Obligations of Parties & Provisions of Claims in Modern Construction

Contracts
C. S. Suryawanshi, Former Chief Engineer & Joint Secretary (P.W.D) Senior Consultant Mumbai .

Introduction
Construction contracts usually contain notice-of-claim provisions. The contractor must, within a stated
period of time, notify the project owner in writing of any occurrence which may give rise to a claim for
additional compensation under the contract. The policy behind these requirements is sound. Owners
should have the opportunity to respond to problems as promptly as possible while options are
available and costs can be mitigated.

The contracts attempt amongst many other things to provide a frame work with in which to effectively
manage the ever increasing pace and complexity of modern construction projects, where claims for
delay and cost have become common place and almost anticipated from the onset.

The process of giving "notice" is crucial to the change and claims process in both triggering the
contract mechanisms that allow the contractor, to pursue additional contractual entitlement (time and
cost) based upon the known circumstances at the time the formal notice was issued as well as
persevering the contractors rights to recover for any unforeseen but related impacts that may arise at
a later date.

Accordingly, when an impact or claim event occurs, the party against whom the claim is being made
must have the opportunity to review and investigate the related circumstances and facts in a timely
manner, certainly while the issue remains fresh and contemporaneous, and to provide the basis of a
suitable response, which could involve mitigating actions to avoid the impact or claim.

The concept of being able to mitigate potentially adverse and costly problems through receipt of
timely notice and prompt actions is of key importance as to the reasons for inclusion of notice
provisions and is often forgotten factor when both parties become embroiled in a contentious claim
situation.

The paper also aims at

To examine time bar provision in FIDIC and similar other Forms of Contracts
Consider the judicial mechanisms and legal tools used to challenge their operations, focussing on
jurisprudential conflict between such clauses and so called "prevention principle" and
Not the real issue for construction contractors, "the tension between time bar clause and
prevention principle", but between such a clause and the doctrine of freedom of contract.

Contract Requirements

Most standard forms of contract require the contractor to give notice when he:-

becomes aware of an event or events which have caused or are likely to cause delay to
completion; and
intends to claim additional payment.

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In addition to item (i) the contractor is usually required to provide detailed particulars of the cause,
effect and extent of the delay to the completion of the works and to keep records of the effects of the
delaying events which were the subject of the notice.

Sometimes the notice provisions refer to the issue of a notice within a number of days of an event and
sometimes introduce time bars and/or conditions precedent.
Time Frame Constraints in FIDIC
In these forms of contract, Engineer has also to carry out the duty of contract administration. [In this
paper, Engineer is referred to as Project Manager/Contract administrator.]

The 1987 and 1999 editions of the FIDIC standard form contain a number of requirements that shall
be done within a set period of time.
The FIDIC 1987 Redbook
The Conditions of Contract impose specific time restraints on the Contractor in relation to EOTClaims:

Sub-Clause 44.1 In the event of:

a. the amount or nature of extra or additional work, or

b. any cause of delay referred to in these Conditions, or
c. any delay, impediment or prevention by the Employer, being such as fairly to entitle the
Contractor to an extension of the Time for Completion of the Works, or any Section or part
thereof, the Project Manager shall, after due consultation with the Engineer and the Employer and
the Contractor, determine the amount of such extension as soon as reasonably practicable and in
any event within 56 days from either of (whichever is the latter)
d. receipt by the Project Manager of detailed particulars pursuant to Sub-clause 44.2 or (as the case
may be) Sub-Clause 44.3 hereof, or
e. cessation of the circumstances giving rise to a request for an extension of the Time for Completion
of the Works provided that detailed particulars have been received by the Project Manager
pursuant to Sub-clause 44.2 or (as the case may be) Sub-Clause 44.3 hereof, and shall notify the
Contractor accordingly, with a copy to the Employer. Nothing in this clause shall prevent the
award of interim extension(s) of time in accordance with clause 44.3.

