Preparing Claims

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 does to 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.


International Arbitration

Webinar - International Arbitration in India and Around the World

On 7th September 2021 we hosted an 'in-conversation' style webinar on international arbitration. Chaired by Paul Gibbons, four world-class experts in construction, law and dispute resolution examined the latest developments in construction and dispute resolution.

You can watch the video here, or read the write up from the event below.

Construction contracts around the world end in dispute if not done correctly from the start and working on international projects can raise unique challenges. Rupa Lakha, disputes lawyer at Charles Russell Speechlys advises that minimising the risk of disputes is completely dependent on what you put in at the outset.

There is a tendency to want to get things started quickly. However, slowing down and carefully considering things like the appropriate procurement model, level of resources priced for and whether the programme is realistic, can pay dividends in the long term.

It is important early on to pay heed to warning signs. If it looks like the price of a project is too cheap, this could be a red flag. Be realistic and invest time at the beginning and during every stage. Don’t take unnecessary risks. Set the contract up to deal with every factor, the legal aspect, the risk and the technical aspects. Consider what the project is aiming to deliver and ensure everyone is on the same page.

Minimising Risk

Looking at minimising risks from the contractor’s perspective, Mitesh Vekaria notes that it is important to use a pre contract services agreement if you can. As an Employer, it may be tempting to put all the risks onto the contractor but it is not always the best way forward.

Spend the time you have early on. Make use of workshops, education and training for everyone and ensure they spend time on this stage. If employers put time in their Gantt chart specifically for this, it would make such a difference.

Mitesh goes on to say you can avoid having to go down the litigation route by ensuring clear communication with all stakeholders and CEOs. Nobody wants to end a project in dispute. Clear communication can help the people involved stay detached enough to work things out without the need for any use of litigation and a shooting match.

Warning Signs

As a project progresses, there can often be warning signs that a dispute may arise. Rupa warns us to take notice if  notices start being fired off or letters start coming in. If use of the contract becomes defensive, you know there is a problem. People are trying to protect themselves rather than work with others and use the contract as a tool.

Once disputes become inevitable, delay analyst Tom Francis explains that the biggest issue often becomes a lack of good records. People seem to not keep their records. That can make the difference between winning and losing. If you keep a good trail of evidence any claim is likely to be more successful. Photographic evidence is very important. The culture of construction needs to evolve so evidence keeping and record keeping becomes the norm.

On the subject of notices, Tom thinks attitudes need to change. Giving notice should be a positive thing, a warning sign.

Experts

So what is the role of an expert in a dispute? In Tom’s experience it is important to be clear what your instructions are. Are you a claims consultant/expert, an advocate at an early stage? What is your exact role and what input do clients want? Advocate and expert roles are very separate and the difference needs to be clear especially when it comes to arbitration and litigation.

Formal Dispute Resolution

David Brynmor Thomas QC of 39 Essex Chambers explains what our options are in the event that a dispute does arise. He says every contract should have a final and binding form of dispute resolution included, usually either litigation or arbitration.

If you do not include any clause, then you line yourself up for the potential of immediate litigation in court. FIDIC, the construction contract widely used on large international projects, uses arbitration as its default form of dispute resolution. Another option is expert determination - this is often seen as 'cuddlier' than arbitration and litigation to many. David explains this is in fact wrong.

Statutory adjudication is an option for quick simple disputes. However, David advises that one of the better options for large international projects would be the use of dispute review boards or DABs. However, he warns that many put these boards in place but then they are not used correctly. Effective dispute review boards visit the project regularly. They ask what is happening, is the programme on time, is anything slipping, are there any problems? By asking the right questions, they can see if the project is going wrong anywhere.

Be Prepared

Rupa stresses the importance of getting your advisors in early, in preparation for the dispute resolution process. You need legal advice pre contract and continue working with your advisors throughout the life cycle of the project. That way they can help tackle any problems that may arise in any stage of the project.

If you allow a problem to grow, then only bring an advisor in at the end, it becomes very difficult and very expensive. It also means you take valuable resources away from the project.

Formal dispute resolution is sometimes necessary and appropriate. However, there is value to having lawyers involved from the start. Little and often is when advisory works best, helping you avoid problems getting too big.

David agrees and advises to work with the legal team who put the contract and the project together continually. Having an expert or a consultant like Tom on the programming makes matters better as well. They can make sure you are using notices correctly and appropriately. A programmer can make the barrister's job much more straight forward should disputes arise later.

Mitesh adds that for his larger projects, he advocates for them to demonstrate due diligence little and often with the use of delay analysis and programmers throughout.

