CONSTRUCTION CLAIMS RESOLUTION PROCESS IN FIDIC CONTRACTS
A construction project is a complex process that involves the interaction of multiple participants and may often result in deviations from the original construction plan. Therefore, the parties to the construction contract always create a space to deal with all the deviations which are likely to happen through two processes, claims procedures and dispute resolution, collectively referred to as construction claims resolution process.
- FIDIC Contracts and Construction Claims
The International Federation of Consulting Engineers, commonly known as FIDIC is an international standards organization for Consulting Engineering and Construction that has promulgated a standard form of contract, known as FIDIC Contracts. These contracts anticipate the most common deviations and the likely scenarios in which contractors or employers may make claims.
Claims raised by Contractor
Claims raised by Employer
- Late access or possession of site
- Adverse unforeseeable physical conditions
- Extensions of time for completion
- Variations to the contractor’s scope of work
- The contractor’s entitlement to suspend work
- Rejection and retesting of works
- Delay or liquidated damages
- A contractor’s failure to remedy work within a reasonable additional time
In FIDIC Contracts, the Contractual claim procedures are set up to resolve the claims and disputes arising between the parties as expediently as possible and to avoid dispute resolution through litigation and arbitration. In December 2017, FIDIC released the Conditions of Contract for Construction (the “2017 Red Book”). Through the new Contract, the 1999 Yellow Book has been substantially amended.
- FIDIC Dispute Resolution Procedure of 2017: The New Dispute Resolution Mechanism
FIDIC contracts distinguish between claims and disputes. A “claim” is a request or assertion by one Party to the other Party for an entitlement to relief under any clause or otherwise in connection with or arising out of the Contract or the execution of the Works. Whereas a “dispute” is where a claim has initially been made but eventually rejected by the other party or the engineer or is not determined in the required time.
Claims procedures, unlike the dispute resolution processes, is not adversarial. The claims procedure FIDIC 1999 had two separate processes for making claims: the employer’s procedure and the contractor’s procedure. The new regime combines the procedures for both employer and contractor claims under Clause 20.
- Categories of Claims under FIDIC 2017 Contracts
- Employer’s claims for additional payment from the contractor or a reduction in the contract price or an extension of the defects notification period;
- Contractor’s claims for an extension of time or additional payment
- Other reliefs
Procedure for First and Second Categories
- The claiming party shall give notice within 28 days after it became (or should have become) aware of the event giving rise to the claim.
- Failure to comply with time limit means that the claiming party shall not be entitled to the relief and the other party shall be discharged from all liability.
- If the claiming party fails to comply with the 28-day period, the engineer shall give notice stating that the claim is out of time, within 14 days from date of receipt of notice. The engineer is obliged to act promptly and state reasons.
- If the engineer does not issue such a notice, the original notice of claim is valid.
- The other party can object to its validity by giving notice to the engineer with reasons. The engineer shall consider this and make findings on the same.
- On receipt of notice of claim being out of time, the claiming party shall include its disagreement or justification for the late submission in its fully detailed claim.
- A fully detailed claim shall be submitted within 84 days, irrespective of the status of the initial notice. The period can be amended with the permission of engineer.
- If claiming party fails to submit its fully detailed claim in time, its notice of claim shall be deemed to have lapsed and the notice shall be treated as invalid.
- The engineer is required to give notice to the claiming party that the claim is no longer valid. This further notice must be given within 14 days after expiry of time limit for submission of detailed claim.
- The claiming party can disagree with the engineer’s further notice at any point. Such disagreement or justification of the late submission shall be included in his fully detailed claim.
- The other party can give notice to the engineer, at any time prior to the determination, in case of disagreements. The engineer must include findings on such a disagreement in his determination.
- Where there is an interim claim, the engineer must issue a response setting out the contractual or other legal basis of the first interim fully detailed claim. The claiming party shall submit further interim detailed claims on a monthly basis and a final fully detailed claim within 28 days after the end of the effects resulting from the event giving rise to the claim.
- If a party is dissatisfied with the engineer’s determination, they may within 28 days give a notice of dissatisfaction with reasons and commence the formal “disputes and arbitration” (under Clause 21). But they must comply with the engineer’s determination until it is replaced through dispute resolution.
- If no notice is given, the engineer’s determination becomes final and binding.
Procedure for Third Category
- The claiming party shall assert its application for a remedy, and if that remedy is rejected by the engineer or other party or not dealt with in a reasonable time, he can serve a notice of claim which will be resolved by the aforementioned process.
- The time limits and requirements for detailed submissions are not specified.
- Comparison Between 1999 FIDIC Contract And 2017 FIDIC Contract
- FIDIC 2017 makes a distinction between a claim and a dispute.
- Employer and contractor claims are now addressed through a single consolidated clause.
- Engineer’s increased role, particularly in administration of claims notices. He has to provide for a fair determination if the parties do not reach an agreement.
- More rigorous procedure, fixed stricter time limits and stricter compliance.
- Time limit for submitting fully detailed claim increased from 42 days to 84 days.
- Non-compliance with these time limits may result in the invalidation of notices and in effect bar any remedy for the claim.
- The claiming party keeps contemporary records to substantiate his claim and the engineer may monitor the records. In the new regime, such monitoring or inspection does not imply the engineer’s acceptance of its accuracy or completeness.
The new claims resolution procedure under the 2017 FIDIC Contract provides some expedient amendments which include better defined responsibilities and accountability for the Engineer, well-defined time limits and procedures for making and settlement of claims, and clarifications to the ambiguity in the words of the 1999 regime. It ensures that claims are easily manageable and not bundled together, and enables their resolution in a cost-effective manner. The new regime is therefore expected to reduce the need for dispute resolution process to a large extent.