Pursuing or Defending Claims under FIDIC

Contracts Regionally & Internationally

By
Khalil T. Hasan
Construction Solutions (www.cspk.org)
 Almost all construction projects, whatever the size,
go through changes which result in additional costs
and/or an increased time of the contract. Some
examples are;

The Employer (or owner) decides to change the

original scope of the works, such as, increase the
covered area of a building etc.
An action/inaction by either the Contractor or the
Employer, such as late mobilization of plant and
equipment etc.
Unforeseeable occurrence by the forces of nature,
such as, an earthquake etc.
 Majority of construction projects worldwide are
administered by the FIDIC forms of contract.
FIDIC recognizes the effects of change and has
provisions which provide entitlements enabling the
contractor to claim the related costs and time. For
example;
Sub-Clauses 8.4 & 20.1 (FIDIC 1999 Edition)
Clauses 44 & 53 (FIDIC 1987 Edition)
All Clause references
in this presentation,
hereinafter, are in
respect of, unless
otherwise noted, the
FIDIC Red Book 1999
Edition.
Some additional FIDIC provisions which provide
entitlements to the contractor to claim for additional
costs, either;
with profit (e.g. Sub-Clause 1.9 Delayed Drawings or
Instructions) or,
without profit (e.g. Sub-Clause 4.12 Unforeseeable
Physical Conditions) or,
just additional payment (Sub-Clause 20.1
Contractors Claims).
As a general rule, most of the provisions which
entitle the contractor to an Extension of Time
(EOT) also provide entitlement to additional costs
(such as Prolongation Costs).
Notwithstanding the basis of entitlement, FIDIC
stipulates (in Sub-Clause 20.1) a procedure for claims
and related notices, which must be followed by
contractors.

If the contractor does not comply with the stipulated

procedures, a contractor's legitimate claim may be
rendered invalid and rejected due to lack of procedural
compliance.

Details in respect of such matters have already been

discussed by other colleagues and panelists and
therefore these will not be repeated.
 ESTABLISHING THE CAUSE-EFFECT LINK (Slide
1)

Irrespective of the cause of action or basis of

entitlement, a contractor's claim request must clearly
identify what actions or inactions by the Employer (or
his agents, including the Engineer) caused the
compensable or delay liability and which of the
entitlements bear a direct relationship to the financial
loss or a schedule impact.

This establishes the all-important cause-effect link

that is necessary to support a construction claim.
 ESTABLISHING THE CAUSE-EFFECT LINK (Slide
2)

FIDIC forms typically specify contract clauses for

variations, extension of time, order-of-
precedence for contract documents,
coordination, weather and employers risks etc.
Establishing causation in respect of the various
contract provisions
Additionally, is essential.claims must be
all contractor
supported by contemporaneous project records
and documentation which create the cause-
effect
For thelink.
specific case of a delay claim, the crucial
element of proof needed should be based on the
project schedules used to execute the work.
 ESTABLISHING THE CAUSE-EFFECT LINK (Slide
3)

Too many projects are transformed from the best

of intentions into highly impacted projects that
are out of control and headed for claims and
disputes.
Claims are most often initiated by contractors
against employers due to a multitude of
employer actions or inactions. Some of the
typical employer actions or inactions (causes)
that can create cost and
Late Engineering schedule
and Design impacts are
Information
listed below:
Numerous and Late Design Changes
Late Delivery of Employer-Furnished Equipment
Defective Employer-Furnished Equipment
Impact from Other Contractors employed by the
Employer
Late Approval of Contractor Submittals
Late Response to Contractor Requests for
Information (RFls)
Unreasonable objections during work inspections by
Employers or their Agents (Engineers)
Untimely Approval of Valid Contractor's requests for
Changes
Late Possession of Site
ESTABLISHING
A contractor mustTHE CAUSE-EFFECT
be able LINK
to demonstrate, (Slide
through a
4)
cause-effect analysis, how one or many of such causes
resulted in a cost or schedule impact to the contractor.
In addition, it is also important to evaluate the timing of
causes as well as potential impacts to the critical path,
if any.
For example, in one case, a contractor was claiming late
drawings by the Engineer as a reason of overall project
delay.
Based on a programme analysis, it was confirmed that
there was no impact on any project activity which
resulted in an overall delay of the project milestones.
Therefore, the contractor's claims were unsupported
and disapproved due to lack of a cause-and-effect
analysis which provided an evidence of the contractors
contentions.
For obvious reasons, global claims are usually
discouraged and difficult to substantiate. For example,
multitude of causes such as, design delays, design
errors, variations, poor project management decisions,
late possession of site etc. Whereas a direct causal link
with particular items of the losses is difficult to
establish.
 EMPLOYERS CLAIMS (Slide 1)

