Construction projects are almost always time-critical, and delays to the completion of a project have the potential to result in significant financial losses for the parties. As such, construction contracts generally require contractors to: (i) complete "the Works" by a specified date in accordance with an agreed schedule, (ii) at an appropriate level of quality and (iii) for an agreed price. However, a contractor's ability to achieve those three objectives can be impacted by factors outside its control.

In this article, we consider the circumstances in which a claim for an extension to the time for completion might arise and the procedure to be followed by the parties when making such claims, by reference to the International Federation of Consulting Engineers (FIDIC) Red Book 1999 / 2017 editions (Red Book 1999 / Red Book 2017). Pursuant to these standard forms, the type of events that can give rise to a claim for an extension of time are:

  1. any delay, impediment or prevention caused by or attributable to the Employer or one of its representatives;
  2. exceptionally adverse climatic conditions;[1]
  3. unforeseeable shortages in the availability of personnel or goods caused by epidemic or governmental actions;
  4. variations to the scope of the works; and
  5. particular causes of delay agreed by the parties and listed in the contract conditions (for example, delayed drawings or instructions pursuant to Sub-Clause 1.9 in Red Book 1999 / 2017).

Extensions of Time: Sub-Clause 8.4 Red Book 1999 / 8.5 Red Book 2017

Where a contractor fails to complete the Works by the specified Time for Completion, it will be in breach of contract and will be liable to the employer for liquidated damages. Sub-Clause 8.4 Red Book 1999 / Sub-Clause 8.5 Red Book 2017 provides a mechanism by which a contractor can claim an extension of time where it is able to prove that it has been delayed by reasons which entitles it to an extension. Such claims are usually highly complex, and the contractor bears the burden of proving, by way of contemporaneous documentation, its entitlement and associated relief from the employer's claim for liquidated damages (i.e. the cause of the delay is specified in the contract as being the employer's responsibility and the delay event is on the critical path of the contractor's programme).

If the contractor is unable to prove that an event caused actual delay to the progress of its works, the engineer will be unable to grant an extension of time and the contractor will be liable for liquidated damages for the delay. Further, where the contract is governed by English law and the cause of delay is attributable to the employer, the employer is prohibited by virtue of the 'prevention principle' from depriving the contractor of its entitlement to an extension of time and holding the contractor to the contractually agreed time for completion.

Granting an extension of time does not automatically lead to an award of costs and / or damages. However, where a contractor is granted an extension of time, it may seek to recover its time-related costs of remaining on site longer, its prolongation costs, in accordance with the relevant sub-clauses.[2] Nevertheless, there are two conditions precedent that a contractor must comply with prior to making a claim for an extension of time to the engineer, namely:

  1. demonstrating that one of the events listed in the contract has resulted in actual delay to the Time for Completion; and
  2. giving notice of its claim to the engineer in accordance with Sub-Clause 20.1 Red Book 1999 / 2017.

Sub-Clause 8.5 Red Book 2017 considers claims relating to periods of concurrent delay, but makes no express provision as to the contractor's entitlement to an extension of time in the event of concurrent delay. In such circumstances, Sub-Clause 8.5 Red Book 2017 provides that a contractor's entitlement to an extension of time is to be assessed in accordance with the rules and procedures stated in the Special Provisions to the contract or, if they are not agreed, 'as appropriate taking due regard to all relevant circumstances'. The FIDIC guidance to Sub-Clause 8.5 explains that this provision has been drafted in this manner, i.e. inviting parties to agree their own arrangements, because there is no internationally accepted standard rule in place. However, the FIDIC guidance does specifically refer to the Society of Construction Law's Delay and Disruption Protocol (2nd edition) (the SCL Protocol) as 'increasingly being adopted internationally'.

Concurrent delay is a notoriously difficult area and has long been a topic of substantial debate in the English courts. We discuss concurrent delay, and the approach to concurrent delay set out in the SCL Protocol in detail in our 'Back to Basics: Concurrent Delay' article.

Early Warning: Sub-Clause 8.3 Red Book 1999 / Sub-Clause 8.4 Red Book 2017

To minimise and mitigate against claims and disputes arising during a project, there is a general 'early warning' duty under the 1999 and 2017 Red Books. Sub-Clause 8.4 Red Book 2017 requires the parties to provide advance notification of any known or probable future events or circumstances that may delay execution of the works or a section; whereas this obligation lies solely with the contractor in the 1999 Red Book, pursuant to Sub-Clause 8.3.

