much detail, because as yet, I have not come across any projects that are using them. This situation will, however, gradually change. As it does, we will need to know what has changed and how it has changed. As such projects reach final account stage there will undoubtedly be claims to resolve and disputes to settle. I have recently been doing research for a forthcoming book, so thought it would be worthwhile to highlight the changes from a claims perspective.

Employer's Claims

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Progress Updates – Fact or Fiction?

Contractors often shoot themselves in the foot when preparing progress updates for the employer’s team. Many times we see months worth of updates which present a rose-tinted view of project progress.

Whilst it is tempting to keep reporting good news month-on-month, be wary. A less than competent consultant may believe such reports because good news will not involve them in additional and troublesome work. However, you could be causing problems for yourself further down the line.

Problems frequently arise when the contractor needs to submit a claim for an extension of time. It becomes very difficult for him to subsequently tell the employer’s team: “I know we kept telling you that there was no delay to the completion date, but actually there is and it’s not our fault, so please can I have an extension of time.

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