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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 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?