Most, if not all, large scale construction and engineering projects run into some form of delay and/or budgetary issues. Whereby, contractors look to claim for additional money and time for events they deem as the employer’s risk, whilst often employers look to claim for events, which they deem, are the contractors risk.
This post will look at the contractual claim procedure under FIDIC Red Books 1999 and 2017, and shall take into consideration the changes, which have occurred between the 1999, and 2017 versions.
Within the FIDIC forms of contract, they anticipate the most likely scenarios in which contractors and employers make claims against one another.
The following is a list of contractors and employers relevant items to claim, using the FIDIC definitions and clauses.
Some examples of contractors claim clauses:
- Delayed Drawings or Instructions (Sub-Clause 1.9);
- Right of access to the Site (Sub-Clause 2.1);
- Unforeseeable Physical Conditions (Sub-Clause 4.12);
- Extension of Time on Completion (Sub-Clause 8.5/8.5);
- Delays caused by Authorities (Sub-Clause 8.5/8.6);
- Consequences of Suspension (Sub-Clause 8.9/8.10);
- Interference with Tests on Completion (Sub-Clause 10.3);
- Right to Vary (Sub-Clause 13.1);
- Variation Procedure (Sub-Clause 13.3);
- Adjustments for changes in Legislation (Sub-Clause 13.7);
- Contractor’s Entitlement to Suspend Work (Sub-Clause 16.1);
- Consequences of Employer’s Risk (Sub-Clause 17.4/17.2); and
- Consequences of Force Majeure (Sub-Clause 19.4/18.4).
Some examples of employer’s claim clauses:
- Rejection and retesting of Works (Sub-Clause 7.5);
- Delay or Liquidated Damages (Sub-Clause 8.7/8.8); and
- Failure to remedy Defects (Sub-Clause 11.4)
As each construction project is unique, and with so many variables involved, there are always deviations from the original construction plan. As shown above FIDIC has made provisions for dealing with those deviations through defined claim procedures.
The claims procedure is not meant to be confrontational (although each claim notification is viewed that way) but it is aimed at resolving claims in an efficient manner.
Claims Procedure
One should note that FIDIC 1999 has two separate claims procedures: the employer’s claims procedure is under Sub-Clause 2.5; and the contractor’s claims procedure is under Sub-Clause 20.1.
FIDIC 2017 combine both the employer and the contractor’s claims procedures under Clause 20.
This section shall look at the claims procedure and steps of both contracts.
Contractor’s claim in FIDIC 1999
The contractor’s claims procedure under FIDIC 1999 are different to those of the employer.
The contractor is to comply with Sub-Clause 20.1, must, once the contractor considers himself to be entitled to seek remedy to a claim event arising give notice of the claim event to the engineer, as soon as practicable and not later than 28 days after the contractor became aware, or should have become aware of the claim event or circumstance.
If the contractor does not give notice within the specified time period, the contractor shall not be entitled to seek remedy, whether it is for an extension of time or for additional payment and the “Employer shall be discharged from all liability in connection with the claim”.
An example of this would be should the contractor not gain access to the site at the agreed date, the contractor could argue that delayed access (under Sub-Clause 2.1) has delayed the start of the works and will therefore delay completion.
If the contractor was to submit a notice “as soon as practicable” and within 28 days from the date that the site access should have been provided, then the contractor is entitled to pursue a claim for time and/or money. If the contractor fails to submit such notice within the prescribed time then it may lose its right to claim such a remedy.
Once the contractor has submitted a notice in accordance with the above provision, the contractor is to submit a “fully detailed claim including supporting particulars” within 42 days after it became aware, or should have become aware, of the event or circumstance giving rise to a claim.
If the claim event has a continuing impact, then the contractor is to submit a fully detailed claim at monthly intervals, detailing the impact of the cumulative delay and/or amount claimed and naming each claim an interim claim. Upon the conclusion of the delay event, the contractor shall then submit a final claim within 28 days after the end of the claim event.
The engineer in accordance with Sub-Clause 3.5 shall determine the claim, whereby the engineer is to consult with the parties to see if the claim can be resolved, or if not the engineer is to make a fair determination.
Nevertheless, the engineer shall respond to the contractor within 42 days after receiving a claim or any further particulars supporting a clam, with approval, disapproval or with detailed comments. The engineer may request further particulars from the contractor, but he shall give a detailed response on the merit of such claim submitted within the time.
It should be noted that the submittal of the claim itself, is not stated to be time-barred, but if the failure to provide a fully detailed claim has prevented the a proper investigation and potential mitigation of the claim, then that delay can be factored into any determination, by the engineer, of the contractor’s entitlement to time and/or money.
If the contractor is satisfied with the engineer’s determination, then the claim is settled. However, should the contractor disagree with the determination made by the engineer then the claim is escalated to the status of a dispute, however the contractor is bound by the engineer’s determination until the claim (now a dispute) if finally resolved in accordance with Clause 20.
Employer’s claim in FIDIC 1999
The employer’s claim procedure under FIDIC 1999 is under Sub-Clause 2.5, which requires that the employer or the engineer to give notice and particulars to the contractor “as soon as practicable” after the employer became aware of a claim event, or circumstance, which leads to a claim.
The claim notice is to contain the particulars and cause of the claim and substantiation of the amount claimed. However, the main difference to the contractor’s claim is that an employer’s claim is not required to be submitted within a specific time period from the claimed event. Meaning that the employer is not time-barred from submitting its notice.
