Price Escalation - can we claim for additional costs?

Since COVID and the Ukraine conflict, we have seen a major rise in the cost of completing projects. Increased costs of energy, shipping, manufacturing and raw materials are often to blame.

Contractors, locked into fixed price contracts, often face a loss-making situation on projects.

Clients often seek advice on what to do in these situations. Can they claim for these increases from the Employer?

Here's our thoughts:

In times where we face high inflation and price escalation, contractors have to allow for anticipated increases in costs when they price a job.

This is a guessing game. Whether a contractor takes a conservative view, or a protective view depends on how competitive they wish to be with the tender.

Bearing in mind that low margins may be acceptable, a loss making situation will be a road to disaster so most contractors will adopt a cautious view.

Let's also look at this from the employer's perspective.

This could lead to a situation where the Employer pays for a higher risk of inflation than will actually occur. To combat this, sensible employers will share the risk. They will pay for actual increases in costs rather than the tenderers’ “belt and braces” estimate.

If an employer does take this step, the employer will include a price escalation condition within the contract.

Such a clause provides that the tender should be priced on the costs prevailing at a base date, which is set during the tender period. The contractor will subsequently be compensated for actual increases which occur during the contract period.

This may include all costs. The increases would be calculated using published cost indices, or a list of base costs with increases calculated by comparison to subsequent invoiced costs. In other words, the contract will not be a “fixed price contract”.

Unfortunately, many contracts were entered into when inflation was reasonable. As a result, many projects in progress do not include such provisions. Most contractors are in a situation where they have to bear the current risk of cost increase.

We wait to see if employers will adapt the risk management strategy of including cost escalation provisions...

Need support with your contracts or projects? Get in touch to see how our experienced team of consultants can help. 

construction disputes

Arcadis - The Root Cause of Disputes?

I always look forward to reviewing Arcadis annual Global Construction Dispute Report.

The 2022 report starts with the following summary.

“From 2020 to 2021 the average value of disputes declined by 3% across the globe but remains at historically high levels compared to 2019 and earlier. The average time taken to resolve disputes increased significantly, by almost 15%, for the first time in three years. There was also a consensus that the overall number of disputes increased.”

So, the industry hasn't learned much about dispute avoidance. It continues to spend significant time and money on dispute resolution. And, the effects of COVID and the Ukraine conflict is likely to create more challenges in future. It follows that in such circumstances, conflict and dispute will only increase.

Two Leading Causes

It is no surprise that the report identifies the two leading causes of disputes as being:

  • Party failures to understand contractual obligations
  • poorly drafted or unsubstantiated claims.

Nothing has changed here. Arcadis have highlighted these failures since they began publishing the report 12 years ago.

The report highlights that many contractors have had to absorb increased supply chain costs. It also notes that contractors have had to overrun costs to complete projects. This has a direct impact on their bottom line. Employers should expect to see a rise in change/variation requests and disputes, as contractors attempt to recover unanticipated costs.

Arcadis also identified the most important factors in the mitigation/early resolution of disputes as follows:

  • Owner/contractor willingness to compromise.
  • Accurate and timely schedules (programmes) and reviews by project staff or third parties.
  • Contractor transparency of cost data in support of claimed damages.

The Middle East

In the Middle East, the report advises that “respondents also advised there were more disputes in 2021 and they expect the number of disputes to continue to increase throughout 2022”. Given that we continue to see inadequate contract administration and project controls performed by inadequately trained, experienced, and qualified personnel on Middle East projects, this comes as little surprise to us.

The report states that in the Middle East, “Owner/contractor/subcontractor failing to understand and/or comply with its contractual obligations remained the most common cause of dispute in 2021”. The third most common cause is “poorly drafted or incomplete and unsubstantiated claims” and ARCADIS make the point that “It is common to see extension of time claims using incorrect logic and analysis techniques, meaning the receiving party can easily reject the claim where poor narrative and incorrect logic prevent entitlement to a claim”. This is something that we agree with from hands-on experience.

The report notes that “Adherence to the basics of effective claims management such as early notification, accurate record keeping, correctly updated programs reflecting actual progress, and logically drafted claims based on factual evidence will assist parties to obtain earlier resolution and avoid the perils of this year’s top dispute cause of owner/contractor/ subcontractor failing to understand and/or comply with its contractual obligations.” We agree with this observation, and it echoes advice that we have been giving to our clients for many years.