Although there are no specified consequences for failing to adhere to the early warning duty in the contract, in some jurisdictions - and particularly where there is a duty of good faith in law - the contractor or engineer may have a duty to warn the other of an adverse event.

Notice of a Claim: Sub-Clause 20.1 Red Book 1999 / 2017

Contractors sometimes find notice provisions to be onerous, but they provide great assistance in managing claims for time and money. When parties properly adhere to notice requirements, the contract management becomes more efficient and the parties are provided with the opportunity to investigate and consider claims when they arise; as opposed to waiting until the Works are complete or a dispute has arisen. By that time, the evidence might be lost, perhaps built over or rectified, or memories might simply be fading. As recollections of what happened on site begin to differ, it becomes increasingly difficult to reconcile parties' positions and, naturally, more time consuming.

Sub-Clause 20.1 Red Book 1999 details the procedure for claiming extra time and/or additional payment in the following manner:

  1. The contractor must give notice to the engineer as soon as practicable and no later than 28 days after the date on which the contractor became aware, or should have become aware, of the relevant event or circumstance (this is referred to as the Notice of Claim). The Notice of Claim does not need to state the amount of time claimed or the contractual basis for the claim, and the engineer is not required to respond to the Notice of Claim.
  2. Each Notice of Claim under Sub-Clause 20.1 must be in writing and served in accordance with Sub-Clause 1.3 (i.e. by hand, mail, or courier or any of the agreed systems of electronic transmissions as set out in the Appendix to Tender).
  3. Where a contractor issues a notice under Sub-Clause 20.1, it must keep contemporary records (e.g. monthly progress reports) as may be necessary to substantiate the claim. The engineer can monitor the record keeping and/or instruct the contractor to keep further contemporary records.
  4. The contractor must then submit a fully particularised claim within 42 days after becoming aware of the relevant event or circumstance giving rise to the claim.
  5. Within 42 days of receiving a fully detailed claim, the engineer must respond with approval or with disapproval and detailed comments. The engineer may also request any necessary particulars, but shall provide a response on the principles of the claim within that time.
  6. The contractor must comply with the claims procedure provided for in Sub-Clause 20.1 in addition to any contractual requirements relevant to the matter giving rise to the contractor's substantive right to claim. For example, where there has been delay or disruption caused by delayed drawings or instructions, the contractor must comply with the notice requirements of Sub-Clause 1.9, which deals with delay or disruption caused by a drawing or instruction not being issued in time.

By contrast, the 2017 Red Book includes a more enhanced procedure for dealing with the notification of and substantiation of claims for time and money. The main changes are as follows:

  1. Sub-Clause 20.1 Red Book 2017 refers to the 'claiming Party' meaning either an employer or contractor is able to give notice of the event or circumstance giving rise to the cost, loss, delay or need to extend the Defects Notification Period within 28 days of becoming aware.
  2. The engineer has a greater degree of responsibility under the Red Book 2017 to serve additional notices. Should the engineer fail to issue such notices, the claiming party's Notice of Claim is deemed valid even in circumstances where the engineer may consider that the notice was issued late. If the engineer serves a notice stating that the Notice of Claim was issued late, the claiming party is entitled to disagree with and/or explain why the late submission was justified.
  3. There are three different types of claims, including:
    1. a claim from an employer for additional payment from the contractor or a reduction in the Contract Price and/or an extension of the Defects Notification Period;
    2. a claim for an extension of time by the contractor and/or additional payment; and
    3. if either party considers it is entitled to relief by any kind whatsoever (e.g. in connection with an instruction, determination or certificate).
  4. An initial Notice of Claim must be issued within 28 days. However, the time limit for issuing a fully detailed claim as set out in Sub-Clause 20.2.4 is extended to 84 days (or such other time as might be agreed). The fully detailed claim must include:
    1. a detailed description of the event or circumstances giving rise to the Claim (as defined);
    2. a statement of the contractual and/or other legal basis for the Claim[3];
    3. all contemporary records on which the claiming party relies; and
    4. detailed supporting particulars of the adjustment sought to the Contract Price and/or the extension of time claimed and/or any extension claimed to the Defects Notification Period.

The 2022 reprints of the Red Book provide clarity as to the distinction between "matter[s] to be agreed by the Parties or determined by the Engineer" and a "Claim"[4]. Under the Red Book 2017, FIDIC introduced the concept of "matter[s] to be agreed or determined", which did not require a party to comply with the extensive claims procedure in Sub-Clause 20.1. However, there was no guidance as to what might constitute a "matter to be agreed or determined" and how this differs to a "Claim". The 2022 reprints now confirm the clauses to which the concept "matter[s] to be agreed or determined" apply, excluding such matters from the definition of a "Claim".

