Whether it is the first time you work with a FIDIC contract, or you are already familiar with international construction contracts, the provision in sub-clause 20.1 on claims is absolutely key to both the contractor and the client. In this article we provide an introduction to the provision and what is important to be aware of in relation to claim management in practice.
International construction law: When are the FIDIC conditions relevant?
Fédération Internationale des Ingénieurs Conseils, also known as FIDIC, was established in Belgium in 1913 and is an international association of consulting engineers where the individual member states are typically represented by the leading society of engineers. In Denmark, this is the Danish Association of Consulting Engineers (FRI).
The FIDIC conditions are relevant in major construction projects that contain a cross-border element. If a Danish contractor wishes to submit a tender for a project abroad, the use of FIDIC can be the way for-ward. And if a Danish client needs specialist expertise from a foreign contractor, a FIDIC contract will often be the right solution.
FIDIC’s standard conditions must be agreed before they have legal force, like an AB 18 contract. It should be noted, that FIDIC is not an agreed document like the AB 18 where the construction industry parties have been widely involved in the formation. Therefore, FIDIC also has a reputation for being client-friendly conditions and this is also apparent in the provision in sub-clause 20.1.
What is the purpose of sub-clause 20.1?
Sub-clause 20.1 determines how the contractor must act if he considers himself entitled to extension of time and/or payment for extra works.
The contractor must comply with the period within which notice must be given of any lack of conformity of goods, and the barring of claims period of 28 days. Thus, if the contractor does not raise the claim with-in the 28-day time-limit, he will forfeit his claim towards the client.
The reason for the onerous 28-day time-limit is that this will enable the involved parties to quickly be-come aware of an event or a circumstance where the contractor considers himself entitled to additional payment or extension of time. Thereby the parties are able to obtain clarification and if necessary, correct the circumstances during the performance of the contract, instead of postponing the clarification to later in the course of the contract and perhaps until after the completion of the contract.
The contractor must also comply with a 42-day time-limit for providing a detailed description of the events that caused the claim. Based on the 42-day time-limit, the contractor is also under an obligation to keep documents and specifications that are of importance to the assessment of the justification of the claim. This duty to provide documentation applies during the performance of the contract, and the contractor cannot, after the claim has arisen, produce witness statements etc., as the contractor does not have the necessary documentation to describe how the claim has arisen.
Prepare yourself through claim management
In connection with complex construction projects, it is not easy for the contractor to protect his right to additional payment and extension of time.
In theory, it is clear that the purpose of the onerous time-limit for claims and limited period for notice is to reveal all claims. In practice, the risk of the 28-day time-limit for claims is that instead of reducing the number of matters of dispute, the short time-limit has the opposite effect. This means that the time-limit for claims may contribute to raising questions and claims that did not constitute a problem previously or that are not real problems.
The disadvantage of the contractor’s demands regarding complaints and the duty to provide documenta-tion may also be reflected in contractors’ increasing use of employees engaged solely to attend to the presentation of claims. A contractor who submits a tender for a FIDIC contract knows perfectly well that he must include funds for preparation of claims in order to take steps to avoid the risk of not complying with the time-limit for claims.
On the other hand, it is in the client’s interest to keep the number of claims at a steady level in order to concentrate on the performance of the project in its entire lifetime. If the number of claims suddenly increases significantly, this should set the alarm bells ringing for the client.
Based on this, it is a good idea to have a well-functioning claims management system. This of course also involves having your legal advisers in place, whether in-house or as external providers, in order for you as client or contractor to be well prepared to steer through the claims that are to be submitted or reviewed.
Summary – 5 pieces of advice for the FIDIC conditions
The contractor must pay close attention to the time-limit for claims in sub-clause 20.1 that can lead to the time-barring of claims barred. The contractor may thus risk forfeiting his claim if he does not comply with the time-limits. The client must also pay close attention to his time-limit for claims in sub-clause 2.5, not-withstanding that this is less strict than the contractor’s time-limit.
Our introduction to FIDIC and claims management can be summarised in 5 points:
1. The FIDIC conditions are widely acknowledged in international contracts, and it is therefore an ad-vantage to use them when collaborating with foreign parties
2. The detailed and strict (client-friendly) rule makes heavy demands on the contractor’s document management
3. The contractor is responsible for conservation of evidence by gathering and keeping documenta-tion and specifications (simultaneous (original) documentation)
4. The client’s organisation must be able to handle a steady flow of claims
5. The advantage is that the claims will be revealed at an early stage and can be settled during the performance of the work.
If you wish to know more about how we can help you with your FIDIC contract or gain insight into our experience, please contact Steffen Hebsgaard Muff.