So, Arcadis continue to report that things are not improving in the world of dispute avoidance, but also consistently identifies the same causes of disputes.

The Root Causes?

Here are my thoughts on the underlying root causes that contribute to this situation:

  • Usually, on the advice of their consultants, Employers change a balanced allocation of risk contained in standard forms of contract. This typically obliges contractors to absorb more risk than is sensible or equitable.
  • Contract documents are prepared by inadequately experienced individuals. This results in poorly expressed conditions, ambiguities and conflicts.
  • Contractors do not carefully examine the contract documents during tender.
  • The Contractor often fails to identify risks.
  • Contractors do not review the contract documents before signing. As a result, they enter into contracts containing poorly expressed conditions, ambiguities and conflicts.
  • The project participants do not invest in adequately trained, qualified or experienced contract administration and project controls staff. The staff they employ are unable to manage such responsibilities to an adequate professional standard.
  • Project participants do not invest in advice and assistance from external experts when internal resources are not adequately experienced.
  • Teams do not have the time to devote to dealing with challenging matters.

Mistakes Contractors Make...

  • Contractors fail to submit notices or fail to submit them in the correct form.
  • Contractors do not report progress accurately or truthfully.
  • Contractors do not keep adequate records of deployed resources or activities being undertaken.
  • Contractors consider claims on the basis of when they discover that they “need” more time and/or money. This is opposed to when they become entitled to compensation.
  • Contractors fail to respect time frames for submission of claims and leave them to the end of the project, resulting in:
    • Large, complicated claims for multiple events. These are difficult and time-consuming to prepare, respond to and agree.
    • The respondent having little incentive to resolve claims equitably when the project is approaching completion.
    • Cashflow issues.
    • Demobilisation on both sides of the contracting fence of people with knowledge of the project and the events.
    • Claims do not contain the required information to prove that entitlement exists or the amount of compensation.
    • Responses to claims do not contain sufficient information. They then fail to convince either party that the findings of the claim are fair in accordance with the contract.
    • Claims and responses may not be properly or easily understood by the other party.

Let Us Help

Hewitt Decipher Partnership’s expert consultants have been helping clients to avoid disputes for many years. We know how to comply with good practice. As a result, the team can help ensure your project controls and systems are suitable and professionally managed. If you have a justifiable claim, or if you are responding to claims, we ensure that claims are resolved in a timely manner. We also provide training and education to companies and individuals.

Can we help you? To find out how, get in touch.

Contract Document - FIDIC Green Book

FIDIC Green Book - What's New in the 2021 Edition?

The FIDIC Green Book – What’s New in the 2021 Edition?

FIDIC have recently launched a new edition of the Green Book. We’ve taken a look at the 2021 edition and summarised the key similarities and differences with the earlier 1999 version.

What’s the Same in FIDIC Green Book 2021?

  • FIDIC recommends that the Green Book is used for low-value projects (less than US$ 10M) and larger projects that are either straight forward, involve repetitive work and/or have a low-risk profile.
  • It is a relatively short form of contract and requires less contract administration than the other main FIDIC contracts.
  • The risk profile remains balanced.
  • The provisions remain relatively uncomplex with simple contractual concepts.
  • Design may be provided by the Employer or the Contractor.
  • Options exist for pricing and evaluation of the Works.

What Are The Changes?

  • Additional clarity introduced to some of the conditions.
  • New provisions.
  • Inclusion of flow charts.
  • Inclusion of pro-formas for notices, requests, and similar administrative procedures.
  • Risks are clarified.
  • Some additional obligations exist for both parties.
  • The inclusion of more express rights and obligations.
  • The introduction of an “Engineer” to administer the project.
  • The addition of a ‘Contract Data’ proforma, to cover information particular to the project.
  • The inclusion of a formula for calculating prolongation costs.
  • Intention to claim must be notified within 28 days. There is a requirement to submit claims within 56 days.
  • The adjudicator is to be appointed within 28 days of the Contract being effected. The adjudicator also provides dispute avoidance advice.

In 2017 the Red, Yellow and Silver Books became more complex in terms of contract administration. As a result, we see the improved version of the Green Book as a viable alternative for many projects.

