employer's & contractor's claims principle (part i)

Claims under FIDIC

Employer’s & Contractor’s Claims

Principle (Part I)

December 2020

Justice Academy

Author-presenter: Tahseen Saleh

FIDIC Training - Online Course

FIDIC – INTERNATIONAL FEDERATION OF CONSULTING ENGINEERS – WWW.FIDIC.ORG – [email protected] – COPYRIGHT 2020

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Outline 1. Claims – General

1. Clauses under which claims are addressed2. Claims - Principle vs. Quantum

2. Claims - Principle 1. Contents of a Claim

a) Delayed Drawings or instructions S/C 1.b) Right of Access to the Site S/C 2.1c) Unforeseeable Physical Conditions S/C 4.12d) Extension of Time for Completion S/C 8.4 e) Delays caused by authorities S/C 8.5

2. Procedural aspects a) Notice of Claimb) Fully Detailed Claim c) Contemporary records

3. Claims - Quantum

Employer’s and Contractor’s Claims Part I


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Employer’s & Contractor’s Claim

Managing adjustments is one of the Engineer’s key roles where mismanagement may lead to claims and disputes.



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1. Claims – General

• One of the principal ways that FIDIC Contracts cover thespecial contingencies of construction projects is by:

- Specifying the claim rights for the Contractor and Employer;

- Identifying procedures for the enforcement of these rights.

- Two types of claims to assert the Parties’ rights:

o legal claims, i.e., claims which the Party may be entitled toassert under the law governing the Contract.

o contractual claims, i.e., claims which the Party is entitled toassert by virtue of the specific provisions of the Contract.



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1. Claims – General • The Engineer is unable to evaluate legal claims;

• For Employer’s contractual claims, there are about 20 Sub-Clauses specifying events which, should they occur, willentitle the Employer to claim from the Contractor;

• For Contractor’s contractual claims, there are about 30 Sub-Clauses specifying events which, should they occur, willentitle the Contractor to claim from the Employer.



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Categories of Claims• Claims under the Contract.

• Claims arising out of or in connection with the Contract.

• Claims under the principals of the applicable law.

• Claims arising out of quantum meruit.

• Claims for ex gratia payment.



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• Definition of Claims

• In The Oxford Companion of Law a claim is defined as “ageneral term for the assertion of a right to money, property,or to a remedy.”

• It would be considered a claim under the above definition:

─ When the Contractor applies for his monthly interim for theoriginal scope of work, or

─ Whenever the Employer writes to the Contractor requiring himto remedy defective work. © Bunni 3rd Edition



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• In construction contracts, a claim is generally taken to be an assertion for additional monies due to a party or for extension of Time for Completion.

• There is no express definition of a claim in the typical standard form of construction contract and it is rare to find a definition of a claim in reference texts or authorities on Construction contracts.

• This was until the 2017 edition



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• In 2017 recent release the definition of a claim wasintroduced:

• 1.1.{6, 5, 3} “Claim” means a request or assertion by oneParty to the other Party for entitlement or relief under anyClause of these Conditions or otherwise in connection with,or arising out of, the Contract or the execution of theWorks.



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أحدمنتأكيًداأوطلبًاتعني"المطالبة"{3،5،6}1.1رقمالفرعيالبند•

هذهمنشرطأيبموجباإلعفاءأولالستحقاقاآلخرللطرفالطرفين.غالاألشتنفيذأوالعقدعنينشأماأوبـيتعلقفيماذلكغيرأوالشروط

• The FIDIC 1999 Suite of Contracts as well as the Gold Bookof 2008 do not have a specific definition of a Claim.



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1. Claims – General 1. Clauses under which Claims are addressed

• In 1999 Suite of Contracts Employer’s Claims were introduced under Sub-Clause 2.5 (Sub-Clause 20.2 in the Gold Book):

• Sub-Clause 2.5 [Employer’s Claims] is present in RB, YB, SB Books.

