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. This post includes questions around 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 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. Consider the following:
- Does this situation provide enough grounds to submit a claim?
- If yes, could this be considered ‘Owner’s risk’?
- 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. However:
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? For example, the contractor could 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 recognised 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 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 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 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 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.
Check the terms of payment with the bond provider. 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 from 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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Dear Experts,please help me to answer the questions
A Contract for swface water drainage to install 1500 m of30 cm diameter clay pipes requires trench excavation to a depth between 3 to 3.5 m.The Contractor after excavating 200 m of trench called upon the Engineer for go ahead to lay the pipes.In the mean time a nearby 600 m water main bursts and the trench collapses. The water could not be stopped until two days. Work can not be started until the water main is repaired and it takes three weeks.Investigation revealed that there was a bend on the water main with a thrust block close to the edge of the trench and its effect was not considered when the trench support system was designed.
The Contractor took 30 days to re-excavate and could not satisfy the original design requirement for a narrow trench condition (130 cm wide).Possible solutions suggested by the Engineer for such a problem is either using cast iron pipe instead of the clay pipes originally specified or to provide a concrete surrounding the original pipe specified.The insurance company accepts the event and agrees to cover the cost for the removal of the materials washedaway, its replacement with borrowed fill for the damaged trench support system, and valid claim due to the water main thrust.The insurer clearly indicate that the costs due to the two possible solutions recommended by the Engineer, any cost associated with the delay of the work and associated liquidated damages are outside its policy and can not be covered.
Questions:
Identify clauses of the conditions of contract related to the case Identify possible effects of the case
As a Contract Administration expert propose a viable advice to the Contractor
Case Study 1:
A Contract for swface water drainage to install 1500 m of30 cm diameter clay pipes requires trench excavation to a depth between 3 to 3.5 m
The Contractor after excavating 200 m of trench called upon the Engineer for go ahead to lay the pipes.
In the mean time a nearby 600 m water main bursts and the trench collapses. The water could not be stopped until two days. Work can not be started until the water main is repaired and it takes three weeks.
Investigation revealed that there was a bend on the water main with a thrust block close to the edge of the trench and its effect was not considered when the trench support system was designed.
The Contractor took 30 days to re-excavate and could not satisfy the original design requirement for a narrow trench condition (130 cm wide).
Possible solutions suggested by the Engineer for such a problem is either using cast iron pipe instead of the clay pipes originally specified or to provide a concrete surrounding the original pipe specified.
The insurance company accepts the event and agrees to cover the cost for the removal of the materials washed
away, its replacement with borrowed fill for the damaged trench support system, and valid claim due to the water main thrust.
The insurer clearly indicate that the costs due to the two possible solutions recommended by the Engineer, any cost associated with the delay of the work and associated liquidated damages are outside its policy and can not be covered.
Questions:
Identify clauses of the conditions of contract related to the case Identify possible effects of the case
As a Contract Administration expert propose a viable advice to the Contractor
The Subcontract between the Contractor and Subcontractor clearly states that the Subcontractor can only claim EOT without any cost. And, now, due to the Owner’s risk event the project got delayed which is beyond the Contractor’s control. The Subcontractor is now incurring idle resources cost, can this idle resources cost be claimed by Subcontractor under the England and Wales Law or any other law ?
The Subcontract is governed by the England and Wales Law.
Thank you in Advance.
I have seen contractors and engineers spend months arguing about this subject without ever looking at the bigger picture. This debate is only applicable to new items included in variations which need to be priced from first principles. Unless the circumstances are exceptional, these will only form a minute proportion of the overall contract sum. Therefore, whether the overheads and profit is 15% or 25% will make absolutely no difference to the contractor’s profitability or the employers project cost because such items. Just agree something and move on.
