In a blog I posted soon after the FIDIC 2017 contracts were launched, I commented that the vast majority of the changes in the second editions related to enhanced contract management provisions. There are many elements to these provisions including stricter formalities for notices, many more situations in which notices have to be given and a greater number of time limits, deeming provisions and potential time-bars. The purpose behind these changes is essentially twofold; they are aimed at providing greater clarity and certainty and at encouraging the parties to deal with issues as they arise. The increased number of potential time-bars has been a particular source of discussion and debate. By their nature, this is hardly surprising given the potentially onerous consequences that follow from them. In this blog, I look at the intention behind these provisions and the issues that may arise in practice.
Time-bars in FIDIC claims and disputes clauses
The most obvious illustration of the changes to the contract management provisions in FIDIC 2017 is found in the claims and dispute resolution provisions (clauses 20 and 21). Looking first at clause 20 of the first editions of the Rainbow Suite (FIDIC 1999), which concerns contractor’s claims and the dispute resolution procedure, it contains two potential time-bars that are triggered if certain notices are not given in time:
- The initial notice of claim in respect of the contractor’s substantive entitlement to additional time or money (sub-clause 20.1).
- A notice of dissatisfaction with a DAB’s decision, which is more ‘procedural’ in nature, determining whether the DAB’s decision is final and binding or only interim and binding (sub-clause 20.4).
By contrast, clauses 20 and 21 of FIDIC 2017 now include five potential time-bars:
- Two in sub-clause 20.2 relating to the contractor’s and employer’s substantive entitlements under the claims provisions (that, for the first time, are clearly reciprocal). These correspond with requirements to give, within the stated time, both an initial notice of a claim and a statement of the contractual and/or other legal basis of the claim as part of the fully detailed claim.
- Three potential ‘procedural’ time-bars that are intended to block a party’s right to move on to the next stage of the dispute resolution procedure. These correspond with the requirement to give a notice of dissatisfaction ( NOD) with the engineer’s (employer’s representative under Silver Book) determination (sub-clause 3.7), to refer a dispute to the DAAB after a NOD with an engineer/employer’s representative’s determination has been given (sub-clause 21.4.1) and to give a NOD with a DAAB’s decision (sub-clause 21.4.4).
Time-bars on claims are not new in standard form construction contracts. I believe (though no doubt readers will correct me if I am wrong) that they first appeared in 1995 in relation to the contractor’s claims under sub-clause 20.1 of FIDIC Orange Book – the predecessor to FIDIC 1999 – and only in relation to claims for additional payment. FIDIC 1999 then expanded the time-bar to the contractor’s claims for time or money (or both). They are also an established feature of NEC contracts under clause 63.1, which applies to compensation events, albeit they were only introduced in NEC3 in 2005.
‘Procedural’ time-bars have been around even longer. For example, the third edition of the ‘old’ FIDIC Red Book required a party to give notice of an intention to refer a dispute to arbitration within 90 days following an engineer’s decision otherwise that decision became final and binding. This is both a condition precedent to commencing arbitration and a time-bar.
Claims and notices: the position under FIDIC 1999
Perhaps an inevitable consequence of the time-bar relating to the initial notice of claim in sub-clause 20.1 of FIDIC 1999 was that it led to a proliferation of disputes seeking to challenge its application. Typically, the legal bases of challenge are that a valid notice has in fact been given and/or that the time-bar is not enforceable. Obviously, where a contractor has given clear notice within the required time, these challenges do not arise. However, where a contractor has either given notice late or no notice at all, the stakes can be high.
This time-bar is probably the most written about clause of FIDIC 1999 and this is hardly surprising given the potentially serious implications for a contractor if it bites. Much of the commentary concerns the legal effectiveness of the time-bar under the specific law governing the contract. This differs depending on the jurisdiction and so I don’t propose to go into that again here in relation to FIDIC 2017.
Less has been written on what amounts to a ‘proper’ or valid notice. In this regard, time-bars to a claim for a substantive entitlement do not stand on their own; they are almost always connected in one way or another to notice provisions. Notice provisions, at least as they originally appeared in construction contracts, are primarily concerned with prompt and good communication.
To ‘give notice’ of something is the act of informing another person of an event or circumstance. Contractual notice provisions formalise the importance of good communication. Their purpose is to ensure that the relevant party is aware, sufficiently early, of any event or circumstance that might adversely affect the cost or time of performance so that investigations can be carried out and instructions given either to manage and minimise the impact or to ensure that proper records of the impact are kept. The duty is invariably on the party who is most likely to become aware of the relevant event or circumstance. This is usually the contractor because of their role on the project.
