25 Tips to Help You Avoid Costly Claims and Disputes
Often people ask us, 'what are the key things we must do to avoid disputes and claims?'. Good news - we've compiled all of them into one handy document of top tips to avoid claims and disputes!
Read more
Notices: Should a Contractor submit if they are not sure whether they intend to make a claim?
A Claims Class blog follower recently asked for advice on the correct interpretation of FIDIC Sub-Clause 20.1 (Contractor’s Claims). What happens in situations where the Contractor is not sure if they will submit a claim or not—should they submit a notice of claim?
Often, the Contractor becomes aware of an event that may cause delay, additional cost, or entitlement for additional payment. At that time, they may not be aware of the final effect of the event.
Should I submit a notice?
Perhaps a delay will end before it affects the Time for Completion. Perhaps an instruction received will not constitute a variation that changes a lump sum contract. Or, the Contractor may decide that the value of the claim will not justify the time and cost involved in preparing it.
The wording of the first part of this clause is as follows:
‘If the Contractor considers themselves to be entitled to any extension of the Time for Completion and/or any additional payment, under any Clause of these Conditions or otherwise in connection with the Contract, the Contractor shall give notice to the Engineer, describing the event or circumstance giving rise to the claim. The notice shall be given as soon as practicable, and not later than 28 days after the Contractor became aware, or should have become aware, of the event or circumstance.’
Consequently, the Contractor is obliged to submit a notice within 28 days after they became aware of the event or circumstance. This may sound like a long time, but it is surprising how many contractors fail to abide by this time frame. They may not have become aware of the event when they should have. Or, they may not have had enough time or resources to investigate the matter sufficiently. This means it is difficult to make a decision on whether a claim would be justified.
What if you fail to give notice?
Paragraph 2 of Sub-Clause 20.1 goes on to explain the consequences of failing to give notice as follows:
‘If the Contractor fails to give notice of a claim within such period of 28 days, 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.’
So, if the Contractor does not submit a notice within 28 days, they lose all entitlement to make a claim. This may sound very harsh, but the notice provisions ensure that the Employer and Engineer are aware of the Contractor’s intentions. That way, mitigating action or cost and time provisions may be made as soon as possible.
Failure to submit a notice of claim could be very costly for the Contractor. Some people say that time bars may not be applied in Civil Law jurisdictions, and in some cases, I agree with them. This is not, however, a clear-cut matter. It takes a lot of time and effort to put forward a case to justify that the Contract conditions are contrary to the law. It’s much less risky and certainly more cost-effective to simply comply with the Contract.
So, what's my advice?
Contractors should submit a notice of claim within 28 days, even if they are not sure at this time whether they will follow it up with a claim. It’s very easy to subsequently write to the Engineer to advise that, having investigated the matter further, they will not be submitting a claim. That way, the Contractor will not have made life difficult for themselves if they later pursue the matter.
Interested in learning more about claims? Check out our e-courses and start learning with us today.
5 Tips for Success When Claiming for Variations
A question I am often asked during CPD talks and claims training courses is, “Is it necessary to submit claims for a variation?” Unfortunately, I have to give a lawyer’s answer to this and say, “It depends.” However, there are essential elements to a successful claim.
If the party responsible for administering the contract follows the procedure set out in most forms of contracts for instructing variations, then the answer is “no,” because the variation has been acknowledged. It will either be measured and evaluated as part of the remeasurement on a remeasurable contract or as a separate evaluation leading to a change in the contract price of a lump sum contract.
When Consultants Don’t Do What They’re Obliged to Do
We all know that, in many cases, consultants do not formally issue instructions for variations to the contract and often give instructions that are not acknowledged as being variations. Examples can often take the following forms:
- Issue of revised drawings;
- Comments on shop drawings that require changes to the contract drawings;
- Comments on materials submittals that change the specification;
- Instructions given during site meetings;
- Verbal instructions given on-site as the work is being carried out.
Very often, the above are a result of design errors or omissions. If, as is often the case, the consultant responsible for contract administration is also the designer, they understandably may not wish to draw the employer’s attention to their failings. They especially do not want to have to advise the employer that, because of these failings, the project is going to cost more and/or be delayed.
Bearing in mind that most forms of contract oblige the contractor to comply with instructions, the contractor has no choice but to proceed with the varied works. But what should the contractor do if they consider that the instruction comprises a variation, although no formal acknowledgement has been made?
5 Tips for Success
- First, they should consider whether the variation is going to result in significant additional cost and/or delay. If not, it is probably something that may not be worth pursuing for the sake of good relations.
- Is the contract remeasurable or a lump sum? If remeasurable, payment will be picked up in the remeasure, and unless the variation will delay the time for completion, there is no need for a claim. If, however, the contract is a lump sum, there must be a mechanism for increasing the contract price, so a variation needs to be established.
- If they decide to pursue the variation, it is vital to send a notice to the contract administrator stating that the instruction constitutes a variation under the contract and that the contractor intends to claim additional payment, an extension of time, or both. The contractual time frames for the submission of notices should be respected to avoid any time bars. This notice is vital to allow the contract administrator or employer to revoke any instruction they may have previously considered had no time or cost implication, or at least to make provisions against it. Hopefully, at this point, the contractor will receive an acknowledgement of the variation. However, in my experience, contractors should not hold their breath while waiting for this.