As always, however, give careful consideration to the nature of the project, the likely risks and the Employer’s goals before selecting the most suitable form of contract. And as always, if you need any help, don't hesitate to get in touch today.

things contractors get wrong when it comes to claims

The Top 10 Things Contractors Get Wrong When it Comes to Claims

At Hewitt Decipher Partnership we have many, many years of experience of claims. We have prepared them for contractors, responded to them for consultants and employers and have provided expert reports on them in disputes. We often see the same issues crop up time and time again. So to stop you making those mistakes, we’ve put together a list of the things that contractors frequently get wrong when it comes to claims.

1. Failure to give notice.

The giving of notices is usually an obligation and is often a condition precedent to entitlement. Yet, contractors frequently either do not give notice or when they do, the notice is not submitted in a suitable form, or does not contain adequate information.

How to avoid this mistake?

Firstly, make sure you give notice. The form and manner in which you should submit your notice will usually be set out in your contract.

2. Failure to submit claims on time.

If you leave your claim until the end of the project, it will be harder to resolve. If the project has been handed over, this will become even more difficult.

How to avoid this mistake?

Submit your claim as soon as you become aware of the problem. Our friends at Claims Class have some useful advice on the timing of claims and notices in this blog.

3. Submitting consolidated claims.

Contractors seem to like to wait until several delay events have occurred before submitting an extension of time claim and then they submit one claim for several events. This is not good practice. Firstly, this delays the submission of the claims for the early delays. Secondly, one large, complicated claim is harder to respond to than several individual claims. Finally, if they employer doesn't agree with one event, the settlement of the whole claim will be held up.

How to avoid this mistake?

Don’t hold up the submission of claims. Submit your claims as and when issues occur and keep them simple. Don’t confuse multiple issues, and make it easy for the employer to assess your claims.

4. Failure to keep records.

You must substantiate any claim you submit. This substantiation will rely on contemporaneous records. If robust contract administration systems are not created and administered, then it becomes difficult to substantiate the matters relied upon in the claim and the claim will fail.

How to avoid this mistake?

Records, Records, Records. Keep and maintain good records. Decipher have some useful advice on what ‘good record keeping’ actually looks like in this video.

5. Failure to provide accurate progress reports.

Contractors are often “creative” when reporting on progress because they don't want to give bad news or face criticism. If no delays were reported contemporaneously, it subsequently because difficult to change the story in a claim for an extension of time.

How to avoid this mistake?

Be honest about the position of the project. If you can see a potential delay on the horizon, report it as soon as you are aware so sets can be taken to mitigate. Don’t bury your head in the sand and wait till it is too late – be proactive.

6. Failure to maintain accurate updated programmes.

To demonstrate the effect of claimable delays, you will need an up to date version of the programme. They are vital in a claim situation. If these do not exist or they are inaccurate, the demonstration of delay and cost entitlement will become difficult.

How to avoid this mistake?

Keep the programme up to date and be sure that it reflects accurate progress on the project. Don’t be tempted to manipulate the programme to avoid showing delays to the completion date.

7. Failure to link cause with effect.

For a claim to succeed, it is necessary to demonstrate that the event had an effect on the completion date and /or entitlement to payment.

How to avoid this mistake?

Follow our ‘Four Corners of a Claim’ method of claim preparation. This will make sure you have included everything necessary for the claim to be accepted.

8. Failure to establish contractual entitlement.

Contracts provide remedies to the contractor if certain types of events occur. The claim must demonstrate that the contract provides entitlement to compensation for the event on which the claim is based.

How to avoid this mistake?

Make sure you understand the contract and your obligations and entitlements. Often the contract is not referred to until problems arise, at which point it is too late. Strong contract administration will help you be sure of your entitlement.

9. Inadequately expressed claims.

It is not enough for entitlement to exist – it must be demonstrated. If the respondent cannot understand the claim or if the claim does not contain sufficient information for the matters relied upon to be verified, an award will not be forthcoming.

How to avoid this mistake?

Include the relevant information, appendices and evidence to back up your claim. Make sure it is presented clearly. Make it clear and easy for the employer to follow and understand. Paul has some useful advice on preparing claims in this podcast.

10. Lack of claims expertise.

It is unlikely that a contractor would employ a plumber to carry out electrical installations. Why then do contractors leave the preparation of claims for what may amount to huge sums of money to inadequately qualified, inexperienced staff who have little expertise?