• The Employer can claim for:

─ (1) any payment under any Clause of the Conditions or otherwise in connection with the Contract.

─ (2) an extension of the Defects Notification Period (Sub-Clause 11.3).



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• In 1999 Suite of Contracts:

– Sub-Clause 2.5 requires the Employer to adhere to a claim procedure, which is specified with less precision than the procedure imposed on the Contractor.

– The wording in the RB and YB Books are identical. The last paragraph in the SB (Fourth) has been amended from that in the RB and YB



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• In 1999 Suite of Contracts:

– Sub- Clause 20.1 covers Contractor’s Claims.

– This Sub-Clause sets the procedure for the submission and handling the Contractor’s Claims.

– The wording in the RB and YB Books are identical and with minor difference in the SB which relates to the Employer instead of the Engineer.



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• Clause 20 in the 1999 edition has the title [Claims, Disputes and Arbitration]

• This Clause is split in the 2017 edition into two main Clauses:

─ Clause 20 [Employer’s and Contractor’s Claims]

─ Clause 21 [Disputes and Arbitration]

• Clause 20 is composed of 2 Sub-Clauses in the 2017 and Clause 21 is 8 Sub-Clauses.

• Sub-Clause 2.5 in the 1999 edition became part of Clause 20 in the 2017 edition.



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In 2017 Suite of Contracts:

• Clause 20 covers Claims from both the Employer and the Contractor.

• Sub-Clause 20.1 [Claims] addresses when Claims may arise:

─ (a) if the Employer considers that he/she is entitled payment or extension of the DNP;

─ (b) if the Contractor considers that he/she is entitled additional payment or extension of the Project Time for Completion; or

─ (c) if either Party considers that he/she is entitled to another entitlement or relief against the other Party.



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In 2017 Suite of Contracts:

• In case of (a) & (b) above, Sub-Clause 20.2 shall apply. It is not applicable in case of item (c).

• The Claimant Party {applies to the Employer and the Contractor}.



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1. Claims – General 2. Principle vs. Quantum parts

• A claim under the Contract is composed of two main parts:− principle− quantum

• Principle subdivided into:− contractual basis upon which the claim is founded, and − relevant facts behind the problem

• Quantum subdivided into:− evaluation of the effects of the problem in terms of time

and/or money, and− demonstration of the link between the facts and effects –

often called “Cause and Effect Link”.



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• In all cases, it is the duty of the Party making the claim to provide enough evidence to prove his case.

• Lawyers and judges refer to this duty as the “burden of proof”. In this respect.

• FIDIC contracts refer to “supporting particulars” and contemporary records.”

• Thus:− components of a claim are as in the table below

− starting point for any claim is to establish the contractual basis.

Contractual Bases “Principle”

Facts

Cause and Effect Link “Quantum”

Effects

Supporting Particulars (Contemporary Records, programmes, monthly reports, minutes of meetings, invoices, etc.)



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2. Claims – Principal 1. Contents of a Claim

• FIDIC Contracts deal with all common construction risks.

• If possible, these risks are covered by insurance provisions.

• If risks are unsuitable for insurance, liability is allocated to aParty (e.g., an Employer’s Risks is liability for late issue ofdesign drawings).

• Often, should one of these risk events occur, Contractor isentitled to an extension of the Time for Completion(Extension or Time) and/or reimbursement of his additionalCosts and in some cases to payment of a profit.

• Aim is to that Employer pays only if the risk event occurs.



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2. Claims – Principal 1. Contents of a Claim (Cont’d)• Some 30 circumstances entitle the Contractor to an EOT.

• Some also entitle him to recover additional Costs (some with orsome without Profit)

• Right to profit arises where the Employer is in default. When thecause of the additional Costs is one which is outside the controlof the Employer, Contractor is not entitled to profit.

• Some clauses entitle Contractor to recover costs but notadditional time, because additional time and additional paymentare different remedies and should generally be dealt withseparately.



