construction claims responses and determinations

Q&A: Types of Construction Claims

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.

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. The following are questions and answers from the webinar on Types of Claim.

Question 1

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

Please consider that the Contractor cannot perform his duties under contract in concern due to status quo in the country.  Based on this, you are kindly requested to comment on the following:

  1. Does this situation provide enough grounds to submit a claim?
  2. If yes, could this case could be considered as Owner’s risk?
  3. If contractor is in a position to submit a claim, what would be your recommendation to contractor to put into body of the claim as a supporting document?

Answer: If the Contractor is prevented from performing his duties because of 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 Cost incurred. Without the termination of the Contract, the Contractor must continue to provide the guarantees and bonds. Therefore you 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 Cost incurred.

FIDIC provides entitlement to the Contractor to claim, so yes, this would be an owner’s risk.

It is difficult to advise you 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 be in delay anyway because of the Employer risk events. Therefore you cannot apply delay damages. The Contractor, however, may not benefit from his own mistakes so may therefore not recoup costs when he has 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. This is especially true 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 its obligations to submit claims for each delay event. Often the contractor panics at the end of the project when he realises that he 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 he achieved. In other words, the Contractor is saying that ‘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 the reason that arbitrators and the courts will seldom favour the Contractor if it submits a global claim.

Question 5

Note: This is a comment rather than a question. It is included here for the presenter’s response / comment.

Comment: Changes in Legislation is 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 lot of 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 are 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? by which I mean that the contractor could miss on taking up 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 would typically be calculated as part of a prolongation cost claim by using one of the recognised formulas. The formulas for calculating head office overheads and profit include Emden, Eichleay or Hudson’s. Details of these can be found 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 – Can a delay event which was not formally notified but then turn out to be a critical delay event be considered for 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 for 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 could be made 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 you having to employ specialists to help to 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 this is a rate increase which is contractor’s risk but the contractor claims it’s change in legislation as Employer risk. What’s your view?

Answer: If the causation is the increase in road tax, then this would fall under 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 amount to very much. I am somewhat surprised that the contractor would make such a claim. Perhaps he is attempting to incorrectly pass on supplier increases under the guise of the increased tax.

Question 10

Question: How do we deal with client nominated contractor’s delay? And what is the procedure for claiming delays due to client nominated contractor’s?

Answer: It would depend on the contract and how it allocates delays caused by nominated subcontractors. Sub-Clause 5.2(Objection to Nomination)of theFIDIC 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, his agents or employees, as if they were the acts or defaults of the Contractor’. This does not exclude nominated subcontractors, so 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 was a delay in the schedule caused by the employer, will the recovery or baseline 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 say, 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 advance payment bond based on this condition of contract? Follow up question, the above-referred sub-clause regarding interim payment, it means that this reduction should happen every month? What is your opinion on this matter?

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

It would be worth checking 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 defined as ‘experienced contractor’?

Answer: This is almost impossible to define. It will therefore always be the subject of debate, 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 as a result of an extension of time. These will include for such things as site management and administration, non-productive personnel, site establishment, non-productive plant and equipment, transport, insurances, bonds and head office overheads.

Interested in learning more about claims? Our brand new e-course, The Perfect Claim, will give you the skills you need to prepare successful claim documents.

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