In partnership with the CIOB, Claims Class is running a series of monthly webinars on construction claims. The webinars are a condensed version of our Construction Claims e-courses. This post includes questions about claims for variations, FIDIC 1999, prevention, changes in legislation, prolongation costs, and a host of other topics.

At the end of each webinar, we invite questions and send 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. The following are questions and answers from the webinar on Types of Claim.

Question 1

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

Please consider that the contractor cannot perform their duties under the contract in question due to the status quo in the country. Consider the following:

• Does this situation provide enough grounds to submit a claim?
• If yes, could this be considered ‘Employer’s risk’?
• If the contractor is in a position to submit a claim, what would be your recommendation to the contractor regarding what to include in the body of the claim as supporting documentation?

Answer: If the contractor is prevented from performing their duties due to events 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 costs incurred. Without the termination of the contract, the contractor must continue to provide the guarantees and bonds. Therefore, the contractor may claim for the costs of doing so.

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

FIDIC provides entitlement to the contractor to claim, so yes, this would be considered an employer’s risk.

It is difficult to advise in sufficient detail in this forum on the compilation of the claim. However, 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 the contractor is entitled to time but not prolongation costs. The principle being that had the contractor not caused delay, the project would have been delayed anyway because of the employer’s risk events. Therefore, you cannot apply delay damages. The contractor, however, may not benefit from their own mistakes, so they may not recoup costs when they have 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, you may sometimes apply case law across legal jurisdictions, especially when it deals with technical rather than legal principles. A good source of reference 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 their obligations to submit claims for each delay event. Often, the contractor panics at the end of the project when they realize that they will not complete on time and will soon have delay penalties imposed. The contractor cites all delay events that have occurred and attempts to claim an extension of time for the completion date that they achieved. In other words, the contractor is saying, “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. Firstly, because contracts usually require submission of claims within a strict time frame. Secondly, in order to prove entitlement to an extension of time, it is necessary to link the cause with the effect. In other words, to demonstrate that each particular delay event had a direct effect on the Time for Completion. This is why arbitrators and the courts will seldom favour the contractor if they submit a global claim.

Question 5

Comment: Changes in legislation are 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 significant 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.

Response: 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 is paid without having to assert such a right, this is 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? For example, could the contractor miss another plausible project, using resources available, had the contractor not been delayed by the employer? Does the contractor have to prove this?

Answer: Generally, yes. This is typically calculated as part of a prolongation cost claim, using a recognized formula. The formulas for calculating head office overheads and profit include Emden, Eichleay, or Hudson’s. Details exist in various publications or online.

Question 7

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

Answer: You can purchase my book online via Wiley Blackwell and Amazon, and both deliver to Qatar. Direct links can be found on our website under our Publications page.

Question 8

Question: Notice—a delay event was not formally notified. It then turned out to be a critical delay event. Can this be considered for an EoT claim? The Engineer was aware of the delay as a result of progress meetings.

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 of 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), this is not a notice.

Depending on the circumstances, an argument may exist under civil law jurisdictions to defend against such a time bar. But my recommendation to contractors is always to submit the formal notices required by the contract, and to submit them in the way prescribed in the contract. This will avoid having to employ specialists to help get 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 that this is a rate increase, which is the contractor’s risk, but the contractor claims it is a change in legislation and therefore an employer risk. What’s your view?

Answer: If the causation is the increase in road tax, then this would fall under a change in legislation. In my opinion, this cost would be claimable. However, from the point of view of the Engineer, I would only pay for the 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 be very substantial. I am somewhat surprised that the contractor would make such a claim. Perhaps they are attempting to incorrectly pass on supplier increases under the guise of the increased tax.

Question 10

Question: How do we deal with delays caused by a client-nominated contractor? 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. I think a reasonable interpretation is to look at Sub-Clause 4.4 (Subcontractors). This states that: “The Contractor shall be responsible for the acts or defaults of any Subcontractor, their agents, or employees, as if they were the acts or defaults of the Contractor.” This does not exclude nominated subcontractors, so it 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 is a delay in the schedule caused by the Employer, will the recovery or baseline programme 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. In such a case, the contractor’s original programme (or baseline) would no longer be relevant. 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 state that the value of an Advance Payment Bond shall be reduced by the amount of the Advance Payment recovered under a Sub-clause relating to the issue of Interim Certificates. What is the timeline for the reduction of the Advance Payment Bond based on this condition of the contract? Follow-up question: the above-referred sub-clause regarding interim payment—does this mean that the reduction should happen every month? What is your opinion on this matter?

Answer: The value of the Advance Payment Bond steadily reduces as the advance is repaid through interim payments. The timeline for full recovery depends on the conditions of the contract. It may be calculated based on a specific time, or possibly as a percentage of work value executed over a period of time.

Check the terms of payment with the bond provider to see if premiums may be reduced as the amount of the advance reduces. It is probable that the premium calculations assume a reduction of liability as the project progresses.

Question 13

Question: What are the limitations of the term “experienced contractor”?

Answer: This is almost impossible to define. Debate will always surround it, 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 due to an extension of time. These will include costs such as site management and administration, non-productive personnel, site establishment, non-productive plant and equipment, transport, insurances, bonds, and head office overheads.

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