Sub-Clause 44.2 Provides that

the Engineer is not bound to make any determination unless the Contractor has

a. within 28 days after such event has first arisen notified the Engineer with a copy to the Employer,
and
b. within 28 days, or such other reasonable time as may be agreed by the Engineer, after such
notification submitted to the Engineer detailed particulars of any extension of time to which he
may consider himself entitled in order that such submission may be investigated at the time.

Sub-Clause 44.3 Provided also that where an event has a continuing effect, such that in the
determination of the Engineer, it is not practicable for the Contractor to submit detailed particulars
within the period of 28 days referred to in Sub-Clause 44.2, he shall nevertheless be entitled to an
EOT provided that he has submitted to the Engineerinterim particulars at intervals of not more than 28

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days and final particulars within 28 days of the end of the effects resulting from the event. On receipt
of such interim particulars, the Engineershall, assoon as reasonably practicable and in any event
within 56 days thereafter, make an interim determination of whether, in principle, an EOT should be
granted and, on receipt of the final particulars, the Engineer shall review all the circumstances and
shall determine an overall EOT in regard to the event.

In both such cases the Engineer shall make his determination after due consultation with the
Contractor, and the Employer and the Engineer, and shall notify the Contractor of the determination,
with a copy to the Employer."

The aim of such clauses is to promote proper management of the event by both parties and to enable
the employer to make informed decisions to avoid or mitigate the effects. The above provisions
provide clear detailed timeframes, which are to be observed by both the Contractor and the Engineer.
Although not expressly stated as in the 1999 FIDIC Redbook, it is implied that the contractors failure
to comply with the detailed procedure and timeframes waives his entitlement to claim an EOT and the
employers liability ceases.

Other Clauses

Clause 51- Dealing with claims arising out of carrying out variation works.
Clause 53 - Dealing with procedure for claims for additional payments. And Clause 53.4
Clause 47.1 Dealing with claim for damages due to delay in completion.
Clause 27.1 Dealing with claim for reimbursements of costs which may be incurred by

contractor while dealing with fossils, coins, antiquities or articles of value.

Contribute to the effect of Notice.

Clause 53: The intention of the clause generally is to set out a disciplined manner of dealing with
claims which will be of advantage to both the Employer and the Contractor. Claims are certain to
provoke differences particularly if the claim is established long after the work (giving rise to the claim)
has been completed.

Frequently in the past claims have been made when the project has been completed and the
workforce has been dispersed and then both the Employer and the Contractor are dependent upon
incomplete records and inevitably regard their memories of the events as being indisputable. As their
respective memories were rarely identical it is understandable that they were both dissatisfied with
the outcome. The fourth edition of FIDIC has introduced a claims procedure which places time limits
for the notification and substantiation of claims and requires contemporary records to be kept. If such
records are not kept, the Contractor may be limited in his entitlement.
Notice of Claims 53.1
Notwithstanding any other provisions of the Contract, if the Contractor intends to claim any additional
payment pursuant to any Clause of these Conditions or otherwise, he shall give notice of his intention
to the Engineer, with a copy to the Employer, within 28 days after the event giving rise to the claim
has first arisen.

This Sub-Clause requires the Contractor to give notice to the Engineer "within 28 days after the event

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giving rise to the claim has first arisen". This is a practical requirement and not difficult to comply
with. Contractors will generally maintain a Site diary and will have noted therein when the event first
arises. Note that the Sub-Clause does not require the Contractor to make his claim then - it requires
him to give notice of his intention to make a claim.

The words 'or otherwise' are intended to encompass claims made on some legal ground (e.g. under
the law governing the Contract) and not made pursuant to any Clause of these Conditions.
Failure to Comply 53.4
This Sub-Clause deals with the situation where the Contractor fails to comply with any of his
obligations under Sub-Clause 53.1, 53.2 or 53.3 and defines the extent of his entitlement under such
circumstances.