How to avoid this mistake?

Bring in help early. It is often tempting to wait until a problem occurs, but by that point it is often too late. Getting support from the outset of the project, either in the form of training, contractual advice or claims management support can help you avoid issues later on.

Hewitt Decipher Partnership’s expert consultants have been preparing and responding to claims for many years. We know how to comply with good practice to ensure that a justifiable claim is presented in such a way to ensure that it is accepted in a timely manner and so that disputes are avoided.

Can we help you? To find out how, get in touch.

Energy Power Station

Energy Projects and Disputes - Webinar & Recording

Hewitt Decipher Partnership hosted a webinar focussing on energy projects, risks and disputes. Paul Gibbons, Andy Hewitt and Tom Francis of HDP join Theresa Mohammed of Trowers & Hamlins, Philip Boulding QC of Keating Chambers and John Shenton of Hitachi, for a look at energy projects, the risks and contractual / commercial challenges that might arise from disputes in the energy sector.


  • Tom Francis – our head of project controls and delay expert will look at some of the challenges faced in analysing and proving delay on energy projects.
  • John Shenton – Contract Manager at Hitachi ABB examines the inside perspective from live projects and his work at Hitachi.
  • Theresa Mohammed – Solicitor at Trowers and Hamlins, gives a legal perspective. What does the law say and how does it work?
  • Philip Boulding QC of Keating Chambers looks at disputes and international arbitration.

A full write-up will follow shortly, but for now, the recording of the session is available to watch:

Money and Cashflow

Cashflow and the Contract

Cashflow and the Contract. Dominic Mondino

Cashflow is essential for business.

Everyone will be well familiar with the well-worn trope, “cashflow is the lifeblood of the industry”. As well-known American businessman, Chris Chocola once said, “balance sheets and income statements are fiction, cashflow is a reality”.

So, what can we do to improve and maintain cashflow, ensuring suppliers and staff can be paid and the business remains solvent?

Some Key Points to Remember

Firstly, and fundamentally, read and understand your contract.  Remember that with standard form of contracts, amendments are very common and if not considered correctly, are likely to trip you up.  Understand your contract, make notes, and schedule out any pertinent clauses.  Particularly, clauses relating to dates, durations, timeframes for submission of notices and payments.  Timeframes are critical no matter what contract you are working under or the location of your project.

It is important for you to understand the type of contract you are signing up to. Check the contents, the supporting appendices, the extent of amendments to the contract and the impact these may have on cashflow.

Typical Contract Risks and Elements to Consider

Looking at standard forms of contracts, they will typically advise of similar obligations. These will include:

  • Key personnel and their responsibilities.
  • A requirement to state a starting date, a completion date, access dates and any sectional completion.
  • Provisions for the price to be payable in the form of a BQ or Activity Schedule.
  • A variation mechanism, and timeframe for notification and response.
  • Options for employer design or contractor design responsibility.
  • A mechanism for making the contractor responsible to provide quality and workmanship in accordance with the contract.
  • A process for accepting any contractor’s defects.
  • Valuation mechanisms for payment and timeframe for notification and response.
  • Various options to suit the size, complexity, type of work.
  • A process for dealing with defects and resolution of disputes.

All these elements need understanding. If understood correctly, this can assist with maintaining effective cashflow. If you miss or misunderstand any element, payments may be delayed and costs incurred.

With regard to payment periods and notices timeframes - be particularly vigilant.

What you have agreed on one contract with a particular employer, although it may be the same standard form of contract, may have been subject to amendments. Therefore, be mindful of this, allow time for review and consideration, and to become familiar with the amendments and their impact, before they are agreed.

Change and Variation in Contracts

With regard to Variation Notification Timelines on projects, different contracts take different approaches. Some examples of that are highlighted by the following example clauses (this is by no means a comprehensive list):

  • In the JCT form of contract, most popular in the UK:
  • 3.5 - deals with changes by the employer.
  • 3.6 - the time for confirmation of change by the contractor.
  • 3.7 - the time for confirmation of verbal changes.
  • 3.9 - the instructions that require formal agreement.
  • 5.2 - valuation of change and the rules around other forms of change.

