When to Deal With Contractor’s Claims
I have been involved in a large project for 3 years where my role is to provide assessments of the contractor’s claims for extensions of time and prolongation costs. The project experienced numerous delays and to date I have provided assessments of 25 extension of time claims and awards have been made for 11 claimed events. As usual with contractor’s claims, some were rejected entirely and some were awarded, but with a reduction in the amount claimed.
Recently, the Employer’s bankers appointed a large international construction consultant to carry out an audit on the project. I was asked to attend a meeting with the auditors to answer various questions. Given the international status of the consultants, I was rather surprised to be asked the question ‘Why have you dealt with the claims as they have been submitted? We always leave them until the end of the project and then negotiate’.
Firstly, the Contract, in this case the FIDIC Red Book, places an obligation on the Engineer to respond to the contractor’s claim within 42 days. If the Engineer does not comply with this obligation this would constitute a breach of contract for which the Contractor could claim compensation. In such a case, the compensation could comprise financing charges on monies paid late as a result of delay in responding to the claim, or acceleration costs caused by the Contractor attempting to meet a completion date that should have been extended.
Secondly, the Parties and the Engineer need to know the completion date and not just be obliged to manage the project on the basis of ‘it will be finished as soon as possible’.
Thirdly, if the Time for Completion is not extended for a just cause, time would then become ‘at large’. Time becomes ‘at large’ when the obligation to complete within the specified time for completion of a contract is lost. The obligation then becomes to complete within a reasonable time and the Employer also loses rights to apply delay penalties.
Fourthly, if the intention is to negotiate and you have not carried out a thorough investigation of the claim, what is your starting position for negotiation and how will you bring any sustainable arguments to the negotiating table?
So much then for the ‘expertise’ of the consultant employed to audit the project by the Employer’s bankers. I also happen to know that their system of leaving claims until the end of the project has led to at least two arbitrations on projects where they have acted as the project management consultant.
How well were they protecting their client’s interests on these projects?
Dear Andy
Thank you for this interesting and revealing post.
Perhaps it is not surprising.
The short answer to your question is: not very well.
But the reality is that this attitude does exist. In my experience, when these negotiations do take place there are normally claims by the Employer against the Contractor or some outstanding work . The negotiations consist of a trade off between the two.
When Employers with this kind of approach are calling the shots , some Consultants do go along with it.
Hi Hisham and thank you for your post.
Considering that the Employer’s pay the consultants fees and that the consultant would probably wish to provide services to the Employer of future projects, it is not surprising that consultants tend to go along with the Employer’s wishes.
This is fine if the Employer is aware of the potential risks of dealing unfairly with the Contractor and if he is so aware, then he is obviously prepared to accept such risks. My real concern would be if the consultant does not make the Employer properly aware of the risks of not dealing with the claims in accordance with the contract, or if this was the consultants default claim management strategy, which would place the Employer in breach of contract.
In the real world that we work in, the Employer will probably ultimately decide the strategy, but the consultant has a professional obligation to advise the Employer of the risks of not complying with the requirements of the contract.