If the Contractor does not comply with the procedure laid down in the Conditions his entitlement to
payment may be limited. It is considered that failure by the Contractor to make a claim in accordance
with the provisions of Sub-Clauses 53.1, 53.2 or 53.3 should not bar the Contractor from receiving
remuneration for any work which the Contractor can substantiate from contemporary records.

This Clause has been subsequently deleted by various nations through COPA.
The FIDIC 1999 Redbook
The provisions of Cl 53.4 have been deleted in the 1999 edition. Further, such interpretation is
supported (which has clarified the ambiguities of the 1987 form) by including a condition precedent
notice provision.

Sub-clause 20.1 of the new version states:

"If the Contractor considers himself to be entitled to any extension to the Time for Completion and/or
any additional payment, under any Clause of these Conditions or otherwise in connection with the
Contract, the Contractor shall give notice to the Engineer, describing the event or circumstances
giving rise to the claim. The notice shall be given as soon as practicable as and not later than 28 days
after the Contractor became aware or should have become aware of the event or circumstances.

If the Contractor fails to give notice of a claim within such period of 28 days, the Time for Completion
shall not be extended. The Contractor shall not be entitled to additional payment, and the Employer
shall be discharged from all liability in connection with the claim. Otherwise, the following provisions of
this Sub-clause shall apply."

Similar to Sub-clauses 44.1, 44.2 of the 1987 FIDIC Redbook, Sub-clause 20.1 then goes onto
reiterate the timeframes for the submission of the detailed particulars and the response of the
Engineer.
Why the Time bar clause so important?
The primary aim of the time bar clause is to alert the Employer/contract administrator to the
contractors claim, allow swift evaluation under sub-clause 3.5 and to prevent the stockpiling of the
claims.

However, there is a much more fundamental reason why time bar clauses are so important. If such a
clause is held to be ineffective, then in the absence of any EOT award the time for completion is "at

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large", such that the employer will loose its automatic right to liquidated damages against the
contractor.

This can be summarized succinctly

1. The contractor is bound to complete the work by the date for completion stated in the contract. If
he fails to do so, he will be liable for liquidated damages to the employer.
2. The employer is not entitled to liquidated damages if by his acts or omissions he has prevented
the contractor from completing his work by the completion date.

In the simplified way it means, in the field of construction law, one consequence of the prevention
principle is that the employer cannot hold the contractor to a specified date, if the employer has by act
or omission prevented the contractor from completing by that date. Instead, time becomes at large
and the obligation to complete by the specified date is replaced by an implied obligation to complete
within a reasonable time. The employers right to liquidated damages for delay is therefore replaced
by a right to unliquidated damages based on a new reasonable time completion date.

Reasonable time has to be judged as at the time when the question arose in the light of all relevant
circumstances
Legal Validity
However, in common parlance it is known that, the giving of notice under such clauses is generally not
a condition precedent to the right to an EOT.

This position was confirmed by the House of Lords in the case of

Bremer Handelsgesellschaft mbh -v-Vanden Avenne-Izegem(1978) 2 LLR 109, where Lord Salmon had
this to say:

"Had it been a condition precedent, I should have expected the clause to state the precise time within
which the notice was to be served and to have made plain by express language that unless the notice
was served within the time, the sellers would lose their rights under the clause."

So why is it that most forms of contract do not contain the explicit wording necessary for the notice
provisions to be a condition precedent?
Key Difference
The key difference between the 1987 version of FIDIC and the 1999 version in respect of notice
requirements is that Sub-clause 20.1, is a clear condition precedent whereas the provisions of the
1987 version do not expressly state that the contractor will not be entitled to a claim where he has
failed to adhere to the timeframes.

One could therefore argue that the purpose of Sub-clause 20.1 is to clarify any ambiguity in respect of
the strict adherence to time frames set out in the 1987 version.

If one is therefore to rely on Sub-clause 20.1 and interpret clauses 44.1, 44.2 and 44.3 in terms of a
condition precedent, the Employer has a complete defence to any claim for time by the contractor had
not started in the required time frame.

