FIDIC notice requirements: when to give notice of entitlement

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Summary: A recent English High Court case approves an interpretation of the notice requirements in the FIDIC Conditions which may offer contractor’s greater flexibility as to when they must notify of an entitlement (or risk losing it).

Introduction


Under the FIDIC Yellow Book Conditions, a contractor must give notice of a delaying event within 28 days or risk losing its entitlement to an extension of time. This reflects standard practice for international EPC contracts. A properly drafted ‘notice condition precedent’ will be enforceable (under English law) and can have dramatic consequences for a contractor – in some circumstances leaving the contractor liable for delay liquidated damages even where the project owner is responsible for the delay.

Under the relevant notice clauses in the FIDIC Yellow Book Conditions, notice must be given within 28 days of any event the result of which is that the date for completion ‘is or will be delayed’.

This has traditionally been understood to place the burden on a contractor to notify not only an event which has an immediate and measurable impact on the completion date, but also one which will, at some time in the future, have such an impact.

A recent English High Court case has offered an alternative interpretation of this notice obligation which is more accommodating to contractors and may permit a valid notice to be served at a later date than previously thought.

Legal advisers to both contractors and owners should take note; the former to take full advantage of an approach which reduces the risk of losing an entitlement and the latter to consider drafting amendments to clarify the intention that notice must be given at the earliest possible stage.

The case


The English High Court (Technology & Construction Court) judgment, Obrascon Huarte Lain SA v Her Majesty's attorney General for Gibraltar [2014] EWHC 1028 (TCC), decided a dispute concerning a road and tunnel project in Gibraltar. The dispute arose under a contract based on the FIDIC Conditions of Contract for Plant and Design-Build (known as the Yellow Book).

The primary issues were allocation of ground conditions risk and the lawfulness of the termination of the contract. However, Mr Justice Akenhead also expressed an interesting view on the interpretation of the notice requirements contained in Clauses 20.1 (Contractor’s claims) and 8.4 (Extension of time for completion) of the FIDIC Conditions of Contract.

FIDIC notice requirements – a condition precedent


Clause 20.1 of FIDIC Yellow Book provides as follows:

If the Contractor considers himself to be entitled to any extension of the Time for Completion and/or any additional payment … the Contractor shall give notice to the Engineer, describing the event or circumstances 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.

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.”

Clause 20.1, which is identical in the FIDIC EPC/Turnkey Contracts (Silver Book), is a well drafted ‘condition precedent’ clause. This means that (under English law, at least) a failure to give the required notice will result in the Contractor losing its entitlement to an extension of time and/or additional payment in respect of an otherwise valid claim.

It should be noted that the law in some jurisdictions will limit the effectiveness of notice conditions precedent, the Arabic Civil Codes in the Gulf Region, for example.

Clause 8.4 of the FIDIC Yellow Book (again identical to the Silver Book) outlines when an entitlement to an extension of time arises as follows:

“The Contractor shall be entitled … to an extension of Time for Completion if and to the extent that completion … is or will be delayed by any of the following causes:”

Clause 8.4 then lists the events which entitle the Contractor to an extension of time.

‘Is or will be delayed’ – notify now or in the future?


Clause 8.4 defines when, for the purposes of Clause 20.1, the Contractor could ‘consider himself entitled to an extension of time’ and, therefore, when the 28 day window for notice starts running. The trigger is where completion ‘is or will be delayed’ by one of the listed events.

Similar formulations of this language are commonly found in international EPC contracts. For example:

“The Contractor must without undue delay give notice … of all … events … affecting or likely to affect the progress of the Works such that the achievement of the Guaranteed Completion Date for the Plant will or is likely to be delayed.”

[Extracted from the EPC contract for a project financed process plant in the Middle East.]

Language linking a notice obligation to both the occurrence of an event having an immediate impact, and also to one which 'will' or 'is likely to' have an impact, was introduced into EPC contracts to offer greater protection to an owner’s interests.

Earlier EPC contracts only required that notice be given of events ‘which caused a delay’. This caused difficulties where project owners wished to make the giving of notice within a fixed (and short) time period a pre-condition to any entitlement. For example, where it was not immediately clear to the contractor whether a particular event would cause a delay or not, or where an event had no immediate impact, but caused a delay to a future activity which may not have been critical at the time of the original event.

Problematic situations like this led to interpretative difficulties which left some conditions precedent unenforceable or construed against the owners on the basis that the notice obligation was uncertain.

Language of the type used in Clause 8.4 of the FIDIC Conditions was thought to eliminate this problem by requiring a contractor to give notice of both actual and potential delay events. This has placed an additional burden on contractors to consider whether notice is required even where an event does not immediately impact activities which are on the critical path at the time of its occurrence.

The decision


In the case cited above, Akenhead J noted that the contractor’s entitlement to an extension of time can arise when the completion date ‘is or will be delayed’ by a particular event. He concluded that the extension of time can be claimed either when it is clear that there will be delay (a prospective delay), or when the delay has been at least started to be incurred (a retrospective delay).

In reaching this conclusion, Akenhead J noted that the wording of Clause 8.4 does not say that notice is to be given when completion ‘is or will be delayed, whichever is the earliest’; the absence of this express requirement leaving it open to the contractor to notify at either point.

Given the serious effect of vitiating a party’s contractual right to claim, Akenhead J considered that the clause should be strictly construed against the owner.

An illustration


Let’s briefly consider the implications of this interpretation by reference to a scenario where a variation is instructed to a part of the works which is programmed to fall on the critical path, but which at that time of the instruction, has not been commenced.

On the interpretation offered in this case, the contractor’s obligation to notify is triggered either at the point of the instruction when it is known that the event ‘will’ cause a delay, or at the later point when work commences on the variation and delay ‘is’ being caused.

In the absence of clear language requiring the contractor to give notice at the earlier of these two points, Akenhead J decided that the contractor can, in effect, choose which point to treat as the trigger.

Key point to take away


Akenhead J either did not consider that the requirement in Clause 20.1 that notice be given ‘as soon as practicable’ altered this interpretation, or was not directed to consider this point.  However, these words are, arguably, insufficiently express to detract from his interpretative approach.

It remains good practice for contractors to serve notices at the earliest possible date to avoid the risk of losing an entitlement and there are good commercial reasons for a project owner to require this.  However, this interpretation may provide greater flexibility to contractors to retrospectively notify events the impact of which was not fully understood at the time.

Legal advisers for owners, on the other hand, may wish to consider amending such clauses in the future to clarify that the notice condition is triggered by the earlier of the dates on which delay is caused or will or is likely to be caused.

This article was also published by Practical Law Construction as part of our regular construction blog series in which we share our practical experiences of working in construction and engineering and give our opinion on the current and future legal developments that shape and will shape the industry. To read more from the series, visit the Practical Law blog.

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