A Guide to Claims Procedures in FIDIC 1999 Standard Forms of Contract for Major Works.

The management of claims in construction contracts is a critical aspect of ensuring fair and timely resolution for both contractors and employers. FIDIC's (International Federation of Consulting Engineers) new (1999) Standard Forms of Contract for major works provide a comprehensive framework for addressing claims.

This article explores the claims procedures outlined in the Conditions of Contract for Construction for Building and Engineering Works Designed by the Employer (the Construction Contract), Conditions of Contract for Plant and Design-Build for Electrical and Mechanical Plant, and for Building and Engineering Works Designed by the Contractor (the Plant and Design/Build Contract), and Conditions of Contract for EPC/Turnkey Projects (the EPC/Turnkey Contract).

Evolution of Claims Procedures

Recognizing historical challenges with mismanaged claims, FIDIC's drafters introduced innovations to tighten rules regarding claims in the new standard forms. The aim is to streamline the process and address common issues faced by both contractors and employers.

Claims from the Contractor

A significant source of complications in claims has been the absence of accurate records and delayed notifications. Sub-Clause 20.1, consistent across all three contracts, mandates the contractor to provide notice within 28 days of identifying an event or circumstance that may necessitate additional time or payment. This notice serves as an alert, allowing all parties involved to address the matter promptly.

Notice Requirements

• The notice is a crucial starting point, signaling the potential for a claim.
• Proper records must be maintained and agreed upon to prevent future disputes.
• Alternative measures to mitigate effects can be explored.
• The notice, which can be a simple statement, may not require a formal claim if the event turns out to be of insignificant effect.

Unified Procedure for all Claims

In the previous FIDIC Books, time extension and extra payment claims had distinct clauses. However, in the new standard forms, Clause 20.1 encompasses all claims, whether for time extension, extra payment, or both. This unification streamlines the claims procedure.

Contractor's Entitlements

Numerous Sub-Clauses grant the contractor entitlements to claim extension of time or additional payment. These entitlements are expressed similarly across various Sub-Clauses, emphasizing the need to follow the procedure in Sub-Clause 20.1.

Sub-Clause 20.1 Requirements

• Notice must be given as soon as practicable, within 28 days of becoming aware of the event.
• The notice must describe the event or circumstance, without specifying time, amount, or contractual basis.
• Compliance with Clause 1.3 (in writing and properly delivered) is mandatory.
• Progress reports must list notices given.
• No response is required from the Engineer (Employer) at this stage.

Initiating the Claims Procedure

The first notice triggers the claims procedure, with subsequent notices and supporting details potentially required by specific clauses. It is imperative to keep contemporary records, subject to inspection by the Engineer (Employer). A fully detailed claim must be submitted within 42 days of the event, or within an agreed time frame.

Engineer's Response

• The Engineer (Employer EPCT) must respond within 42 days of receiving the claim with details.
• The response includes approval, disapproval with detailed comments, and may request further particulars.
• A time limit is imposed on the Engineer for the first time, ensuring a prompt response.
• Each payment certificate includes amounts for substantiated claims.
• The Engineer (Employer EPCT) determines time extension or additional payment under Clause 3.5, satisfying any other specified requirements.

Addressing Delays in Engineer's Response

To address past issues of Engineers delaying responses, a time limit has been imposed on the Engineer (Employer EPCT). This aims to prevent prolonged delays and facilitate efficient resolution of claims.

Removal of Engineer's Decision

In the new standard forms, the Engineer no longer holds the pre-arbitral decision in case the Contractor is dissatisfied with the response. This responsibility is transferred to the Dispute Adjudication Board (DAB). However, as an option, the Engineer may still be assigned this task if agreed upon.

FIDIC's 1999 Standard Forms of Contract introduce a comprehensive and streamlined approach to claims procedures, aiming to minimize disputes and ensure fair resolution for both contractors and employers. The unified procedure under Sub-Clause 20.1, coupled with strict timelines for responses, marks a significant shift toward more efficient claims management in major construction projects. Contractors and employers are encouraged to familiarize themselves with these procedures to facilitate smoother project execution.

