UK: Contractor Not Required To Notify Claim For EOT Until Delay Has Started

Summary and implications

The FIDIC Conditions require the contractor to give notice of a claim for extension of time (EOT) not later than 28 days after the contractor became aware, or should have become aware, of the event or circumstances giving rise to the claim. The Technology and Construction Court (TCC) in London has recently adopted a relaxed interpretation of this requirement.

• The TCC's decision provides authority for a position which offers some respite to contractors from the onerous (and often criticised) provisions that debar a claim from being pursued if it is not notified within the stated period.
• As decided by the TCC, the 28-day period for notifying a claim for EOT only begins following the onset of actual delay flowing from the event or circumstance which caused it.
• By analogy, the TCC's decision supports the argument that the case is similar where the contractor's claim is not for EOT but for additional payment.
• However, the decision also gives unquestioning support to the proposition that a contractor's claim cannot be pursued if it has not been notified within the relevant period.

Take notice – contractors' claims under the FIDIC Conditions

Construction projects almost invariably give rise to claims by one party or the other. The claims do not necessarily give rise to conflict and disputes, but that something unexpected will occur during the course of a project is to be expected as the norm. Most often, it is the contractor which has claims for additional payment or EOT, but the employer may also have claims in respect of delayed completion or defective work. However, the FIDIC Conditions are very one-sided in the way that they treat claims by the contractor and claims by the employer respectively.

As regards an employer's claim, sub-clause 2.5 merely requires that notice of the claim be given to the contractor "as soon as practicable after the employer became aware of the event or circumstance giving rise to the claim".

However, under sub-clause 20.1, the requirements for notice in respect of a contractor's claim are significantly more onerous:

• the requirement to give notice is triggered not only upon the contractor becoming aware of the relevant event or circumstance, but also when the contractor should have become aware of it;
• there is a set deadline of 28 days from that point within which the notice must be given; and
• the giving of notice before that deadline is a condition precedent to the contractor's entitlement to pursue the claim. If notice is not given within that period, a guillotine falls and (subject to possible arguments that the employer has waived the requirement for notice) the contractor's claim is debarred.

The contractor's position is somewhat improved under the DBO (Gold Book) version of the FIDIC Conditions. That version contains an added proviso to the effect that the contractor may refer the matter to the DAB in the event of late submission of a notice, whereupon the DAB may overrule the 28-day limit if it considers that it is fair and reasonable in all the circumstances to accept the late submission. It remains to be seen whether a similar relaxation will be adopted by FIDIC when the revised editions of the Construction (Red Book), EPC Turnkey (Silver Book) and Plant & Design Build (Yellow Book) versions of the FIDIC Conditions are eventually published. However, for the time being, contractors operating under those versions of the conditions face the strict time bar on claims that is set out above.

The OHL case

Contracts based on the standard FIDIC conditions do not frequently come before courts, so considerable interest should be attracted within the international contracting community by the recent decision of the TCC in Obrascon Huarte Lain SA v Attorney General for Gibraltar [16 April 2014].

This case arose out of contract by which the claimant contractor (OHL) agreed to undertake the design and construction of a road and tunnel under the runway of Gibraltar Airport. The contract was based on the Plant & Design Build (Yellow Book) version of the FIDIC Conditions, which so far as relevant to this briefing were not amended. The overriding issue in the case revolved around the termination of the contract, which will be the subject of a future briefing. However, the court also had to address questions relating to the contractor's claims for extensions of time in respect of various matters which delayed the completion of the Works.

The contractor's claims were largely unsuccessful, because the court found that the causes of delay were mostly matters for which the contractor was responsible. However, subject to whether the requirements of sub-clause 20.1 had been met, the court accepted that the contractor was entitled to an extension of one day on account of unforeseeable physical conditions (rock in areas to be excavated), plus an extension of six days on account of exceptionally high rainfall.

Construction of the sub-clause 20.1 time requirement

As regards the requirements of sub-clause 20.1, the opening remarks of the learned judge, Akenhead J, included two key points:

• Firstly, that it was clear (as accepted by the contractor's legal counsel) that sub-clause 20.1 imposes a condition precedent.
• Secondly, he could see no reason why the clause should be construed strictly against the contractor, but "can see reason why it should be construed reasonably broadly, given its serious effect on what could otherwise be good claims for instance for breach of contract by the Employer".

Applying a broad construction, the judge held that notice of a claim for EOT does not have to be given for the purposes of sub-clause 20.1 until there actually is delay, although the contractor can give notice when it reasonably believes that it will be delayed.

The judge's reasoning that led to his conclusion is interesting:

• The judge considered that, at least in the context of extension of time, regard must be had to sub-clause 8.4 which identifies when and in what circumstances extension will be granted.
• The judge noted that under sub-clause 8.4, the entitlement to extension arises if and to the extent that the completion "is or will be delayed by" the various listed events, such as variations or "unforeseeable" conditions. In the judge's view, this suggested that the extension of time can be claimed either when it is clear that there will be delay (a prospective delay) or when the delay has been at least started to be incurred (a retrospective delay).