Clear Roles and Responsibilities

Construction disputes are different to other disputes. Rupa explains that they need an interface between the lawyer and the expert. A good close relationship is essential between the sharing of information and knowledge. The legal knowledge and the technical knowledge need each other to work, they rely on each other and that is fundamental. That is very particular to construction disputes.

Tom warns us to be wary of blurring the line between being an advocate and expert. He asks can you honestly put yourself forward as an independent expert if you were involved in the writing of the contract? The key here is being open and clear with your past and present roles. Make sure your role is clear from the start before you get into a tricky situation.

Thank you to all the speakers and attendees. Should you need any help with any of the issues raised in this webinar, please get in touch today.


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


Do you have a $10 head?

I have been a keen motorcyclist for many years and I recently had cause to recall an advertising slogan that Bell Helmets ran during the 1980s. Their powerful message was:

If you have a $10 head, wear a $10 helmet.

Bell helmets were not cheap, but it was no coincidence that a significant number of motorsport competitors could be seen with the Bell logo on their helmets.

How does this relate to the construction industry?

A couple of years ago I was asked to present a training course on procurement for a property developer. Part of my presentation was focussed on the selection of suitable consultants for their projects. I asked the attendees to help me to do some calculations and give me some advice. I don’t remember the exact figures, but the following is a reasonable synopsis of their input:

  • I first asked them to tell me the average total project cost of their projects. Let’s say this was $10,000,000.
  • I then asked what percentage of the total project cost they would budget for consultancy fees. The answer was 10%, which works out at $1,000,000.
  • My next question was, what is the cost difference between engaging the very best consultants and the worst? The reply was that there was maybe a cost difference of 30% between the two extremes.
  • We then worked out that with a $1,000,000 budget for consultancy fees, hiring the cheapest consultants would, on the face of it, save the project $300,000. As a percentage of the total project cost this translates to a 3% ‘saving’.
  • I then asked how consultants were selected and was advised that although the project delivery team carried out pre-qualifications and checked on consultants’ past performance, the services were put out to tender and company policy dictated that the work would invariably be awarded on the basis of the most competitive fees.

I explored a little further into their experience on past projects...

  • Do we agree that the consultants that you engaged are probably the most competitive on price, because they pay lower salaries than the more expensive consultants? Yes.
  • Can we agree then, that the consultants that you appoint are able to pay low salaries, because they employ poorly qualified and experienced personnel? Yes.

Having established the procurement methodology, I asked more questions, this time related to existing projects...

  • Do you ever get design problems which result in additional costs for your projects? Yes, frequently.
  • Do the consultants appointed to supervise, manage and administer the contracts on your projects ever fail in their duties and responsibilities which results in additional costs for your projects? Yes, frequently.
  • Do the consultants appointed to manage and respond to claims on your projects do so in accordance with the contract and in such a way that claims are agreed amicably and in good time? No, we often have contentions with regard to claims.
  • Do disputes arise on any of your projects? Yes, we have had several arbitrations.
  • Are arbitrations costly? Yes, very costly and time-consuming.

And now to the final question I asked the group...

  • Are total project cost budgets ever exceeded? Yes, most of our projects come in considerably over budget.

You Get What You Pay For

The point here is that buying a $10 helmet is probably not a great investment, particularly if something goes wrong and you have an accident on your motorcycle.

The same applies to $10 consultants.

$10 consultants are actually worse. They often cause the ‘accident’ in the first place and will then not protect you properly. Similarly, if you have a commercial matter, contractual problem, claim or dispute of significant value, is it better to engage the best or the cheapest consultants to help you avoid or resolve matters?

Whilst Hewitt Decipher Partnership is not a $10 consultancy, our business model allows us to be very competitive for the high level of expertise that we offer to our clients. Our expert consultants are appropriately qualified and experienced in their particular disciplines, so we provide excellent value for money when assisting our clients. Can we help you? Get in touch.


claims

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 managed these projects to achieve successful outcomes and 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 correctly made, 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 were also unable to travel to the sites. The countries in which the projects were based were placed under lockdown. The sites were closed due to COVID-19 being discovered 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, particularly 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 were agreed within a couple of 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.


delay analysis

Get your Delay Analysis Accepted | 8 Tips for Success

Over the past couple of weeks we have been asked by two separate clients to review responses that they've received where their claims have been rejected. Whilst in both cases, the respondents cited several reasons for rejection, some valid and some not, both cited the method of delay analysis submitted with the claims as a cause for rejection. In my experience, this ranks as one of the most frequently used reasons for the rejection of claims.

Case 1

In the first case, the contractor had simply taken a number of what he considered to be critical activities and established the number of claimable delay days to these activities. He then added the highest number of delay days to the prevailing Time for Completion and requested an extension of time to the resultant date.

