I recently provided advice on a dispute of US$250M. This sum includes variations, prolongation costs, acceleration costs, disruption costs and delay penalties. The dispute crystalised when the contractor submitted his final account. This is a familiar occurrence. In fact, a large proportion of disputes occur when the project is either nearing or after completion.

Why are final accounts disputed so often?

There are a number of reasons why this is the case. I have adopted the FIDIC definitions for the participants in the contract for ease. But, these issues can and do arise on all forms of contract.

1. Contractors fail to submit notices of claim and/or early warnings. This means the employer or engineer cannot take mitigating action or make financial provisions.
2. Contractors do not give notice when an instruction constitutes a variation giving rise to additional payment. Had they done so, the employer or engineer might reverse the instruction. At the very least they would  make financial provisions for payment.
3. Contractors fail to submit detailed particulars of claims within the contractual time frames. We often see submissions left to the end of the project. This prevents the employer or engineer accurately assessing liability.
4. Contractors do not submit evaluations of variations in a timely manner. Therefore the employer or engineer is unable to accurately assess the cost of the variation. Had they been able to do so, they could have made adequate provisions for payment.
5. Contractors fail to submit extension of time claims within the contractual time frames. They often leave these to the end of the project. This allows the employer to consider whether they they can claim delay penalties.

I think it is sensible to assume that no project has unlimited funding. Even government projects are subject to budget constraints. Consequently, the contractor denies the employer the opportunity to take steps to mitigate costs. Had they been aware as issues arose, they could work to manage budgets as the project progresses. Having inundated the employer with claims at the final hurdle, is it surprising that an employer does cannot pay?

These additional costs often amount to a huge project overspend. This could lead to employers who have no money left in the pot.

Faced with such a situation, the employer is often forced to manage things as defensively as possible. This frequently means disputing the contractor’s final account, regardless of justification.

What can you do?

I know that I am singing the same old song here, and regular readers will be familiar with my advice. If contractors wish to avoid such a situation, they must submit their notices and claims in a timely manner.. Don’t try and ‘ambush’ the employer in the final months.

If you want to discover how to avoid disputes and manage your contracts effectively, why not join us for our NEW live online course: Principles of Contract Management. Starting 15th March, join us for 6-weeks of interactive learning with Andy Hewitt. Early bird rates until 8th February.