Q&A: Contract Administration for Claims
In partnership with the CIOB, Claims Class is running a series of monthly webinars on construction claims. The webinars are based on our Construction Claims e-courses and workshops and have attracted between 150 and 300 attendees per session.
At the end of each webinar, we invite questions and send the attendees answers to any questions that we do not have time to answer during the webinar. I thought that this would provide some useful insight to our blog readers so, the following are questions and answers from the webinar on Contract Administration for Claims.
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 if you had done so, the Engineer has an obligation to respond within the time-frame included in the Contract.
Question 2
Question: The variations 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 firstly show that the completion date has been affected by the delay event and secondly, 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 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 alwayscomply with the notice requirements contained in the Contract.
Question 4
Question: What if the dates have elapsed before the programme has been approved?
Answer: Sorry, I don’t understand the question. What dates? On a forthcoming module we will deal with narrative writing and one of the things that we will discuss is to always ensure that a reader with no prior knowledge of the circumstances will be able to understand the points being made.
Question 5
Question: Can we record this session as a CPD for RICS?
Answer: We have allocated 1 hour of CPD to this session. However, you will need to check with the RICS what their policies around CPD hours are and whether they will accept online webinar training as part of your formal CPD record. I suggest that you submit your certificate to the RICS when you submit your annual CPD record and see what they say.
Question 6
Question: Are there any golden rules for subcontractors submitting claims against main contractors?
Answer: We will deal with claim submissions in upcoming modules and everything that applies to a contractor submitting a claim to an employer will apply equally to a subcontractor claiming from a contractor.
Question 7
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 8
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 9
Question: Whilst off-topic, does retrospective and prospective analysis 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 10
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 to produce a clear and unambiguous document. Consequently, 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 11
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 12
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 13
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 meeting 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 14
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 15
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 claims.
I will repeat what I said in answer to a previous question. Contractor’s should always submit notices that are required by the Contract.
Question 16
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 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 to 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 17
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. Then 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.
Want to learn more about construction claims? Check out our e-courses.
9 Comments
Add comment Cancel reply
This site uses Akismet to reduce spam. Learn how your comment data is processed.
Under most contracts (FIDIC included), the the Employer may disagree with the Engineer’s response and if so the Engineer must issue a fair determination on the matter. If the Employer still disagrees, he may raise the matter as a dispute.
Can an Employer refuse an EOT recommendation? What would be the consequences if the employer refuses?
Dear Sir/ Madam,
Please be kind enough to evaluate the below mentioned scenario and give me with your valuable advice:
Client and the Contractor have agreed a construction contract as per the FIDIC Red Book (1999). The above contract is based on square feet rates and dose not contain any schedule of rates except for a few material rates which have been agreed to be supplied by the client. The contractor will be producing the concrete by his own batching plant located on site.
After progressing for few months the contractor received a drawing revision (change of concrete type to self compacting concrete) which constitutes a variation. Unfortunately due to the complex nature of the mix design the contractor will have to outsource the concrete from an outside batching plant.
With reference to the above scenario please explain how to apply for the Claim/Variation?
Your kind advice will be highly appreciated.
Dear Sir/ Madam,
Could you please provide your valuable answers for the following questions.
Q1. What is a Design & Build Contract and who bears the responsibilities for the
activities involved in this type of Contract?
Q2. How to make payment in a Design & Build Contract if certain items are
measure and pay items and some are cost as lump sum items?
Dear Sir,
I wish to receive your valuable advice/ opinion or the explanation of the following matter.
Scenario
I have received the LV Electrical Subcontractor’s draft Payment Certificate (without signature) from our Consultant. According to the draft PC, it is shown that the paid Advance Payment has been fully recovered. However, the payment due to the Subcontractor is shown as a negative figure, and, the Consultant did not issue the Payment Certificate due to the payment is a negative figure.
At such kind of situation, whether the validity of an advance payment guarantee is to be required to extend?
Dear Andy Hewitt,
When we are preparing a Payment Certificates for the Contractor’s, we have to recover the paid Advance Payment from the cumulative value of Work Done (as per BOQ) including Daywork, Variations, and Extra Works. My question is, is there any provision for making the advance recovery on the Variation, Daywork or Extra Works under the FIDIC 99 ORiginal Provisions? Could you please provide an explanation?
Hi Lahiru,
Sub-Clause 14.2 (Advance Payment) provides that deductions to repay the advance payment shall once 10% of the value of the Accepted Contract Amount has been reached and “Unless other percentages are stated in the Appendix to Tender: … deductions shall be made at the amortisation rate of one quarter (25%) of the amount of each Payment Certificate (excluding the advance payment and deductions and repayments of retention) … until such time as the advance payment has been repaid”.
Unless an alternative is included in the Appendix to Tender, then 25% of the gross value of work shall be deducted from each certificate to repay the advance payment, so this would include amounts certified against variations, dayworks or extra work.
I hope this helps.
Andy
Dear Andy,
What is the Difference Between “Cost” And “cost” Under the FIDIC Form of Contract (Red Book – 1999 Edition)?
Hi Lahiru – FIDIC defines “Cost” under Sub-Clause 1.1.4.3, as ‘all expenditure reasonably incurred (or to be incurred) by the Contractor, whether on or off the Site, including overhead and similar charges, but does not include profit.’ The use of the capitalized word denotes that this is formally defined within the contract.
The non-capitalised word “cost” is only used when referring to the specific cost of something, as in Sub-Clause 1.8 (Care and Supply of Documents) – ‘The Specification and Drawings shall be in the custody and care of the Employer. Unless otherwise stated in the Contract, two copies of the Contract and of each subsequent Drawing shall be supplied to the Contractor, who may make or request further copies at the cost of the Contractor.’
I hope this clarifies things for you.