Similar to the rights of the contractors, the

employers are also entitled to claim, from the
contractors, any payment which they consider is
due to them by virtue of certain defaults under
or in Rejection
connectionand/or with the
Retesting contract.
of the Works (Sub-Some
examples are;7.5)
Clause
Remedial Works for defective Works (Sub-
Clause 7.6)
Costs of recovery of delay by contractor (Sub-
Clause 8.6)
Delay Damages (Sub-Clause 8.7)
Failure to Pass Tests on Completion (Sub-
Clause 9.4)
Extension of Defects Notification Period (Sub-
Clause 11.3)
Failure to Remedy Defects (Sub-Clause 11.4)
Termination by the Employer (Clause 15)
Otherwise in connection with the Works(Sub-
Clause2.5)
Etc.
 EMPLOYERS CLAIMS (Slide 2)

In order for the Employer to be able to claim his

entitlements, FIDIC defines a procedure, under Sub-
Clause 2.5, which the employer needs to follow. This
procedure requires that;

A notice of an employers claim should be given to

the contractor as soon as practicable (unlike the 28-
days limit specified by Sub-Clause 20.1 for the
contractor).
Claim particulars must also be submitted to the
contractor. There is no time limit specified, but it
can be argued that this must also be as soon as is
practicable.
The notice (or particulars) may be given by the
employer, or if authorized by the employer, the
Engineer may give such a notice or submit such
particulars.
Similar to the contractors claims, the Engineer
should carry out a determination of the employers
Claims under Sub-Clause 3.5.
 Best Practices for Claims Avoidance
(Slide-1)
The preliminary focus of the parties to any contract should
be to follow the principles of claims avoidance. However, if
necessary, claims should be, especially those related to an
extension of time, handled by experts and not novices who
end up manipulating the complexities thus resulting in front
of expensive dispute resolution forums.
Both parties generally want to avoid claims, but too
frequently the contract specifications and construction
management practices actually work against them. The key
to successful claims avoidance, once the project has been
awarded, is to provide the project team with the tools they
need to identify problems quickly, measure impacts reliably,
and price them fairly in order to resolve changes as they
arise and, thus, avoid claims.
Although many contracts are drafted with
the intention to avoid claims, in reality,
some contribute in creating more claims.
Also, many widely used construction
management approaches actually
encourage claims. Both the contract and
standard practices can create a claims
friendly environment.
 Best Practices for Claims Avoidance
(Slide-2)
Front end tasks should be carried out to eliminate or
minimize the possibility of claims and disputes arising from
construction contracts and some of these include:
Review of contract documents to eliminate possible
ambiguities, inconsistencies, conflicts, errors and
omissions.
Claims and disputes frequently arise due to gray
areas in the Contract documents. These may be
avoided by well-drafted contract documents.
Contract documents generally generate adversarial
roles and inhibit the development of teamwork
between the parties. In addition, the legal process
focuses on blame and restricts problem solving.
Special conditions of contract must be drafted by
experts trained to resolve disputes.
Building codes may be out-of-date, inapplicable, and
non-uniform. State-of-the-art codes should be used
for the design of a project.
Environmental considerations can result in delays.
Tender documents should clearly spell out such
considerations, such that, these may be taken into
account by contractors in their bids.
Execution stage of a project should utilize sound contract
administration/management procedures to help a project team
successfully defend/win claims and avoid disputes. Some
recommendations in this respect are:
Regularly update project documentation, such
as, correspondence logs, daily reports,
accurate minutes of meetings, tracking of
technical submittals like drawings and
progress photographs etc.
There should be a record-keeping system that
documents progress and problems as they
occur.
Events which frequently form the basis of
changes and claims include, changes in
method of performance due to various
reasons, out-of-sequence work and other
causes as listed earlier in this presentation.
Such events can be avoided by way of timely
actions/inactions of all parties.
Conflicts must be resolved contemporaneously
(at the time these occur) rather than wait till
the end of the project.
Project cost and schedule control systems are
often not sufficiently sophisticated or
integrated.
Procedure for Settlement of Claims