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Agree To Disagree
With regards to the strict wording of the 1987 FIDIC Conditions of Contract, and the further support of
the conditions precedent in the 1999 FIDIC Conditions of Contract, one could imply that contractual
timeframes should be adhered to, in order to entitle the contractor to claim for any EOT. Nevertheless,
one cannot dismiss the requirements of good faith outlined in the Contract Act and laying at the heart
of the Indian commercial practice.

It seems therefore, the everlasting argument over the inflexible grasp of the law versus the realities of
commercial practice, once again rears its head. However, can they both simply not agree to disagree?

Surely a claim submitted 28 days outside of the permitted timeframe cannot be painted with the same
brush as one delayed by three days? It is then that the provisions of "good faith" under the Contract
Act should be applied to minimise any unjust consequences which may occur on the strict adherence
to the FIDIC conditions? For example, if the technicalities of the timeframes would mean the
contractor would suffer serious financial loss; or where the delay in submitting a valid EOT claim did
not cause any substantial loss to the Employer would it still be fair to strike out a claim for an EOT?

Although in theory the use of the concept of good faith to fill in the gaps of the FIDIC technicalities
seems like the most practical solution this may not necessarily clarify the situation but may in fact
give rise to one of the most discussed legal "grey areas"; what is a reasonable amount of delay?
Common Notions/Misunderstandings
It is a common misunderstanding in the construction industry that EOT are primarily for the benefit of
contractors, by providing more time for them to complete the contract works and reducing their
exposure to liquidated damages if there is a delay to completion caused by an excusable delaying
event. However, an appropriately drafted EOT clause preserves the employers entitlement to deduct
liquidated damages should the contractor cause delay to the completion of the contract works after
the occurrence of an excusable delaying event?.

Such type of clauses include general provisions for EOT for what are called "excusable delays", i.e.
delays caused by acts of prevention or breach of contract by the employer or his appointed contract
administrator (Architect or Engineer), and for delays caused by neutral events for which the employer
has agreed to accept the risk in respect of time. Hence, one effect of the contract administrator
extending the time for completion is that it preserves the contractors obligations to complete the
works within a defined period which, if the contractor fails to do so, may cause him to become liable to
liquidated damages.

A further common misunderstanding is that a notice given under the requisite provisions represents
the contractors application or claim for an EOT. This is clearly not the case as, under most forms of
contract, the contractor has an obligation (and not an option) to give written notice, as identified by
the frequently drafted wording:

"The Contractor shall give notice" (underlining added for emphasis).

It is the consequential duty, or obligation, of the employer or the contract administrator, to then
consider if the contractor is fairly entitled to an EOT for the completion of the works.

There is nothing particularly difficult or onerous requiring the contractor to make its notice/application

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with in the general or specific time scale. This finally establishes, that the requirement to make a
timely and written application as set out above is a condition to the recovery of loss and/expense.
Purpose of Notices of Delay
The common misunderstanding of EOT provisions, is most likely promoted by the construction of such
clauses which put the onus on the contractor to get things started by the issue of a notice, or notices,
and the association of EOT with claims for additional payment.

One of the reasons for requiring the contractor to issue a notice is to forewarn the employer or the
contract administrator, at an early stage that a particular event has occurred which is likely to cause
delay to the completion of the works. If the event was the issue by the contract administrator of an
instruction or variation then, after receipt of a notice from the contractor in respect of such an event,
the employer or the contract administrator may consider the consequences of the instruction or
variation in order that they may review it and decide if it should either be withdrawn or amended.

It could be argued, however, that the contract administrator should know whether or not an
instruction or variation would be likely to cause delay before the introduction of such an event.
However, it is often the contractor that possesses more experience and awareness to perceive likely
problems that result from such events and the actions that are required to be taken once such an
event is introduced by the employer or the contract administrator.

