Preparing 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 consequently 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. As well as 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 is 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. They 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 so 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 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.
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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 receive payment, you're going to have to take ‘further steps’.
What are the further steps that you may take under the contract?
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 people ask are:
We are obtaining labour / materials / plant / equipment from China and there are delays to the supply. 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 | Top 10 Causes and What it Means for Your Projects
Recently, HKA 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 | 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
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 ensure acceptance of your claims quickly and successfully:Read more
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.
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.
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.