Preparing Claims

Coronavirus | Advice for Contractors, Engineers & Employers

Our last blog looked at whether contractors are entitled to claim for an extension of time and/or costs because of the effects of Coronavirus and examined the provisions under the FIDIC Red and Yellow Books.

This was our standpoint just four short weeks ago, at a time when some contractors were anticipating that delays may be caused by supply chain problems associated with plant, goods or materials sourced from China and the few travel restrictions which were then in place.

Our advice was that provided the Contractor can demonstrate delay to the Time for Completion and/or the incurrence of Cost, he will be entitled to an extension of time and may be entitled to claim for additional payment for Cost incurred.

Since then though things have changed drastically. Some countries are on total lockdown with people having to stay at home. Many countries have imposed travel bans. So, the effects of Coronavirus have now become extreme and are likely to be long-lasting.

As a result, HDP directors decided that it would be helpful to examine the options available to the Parties as the situation continues to develop. Again, we shall look at the provisions of the FIDIC Red and Yellow Books.

Suspension

The Employer may consider that if the Contractor is not able to proceed with the Works for the foreseeable future, it may be sensible to suspend the Works to minimise any cost which may become due to the Contractor.

Sub-Clause 8.8 (Suspension of Work) allows the Engineer to issue a suspension instruction and the Contractor is obliged to protect, store and secure the Works against deterioration, loss or damage, so this would effectively ‘mothball’ the project until the Employer decides to lift the suspension. In a case of suspension, the Contractor would be entitled under Sub-Clause 8.9 (Consequences of Suspension) to an extension of time and the payment of Costs including mobilisation and demobilisation costs, so the Employer must weigh up the options here.

Sub-Clause 8.11 (Prolonged Suspension) however, allows the Contractor to terminate the Contract if the suspension affects the whole of the works and the suspension period continues for more than 84 days. We are unsure how contractors will react as and when things return to normal and operations are resumed. Presumably though, many of them will be willing to pick up where they left off.

FIDIC does not provide any options for the Contractor to suspend the Works under the circumstances arising from Coronavirus.

Termination

There are two clauses in FIDIC which give the Employer entitlement to terminate the Contract. Sub-Clause 15.2 (Termination by Employer) allows the Employer to terminate because of various acts of default by the Contractor. In our opinion, it cannot be said that inability to progress the works in the circumstances of the coronavirus is a default of the Contractor, therefore this is inapplicable.

Sub-Clause 15.5 (Employer‘s Entitlement to Termination) however allows the Employer to terminate for his own convenience by giving 28 days notice. Nothing can be sensibly predicted at the moment, but it could be that as things progress, some employers will simply decide not to proceed further with the project, or at least not for some considerable time.

Our earlier blog suggested that it is uncertain whether the coronavirus constitutes a Force Majeure event under FIDIC, but if the Parties agree that it does, Sub-Clause 19.6 (Optional Termination, Payment and Release) provides that if the Works are prevented from progressing for a period of 84 days or for multiple periods of 140 days by reasons of Force Majeure, then either party may terminate the Contract.

Sub-Clause 19.7 (Release from Performance Under the Law) provides that

if any event or circumstance outside the control of the Parties arises under the Law which makes it impossible or unlawful for either or both Parties to fulfil its or their contractual obligations … the Parties shall be discharged from further performance…’

This may apply in circumstances where governments have introduced measures to control Coronavirus which have, in fact, made further performance impossible and becomes effectively a further reason for termination by either party.

Finally

The circumstances arising from Coronavirus have never been experienced before, or at least not within the memory of most people. They are drastic and far reaching. Whilst we have given our opinions on the applications of the FIDIC contracts to the situation, this has been from a purely contractual point of view. In our opinion, the FIDIC contracts do not really envisage such a situation.

That said, it's important to look beyond what the FIDIC Contracts do or do not say. In a situation as serious as this, the Parties have to think 'outside the box' of the contract and find ways to work together to safeguard the personnel involved, to comply with government rules and regulations and to seek ways to manage the project to the best abilities of both Parties.

The ability to maintain progress and complete on time may well be totally out of the control of both Parties. Contractors may be expending substantial additional costs and will suffer from cashflow problems and will be powerless to control things. In short – both sides of the contracting fence will undoubtably suffer in one way or another and it would, in our opinion, be unfair for either Party to attempt to gain any advantage from the situation.

Don’t forget that, provided both parties are in agreement, contracts may be amended at any time, so despite what the contracts say we encourage all involved to reach agreement on a course of action which will be the least harmful to the parties and the project.

Hewitt Decipher Partnership’s expert consultants have been preparing and responding to claims for many years and we have investigated Coronavirus from a contractual standpoint. We can also see ‘outside’ the contract to look at matters from a project management point of view to seek ways to resolve situations and reach agreement on what is best for the project.

Can we help you? Get in touch via our contact page; we would be happy to discuss any support that you may need. 


Funding Claims | Got a claim but can't afford to pursue it?

I’m sure you know the situation. You have a good claim for a considerable amount of money, but your client won't pay it.

The client and his consultants delay things or reject the claim for unfair reasons. So, it becomes clear that in order to get paid, you're going to have to take ‘further steps’.

What are the further steps that you may take under the contract?

Read more


coronavirus

Coronavirus - Are We Entitled to Make a Claim?

The global hot topic this month seems to be Coronavirus and we’ve received lots of questions from clients so today, we thought we’d take a look at some of those questions and share our thoughts with you.

The usual question we're asked is:

We are obtaining labour / materials / plant / equipment from China and the supply is delayed. Are we entitled to claim for an extension of time and additional costs?”.