And for the NEC contract:

  • 6 - deals with variations (or ‘compensation events’).
  • 61.1 - compensation events from the project manager.
  • 61.2 - the requirement to issue a quotation.
  • 61.3 - requirements for compensation events from the contractor.

And for FIDIC (based on the 2017 Yellow Book):

  • 3.3 deals with instructions from the engineer
  • 13.1 deals with the right of the Engineer to vary the contract.
  • 13.4 deals with payment and subsequent clauses deal with different elements of cost on a project.
  • 13.7 tackles the issue of costs arising from changes in the law of a country.
  • 20.1 addresses the requirement to give notice of delay or additional costs.

Concluding Points

In conclusion, there are a few key points to take away:

Where variations arise, try to agree these promptly. Remember vesting: off-site storage of materials may qualify for claims in the valuation. Check the timing of deliveries in terms of notices and notifications / responses to any changes. Liaise closely with your project teams on valuation cut off dates in order to avoid disappointment.

Depending upon your local legislation, you may need to look to the local law and how it interacts with the contract. If something is not covered by your contract, local law may take precedence. Even where something is covered by the contract, local law may overrule it. This is particularly important in the Gulf region as a result of the civil code systems of law.

Effective communication and maintaining good relationships is key.  Ensuring valuations are accurate is a result of good communication with your suppliers and with the person paying the bills. Good communication may smooth the way for prompt payment.

Remember to check any contract amendments.  Amendments may shift risk from places it may be expected, to places it may both be unexpected and unwanted. They can also conflict with existing standard clauses, so be sure to watch out for those and if unsure, seek advice - our team of consultants will be happy to chat.

Dominic Mondino, based on a talk delivered February 2021


Success with Claims Arising from COVID-19

This month, I'm going to take the opportunity to blow our own trumpet a little...

And why not?

HDP has worked with a number of clients on extension of time claims connected with COVID-19 recently. Of particular note, we helped clients on two complicated and high-value projects with very high levels of delay penalties. I'm really proud of the way our team manages these projects to achieve successful outcomes. So by sharing the details as case studies, I hope it offers some food for thought for managing your own claims...

The Projects

Both projects were EPC contracts undertaken by overseas contractors to engineer, procure and construct industrial plants. Both included many materials and significant quantities of plant and equipment which were manufactured overseas.

In a more conventional extension of time claim, the activities affected by the claimable delay generally only amount to a small number. They may be relatively easily impacted into a suitable programme to demonstrate the effects of the claimable delay on the time for completion. An extension of time claim related to  variation, for example, would require a fragnet to be created to show the instruction, shop drawing preparation and approval, material submission and approval, procurement, delivery and site installation. Other claims may include several delay events with corresponding periods of delay being impacted into a programme. If the logic links are correct, the programming software will produce the information necessary to calculate the extension of time due to the event or events.

Not Your Usual EoT Claim

Delays related to COVID-19 were, however, just like COVID-19 itself, very, very different. On the projects in question, COVID-19 delayed literally hundreds of the programmed activities. Overseas manufacture and delivery of many items was delayed because of lockdowns. Travel restrictions meant that our clients could not mobilise personnel for site installation and specialist personnel for testing and commissioning. The countries in which the projects were based were placed under lockdown. The sites were closed due to COVID-19 amongst the project personnel and social distancing in the workplace reduced productivity. In addition to delays incurred by our clients, local subcontractors were similarly affected by many of these matters. This list of delays, all due to COVID-19, went on and on.

Thinking Outside the Box

This unprecedented situation called for us to re-think the conventional approach to extension of time claims. Especially the delay analyses necessary to prove the effect of COVID-19 on the time for completion. The fact that we did so, and did so successfully for our clients, was validated because the claims were accepted by both the Engineer and the Employer and our clients received the required extension of time awards on both projects. What’s more, the claims were not subject to any requests for further particulars and there was agreement within weeks of submission. That's what we call a successful outcome.

Hewitt Decipher Partnership’s expert consultants have been preparing and responding to claims for many years. We know how to think out of the box when required to do so and how to formulate the best strategy for a successful outcome for our clients. Can we help you with COVID-19 related claims? Get in touch.


Thinking Outside the Contract

A recent question that came to us was to provide some contract advice to a project management consultant for events arising out of COVID-19. We have a good relationship with this particular consultant so our advice was complimentary. It also provides a good example of how parties should think outside the contract and communicate in a positive way.