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2. Claims – Principal 1. Contents of a Claim (Cont’d)

• In presenting his claim, the claiming Party must:

− make reference to one or more of the relevant sub-clauses;

− ensure that if the claim covers more than one problem, eachproblem is dealt with separately (entitlement with respect toeach problem may differ).

• Need for careful study of the Contract.

• Some of the relevant sub-clauses are explained in moredetail below to illustrate key concepts and managementprocedures.

2. Claims – Principal Employer’s Claims in 1999 & 2017 Suite of Contracts:


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Sub-ClauseDescription


1999 2017 1999 2017

2.6Employer-Supplied Materials and Employer's equipment

12.3 12.3 P& DB Retesting

4.19 Elecricity, Water and Gas 12.4 12.4 P& DB Failure to Pass Tests after Completion

4.20Employer equipmentand Free Issue Material

13.7 13.6Adjustments for Change in LegislationAdjustments for Change in Law

7.5 7.5 Defects and Rejection 14.4 14.4 Schedule of Payments

7.6 7.6 Remedial Work 15.3 15.3Valuation at Date of TerminationValuation after Termination for Contractor's Default

8.6 8.7 Rate of Progress 15.4 15.4Payment after Termination for Contractor's Default

8.7 8.8 Delay Damages 17.1 Indeminties9.4 9.4 Failure to Pass tests on Completion 17.4 Indeminties by Contractor

10.2 10.2 Taking-Over of Parts of the Works 17.6 Shared Indeminties 11.3 11.3 Extension of Defects Notification Period 18.1 19.1 General Requirements for Insurances

11.4 11.4 Failure to Remedy Defects 18.2 19.2Insurance for Works and Contractor's Equipment (last paragraph)Insurance to be provided by the Contractor

12.3 12.3CONS: EvaluationValuation of the Works

19.6 18.5Optional Payment, Termination and ReleaseOptional Termination

Employer’s and Contractor’s Claims Part I - a - Principle Part

2. Claims – Principal Contractor’s Claims in 1999 & 2017 Suite of Contracts:


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Most relevant Sub-Clauses in respect of Contractor’s Claims against the Employer:



1999 2017 1999 2017

1.9 1.9 CONS - Delayed Drawings or Instructions 8.5 8.6 Delays Caused by Authorities

1.9 1.9 P&DB - Errors in Employer's Requirements 8.9 8.10 Consequences of Employer's Suspension

2.1 2.1 Right of Access to the Site 10.2 10.2 Taking-Over of Parts of the Works

4.7 4.7 Setting Out 10.3 10.3 Interference with tests on Completion

4.12 4.12 Unforeseeable Physical Conditions 11.8 11.8 Contractor to Search

4.24 4.23FossilsArchaeological and Geological Findings 12.2 12.2

P&DB - Delayed Tests

7.4 7.4Testing by the Contractor

12.3 12.3CONS EvaluationValuation of the Works

8.4 8.5 Extension of Time for Completion 12.4 12.4 CONS Omissions


2. Claims – Principal Contractor’s Claims in 1999 & 2017 Suite of Contracts:


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Most relevant Sub-Clauses in respect of Contractor’s Claims against the Employer:



1999 2017 1999 2017

12.4 12.4P&DB - Failure to Pass Tests After Completion

17.1Indeminties

13.2 13.2 CONS Value Engineering 17.4 Consequences of Employer's risks

13.3 13.3 Variation Procedures 17.5 Indeminties by Employer

13.7 13.6Adjustments for Change in LegislationAdjustments for Change in Law

17.6 Shared Indeminties

14.4 14.4 Schedule of Payments 18.1 19.1 General Requirements for Insurances

14.8 14.8

Delayed Payment

18.2 19.2Insurance for Works and Contractor's Equipment (last paragraph)Insurance to be provided by the Contractor