The procedure for settlement of

claims specified by FIDIC is a multi-
tier (or several steps) process.

The higher tiers get more and more

expensive.

Thus it suits both parties to resolve

disputes as early as possible.
 Procedure for Settlement of Claims
Tier 1 Engineers Determination

Tier 1 of the procedure for settlement of claims is specified in Sub-Clause 20.1 titled
Contractors Claims.
The procedure for contractors claims has been dealt at length by earlier panelists and
therefore will not be repeated here.
Sub-Clause 20.1 requires the Engineer to carry out an Engineers Determination of the
contractors claims pursuant to Sub-Clause 3.5.
Similarly employers claims (pursuant to Sub-Clause 2.5, as discussed earlier) should
also be Determined by the Engineer pursuant to Sub-Clause 3.5.
Thus either partys claims must be Determined by the Engineer.
Although defined by FIDIC as the Employers Personnel and stipulated to act on
behalf of the Employer, the Engineer is expected to issue a FAIR Determination.
Referring party must comply with the respective specified procedures. Failing which, the
request for a Determination may be disapproved.
Once the Engineer issues a Determination, both parties (the Contractor and the
Employer) shall give effect thereto unless and until the same shall be revised by the
higher tiers of the procedure for settlement of claims.
 Procedure for Settlement of Claims
Tier 2 Dispute Adjudication Board (DAB)

o Tier 2 of the procedure for settlement of claims (DAB) is specified in Sub-Clauses 20.2, 20.3 & 20.4.
o Sub-Clause 20.2 stipulates a procedure for the appointment of a DAB, which shall be either a sole
member or three members.
o Sub-Clause 20.3 stipulates a procedure to overcome disagreements in respect of appointment of a DAB.
o The DAB members should be independent and impartial.
o Where a party disputes an Engineers Determination, the party may, pursuant to Sub-Clause 20.4, refer
the dispute to the DAB for its Decision.
o The DAB will Adjudicate the dispute and within 84 days (or such period as may be agreed by the Parties
and DAB) after receiving the reference, a Decision will be given by the DAB.
o The Decision given by the DAB shall be binding and therefore both parties (the Contractor and the
Employer) shall give effect thereto unless and until the same shall be revised by the higher tiers of the
procedure for settlement of claims.
o Notwithstanding the case where a DAB Decision has been given in favour of the Employer, the
Contractor shall, unless the Contract has already been repudiated or terminated etc., continue to
proceed with the Works with due expedition and without delay.
o Where a party is dissatisfied with the DABs Decision, then this party may, within 28 days after
receiving the Decision, give a notice, pursuant to Sub-Clause 20.4, to the other party of its
dissatisfaction.
o Where DAB has not given a Decision, the rights of the parties remain unaltered in respect of further
remedies available under the Contract. A notice of dissatisfaction must still be issued.
o Where a Decision by the DAB has been given, and no notice of dissatisfaction has been given by either
party, then the Decision shall become final and binding.
Procedure for Settlement of Claims
Tier 3 Amicable Settlement

Where a notice of dissatisfaction has

been given, both parties shall,
pursuant to Sub-Clause 20.5, attempt
to settle the dispute amicably before
commencement of Arbitration (Tier
4).