The Scenario

  • They entered a contract before the impacts of COVID-19 began to have an effect.
  • The contract was for alterations to a shopping mall. The Employer was intending to fund from rental income from the mall itself.
  • Works has started on site.
  • When the impact of COVID-19 started to have an effect locally, the Employer realised that his rental income could or would be severely affected.
  • He elected to suspend the Works indefinitely and gave notice of suspension to the Contractor.
  • The Contractor, having arranged for all the bonds, guarantees and insurance required by the Contactor, applied for the Advance payment after the suspension date.

The Advice

We were asked if the Employer, having suspended the Work, was still obliged to pay the advance payment. Our answer was that:

  • the Contract has not been terminated, so this does not change the Employer’s obligation to make the advance payment.

The Employer recognised that the Contractor would be entitled to an extension of time and the payment of costs associated with the suspension. But, they asked us if the Employer could request the Contractor to submit his claim for costs after lifting the suspension. Our advice was that:

  • the Contract obliges the Contractor to submit his claims within 42 days.
  • If the suspension period is ongoing, the obligation lies with the Contractor to send monthly interim claims until they ascertain the final effects.
  • The Engineer must respond to the claims and certify payment of any amounts reasonably ascertained to be due under the claims.

This was our advice based on a purely contractual perspective. However, because we could see a potential problem on the horizon for both parties, our advice did not stop there...

Thinking Outside the Contract

Let's look at the situation from the Employer’s perspective. The Employer will possibly consider that having suspended the work, the Contractor can demobilise his resources with little cost and just maintain the guarantees, insurances, etc. at a low daily cost. The Employer could therefore expect to receive a relatively low-value claim for costs incurred.

On the other hand, the Contractor may consider that he can remove all his resources from site and claim for costs incurred due to resources standing idle during the period of suspension, which would result in a substantial claim.

This is where we see a potential problem. Our advice was that the parties must discuss the situation in an open and frank manner, with a view to reach agreement on the best actions to mitigate the situation for both parties. Items for discussion on the agenda should include:

    1. How long does the Employer intend to suspend the work? Only the Employer can answer this. He may not even be able to predict when his income stream will resume. Consequently, there may need to be plans for several eventualities.
    2. What costs is the Contractor incurring or is likely to incur? Only the Contractor can answer this. If the Contractor directly employs the project personnel, demobilisation may include redundancy and repatriation. So costs will be substantial and may be greater than keeping them idle for a limited period. The Contractor may then have to recruit new labour in order to resume the work. This could cause additional delay and costs after the suspension period had ended. What are the Employer’s priorities in this respect?

So there you have it, a good example of how a strictly contractual solution will not solve all the problems on a project and how thinking outside the contract is often good management for both parties.


Hewitt Decipher Partnership’s expert consultants have been advising on contractual matters for many years and because our consultants come from many backgrounds within the industry, we also advise our clients on how to avoid contention and provide proactive solutions to problems.

Can we help you? Get in touch via our contact page; we would be happy to discuss any support that you may need. Want our article straight in your inbox, sign up to our mailing list.

bill of quantities

Omissions: Items in the Bill of Quantities, But Not Shown on Drawings...

At one of our recent courses someone asked Andy for some advice on omissions and payments. He writes:

I get asked about this particular issue quite a lot. So I thought it would be helpful to put pen to paper - or finger to keyboard - and share my thoughts. So here is the scenario:

  • The Contract is a lump sum and not subject to re-measurement.
  • The Bill of Quantities (BoQ) was prepared by the Contractor at tender stage.
  • During the project closure, some items listed in the BoQ were not provided since these items were not included on the tender drawings, shop drawing or final as-built drawings.
  • The Client deducted these items as an omission at final account stage as the Contractor did not complete any of these billed works. The Contractor disagrees with this and asserts that he took the risk on the lump sum contract and the BoQ was merely for guidance and valuation only.


What is the Contractor and Client’s entitlements under FIDIC for this kind of situation?

What should the Contractor's stance be on omissions and payments of this nature?

Is the Client entitled to omit the value of the BoQ items not fulfilled by the Contractor despite it been a lump sum contract?

Find out more and continue reading at the Claims Class blog... or sign up here for a webinar on the subject, taking place 22nd June 2022.