Claims from the Employer

In construction contracts, the issue of withheld payments by Employers or their Engineers has historically led to disputes and project delays. To address this, the FIDIC's new (1999) Standard Forms of Contract for major works introduce a novel approach under Sub-Clause 2.5, outlining a procedure for Employers to follow when seeking payment or extensions of the Defects Notification Period (formerly known as the Defects Liability Period). This article explores the details of Sub-Clause 2.5 and its implications for Employers.

Background

In the past, Employers and their Engineers have sometimes withheld payments or de facto extended the Defects Liability Period based on perceived issues with the Contractor's performance. The New Books aim to prevent unfair practices by introducing Sub-Clause 2.5, providing a structured process for Employers to follow when making claims for payment or requesting extensions.

Entitlements and Notice Requirements

Sub-Clause 2.5 outlines specific notice and particulars requirements that Employers must adhere to when considering claims for payment or extensions of the Defects Notification Period.

• Notice Timing: Employers are required to give notice as soon as practicable after becoming aware of an event or circumstance entitling them to payment from the Contractor.
• Extension of Defects Notification Period: Notice related to the extension of the Defects Notification Period must be given before the expiry of such period.
• Particulars: The notice should provide particulars specifying the Clause or other basis for the claim, accompanied by substantiation.
• Written Notice: The notice must comply with Clause 1.3, indicating that it should be in writing and properly delivered.
• Progress Reports: Clause 14.21(f) mandates the inclusion of notices given in progress reports.
• No Response Required from Contractor: Unlike claims from Contractors, no immediate response is required from the Contractor at this stage.

Claims Procedure

Following the notice, the claims procedure unfolds:

• Engineer's Involvement: Clause 13.5 comes into play, wherein the Engineer (EPCT Employer) endeavors to agree and settle the claim. If agreement fails, the Engineer determines the claim.
• Deductions from Payment Certificates: Any amount determined by the Engineer is deducted from Payment Certificates (EPCT moneys due).
• Extension to Defects Notification Period: If an extension is determined, it is added to the Defects Notification Period.
• Payment Obligations: According to Clause 14.7, the Employer is obligated to pay the amount certified for Construction and Plant and Design/Build Contracts. For EPC/Turnkey Contracts, the Employer must pay the net amount actually due, not just what the Employer considers due.
• DAB's Role: If the Dispute Adjudication Board (DAB) determines that the Employer paid less than the amount due, the Contractor may be entitled to financing charges under Clause 14.8.

Addressing Concerns

Critics have pointed out that the Employer's obligation to give notice 'as soon as practicable' creates an apparent imbalance compared to the Contractor's claims process. However, this is attributed to the practical reality that Contractors are typically more proactive in identifying issues, while Employers may become aware of claims only after a failure occurs.

The Sub-Clause 2.5 establishes a structured claims procedure for Employers, promoting fair practices and preventing unilateral deductions from payments due to Contractors. This new requirement introduces transparency and a standardized approach to handling claims, contributing to smoother project execution and dispute resolution.

Conclusion

The introduction of stricter rules in the FIDIC's new (1999) Standard Forms of Contract, mandating a specified procedure for both Contractors and Employers, is anticipated to alleviate the challenges currently associated with claims. The imposition of a strict time limit for the Contractor's notification of claims ensures timely awareness among all parties, fostering the maintenance of accurate records and potentially averting unnecessary consequences. Simultaneously, the Engineer is now obliged to provide a response, at least outlining the principles of the claim, within a defined timeframe, marking a departure from previous practices.

Notably, for Employers, the new rules stipulate that no deductions from payments or extensions of the Defects Notification Period are permissible unless the prescribed notification and determination procedure has been diligently followed. These measures collectively aim to enhance transparency, mitigate delays, and contribute to a more efficient and equitable resolution of claims in construction contracts.

MORE READS ON CLAIMS

1. What is a Global Claim: Click here
2. Construction Claims: Click here
3. Acceleration Claims: Click here
4. Delays and Disruptions in Construction: Click here
5. Extension of Time and Prolongation Costs: Click here

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