16.1 16.1

Contractor's Entitlement to Suspend the WorkSuspension by Contractor

19.6 18.5Optional Payment, Termination and ReleaseOptional Termination

16.4 16.4Payment on TerminationPayment after Termination by Contractor




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Construction Contract (RB)

Key sub-clauses:

• Sub-Clause 1.9 (Delayed Drawings or instructions)

• Sub-Clause 2.1 (Right of Access to the Site)

• Sub-Clause 4.12 (Unforeseeable Physical Conditions)

• Sub-Clause 8.4 (Extension of Time for Completion)

• Sub-Clause 8.5 (Delays Caused by Authorities)



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a. Delayed Drawings or Instructions S/C 1.9

• “The Contractor shall give Notice to the Engineer whenever the Works are likely to be delayed or disrupted if any drawing or instruction is not issued to the Contractor within a particular time…”

• “The Notice shall include details of the necessary drawingor instruction, details of why and by when it should beissued, and the nature and amount of delay or disruptionlikely to be suffered if it is late.”



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2. Claims – Principal 1. Contents of a Claim (Cont’d)Construction Contract (RB)a. Delayed Drawings or Instructions S/C 1.9

• “An important sub-clause relating to claims that might easilybe overlooked.

• The two-stage process (notification by Contractor andidentification or reasonable dates for provision ofinformation which is already late) is a useful tool forrecovering progress.

• Places a significant burden upon the Contractor:− not always clear that the lack of provision, or the late

provision, of drawing, will cause delay and/or disruption;− unaware that the Engineer is preparing a revised drawing.



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2. Claims – Principal 1. Contents of a Claim (Cont’d)Construction Contract (RB)a. Delayed Drawings or Instructions S/C 1.9

i. Reasonable Period

• Contractor to specify a reasonable period by which theinformation is required (presumably the date being onewhich will avoid any, or any further, delay or disruption tothe Works).

• If this date is not met, then the Contractor required toprovide a further notice.

• Effect of late provision:− Claims for time and money under the Contract;− Not a claim for breach of implied terms as to hindrance and

non-cooperation.



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a. Delayed Drawings or Instructions S/C 1.9ii. Early Warning

• Contractor should attempt to give an “early warning”

• A mere mention in his Monthly Report that the Engineer islate in issuing a drawing is not the “early warning”required by this sub-clause.

• If the Contractor fails to comply with the aboverequirement, Sub-Clause 20.1 allows the Engineer to makeallowance for the consequences of such failure when heevaluates the claim.



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a. Delayed Drawings or Instructions S/C 1.9iii. Expanded to include Instruction

• Sub-clause includes the concept of instruction, the latterbeing a rather wider and more important concept thandrawings.

• Contractor entitled to money and/or time if instructionsare delayed.

• If the instruction is delayed as a result of the Contractor’sfault no such entitlement



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b. Right of Access to the Site S/C 2.1

• The key disputes over access to and possession of the Siterevolve around cases of:1. Right of access and possession

2. Means of access to the Site

3. Shared and/or partial possession of the Site

4. Access to land not directly associated with the PermanentWorks (e.g. storage areas, quarries), or subsidiary to themain location of the Permanent Works (e.g. power linepylon installations).



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b. Right of Access to the Site S/C 2.11) Right of access and possession

• “The Employer shall give the Contractor right of accessto, and possession of, all parts of the Site within thetime (or times) stated in the Appendix to Tender.”

• “Right of Access” means permission to enter and be onthe Site.

• Failure to make the Site available might lead to theContractor being entitled to an extension of time andconsequential costs.



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b. Right of Access to the Site S/C 2.11) Right of access and possession (Mitigation)

• In the Appendix to Tender (if so stated), or as indicated inthe Contractor’s Programme (if not stated in theappendix):─ Employer/Engineer to detail any sequencing or

restrictions, partial handovers, etc. in the Appendix toTender.