As stated by Mr Justice Jackson (as he then was) in Multiplex Constructions (UK) Ltd v Honeywell Control Systems Ltd (No. 2):
“Contractual terms requiring a contractor to give prompt notice of delay serve a valuable purpose; such notice enables matters to be investigated while they are still current. Furthermore, such notice sometimes gives the employer the opportunity to withdraw instructions when the financial consequences become apparent.“
In this way, under FIDIC 1999, it is commonly argued that what needs to be given, as a minimum, is a communication – in no particular form other than it has to be in writing – informing the employer/engineer of the event or circumstance giving rise to a claim for additional time or money.
Claims and notices under FIDIC 2017: greater clarity and certainty
In practice, the relative simplicity of FIDIC 1999 means that contractors who have not given clear notice of claims spend considerable effort trawling through the project records after the event to find evidence that the employer/engineer was duly aware of the relevant event or circumstance within the required time. It then falls for the DAB or arbitral tribunal to decide whether such records amount to proper notice. The drafters of FIDIC 2017 considered that this creates a level of uncertainty that should be avoided.
As a consequence, FIDIC 2017 provides greater clarity and certainty as to what is intended to constitute a valid notice. Fundamentally, the language has changed. The notice provisions are no longer written in terms of ‘giving notice’ (that is, informing the other) but giving a notice (that is, submitting a physical thing). This follows the changes implemented in the FIDIC Gold Book in 2008. In addition, a notice must now be expressly identified as being a “Notice” (sub-clause 1.3), rather than being determined by its nature. Further, sub-clause 8.3 expressly provides that nothing in the programme or any supporting report (commonly relied on by contractors under FIDIC 1999) is to be taken as, or relieve the contractor from any obligation to give, a notice under the contract.
Claims and time-bars under FIDIC 2017: reduced clarity and certainty?
The stricter and more formal requirements for notices in FIDIC 2017 appear to address one of the two primary challenges to the ‘substantive claims’ time-bar. However, other changes to the claims provisions that allow the engineer to accept a late notice in certain circumstances, mean that, in reality, there has been a softening of the time-bar to a degree and the drafters have gone a long way to confirming existing practice under FIDIC 1999. Specifically, sub-clause 20.2.5 empowers the employer/engineer to determine whether a late notice of claim is a valid notice taking into account:
- Whether and to what extent the other party would be prejudiced by accepting late submission; and
- Any evidence of the other party’s prior knowledge of the event or circumstance giving rise to a claim (in relation to the initial notice of claim) or the contractual or other legal basis of the claim (in relation to the fully detailed claim).
The first of these circumstances probably reflects the general position under most laws where a party fails to comply with a time limit that is not expressly specified as a time-bar. The second relates back to the underlying purpose of the notice: knowledge and awareness.
As someone who advises on, and negotiates, contracts for both employers and contractors, I find it interesting that the drafters of FIDIC 2017 have adopted this approach, which first appeared in FIDIC’s Gold Book (albeit with acceptance of the late notice being decided by the DAB and not the engineer/employer). Over the course of the last ten years or so, there has been a trend for time-bar provisions to be negotiated and tailored for each specific project and there are a number of reasons why parties still push to include strict time-bars. In updating the Rainbow Suite, there were a number of ‘FIDIC options’ that the drafters could have chosen to adopt as standard, including the:
- FIDIC Blue-Green (dredging form) approach that limits the contractor’s entitlement to additional time and money to the duration of time and amount which would have been due if it had given prompt notice and had taken all reasonable steps to minimise the effects (sub-clause 10.3);
- Position adopted in the fourth edition of the old Red Book that did not include a time-bar but expressly limited the contractor’s entitlement in the event of late notice to that which could be substantiated by contemporaneous documents (sub-clause 53.1);
- FIDIC Gold Book position (as amended in FIDIC 2017); or
- Stricter position under FIDIC 1999.
The FIDIC 2017 approach will be welcomed by many who consider that the strict application of the time-bar in FIDIC 1999 can result in arguably a harsh and unfair outcome for contractors, for example if notice is given only a few days late with no prejudice to the employer. This is because the primary purpose of time-bars is not to limit or exclude a party’s entitlement but to encourage the timely notification of claims with the potential loss of rights as a secondary consequence. However, it creates uncertainty as to the circumstances in which a late notice will be considered as valid, and will no doubt be a source of much future debate.