All of the claims, which arise out of the contract, are in principle already given if and when the related
event occurs. The role of the Engineer is only to determine the consequences of the event. In other
words he determines whether there is under the terms of the Contract and subject to the applicable
law, an event giving rise to a claim for additional time or money. Thus all of the claims are subject to
his determination. It is not his role to create claims or to accept claims beyond the express conditions
of the contract. However the Engineer also has the powers to give instructions and to initiate
variations. This element of his task may create additional entitlements to payment.

To some extent he is a form of instance of control and the centre of contract administration. In the
former FIDIC forms of contract the works had to be to the satisfaction of the Engineer which made of
him a quasi-arbitrator. Today the Engineers powers are strictly described and limited by the contract.
He has to act in accordance with the contract. The contract is not only the law of the parties but also
the law of the Engineer. This is what the parties have promised to each other.

Civil law contractors and employers should not ignore the original legal background of FIDIC
conditions. By contrast common law contractors and employers should not believe that the use of a
FIDIC form of contract will enable them to escape from the particularities of the proper law of the
contract.
Timing of a Notice
Most common standard forms of contract require the contractor to give written notice in a timely
manner and/or within a specific number of days after the commencement of an event.

Such timing may be amended (usually reduced) by specific clauses included within Special Conditions
that are frequently used to amend standard forms of contract.
No-Prejudice Rule

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The strict application/compliance of this particular clause has become commonly known as "no-
prejudice rule" because the owner doesnt have to prove prejudice (loss or financial harm) as a result
of the contractors failure to comply with the notice provisions to deny the contractors claim,
irrespective of any actual proof of loss that the contractor has incurred, and even where the claim is
completely meritorious. Exclusionary terminology may refer to "waiver of notice "or "constructive
notice" and in many international venues "notice as a condition precedent to entitlement to
reimbursement of loss or expense"

Some strictly apply the provisions irrespective of merit while others adopt a more liberal approach on
a "fairness demands" basis.
The Function and Contractual Status of Notices
The function of contractual notices could be said to depend upon your perspective. For a Contractor, a
precise and unambiguous notice provision may assist by making it clear what the Contractor must do
if it hits problems such as delay and needs to extend the completion date or claim additional money.
Equally, a Contractor may likely perceive notices as an Employer's tool for suppressing otherwise
legitimate claims for additional time and payment, and resulting in no more than an unnecessary
burden on its project team's time and resources.

For an Employer, notices are an essential means of managing finances and budget. Notices assist the
Employer with making informed decisions about whether, for instance, to proceed with a variation, a
course of action that may cause delay or disruption or a course of action in order to mitigate such
effects. Notices afford the Employer more time to react to problems.

The starting point for contractual treatment of notice provisions is that a failure to comply constitutes
a breach of contract for which damages are payable. The local courts and, by extension, arbitrators
adopt a pragmatic approach to notices namely that a notice provision constitutes a term of the
contract, to be observed and complied with like any other, and, failing compliance, the innocent party
should be compensated for breach. Further, a key legal principle, embodied firmly in local law, is that
remedy for breach of contract is monetary damages, the purpose of which is to compensate the
injured party for the loss sustained. In short, compensation cannot exceed the innocent party's actual
proven loss. This is critical to the subject of notices: it is rare, in practice, that an Employer can prove
significant, if any, actual loss flowing from its Contractor's failure to observe a notice provision,
particularly in the case of ancillary notice requirements such as providing detailed particulars.
Consequently, notice givers generally have little incentive contractually to comply with the terms of
notice provisions, as the risks of failing to do so can be relatively small.

Employers soon wised up and various measures have been devised to counter this reasoning, which
have generally been incorporated into the majority of construction conditions in some form or another.
These measures fall into two discreet categories: (1) express provision for the consequences of a
failure to comply; and (2) making a valid notice a condition precedent (namely a contractual term that
requires compliance with a defined obligation as a precondition to a right or an entitlement arising) to
a right to time or money. There is a subtle but important distinction between the two approaches
which has consequences for the challenges that can be advanced by a Contractor in response to these
efforts to evade the compensation principles applied by local courts which shall be discussed below.
Eluding the Contractual Notice Regime