Our answers, as usual, have been along the lines of:

“it depends on your particular contract, but possibly”. 

I know that this is a bit of a lawyer’s answer, but it really does depend on several things. Let’s have a look at what the FIDIC Red and Yellow Books (1999) have to say on the subject.Read more


claims and disputes

Claims and Disputes | Top 10 Causes and What it Means for Your Projects

HKA have recently published a report: Claims and Dispute Causation – a Global Market Sector Analysis in which they have analysed over 4,000 disputes across 700 projects in 72 countries, with a combined project value exceeding US$1.2 trillion.

The report highlights the top 30 causation factors for disputes:Read more


avoiding disputes

Avoiding Disputes | Are you heading for an unnecessary dispute?

I have just returned from a trip to central Asia to visit a client project where I was asked to review a number of claims and responses. The project is a very large one and the claims amount to an extension of time of almost one year and cost claims amounting to over US$100M. Our brief was to provideRead more


claims

Construction Claims | 10 Tips for Success

ARCADIS have recently published their Global Construction Dispute Report 2019. The report says that the Number 1 reason for disputes in the Middle East is ‘Poorly drafted or incomplete and unsubstantiated claims’. So in light of this, we've put together a list of 10 things that you can do to get your claims accepted quickly and successfully:Read more


construction claims and disputes

Inadequately expressed claims: the second most frequent reason for disputes

Arcadis have recently published their Global Construction Dispute Report 2018. Unsurprisingly, “Poorly drafted or incomplete/unsubstantiated claims” is the second most frequent reason for disputes. This reason has ranked highly for several years, so it seems that the industry is not learning from its mistakes.

Read more


From 2018 to 2019
the Beginnings of HDP...

The past twelve months have seen many changes in the Gulf region and some interesting events. In the following we look back and then ahead to what might come in 2019.

Read more


claim

The Four Corners of a Successful Claim

When preparing a claim, there are four key points to remember. Bill Bordill explains...

What is a claim?

Often folk think of ‘claim’ as a dirty word, something they ought not to get involved with. This is of course, in part, a result of the adverts you sometimes see on TV, ‘had an accident? Not your fault…’. But it is important to remember that a claim is only an assertion of a contractual right. It’s something you’re entitled to. It shouldn’t be seen as a dirty word.

Read more


how to write a successful claim

How to Write a Successful Claim

When sitting down to write a claim, your purpose is quite simple. You want to convince someone that you are entitled to be compensated, in either time or money, for the event leading to the claim. The obligation is on you here to prove that your claim is a just one and the standard of proof is based upon the 'balance of probabilities'.

If your claim does not meet these requirements there is a very good chance that it will fail. And it will fail because you have not demonstrated your case.

So how you you write a successful claim? We thought we would offer a few tips, using an example of some recent work we did.

On behalf of the Employer, we recently produced an assessment for a Contractor’s claim for an extension of time. The claim arose from the late nomination for the supply of the interior lighting fixtures. These were included as a provisional sum on the Contract. This claim is a very good example of a poorly expressed claim. I will explain why by way of some examples.

The Narrative

The claim narrative says the same thing in several different ways in different parts of the narrative. This is just tedious for the reader and shows that the Contractor doesn't have the skills to write a successful claim. His lack of skill here doesn't elicit much sympathy from me. So how do you avoid this when writing your claims? Make sure that you:

  • make your point well,
  • make it clearly and
  • make it once.

The narrative does quite a good job of ‘telling the ‘story’ and is well substantiated by the inclusion of exhibits from the project records. But it relies only on facts demonstrated by quotations and extracts from the records. It offers no explanations or conclusions as to what the bare facts mean. This leaves me to draw my own conclusions. This is dangerous because my conclusions may not be the same as the Contractor’s.

Records

At a bare minimum the records should establish the facts. However, my advice is to offer additional explanations, summaries and conclusions to tell the reviewer exactly what he or she should be thinking at each stage of the narrative.

Going back to our example, the Contractor uses several clauses from the Contract to demonstrate entitlement but only two clauses are actually relevant. Again, providing that he has at least relied on the actual clauses that do provide entitlement, this falls into the annoying rather than dangerous category. My advice is:

  • If it is not relevant then don’t include it.

Delay Analysis

The delay analysis programme included with the claim served to demonstrate the effect of the late nomination on the Time for Completion. Yet it was clear to me - as a non-expert - that it was obviously wrong. The narrative offered no information as to the logic behind it and how it had been created. Presumably, the Contractor thought that it made sense or he would not have submitted it. But without the benefit of some form of explanation, I certainly could not see how it could work and more importantly, it is not my job as the respondent to go looking for evidence to support the claimant. My advice here is:

  • Ensure that any supporting document such as calculations, programmes, etc. are explained clearly in the narrative.

Final Thoughts

Based on experience, I had a pretty strong gut feeling that the Contractor was entitled to some additional time. However, it is certainly not my job as a respondent to prove his case for him. My conclusion therefore was that yes, the nomination was late. Furthermore, in such circumstances the Contractor is entitled to an extension of time if the late nomination delayed the Time for Completion. However, as the Contractor had not adequately proven that the delay actually did affect the Time for Completion, my recommendation was that no extension of time should be awarded, because the claimant had not proven his case.

So the moral of this tale? Make sure that your claims are presented in such a way that they will prove your case on the 'balance of probabilities'.

Hewitt Decipher Partnership’s expert consultants have been preparing and responding to claims for many years. Can we help you? Get in touch via our contact page; we would be happy to discuss any support that you may need.