• The judge noted that the "event or circumstance" described in the first paragraph of sub-clause 20.1 in the appropriate context can mean either the incident (variation, exceptional weather or one of the other specified grounds for extension), or the delay which results or will inevitably result from the incident in question. Also, it was relevant that the wording in sub-clause 8.4 is "is or will be delayed by", not: "is or will be delayed whichever is the earliest".
• Accordingly, applying a broad construction, the contractor could validly give the notice after the onset of the delay within 28 days after it became aware (or should have become aware) of it.

The sub-clause 20.1 requirement as to form of notice

The judge remarked that no particular form is called for in sub-clause 20.1 and that one should construe it as permitting any claim provided that it is made by notice in writing to the engineer, that the notice describes the event or circumstance relied on and that the notice is intended to notify a claim for extension (or for additional payment or both) under the contract or in connection with it. It must be recognisable as a "claim".

The judge also stated that the onus of proof is on the employer to establish that the notice was given too late.

Application to the facts of the case

It is instructive to see how the judge's interpretation of the requirements of sub-clause 20.1 were applied by him to the facts of the case.

With respect to the rock claim, the contractor relied on a letter to the engineer dated 14 July 2010 which related to rock encountered on 18 May 2010, and which stated: "In our opinion the excavation of all rock will entitle us to an extension of time..." In relation to this:

• the judge considered that the letter was a "claim" as such, albeit that it was widely drawn;
• the judge remarked that he did not have to determine whether it was too late for any rock that had previously been encountered. However, it follows from his ruling on the meaning of sub-clause 20.1 that the claim was too late in respect of the occurrence on 18 May 2010 if the rock encountered on that day caused immediate delay; and
• however, the letter had been sent before the occurrence of the later problems with rock for which the judge had found that there was critical delay, and he held that the letter therefore satisfied the requirements of sub-clause 20.1 in respect of that later delay.

With respect to the weather claim, reliance was placed on the contractor's progress reports for November and December 2010 and a letter to the engineer in January 2011. In respect of these:

• the November 2010 report related to a period before which the exceptionally adverse weather occurred, in December; while the December report only and blandly stated: "The adverse weather condition (rain) have [sic] affected the works", which, the judge found, was clearly nowhere near a notice under sub-clause 20.1;
• the January letter to the engineer referred to rainfall in December which it said had flooded the site and thus "come into contact with the contaminated ground... and we are unable to discharge this rainfall from site... In our opinion the foregoing will entitle us to an extension of time..." The judge considered that this was not a notice of claim about being delayed by weather actually whilst working in December 2010 (i.e. by the rain actually falling), which is what the six days allowed related to; rather, it related to future delay caused by the effect and impact of weather on the contaminated material on site;
• the judge remarked that the January letter would have been a good notice for any critical delay caused or to be caused by the contaminated ponded water, but there was in fact no critical delay caused by ponding; and
• the contractor was actually delayed in critical work in late November and early December 2010 by the unusual weather, and accordingly had failed to give notice of this within 28 days of becoming aware, or of when it should have become aware, of it.

It followed from the above that the contractor was only entitled to one day's extension of time, on account of the rock delay, because the six days of critical delay caused by the impact of the rainfall in December on progress at that time was not the subject matter of any timely notice under sub-clause 20.1.

Relevance to claims for additional payment

Although the OHL case was not concerned with claims by the contractor for additional payment, the reasoning that was applied by the judge to the contractor's claim for EOT would appear to lead to a similar conclusion in respect of a contractor's claim for additional payment.

The starting point is the judge's finding that sub-clause 20.1 should be given a reasonably broad construction. This must apply just as much to claims for additional payment as it does to claims for EOT. In the same way, it should be appropriate to have regard to other provisions of the contract which identify when and in what circumstances additional payment may be claimed.

In that regard, the provisions of the FIDIC Conditions that entitle the Contractor to claim additional payment generally adopt the same formula as follows:

"If the Contractor... incurs Cost as a result of [event which is the Employer's responsibility], the Contractor shall give notice... and shall be entitled subject to Sub-Clause 20.1 [Contractor's Claims] to:

"...

"(b) payment of any such Cost [and, in most cases, plus reasonable profit,] which shall be added to the Contract Price."

For example, under sub-clause 2.1, the contractor is so entitled if the right of access to, and possession of the site, is not given within the time stated in the Particular Conditions.

Applying the reasoning in the OHL case, the "event or circumstance" described in the first paragraph of sub-clause 20.1 in respect of a claim for additional payment can mean either the incident (e.g. late access to the site or one of the other specified grounds entitling additional payment) or the cost which results from the incident in question; and, on a broad construction of the provision, the contractor should not be required to give the notice until after incurring the cost within 28 days after it became aware (or should have become aware) of it.

Conclusion

In the writer's experience, the requirement to give notice within 28 days from (actual or deemed) awareness of "the event or circumstance giving rise to the claim" has generally been interpreted as meaning 28 days from awareness of "the incident" (using the terminology in the OHL case), rather than 28 days from awareness of the actual occurrence of the time or money consequences of the incident as found in the OHL case. As the consequences will usually come at a later time than the incident itself, the interpretation applied in the OHL case will generally allow the contractor a longer period to give the requisite notice.

The OHL case will thus be welcomed by contractors as providing authority for a position which gives them some relief from the harshness of the strict time bar on claims that is provided for in sub-clause 20.1 of the 1999 editions of the FIDIC Conditions.

Other important aspects of the case will be dealt with in future briefings.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.