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There are several arguments available, pursuant to a contract and/ or local law, to a Contractor that is
found, as a matter of fact, to fall foul of a particular set of contractual notice requirements.
1. Breach of contract only
As stated earlier, failure to comply with a notice provision constitutes a breach of contract, for which
compensatory damages become payable. Notwithstanding the fact that the FIDIC Conditions
prescribe, in some instances of such failure, consequences that are far harsher than compensatory
damages, the "compensatory principle" is still an important weapon for a Contractor. It is therefore
always worth checking whether the consequences of a failure to comply are specified or whether this
is left to be determined by the "compensatory principle". Notice provisions often comprise many
elements. The notice must be given, but it must also be given within the requisite time, to a certain
party/ parties, include certain details and in many cases, be followed by further particulars. A time
barring mechanism may not cover these ancillary requirements and therefore, a failure to comply with
any or all of these components parts may not be fatal to the claim, and may be merely a breach of
contract the remedy for which should be a claim for damages alone.
2. Onerous obligations/ Penalty
In accordance with the substantive law parties shall be bound by the terms they have agreed
(provided such provisions are not contrary to public morals or mandatory provisions of local law)
unless exceptional, unforeseen circumstances make performance of a particular obligation
substantially onerous. Therefore, where the loss of an entitlement to claim is disproportionate to the
loss suffered by the party to whom notice ought to be given, a court or tribunal is entitled to construe
the notice clauses against the party seeking to rely on them. There might arguably be little or no loss
resulting for an Employer from a late or "incomplete" notice, for instance.

By extension, whilst parties are free under local law to agree compensation in advance, the courts
retain discretion to amend the compensation to reflect actual loss. If the effect of the notice provision
is to act as a penalty for a failure to serve notice, local law provides a mechanism whereby judges and
arbitrators can adjust the effect in order to match the consequences of the failure to give notice to the
actual loss suffered by the Employer.
3. Unclear provisions
Where it is arguable that the terms of a contract are unclear or ambiguous, a court or tribunal
applying local law has a discretion to "look behind the terms of the contract" in order to assess the
intentions of the parties. Guidance on interpretation of contracts with ambiguous terms provides, "if
there is a case for interpreting the contract, the common intention of the contracting parties must be
examined without being restricted to the literal meanings of the terms...." Thus, if compliance with a
particular notice provision entails an element of ambiguity as to when and how a Contractor must give
notice, a discretionary approach may be applied and the notice provision in question may be subject
to an interpretation that does not suppress a Contractor's claim entitlement.
4. Notice in Writing?
As set out above, the FIDIC Conditions stipulate that all notices must be given in writing, with
"writing" defined as any hand-written, typed-written or printed communication. The question is what
actually amounts to notice in writing and what are the consequences of a failure to comply?

The FIDIC Conditions as discussed above do not specify that notice be given in writing. That is
because of the "catch-all" requirement at GCC1.3 that requires that where notice is required, this
must be in writing. However, GCC-1.3 does not specify the consequences of a failure to give notice in

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writing. Therefore, giving notice in some other form arguably merely constitutes a breach of contract
(for which compensatory damages are payable) but is not, necessarily, fatal to a claim.

Further, there are certain forms of notice that are less obvious than the letters or faxes that one
generally thinks of when faced with a "written notice" requirement and that should not be overlooked:

a. minutes of meeting, particularly if these must be signed and returned to the Engineer (GCC1.3
does not specify who must create the communication);
b. material submittals, on which comments and notes are often written and which are exchanged
between the parties;
c. priority lists circulated amongst the parties, that indicate which issues, from a Contractor's
perspective, the Engineer should treat as priority so as to prevent delay to the impacted works;
d. a statement on completion; and/ or
e. interim payment applications which may include an amount for variations or other financial claims
arising during the period covered.

In short, any documented evidence of an event giving rise to a claim that is sent, given or otherwise
produced to the Engineer or Employer may be argued to constitute written notice.

To be continue in next issue...

NBMCW October 201

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