I can absolutely guarantee that no respondent will award an extension of time on this basis and that includes myself if I were acting on behalf of the client. I would need to see the effect of the employer-risk events on the latest programme using the existing logic, I would need to check that existing contractor delays had been considered and if a cost claim was involved, I would need to verify that there was no concurrent delay.

Case 2

The second case was different. The contractor had produced a good delay analysis using one of the recommended methods, but the Engineer had rejected it, simply on the basis that he wanted a different method of delay analysis and, I suspect, because he did not understand the analysis itself. This is very common because it allows those acting on behalf of the respondent to defer putting their necks on the line and making a decision which could result in an award to the claimant.

The problem here was caused entirely by the claimant, because he did not justify the use of the chosen method of delay analysis, he did not explain how it had been performed or  demonstrate the effect on the prevailing time for completion. Had he done so, this would have closed the door on the respondent using the delay analysis as a reason for rejection.

Delay Analysis: 8 Tips for Success

Our 8 top tips for successful delay analyses are:

  1. Ensure that you use an appropriate method of delay analysis for the project, the nature of the delays and the information that is available
  2. Justify that the chosen method is appropriate for the circumstances
  3. Use an appropriate programme as a basis of the delay analysis and explain why and how it has been used
  4. Perform the delay analysis in accordance with established procedures and to an appropriate professional standard
  5. If logic errors in the base programme are discovered, correct them and explain why and how they have been corrected
  6. Explain in the claim narrative exactly how the analysis has been performed in such a way that a non-expert programmer can understand it
  7. Explain the findings of the delay analysis
  8. Use the findings to properly calculate the extension of time that you are claiming and explain the calculations clearly.

Keep these tips in mind and you'll be submitting with success each and every time.

Hewitt Decipher Partnership’s expert consultants have been preparing and responding to delay analyses for many years. We know how to comply with good practice to ensure that you have a robust delay analysis to support a claim and, if working on the employer’s side of the fence, we know the standards that the claimant must meet to justify an award.

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.


interim claims

Interim Claims and COVID-19: should we wait, or should we submit?

Unsurprisingly, we are currently advising several clients on matters related to COVID-19 and the topic of interim claims frequently comes up. One of the questions we are asked is ‘Should we wait until the delays arising from COVID-19 have ended before we submit our claims?’.

Our answerer is an emphatic...NO!

Most contracts oblige the claimant to submit claims within a specified time period and if the final effects cannot be ascertained, to submit interim claims until the delays have ended and the final effect on the time for completion and/or the costs may be calculated. Using FIDIC 1999 as an example, Sub-Clause 20.1 (Contractor’s Claims) states that:

‘Within 42 days after the Contractor became aware …the Contractor shall send to the Engineer a fully detailed …. If the event or circumstance giving rise to the claim has a continuing effect:

‘(a)    this fully detailed claim shall be considered as interim;

‘(b)    the Contractor shall send further interim claims at monthly intervals, giving the accumulated delay and/or amount claimed, and such further particulars as the Engineer may reasonably require; and

‘(c)    the Contractor shall send a final claim within 28 days after the end of the effects resulting from the event or circumstance, or within such other period as may be proposed by the Contractor and approved by the Engineer.

This is stipulated to ensure that the Employer and Engineer are aware of the likely effects on a regular basis and make plans for a late handover and/or provisions for additional financial requirements. If the contractor does not fulfil these obligations they won't be able to do either.

From a practical point of view, the longer a claimant leaves a claim, the more difficult it will be to agree – circumstances change, people leave the project, consultants are demobilised and of course, if the Employer has been presented with a completed project, his incentive to settle claims is considerably reduced.

Some contractors believe that the submittal of several updates will be time-consuming and costly, but this is only partly true. The time-consuming and difficult work is required for the first interim submission because this is where the majority of the investigations, data gathering, setting up of the delay analysis programmes and examination and demonstration of cause, effect and entitlement takes place. This, of course, is necessary whether the claim is being prepared on an interim or a final basis. Once the base document and calculations have been created though, the updates are reasonably straight-forward and do not require nearly as much time and effort as the first submission.

Some contractors are reluctant to put the effort into preparing adequately expressed claims or incur costs in doing so and keep deferring a decision on what action to take. Some of these contractors may also be facing delay penalties running into millions of dollars, so putting contractual obligations aside, does it make any financial sense at all to defer securing an extension of time until later? We think not.

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 our clients have a justifiable claim that is adequately expressed. Therefore, if entitlement to an extension of time exists, the claims will be accepted in a timely manner and delay penalties will be negated.

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.


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