My question is overhead & profit on variation/additional works. As per FIDIC 1999 clause 12.3, I understood that the evaluation of rate/prices based on the contract conditions for any variations or additional works as follows:
1. At the rates and prices set out in the contract (contracted rates and prices). Contract pricing schedules (i.e. bills of quantities) can be used to price the variation. If there an exact rate that matches the type of the work
2. In instances where the existing rates are not of a similar nature, can they be used as a basis for producing a new rate? The rates can be broken down, amended and built back up or pro-rata to the contract rates and prices. Or it can be derived from Schedule of Rate breakup and overhead profit shall be as in the Schedule of Rate breakup. Assume that 15%
3. If the works are not listed they should be priced as a new item entirely. If no rates or prices are relevant for the derivation of a new rate or price, it shall be derived from the reasonable cost executing the work, or from subcontractor/or from supplier together with reasonable profit. In such case how much is the overhead & profit. In the contract there is no agreed percentage for overhead & profit for new items. Only available percentage is for provisional sum (clause 13.5(b)) at 25% and Schedule of rate breakdown at 15%. Both are in contract documents. How to justify if I use 25%, is it possible to justify
“Or otherwise” could be a claim for an event not specifically covered by the conditions, but which is brought about because of the law.
Dear Sir,
I have a question with respect to Cl.20.1 of FIDIC, MDB, Harmonised Edition
Question: in cl. 20.1, it says “if the Contractor considers himself to be entitled to any extension of Time for Completion and/or any additional payment, under any Clause of these Conditions or otherwise in connection ——-
Could you explain what do you mean by “otherwise” in the above clause, please give some example
Few items are measured as items in the Bills of Quantities (BOQ). However, the summary page of the BOQ relevant to the said items indicate the same as Provisional Sum and the total amount of BOQ pages of the said items is stated there. How to interpret this issue during post contract stage?
An Employer wishes to pay directly to the domestic Subcontractors of the Contractor and procure major materials required for the domestic Subcontractor’s works. Please advise on how the Particular Conditions of Contract must be drafted in a contract based on FIDIC 1999 Red book
Dear Anday
With respect to your answer of Question No. 6 above where you have mentioned that contractor can claim opportunity cost, however, in my opinion although the contractor can claim his cost including overheads which can be calculated from some renowned formulas, you mentioned, but loss of project or opportunity is not a direct loss and may come under consquential loss which is very hard to prove before any court of law.
Your feedback is requested
Dear Andy Hewitt,
Could you please provide your response on the following matter.
The Engineer instructs the Contractor to arrange access for another contractor employed by the Employer to work on site. Can the Contractor refuse to do so?
(FIDIC Red Book – 1999 Ed.)
Hi Lahiru,
Please see comments below;
28 May
Is this statement is valid under the FIDIC Red Book (1999 Edition)?
“In this Interim Payment Certificate, you will not be paid for this BOQ item because you did not submit the requisite measurement sheets.”
Sub-Clause 14.3 (Application for Interim Payments Certificates) requires the Contractor to show ‘in detail the amounts to which the Contractor considers himself to be entitled, together with supporting documents…”
Sub-Clause 14.6 (Issue of Interim Payment Certificates) obliges the Engineer to “issue to the Employer an Interim Payment Certificate which shall state the amount which the Engineer fairly determines to be due, with supporting particulars.”
If the Contractor has not submitted sufficient detail of the amount claimed, he is certainly not helping himself and if the Engineer is certifying zero against work that has been carried out, he is not performing his obligations. This seems like a case where more cooperation between the parties is required.
June 3
Could you please provide your response on the following matter.
The Engineer instructs the Contractor to arrange access for another contractor employed by the Employer to work on site. Can the Contractor refuse to do so?
(FIDIC Red Book – 1999 Ed.)
Sub-Clause 2.1 (Right of Access to the Site) states that “The right and possession (of the Site) may not be exclusive to the Contractor”
Sub-Clause 4.6 (Co-operation) provides that “The Contractor shall, as specified in the Contract or as instructed by the Engineer, allow appropriate opportunities for carrying out work to:
(a) the Employer’s Personnel,
(b) any other contractors employed by the Employer, and…”
The Contractor may not therefore refuse to provide access.
Hope this clarifies things for you.
Is this statement is valid under the FIDIC Red Book (1999 Edition)?
“In this Interim Payment Certificate, you will not be paid for this BOQ item because you did not submit the requisite measurement sheets.”
Can a Contractor recover additional prelims costs even if the project was not critically delayed?
Hi Lahiru – thanks for your comment. I see Andy has already responded to this question which you also posted on our ‘Thickening of Preliminary Items’ blog. If you missed his reply, you can see it here:https://www.constructionclaimsclass.com/thickening-of-preliminary-items/. Hope that helps. Nina