- If no acknowledgement is forthcoming, the contractor should submit a claim for the variation. The claim should follow good practice for claims and should set out the following as a minimum:
- Establish that an instruction has been given.
- Establish why the instruction comprises a variation. This can usually be achieved by comparing the works included in the contract to the work that has been varied by the instruction.
- Establish the contractual provisions for variations and demonstrate that the instruction comprises a variation leading to additional payment or time.
- Quantify and evaluate the variation—whether additional payment, an extension of time, or both—and explain how all calculations have been carried out.
- Substantiate everything.
Claims Class followers will know that the above comprises the essential elements of a successful claim, which are:
- Cause,
- Effect,
- Entitlement, and
- Substantiation.
Interested in learning more about claims? Our newest e-course The Perfect Claim gives you the knowledge and skills to prepare a successful claim, every time.
How To Ensure Engineer’s Responses And Instructions Do Not Result In Expensive Claims
A request came from one of our blog followers. It was to examine the Engineer’s duty to provide instructions and responses within a reasonable time. In my experience, failure of the Engineer to comply with such obligations often gives rise to claims. Delayed issue of drawings or instructions are a regular feature of projects around the world.
I shall use the 1999 FIDIC Red Book as an example, although other forms of contract also contain similar provisions.
Contractors! Are Your Claims Responded to Correctly?
EC Harris’ (now Arcadis) Global Construction Dispute Report has, for many years, cited inadequately expressed claims as being one of the top five causes of disputes in the construction industry.
Although the reports do not specifically mention it, I suspect that inadequately and unfair determinations should also be somewhere near the top of this list. This is because, over and over again, attendees at our courses complain that their claims have not been responded to either fairly or in a meaningful way.
So, what is the problem?
If we look at the FIDIC forms of contract as being fairly typical of the widely-used forms of contract, we can see that the Engineer has the following obligations when responding to claims:
- Respond to the claim within 42 days - Sub-Clause 20.1 (Contractor’s Claims);
- In a case of rejection, respond with detailed comments - Sub-Clause 20.1 (Contractor’s Claims);
- Include sums that the Engineer considers to have been reasonably substantiated as being due in interim payment certificates - Sub-Clause 20.1 (Contractor’s Claims);
- Consult with each party to attempt to reach agreement - Sub-Clause 3.5 (Determinations);
- Make a fair determination in accordance with the Contract - Sub-Clause 3.5 (Determinations);
- Give notice to parties with detailed particulars - Sub-Clause 3.5 (Determinations).
It should be noted that the above are obligations, which means that if the Engineer does not fulfil them, they will place the Employer in breach of contract. In other words, this is a serious matter, so why do those responsible for administering the contract frequently not comply with them?
If you are a consultant responsible for responding to the contractor’s claims, what should you do to comply with your obligations? If you are a contractor, what are your rights when your claims are dealt with incorrectly?
Firstly, the Engineer should review the claim and come to an assessment that is in compliance with the contract. They should then meet with the parties to explain their findings and to allow the parties to provide additional information or particulars and to express their own points of view. If necessary, the Engineer should revise their findings to take into account any additional information received. Finally, they should issue detailed particulars of their assessment of the matter so that both parties may fully understand how they have reached their conclusion.
It may be necessary to repeat some of the above steps after the assessment is revised, but by doing so, this will bring the parties closer together, and hopefully, agreement will be reached. In such cases, the Engineer has done a good job.
Lastly, it is my firm belief that the Engineer’s assessment should be prepared for the benefit of both parties and should be adequately explained and reasoned to such an extent that both parties will be convinced that if they raise a dispute, it will likely fail.
If this article has been useful, you'll find our Perfect Claim workshop essential. Learn to ensure each claim document you prepare is perfect. Avoid costly pitfalls.
Late Payment: What Can We Do When We Don't Get Paid?
What can we do if we don't get paid or suffer from late payment? We get this question a lot at claims class, along with similar questions about late certification.
In some regions, this is less of a problem because legislation is quite strict on payment terms. However, elsewhere, it is common for the paying party to hang onto money for as long as possible.Read more
Trying Your Luck - Where do you draw the line with your claim submissions?
I was recently asked a question by one of our distance learning students which, at some time or another, you may have asked yourself. The question was:Read more
Practical Use of the FIDIC Contracts Intermediate E-Course | Accepting Trial Students!
You may have seen last year that Claims Class has stepped into the world of online learning and to kick things off, we launched our Construction Claims Basic and Construction Claims Intermediate E-Courses in 2017.Read more
The Second Edition of the FIDIC Rainbow Suite has Arrived
At a packed International Contract Users’ Conference held in London on 5-6 December 2017, FIDIC finally unveiled the Second Edition of the 1999 Rainbow Suite, Red, Yellow and Silver Books. Whilst the Second Edition largely follows the 2016 pre-release version of the Yellow Book, FIDIC have taken on board some of the comments made by the friendly reviewers, and made a number of important changes.Read more
20 Changes in the FIDIC 2017 Editions From a Claims Perspective
I have just returned from the FIDIC International User’s Conference in London, attended by roughly 400 delegates and speakers, all there to hear about the new editions of the Red, Yellow and Silver FIDIC Forms of Contract. In this blog, I have highlighted 20 changes that are of particular relevance to claims practitioners. They include a number of new terms, including 'Exceptional Events' to replace 'Employer's risk' and 'force majeure' events and many more:Read more