Sub-Clause 20.1 Time Bars

The time bar to issue a Notice of Claim in accordance with Sub-Clause 20.1 is a condition precedent, such that if a contractor fails to issue a Notice of Claim within 28 days, the time for completion will not be extended and the contractor will not be entitled to additional payment.

The issue of when the 28-day time period starts to run for the purpose of issuing a Notice of Claim was considered in detail by Akenhead J in Obrascon Huarte Lain SA v HM AG for Gibraltar[5]. Following Akenhead J's decision in Obrascon, the generally accepted position is that time starts to run on the specific "is or will be delayed" language in Sub-Clause 8.4. Therefore, a contractor can give a Sub-Clause 20.1 notice for an extension to the time for completion either when there will be a delay (prospective delay) or when the delay has at least started to be incurred (retrospective delay).

Defeating Time Bars

Whether a party can defeat application of the time bars in Sub-Clause 20.1 is heavily reliant upon the governing law of the contract. In England and Wales, arguments around estoppel and waiver and based on the prevention principle are often raised in seeking to avoid or overcome a time bar. However, these arguments can be difficult as the courts are more likely to uphold the parties' contractual obligation to issue timely notices of their intention to claim additional time and/or money. Similarly, arguments relating to estoppel may give rise to further disputes as to whether there was a clear and unequivocal promise on which reliance was placed. In circumstances where the prevention principle applies, it is arguable that while the contractor may not be entitled to an extension of time, the employer is also not entitled to recover liquidated damages by virtue of its own breach of contract - to allow otherwise would allow the employer, in this example, to benefit from its breach.

By contrast, good faith obligations or provisions in a civil code may provide a defence to the enforcement of time bars in civil law jurisdictions. For example, Article 246 (1) of the UAE Civil Code and Article 148 (1) the Egyptian Civil Code provide that a contract must be performed in a manner that is consistent with "the requirements of good faith". Similarly, Article 150 of the Iraqi Civil Code requires contracts to "be performed according to its contents and in a manner which conforms to the norms (requirements) of good faith". Therefore, where a contractor is a few days late in submitting its Sub-Clause 20.1 notice, it may be contrary to good faith to allow an employer to rely on the time bars in Sub-Clause 20.1 where the employer had actual knowledge of the event(s) or circumstance(s) giving rise to the claim and has suffered no substantial harm in receiving the notice late.

Key considerations in managing potential claims for time under the FIDIC Red Book

Parties should be acutely aware of the notice procedures and any condition precedents that must be satisfied regarding claims for time and money. A failure to adhere to these requirements can result in a claim failing, regardless of its merits. Where this is the case, parties might turn to principles (such as the prevention principle or a duty of good faith) under the governing law of the contract. However, the likelihood of success in raising such arguments varies, and it can be particularly difficult to convince a dispute board, tribunal, or court not to give effect to the parties' agreement. Therefore, it is always best to err on the side of caution and adhere to the terms of the contract and ensure that the required notices are served on time and in accordance with the relevant sub-clauses. Doing so is rarely detrimental to the claiming party and, almost always, is beneficial in resolving a difference between the parties.

If you have any questions regarding this article, please contact Mike Stewart, Mary Lindsay, or Adain Bailey.

Footnotes

[1] This is, by contrast to the Red Book 1999, more specifically defined in the Red Book 2017 edition as being limited to conditions at the Site that are Unforeseeable (as defined) having regard to climatic data made available by the Employer under Sub-Clause 2.5 and / or climatic data published in the Country for the geographical location of the Site. Relief is therefore likely to be limited to adverse climatic conditions affecting the Site, but not where adverse climatic conditions elsewhere have delayed the delivery of plant or materials.
[2] For example, a contractor may claim an extension of time and/or 'Cost Plus Profit' (as defined in the Red Book 2017) or 'Cost plus reasonable profit' (Red Book 1999) if the engineer fails to issue a notified drawing or instruction within a reasonable time, in accordance with Sub-Clause 1.9 Red Book 1999 / 2017.
[3] If the claiming party fails to issue this statement, the Notice of Claim shall be deemed to have expired and no longer be considered a valid notice, unless the engineer fails to give notice within 14 days after this time limit has expired.
[4] A Claim is defined as "a request or assertion by one Party to the other Party for an entitlement or relief under any Clause of these Conditions or otherwise in connection with, or arising out of, the Contract or the execution of the Works".
[5] [2014] EWHC 1028 (TCC).