It should be noted that once an employer notifies it’s claim the same process is followed as for the contractor’s claims as detailed above.
Claims Procedure in FIDIC 2017
There are a number of changes introduced to the claims procedure within FIDIC 2017 from FIDIC 1999, the main ones being:
- The engineer takes a greater role throughout the claims process, particularly when it comes to the engineer’s administration of claim notices;
- Both the employer and contractors claims are addressed under the same clause and subject to the same procedure; and
- More rigorous fixed time limits to submit claim notices and a fully detailed claim, which are:
- 28 days to submit a claims notice
- 84 days to submit a fully detailed claim
Please note that non-compliance (by either party) with the time limits for the notice or the fully detailed claim may result in the invalidation of such documentation and potentially bar any remedy for defaulting party to make a claim.
Sub-Clause 20.1 splits the categories of claims made by the employer and the contractor as follows:
- 20.1 (a) Additional payment from the contractor, a reduction in the contract price or an extension of the defects notification period;
- 20.1 (b) Claims for an extension of time and/or additional payment against the employer; and
- 20.1 (c) Other relief not covered in the above categories.
There is a clear distinction between 20.1 (a) and (b) and 20.1 (c), in that the other claims (20.1 (c)), although still determined by the engineer, do not need to follow the strict requirements of the claims procedure, which shall be explained below.
In addition, the other claims do not commence from the event or circumstance, but from the disagreement between the parties. The notice of such claims only require to be issued as soon as practicable once the claiming party becomes aware of the disagreement, including details of the disagreement. Notice is the only requirement for the engineer to issue its agreement or determination under Sub-Clause 3.7.
The first two categories of claims (Sub-Clause 20.1 (a) and (b)) must follow the claims procedure as detailed under Sub-Clause 20.2.
The claiming party must give a notice to claim (Sub-Clause 20.2.1) as soon as practicable and no later than 28 days after the party become aware, or should have become aware, of the event of circumstance giving rise to a claim. Should a party fail to give a notice to claim within this time period, then the claiming party shall not be entitled to claim against the other party, resulting in the claiming party being time barred.
If the engineer considers that the claiming party has failed to provide a notice within the 28-day period, the engineer is required to (Sub-Clause 20.2.2) give notice within 14 days from the date of receiving the notice to claim, notifying that the claiming party is out of time.
Should the engineer not provide such a notice within the 14 days, the notice of claim submitted by the claimant shall be deemed valid. The other party can still object to the validity, by giving notice to the engineer and providing details of such objection. The engineer shall then consider this objection when making the engineer’s determination.
Importantly, if the engineer issues its notice deeming the notice of claim to be invalid, then the claiming party may include in its fully detailed claim, details of its disagreements or justification of the late submission.
Even if the 14-day notice has been issued, the claiming party is required to submit a fully detailed claim within 84 days and the engineer shall nevertheless agree and determine the substance of the claim pursuant to Sub-Clause 3.7 and include a determination on the validity of the notice.
Should the claiming party fail to submit its claims within the 84-day time limit, its notice of claim shall be deemed to have lapsed and the notice shall be treated as invalid. The engineer is required pursuant to Sub-Clause 20.2.4, give notice to the claiming party that the claim is no longer valid. This notice must be given within 14 days after the time limit submission of the detailed claim has expired.
If the engineer issues this further notice, then it is open to the claiming party to provide such disagreement or justification of the late submission, which shall be included in the claiming party’s fully detailed claim.
If the engineer does not give a notice within the 14-day period, this notice of claim shall be deemed a valid notice. If the other party disputes the validity of the further notice, it shall notify the engineer of such disagreement. The same process applies above that the engineer must include in its findings on such disagreement. What this means is that the notice of disagreement must be provided prior to the engineers determination for it to be included within the engineers determination, even though there is no time limit stipulated for its submission.
Where the engineer has issued a notice to the claiming party saying that the time has lapsed and the claim is no longer valid, the claiming party will be required to include details of its disagreement with the engineer’s notice for the late submission of its fully detailed claim.
When the engineer has given a notice under Sub-Clause 20.2.2 (failure to give notice within the time period) or Sub-Clause 20.2.4 (failure to provide a fully detailed claim), the engineer is required to determine the submitted claim in accordance with the procedure set to under Sub-Clause 3.7. Whereby, the engineer must consider the claiming party’s disagreement within the determination.
Sub-Clause 20.2.5 requires the engineer to agree or determine the claim in accordance with the procedure set out under Sub-Clause 3.7, once the engineer receives the fully detailed claim.
If the claim is an interim claim, the engineer must issue a reply detailing the contractual or other legal basis of the first interim fully detailed claim within the time limit detailed under Sub-Clause 3.7.3. The claiming party shall continue to submit further interim detailed claims on a monthly basis and shall submit a final fully detailed claim within 28 days after the end of the delay effects giving rise to the claim.
Sub-Clause 3.7.5 provides that if either party is dissatisfied with the engineer’s determination, such party may, within 28 days after receiving the engineer’s determination, give a notice of dissatisfaction (the notice must contain the reason for dissatisfaction).
After a notice of dissatisfaction is provided, either party may then proceed to obtain a decision of the dispute from the dispute avoidance or adjudication board, but must comply with the engineer’s determination in the interim, until it is replaced by a final determination obtained under the dispute procedure pursuant to Clause 21.
If no notice is given, then the engineer’s determination becomes final and binding.
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