─ Contractor to check which parts of the Site will be availableand when is made clear, in terms of number of days fromthe Commencement Date.



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b. Right of Access to the Site S/C 2.11) Right of access and possession (Possession of all the Site)

• It is not necessary for the Employer to grant access to the whole Site right at the start.

• If no time is prescribed, the Employer is to make the Site available in sufficient time so as not to disrupt work according to the Contractor’s Programme submitted under Sub-Clause 8.3

• So Site can be made available in parts unless the Programme shows that possession of the whole site is necessary at the same date.



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1) Right of access and possession (Mobilization)

• Claims for late possession of the Site arise at the start of theproject when the Contractor is supposed to be mobilizing.

• Frequently, the Contractor is late in mobilizing,notwithstanding the delay in obtaining possession. So theEngineer should monitor mobilization carefully.

• In such cases, no additional payment would be due.

• Entitlement to an extension of the Time for Completionwould probably remain.



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• If access is delayed so that the Engineer cannot givethe notice to commence, see Sub-Clause 8.1[Commencement Date], Contractor will not need a timeextension since the Time for Completion does not startuntil the Commencement Date has been established.



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• However, if the delay exceeds the 42 days after theLetter of Acceptance, see Sub-clause 8.1(Commencement Date), Contractor could claim anadjustment to his rates and prices.

• Also, if later releases of parts of the Site were delayed,the Contractor could also claim an extension of time.



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1) Right of access and possession

• “If, under the Contract, the Employer is required to give (tothe Contractor) … means of access, the Employer shall do soin the time and manner stated in the specification.

• Employer only required to give the Contractor the “right” ofaccess to the Site.

• Contractor to ensure that the means of access are availableand the practical difficulties in getting to and from the Siteare to be solved by the Contractor.



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2. Claims – Principal 1. Contents of a Claim (Cont’d)Construction Contract (RB)b. Right of Access to the Site S/C 2.1

2) Shared possession of the Site

• “The right (of access) and possession may not be exclusiveto the Contractor.”

• If:− areas of Site over which the Contractor has only a shared

control, or− Contractor is unable to have free and unfettered possession;− Contractor is required to work with or around other

contractors (by Sub-Clause 4.6, Contractor must cooperatewith other contractors working for the Employer on or nearthe Site)



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b. Right of Access to the Site S/C 2.12) Shared possession of the Site

• Contract does not specifically state that work anticipated by other parties in parallel with the Contractor has to be detailed

• Contractor to be aware of which parts of the Site will be available and when (check Appendix to Tender).



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b. Right of Access to the Site S/C 2.12) Shared possession of the Site

• If information regarding third party operations on Site isnot described under the Contract:

− Contractor cannot ban third party from entering the Site

− Can submit a notice of claim for additional payment andan extension of the Time for Completion under Sub-Clause 8.4 (e) to the extent the third party interferes withwork.

− In most cases, Engineer should issue a Variationinstruction.



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b. Right of Access to the Site S/C 2.12) Shared possession of the Site (Contractor’s duty to Cooperate)

• Submitting a Notice of Claim if information regardingthird party operations on Site is not described under theContract is unwise since the Contractor has a duty tocooperate:

– Sub-Clause 4.6 [Cooperation]: “… Contractor shall as specifiedin the Contract or as instructed by the Engineer, allowappropriate opportunities for carrying out work to third parties,public authorities and the Employer’s Personnel; anyinstruction shall constitute a Variation if and to the extent itcauses the Costs “Contractor to incur Unforeseeable Costs.



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b. Right of Access to the Site S/C 2.12) Shared possession of the Site (Other Places)

• Definition of the Site is wide. Important that all Partiesunderstand where these “other places” may be.

• Unless the definition of site covers a special situation,contractor responsible for obtaining access to otherareas e.g., quarries, access to land needed for Works,e.g., power pylons.

• Advisable for the Engineer/Employer to anticipate thesematters as much as possible, and inform the tenderers.