The Amicable Settlement process

should continue till 56-days after the
notice of dissatisfaction was given.

Where the parties agree, amicable

settlement process may be omitted.
However, Arbitration (Tier 4) may
only commence after 56-days after
the notice of dissatisfaction was
given.
 Procedure for Settlement of Claims
Tier 4 Arbitration
Unless settled amicably, any dispute in respect of the DABs Decision
(if any) which has not become final and binding, shall be finally settled
by international arbitration (Sub-Clause 20.6).
Stipulated procedure by FIDIC, unless otherwise agreed by the parties,
is to finally settle disputes under the Rules of Arbitration of the
International Chamber of Commerce.
Either party who is dissatisfied with the Decision given by DAB, may
commence Arbitration.
Arbitration may commence prior to or after the completion of the
Works, provided that the obligations of the Employer, the Engineer and
the Contractor shall not be altered by reason of the arbitration being
conducted during the progress of the Works.
Generally all costs of arbitration shall initially be shared equally
between the Parties, but the Arbitral Tribunal shall have the right,
when making its award, to allocate such costs between the Parties as it
shall so decide.
 Wish List for future FIDIC
Updates (Slide-1)

The objective of this section is to bring to

the attention of the FIDIC Drafting
Committee, the experiences of the author
in respect of recurring disputes on a
multitude of projects. This is in no way to
be implied as a criticism of the existing
provisions of the 1999 version of FIDIC
forms.

It is acknowledged that the existing

provisions have been drafted after taking
account of various factors which may not
be in the knowledge of the author and the
suggestions in the following slides are
merely meant to assist the drafting
committee in arriving at possible updates
of some of the existing provisions.

The following wish list is limited to the

subject of this presentation - Claims and
their respective settlement procedures.
 Wish List for future FIDIC
Updates (Slide-2)

Time-bar provisions for claim notices under Sub-

Time-bar provisions for a claim noticeClause 20.1 20.1 are a condition precedent for
under Sub-clause
a claim to be approved. Generally the contractors consider this provision to be punitive
and in cases to be unfair.

The primary objective of time-bar on a notice is to alert the other party such that the
cause of notice may be prevented, if possible. A secondary objective is to permit the
evaluation of a claim contemporaneously, such that memories are fresh and that this may
actually be of help to the contractors.

Both objectives are important and should remain in place. However, a possible alternative
could be an early warning notice as defined by the NEC3 Contract forms. The objective
to timely alert remains intact without actually having punitive consequences for the
contractors.

The time-bar on submission of claim particulars and on the period permitted to the
Engineer for an assessment and Determination should remain unchanged as these have
obvious benefits for both parties.
 Wish List for future FIDIC
Updates (Slide-3)

Conflicts of Time-bar provisions for claims under Sub-

Clause 20.1

It is usually argued, in Islamic law countries, that

the time-bar provisions of Sub-Clause 20.1 conflict
with the Islamic law, which, in principle, does not
time bar any remedies at law. Pursuant to Sub-
Clause 1.4, the Islamic Law may be the governing
law for a contract and may thus override Sub-
Clause 20.1.

