In Brief:
- The current regional uncertainty provides clear grounds for parties to claim extensions of time (EOT) under standard construction contracts like FIDIC.
- In addition to force majeure, 'Employer's Risk' provisions may entitle a contractor to relief for time and costs resulting from physical damage caused by conflict, often with a lower foreseeability threshold.
- Both employers and contractors must adhere strictly to contractual notice provisions for delay claims, as failure to do so is a common reason for claims being rejected.
With current regional uncertainty impacting project timelines, understanding the contractual mechanisms for managing delay and disruption is crucial. This article outlines the key considerations for extension of time and cost claims under typical UAE construction contracts.
The current situation is an unavoidable cause of delay and disruption to construction projects. For both contractors and employers, it is imperative to understand the contractual framework that governs claims for extensions of time (EOT) and additional costs to protect their respective positions.
Grounds for Claims under FIDIC Contracts: Most construction contracts in the UAE, particularly those based on the FIDIC forms, contain specific provisions that are engaged by the current events.
- Force Majeure (Clause 19): As discussed in our previous article, specific matters are typically listed as force majeure events. A contractor prevented from performing its obligations due to such events is generally entitled to an EOT. If the event falls within specific sub-clauses, the contractor may also be entitled to recover associated costs.
- Employer's Risks (Clause 17): This regime operates separately from force majeure and is of critical strategic importance. FIDIC Clause 17.3 expressly defines certain specific events as Employer's Risks. If such an event causes physical loss or damage to the works or site, Clause 17.4 entitles the contractor to an EOT and the costs of rectifying the damage. Crucially, this clause does not have the same 'foreseeability' test as force majeure, making it a powerful tool for relief, especially if the situation was arguably foreseeable at the time the contract was signed.
The Critical Importance of Notices: A valid claim is not just about having a right; it is about following the correct procedure. FIDIC contracts, like many others, contain strict notice provisions that are conditions precedent to entitlement.
Under the standard 1999 FIDIC forms, Clause 20.1 requires the contractor to give notice of any claim for an EOT or additional payment as soon as practicable, and not later than 28 days after the contractor became aware, or should have become aware, of the event or circumstance. Failure to comply with this 28-day time bar will likely result in the claim being lost, regardless of its merits. Therefore, issuing protective notices promptly is essential, even if the full impact of the delay is not yet known.
Managing Disruption and Cost Claims: Beyond simple delay, contractors may also face disruption, where their progress and productivity are hindered without necessarily stopping work entirely. This can result from supply chain issues, personnel mobilization problems, or the need to implement enhanced security measures.
Claims for disruption and cost escalation (e.g., from increased material prices or insurance premiums) require robust substantiation. Contractors must maintain clear, contemporaneous records of all disruptions, delays, and additional costs incurred. For employers, it is vital to review claims diligently, request detailed particulars, and ensure that any relief granted is genuinely justified under the contract. Early input from a delay expert can be invaluable for both parties.
Recommendation: The current climate may lead to a rise in claims for delays, disruption, and costs. To navigate this successfully, we advise project participants to:
- Issue Notices Promptly: Contractors must ensure strict compliance with all contractual notice requirements to preserve their entitlement to claims.
- Maintain Detailed Records: The success of any claim will depend on the quality of the evidence. Contemporaneous records of the cause and effect of any delay or cost are vital.
- Review the Contract Carefully: Understand the specific risk allocation under your contract. Do not assume it mirrors the standard FIDIC form.
Given the complexity of these claims and the strict procedural requirements, it is recommended to seek expert legal advice at the earliest opportunity. Our construction team is available to assist you in managing these project risks and protecting your commercial interests. Please contact Humayun Ahmad at hm.ahmad@hadefpartners.com for more details.
This article is intended for general informational purposes only and does not constitute legal advice. Readers should seek independent legal counsel in relation to their specific circumstances.