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Construction Law/Notice under Sub-Clause 13.7 & 20.1

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QUESTION: Dear Madam,

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.  

Regards,

UMER SHABBIR

ANSWER: Dear Sir,
The Sub-clause 20.1 says, about the notice of claim: "If the Contractor considers himself to be entitled to any extension of the Time for Completion and/or any additional payment, under any Clause of these Conditions or otherwise in connection with the Contract, the Contractor shall give notice to the Engineer, describing the event or circumstance giving rise to the claim. The notice shall be given 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."
A tax may be included in a law, but by the time when the Contractor is affected by that tax he cannot be aware that he will suffer supplementary costs and to what extent (how much) he will be affected. In case of a law saying - this is only an example - that in 6 month time a tax will be applied, the Contractor is not to notify a claim in 28 days from the date when that law is published, but in 28 days from the date when he was affected by that law. The Contractor is to demonstrated when he was affected and that his notice was given within 28 days from that date - the burden of proof regarding his entitlement is of the Contractor.
Therefore, the answer to your question (i) depends on the date when the Contractor was affected by the new law (as he succeeds to demonstrate), and not on the date of the law.
ii) The date is when the Contractor started to be affected, as explained above.
iii) The Engineer can only determine a claim when it is substantiated. Based on the notice of claim only, the Engineer can only respond with approval, or with disapproval and detailed
comments - at least saying if the Contractor is entitled, in principle, to costs and/or EOT, and asking the Contractor to submit details regarding the quantum of costs (and time) requested, or even about the Contractor entitlement, if the notice of claim is not enough clear and does not include the description of the event or circumstance giving rise to the claim and explanation why the notice is considered to be given within the 28 days foresees in the first paragraph of 20.1 (see the first paragraph of 20.1).
iv) The last paragraph of 20.1 applies in every case. It should be demonstrated, though, that the the failure has prevented or prejudiced proper investigation of the claim. It says:
"The requirements of this Sub-Clause are in addition to those of any other Sub-Clause
which may apply to a claim. If the Contractor fails to comply with this or another Sub-
Clause in relation to any claim, any extension of time and/or additional payment shall
take account of the extent (if any) to which the failure has prevented or prejudiced
proper investigation of the claim, unless the claim is excluded under the second
paragraph of this Sub-Clause".
The meaning of the failure to "comply with this or another Sub-clause in relation of the claim" from this paragraph, in your case, may refer to not submitting the details in the prescribed 42 days, or not giving interim claims every month, being a claim with continuous effect, which, if really affected the proper investigation of the claim - to be fair, I don't see how in this case could affect, but the Engineer can say if he was affected), then yes, this can be taken into consideration. As stated in the quoted paragraph, the failure to comply does not refer the the mandatory condition (condition precedence) of submitting the notice in 28 days, for which the paragraph 2 of 20.1 says that "If the Contractor fails to give notice of a claim within such period of 28 days, the Time for Completion shall not be extended, the Contractor shall not be entitled to additional payment, and the Employer shall be discharged from all liability in connection with the claim."
It can be that submitting month by month interim claims, the Contractor would make the Engineer and Employer aware of the extent of the claim and make them take measures to diminish the effects or to remove the clause of the claim, but this usually does not apply to change in legislation claims, but to claims of which cause the Employer or Engineer can intervene, i.e. access to the Site 2.1, delay instruction 1.9, costs for delayed payments, etc. or to cases when the analyzing of the claim itself is somehow prejudiced the the said failure.
Hope this clarifies your concerns.
Best regards,
Alina

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

QUESTION: Dear Madam,

The answer given by you very much clarifies the issue. But I have some more questions which come in mind while reviewing the answer with respect to notice requirement of Sub-Clause 20.1 GCC.

I have noted that neither Sub-Clause 13.7 nor 20.1 discuss the matter of the event or its taking effect. Sub-Clause 20.1 states the wording “ The notice shall be given 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.”

Sub-Clause 13.7 also states that If the Contractor suffers (or will suffer) delay and/or incur (or will incur) additional Cost, then the Contractor should give notice.

Anyhow FIDIC Contract Guide made some reference that states “
"… the Contractor shall give notice …": which is obligatory, but a failure to notify may be due to him not having suffered delay and not having incurred Cost. “

Gwyn Owen in “The Working of the Dispute Adjudication Board (DAB)” also mentioned that “The Contractor gives notice when he actually suffers delay or additional costs”

But Sub-Clause 20.1 does not mention this aspect and it can be interpreted in many ways.

In regard of Legislation Claim, I have following two different scenarios, please advice when the Contractor has to notify under Sub-Clause 20.1 in order to make his claim valid:

(a)   The Government has published in his Gazette that the new Tax on construction Services will be applicable with immediate effect. Revenue Authorities also inform the Contractor vide letter to submit Tax in every month. The Contractor has not submitted the Tax for many months.

If this is to consider that the event will occur when the Contractor suffers cost or when it was notified in Gazette or by his relevant department?

(b)   Second case is that Government has changed the Sales Tax Law by increasing the Tax rate from 6% to 6.5%. This Tax Change was notified in Gazette which is an official Newspaper of Government. The Employer deducts this Tax from the Contractor’s monthly IPC as per prevailing Law of country.

The Contractor has notified the Engineer under Sub-Clause 20.1 when the Employer deduct this extra Tax in other words when the Contractor suffers this additional Cost.

Many FIDIC Commentators writes that the Contractor shall subscribes this official Publications (Gazatte) and should inform the Employer of this change which may or may not occur (or effect from specific date).

In my opinion, the Contractor should notify when it officially appears in Gazette in terms of wording “Should have become aware” or “will incur”.

Madam, I will be very happy to receive your valuable comments in regard of aforementioned issues.
  

Regards,
UMER SHABBIR

Answer
Dear Sir,
FIDIC Contract says that the Contractor is to notify his claim when he was or should have been aware of the event or circumstances that generated the claim. A Contractor has a claim for money and time when he incurs extra expenses and delays. When a law or regulation is published - even in an official gazette - the Contractor did not incur and was not delay yet. Maybe he will never be affected by that law or regulation.
In your case, when the Employer deducted - I presume it was according to 2.5 and 3.5 - money from the IPC because of that new regulation/law coming into force, at that time the Contractor became aware about the additional costs he incurs, so form the moment when he knew or should have known about the deduction the 28 days are to be counted.
Speaking about opinion of experts: in all the DAB decisions of which I came across this principle is complied with: when the Contractor became or should have been aware of the effects on him of some new rules the 28 days referred in the Sub-clause 20.1 start to be counted. This is the principle of FIDIC: to claim only thinks that actually happen, not things that could happen.
Hope it helps.
Regards,
Alina

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Alina Valentina Oprea

Expertise

I can answer to questions regarding FIDIC 1999 contracts, including practical use of these conditions of contract, as well as to questions regarding dispute boards, both from theoretical and practical point of view. I cannot answer to questions related to other kind of contracts or to procurement process, except to some (limited) extent.

Experience

Implementation of works contracts (FIDIC 1999) financed by different financial institutions, including European Union; claims and disputes; dispute boards See more on www.alinaoprea.com

Organizations
Dispute Resolution Board Foundation

Publications
see http://alinaoprea.com/publications/ ; DRBF Forum Newsletter; Drumuri si Poduri; Revista Constructiilor; SIDiR Newsletter

Education/Credentials
Graduated the University of Civil Engineering Bucharest, Faculty of Railways, Roads and Bridges (1985-1990); Trained under Mr. Gwyn Owen’s pupilage program for arbitrators/adjudicators under FIDIC mentoring program (2006 – 2007)

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