For the sake of consistency worldwide and for
elimination of disputes on this matter, it is
suggested to explicitly make 20.1 be the
governing clause, such that this supersedes any
other conflicts.
 Wish List for future FIDIC
Updates (Slide-4)

DAB discretion to override Time-bar provisions for

claim notices in the FIDIC Gold Book 2008

Sub-Clause 20.1 of the Gold Book, in respect of submission period of claim

notices, stipulates;
However, if the Contractor considers
there are circumstances which justify the
late submission, he may submit the details
to the DAB for a ruling. If the DAB
considers that, in all the circumstances, it
is fair and reasonable that the late
submission be accepted, the DAB shall
have the authority to overrule the relevant
28 day limitof
Evidence a justification for late
submission of claim notices, may itself be
contentious and therefore it is suggested
that similar discretion may be avoided in
the updates of other FIDIC forms like the
Red Book etc.
 Wish List for future FIDIC
Updates (Slide-5)

Replacement of the word Payment under Sub-Clause

20.1

The word payment under Sub-Clause 20.1

could be replaced by the word Costs as
defined under Sub-Clause 1.1.4.3. This should
bring clarity that additional payment claims
must be based on incurred (with evidence), as
opposed to theoretical costs.
 Wish List for future FIDIC
Updates (Slide-6)

EOT Particulars under Sub-Clause

20.1

Under Sub-Clause 20.1, for the case

of an Extension of Time (EOT) claim,
the supporting particulars should
require the contractor to submit a
cause-and-effect programme analysis
prepared within the guidelines of
industry standards like the SCL
Protocol.
 Wish List for future FIDIC
Updates (Slide-7)

Extension of Time (EOT) Provisions of Sub-

Clause 8.4
The most common construction claims worldwide relate to an Extension of Time
(EOT).
FIDIC recognizes delay, however, the principles of how delay and related costs
should be calculated are not defined by FIDIC. This leads to issues; issues which
are usually contentious due to various 'schools of thoughts' and varied
interpretations existing worldwide.
If not explicitly made reference to, it is suggested that Sub-Clause 8.4 should be
re-drafted to ensure this takes account of the principles set out by the Society of
Construction Laws Delay and Disruption Protocol (SCL Protocol).
In this context, the suggested additional paragraphs at the end of Sub-Clause 8.4
could be in lineThe
withEngineer's Determination of an EOT should be assessed
the following;
such that each cause is dealt independently of other causes;
other causes, some of which may be the liability of the
Contractor. Other causes, even if some of these are due to
actions/inactions of the Contractor, should not reduce the
Contractor's entitlement to an EOT. Actions/inactions of the
Contractor having a bearing on the cause of delay under
evaluation, should however be taken into account in respect
of its effect on the Time for Completion of the Works.

The Contractor's entitlement for the recovery of additional
payments, resulting from an extended Time for Completion
of the Works, should be assessed taking account of all
causes (whichever Party may be liable for these).
 Wish List for future FIDIC
Updates (Slide-8)

Mandatory Appointment of a
DAB
The use of dispute boards (e.g. DABs) in the construction industry has over
many years significantly contributed to the avoidance and early resolution of
disputes. The great benefit of using a standing dispute board is that its
members may be called upon as soon as a problem arises and help the parties
resolve their differences before they become polarized in their views.
The dispute avoidance role of a standing board should be emphasized: the DAB
encourages the parties to solve their own problems, creating an atmosphere
where the parties communicate and recourse to the advisory role of the dispute
board. Resolving conflicts at an early stage, or even before they arise, is an
obvious benefit that greatly reduces costs such as legal fees, and reduces loss
of productive time and goodwill between the parties.
It is not uncommon that one of the parties will resist the appointment of a DAB.
This may be to avoid the costs associated with DAB or otherwise. With the
obvious benefits of a DAB (especially of a standing Board), it may be prudent to
bind the parties to setup a DAB at the outset of a project. Alternatively punitive
deductions (or reimbursements, as the case maybe) could be linked thereto.
www.cspk.or
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 This Lecture was delivered by the Managing Partner of
Construction Solutions (www.cspk.org), Mr. Khalil Tayab Hasan.
For any queries and clarifications, please feel free to contact Mr.
Hasan at;
khalilhasan@cspk.org or khalilhasan@hotmail.com
+971 50 8861709 or +92 345 8500195

www.cspk.or
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