Construction Law/Legislation Claim



During the Contract Period, Government has imposed a new Sales Tax on Construction Services provided by the Contractor. The Contractor has notified the Engineer under Sub-Clause 13.7 & 20.1 GCC (FIDIC MDB Harmonized Conditions) after 6 months of legislation. In accordance with Sub-Clause 20.1, the Contractor has to notify the Engineer within 28 days after the event occur (which in our case 6 month before occur).
Further Sub-Clause 13.7 GCC states “After receiving this notice, the Engineer shall proceed in accordance with Sub-Clause 3.5 [Determination] to agree or determine this matter”.
My questions are as follows:

(i)   Has the Employer discharged from his responsibilities in connection with the claim? because the Contractor has notified 6 months after the event occur.
(ii)   If Employer is not discharged from his responsibilities, then when the event is considered to occur. Either (a) when notice received or (b) 28 days before the date of submitting notice or (c) when the actual event occurs?
(iii)   On what basis the Engineer has to determine the cost or time in accordance with Sub-Clause 3.5 when only the Contractor has given notice and not submitted the fully detailed claim?
(iv)   Is the last paragraph of Sub-Clause 20.1 GCC has any effect on Contractor entitlements in the subject case?
your expert opinion is requested.  



ANSWER: Dear Umer Shabbir,
Thank you for your question.
I have following comments to offer para wise.
(i) The second para of clause 20.1 is quite clear that notice requirement is condition precedent and states " If the contractor fails to give notice of a claim with such period of 28 days. the Time for completion shall not be extended the contractor shall bot be emitted to additional payment , and the Employer shall be discharged from all liability in connection with the claim--" . In case of failure, however, any other notices are still to be submitted as required by the contract. You have to check also applicable law provisions in this respect particularly limitation law under which a period is mentioned during which the liability of both sides remains. Also provisions or amendment made if any in the contract conditions part (ii) against clause 14.14 (cessation of employers liability) has also to be seen.
(ii) The contractor can describe the delay event when it is likely to happen from the existing scenario or it has happen already. The contract requirement is basically when the contractor becomes aware of this and hence it covers both scenarios described earlier . It is not related to actual happening and the wording in the clause " The notice shall be given as soon as possible and not later than 28 days after the contractor become aware or should have become aware --- " make it amply clear.
(iii) The engineer has to determine time factor dispute with an analysis on delay events by one of the delay analysis method in which time impact analysis can be used. Regarding cost, he has to first examine if the event is neutral or attributable to Employer and in that case he can either give compensation in terms of time and costs or simply time only. Regarding short coming in submission of claim, i am of the view that this can be clarified from the party concerned and if they do not still respond, it can be considered as a case of non submission of all required contemporary record and should be pointed to the party accordingly and intimated that Engineer can not determine under these circumstances.
(iv) Yes it has as the second para has been specifically mentioned therein.
I hope i have answered your question but if not please come back with specific query you still have.
Liaqat Hayat

---------- FOLLOW-UP ----------

QUESTION: Thanks, this very much clarifies.

I wonder why provisions of Sub-Clause 20.1 so harsh that Contractor's Claim cannot be entertained when Contractor failed to give timely notice even in a case of event that has a continuing effect throughout the whole Contract Period.

Secondly , Whilst Clause 13.7 refers the Sub-Clause 20.1 in order for the Contractor to recover Cost or time, then why it is specifically mentioned in Sub-Clause 13.7 "After receiving this notice, the Engineer shall proceed in accordance with Sub-Clause 3.5 [Determinations] to agree or determine these matters.". My view point is that Sub-Clause 20.1 already obliges the Engineer to Determine the matter under Sub-Clause 3.5 after receipt of fully detailed claim. Then why Engineer has to determine matter just after receipt of the notice by the Engineer."

ANSWER: Dear Mr. Umer Shabbir,
Thank you for coming back and like to comment on two points raised as follows
1. Clause 20.1 is not just a clause but a condition precedent and if not followed leaves no entitlement for the contractor for that particular claim. Now coming to the logic of condition precedent, there are good reasons and here i may say that it is important for the Employer to look into grounds of the delay event at the time of its happening or near happening for various purposes. He may be able to partially mitigate the cause and if for nothing else to be able to verify it near time of its happening and thus adjudicate the matter properly. In FIDIC 1987, this condition precedent was not available and has been a source of contention and as a result this was imposed.
2. My understanding very briefly and roughly is that clause 20.1 has been provided to enable the Engineer to respond on the principles of the claim and then respond with its acceptance or otherwise while under clause 3.5 the Engineer has to go into detailed reasons and then determine the matter after listening to both sides. This is a sort of two stage work by the Engineer first in general on the broad principles of contractual provisions and later in detail after study factual position and discussions with both sides for determination.
Liaqat Hayat

---------- FOLLOW-UP ----------

QUESTION: Thanks, Now i understand the difference between Sub-Clause 3.5 & 20.1.

But as far point 1 is concerned, i did not see any reasons how the Employer mitigate mitigate the cause/ event when it is a legislation Claim which is neutral beyond the control of either Party to the Contract.

Please advise.

Dear Umer ,
Thanks for coming back.
I agree that legislatory  enactment do not require mitigation as envisaged in my comments but it do require some action on the part of the Engineer like getting extra funds etc.Moreover,this is a general procedure/provision that has to be followed in case of all events as  required under  other clauses of the contract as well.It is usual to prescribe one procedure for all clauses.
Regards-liaqat hayat  

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Liaqat Hayat


I can answer questions based on FIDIC 4 and FIDIC 1999 [design-build] with particular reference to time extension , price adjustment and disputes. I am in particular more inclined for response to points pertaining to how claims should be framed and put up in case of technical or other contractual shortcomings. Regarding procurement matters I have spent over 5 years as procurement specialist for highway authority and dealt with numerous claims and disputes in the capacity of "The Engineer" .

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