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c. Unforeseeable Physical Conditions S/C 4.12

• “… ‘physical conditions’ means natural physical conditions andman-made and other physical obstructions and pollutants,which the Contractor encounters at the Site when Executingthe Works, including sub-surface and hydrological conditionsbut excluding climatic conditions.”

• “If the Contractor encounters adverse physical conditionswhich he considers to have been Unforeseeable, theContractor shall give Notice to the Engineer as soon aspracticable.”



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c. Unforeseeable Physical Conditions S/C 4.12

• Who is responsible for unforeseen physical conditions isunsurprisingly a contentious issue.

• Sub-Clause 4.12: Contractor might be entitled to anextension of time and recovery of Cost as a consequence ofdelay, if he encounters unforeseeable physical conditions.

• ‘Unforeseeable’ means not reasonably foreseeable by anexperienced contractor by the tender submission date.

• An event which is “imaginable” is not necessarily“reasonably foreseeable by an experienced contractor.”



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c. Unforeseeable Physical Conditions S/C 4.12 1) Site Data S/C 4.10

• Employer to make available “all relevant data” in hispossession, and shall make available all such relevantdata which comes into the Employer’s possession afterBase Date.



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• Contractor responsible for:

− interpreting the site data;

− obtaining other information, so far as practicable

• These obligations will be viewed in the perspective:

− thoroughness of the Site Data;

− time availability

− accessibility of the Site at Tender



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• Failure to provide all relevant data will have a significantimpact on determining whether a physical condition wasforeseeable

• Law in some countries may entitle the Contractor toterminate if the Site data has been negligently or intentionallywithheld.

• Not considered to be relevant date are:− information which is known to be incorrect,

− experts’ opinion and other non-factual interpretation



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c. Unforeseeable Physical Conditions S/C 4.12 2) Continue working

• Contractor’s Notice required:– to describe the physical conditions so that they can be

inspected by the Engineer, and - - to set out reasons whythe Contractor considers them to be “Unforeseeable”.

– unless instructed by the Engineer otherwise, “theContractor shall continue executing the Works, using suchproper and reasonable measures as are appropriate forthe physical conditions.”



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c. Unforeseeable Physical Conditions S/C 4.12 2) Continue working

• Thus, the Contractor shall:– continue executing the Works;

– take such measures as are reasonable in the circumstances to take account of the problem;

– comply with any instructions which the Engineer may issue (Contractor may need to change his programme or method of working);

– Contractor and Engineer work together to resolve the difficulties.



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c. Unforeseeable Physical Conditions S/C 4.12 3) Engineer’s Instruction

• Engineer’s instruction may constitute a Variation, as an unforeseen physical condition frequently necessitates a change in design or methods.

• If the Engineer agrees that the physical conditions encountered were unforeseeable, and any instruction constitute a Variation, then the Contractor is entitled to claim additional time and money, if appropriate.



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c. Unforeseeable Physical Conditions S/C 4.12 4) Issues

i. Wide definition– includes fossils and archaeological artefacts. On the Site

ii. At the Site– Physical conditions must occur at the Site

– If the conditions occur in a place or at a location whichis not encompassed by the definition of Site, then thecondition is not a ‘physical condition’.



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iii. Notice

– Contractor to give Notice “as soon as practicable”.

– No definition of what is practicable as it will depend onthe circumstances of the discovery of the problem.

– Although no strict time limit is set, Contractor should notto delay issuing a notice.



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iv. Balancing

– While Contractor entitled to an extension of time andadditional payment of Costs, sub-clause containsmechanism to balance unforeseeable against morefavorable than foreseen conditions



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iv. Balancing

• Engineer has the power to review:– If other physical conditions in similar parts of the Works

(if any) were more favorable than could have beenforeseen;

– If and to the extent that these more favorable conditionswere encountered, the Engineer may offset. ButContractor’s claim can be “wiped-out”.

Variations


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