Notice required for time-extension or extra payment claims under FIDIC contracts

FIDIC is the International Federation of Consulting Engineers, known by its French acronym. It was formed in 1913, with the objective of promoting the interests of consulting engineering firms globally. It is best known for its range of standard conditions of contract for the construction, plant and design industries. The FIDIC forms are the most widely used forms of contract internationally, including by the World Bank, the Asian Development Bank, and the African Development Bank for their projects.

Sub-clause 20.1, which covers the notice period needed for a time extension or extra payment claim, is a fundamental tenet of the FIDIC contract. Three aspects of this sub-clause have caused confusion, namely: when the requirement is triggered, what form of notice is required and the consequences of non-compliance.

Triggering event for the notice requirement

For the requirement to be triggered: 

• there must be a relevant event/circumstance giving rise to the claim;
• the contractor must have become aware, or should have become aware, of the event/circumstance; and
• the contractor must consider him or herself entitled to an extension of time and/or to additional payment as a result of that event/circumstance.

The clause does not actually pinpoint precisely when, in any particular situation, a contractor is required to give notice but recent decisions suggest that reasonable latitude must be granted to a contractor on this.

In a 2014 case between a contractor and the Attorney General for Gibraltar, the English Technology and Construction Court said that the clause must be construed 'broadly', and not 'strictly' against the contractor, given the effect it could have on what might otherwise be a good claim.

Based on that decision, a contractor would only have to give notice on an extension of time claim if there is an actual delay in operations, or if the contractor reasonably believes that there will be a delay due to the event in question. If the contractor is claiming for additional payment, he or she would only have to give notice after a loss has been incurred.  

The judge set out an example of how this could work in practice on a construction project:

A variation instruction is issued on a project in June, to widen part of a dual carriageway. At the time of the instruction that part of the carriageway is not on the 'critical path', or sequence of activities on the programme of construction works that must be completed on time in order for the project to be completed on the due date.

Although it is foreseeable that the variation will extend the period reasonably programmed for constructing the dual carriageway, it is not foreseeable that it will delay the work.

It only becomes clear that the overall work will be delayed by the variation when work on the dual carriageway begins, in October, and it is not until November that it can be said that the work is actually delayed.

Notice does not have to be given for the purposes of clause 20.1 until November, when there actually is delay, although the contractor could give notice with impunity in October, when it reasonably believes that it will be delayed.

The "event or circumstance" described in the first paragraph of clause 20.1 in the appropriate context can mean either the incident  or the delay that results or will inevitably result from the incident in question.

In the above example, the decision would not necessarily be difficult. On most construction projects today, electronic 'critical path' programmes are used to determine when delay is actually suffered.

Required form of notice

The clause does not call for any particular form of notice, but it would be best for the notice to state that it is intended to notify a claim and to give as much information as possible about the event giving rise to the claim and the resulting delay and/or additional cost.

The notice must be made in writing. Similarly, some latitude will be given to the contractor given the harsh consequences of failing to notify. The broad test is that the notice must be recognisable as a claim.

Consequence of non-compliance

Failure to give notice in accordance with the clause will mean that the contractor loses the entitlement to an extension of time and/or compensation.

However, non-compliance does not necessarily mean the contractor has no recourse to damages and reimbursements.

In August 2014 a tribunal found that a contractor was not required to provide notice of claims for damages and reimbursements when these issues were to be determined at the end of arbitral proceedings. 

Furthermore, the good faith principle that underlies parties' performance of their contractual obligations in civil law jurisdictions is also relevant if: 

• the notice of claim is given in respect of an event for which the employer is responsible; and
• both the engineer and the employer have recognised the employer's liability for that event.

In those circumstances, it would be a breach of the good faith principle to restrict the contractor’s entitlement to claim an extension of time and additional payment due to a failure to give early notice, as the contractor would in fact be informing the employer of the employer's own wrongdoings. 

Conclusion

The willingness of English courts to give a contractor reasonable latitude in this is a welcome development for contractors, who would otherwise suffer harsh consequences for failing to comply strictly with this tenet of the FIDIC contract.

Nonetheless, in order to maximise the chances of making a successful claim for extension of time and/or additional payment it is extremely important for contractors to comply with clause 20.1. The contractor must endeavour to provide notice on time, giving as much detail as possible, to preserve the entitlement to that claim.