Common Claims in the Construction Industry
Our Associate, Hisham Almansoor explains common construction claims as per the FIDIC Red Book (1999) & Bahraini law.
Hisham Almansoor ([email protected]) – Associate
Construction projects are inherently lengthy, complex, and at times uncertain. They typically involve the cooperation and synergy of multiple parties. Many risks and complications may arise both during and after completion of the construction project, and it is key for contracts between Employers and Contractors to address what the parties’ rights may be in these circumstances. This article considers some of the most common construction claims against the backdrop of the FIDIC Red Book (1999) (FIDIC) and Bahraini law.
Delay Claims: Extensions of Time
Delay claims are among the most common claims initiated by Contractors. These arise when a construction project takes longer to complete than the agreed timeframe. Delays may be a result of a host of factors, including but not limited to unexpected site conditions, issues with the required approvals and permits, flawed designs and materials, changes in the scope of work, poor management and administration of the construction site, and more.
In these circumstances, the Contractor may seek an Extension of Time (EOT) pursuant to Clause 8.4 FIDIC to avoid liquidated damages. The Contractor must demonstrate that the delay event will actually delay completion, which may be a result of:
- Delayed Drawings or Instructions (clause 1.9 FIDIC)).
- Delayed access to the Site (clause 2.1 FIDIC).
- Errors in original setting out points and levels of reference (clause 4.7 FIDIC).
- Unforeseeable ground conditions (clause 4.12 FIDIC).
- The discovery of fossils (clause 4.24 FIDIC).
- The Employer delaying or interfering with Tests on Completion (clauses 7.4, 9.2 and 10.3 FIDIC).
- Exceptionally adverse climatic conditions (clause 8.4(c) FIDIC).
- Unforeseeable shortages in personnel or Goods caused by epidemic or government actions (clause 8.4(d) FIDIC).
- Any delay or impediment caused by the Employer (clause 8.4(e) FIDIC).
- A public authority in the host country causing Unforeseeable delay or disruption to the Contractor (clause 8.5 FIDIC).
- The Employer suspending the Works (unless for Contractor default) and/or the Contractor subsequently resuming work (clause 8.9 FIDIC).
- Variations (clause 13.3 FIDIC).
- A change in law (clause 13.7 FIDIC).
- The Contractor suspending Works for non-payment or Employer failing to provide evidence of its financial arrangements (clause 16.1 FIDIC).
- The consequences of Employer’s Risks (clause 17.4 FIDIC).
- An event of Force Majeure (clause 19.4(a) FIDIC).
Defect Claims
Contractual obligations may be classified under one of two categories: an obligation to achieve a result, and an obligation to exercise due care and diligence. Contractors’ contractual obligations under construction projects fall under the former category in that they are required to carry out the required works and to deliver the project free from defects. Contractors’ obligations to achieve a specific result has been repeatedly confirmed in the jurisprudence of the Egyptian Court of Cassation, including under Challenge No. 433 J.Y. 51. This leaves Contractors vulnerable to defect claims.
Defect claims are an area in which the provisions of the FIDIC and Bahraini law diverge, in which the latter takes precedence. Under the FIDIC, subject to variations by the parties under Particular Conditions, the parties follow the procedure prescribed by clause 11 where the Contractor is required to remedy defects discovered upon Taking-Over (see clause 10 of the FIDIC) and during the Defects Notification Period (DNP). The Contractor is required to rectify, at its risk and cost, defects: (i) in Plant, Materials or workmanship not in accordance with the Contract, (ii) in design for which the Contractor is responsible, or (iii) those arising as a result of any failure by the Contractor to comply with any other obligation.
The DNP is by default 365 days pursuant to the Appendix to Tender of the FIDIC, although it may be varied by the parties’ agreement. However, under Article 615 of Decree Law No. 19/2001 Issuing the Civil Code (BCC or the Civil Code), Bahraini law sets a defect liability period of ten (10) years from the date of handover thereby establishing ‘decennial liability’, under which architects, engineers and contractors may be jointly liable for partial failure or total collapse of constructions or other installations for ten years after handover. This ought not be confused with “limitation periods”. In accordance with Article 619 of the Civil Code, liability claims against contractors, architects or engineers are time barred after the lapse of three (3) years from discovery of the defect or the time of collapse. This is further substantiated by the jurisprudence of the Bahraini Court of Cassation under Challenge 1049 J.Y. 2019 where the court accepted a Challenge filed by the Contractor and overturned an appeal judgment dismissing the Contractors’ time-barring plea.
Liquidated Damages Claims
Liquidated damages (LDs) are invoked as a consequence of delays to a construction project. LDs are an amount determined by the Employer as a reasonable assessment of the actual damages he would suffer in the event of delay in the completion of the works and are a form of limiting contractual liability for said delays.
Under Clause 8.7 of the FIDIC, where the Contractor fails to complete the Works by the specified Time for Completion, delay damages (LDs) are payable to the Employer for every day between the relevant Time for Completion and the date stated in the Taking-Over Certificate. The parties may place a cap on such LDs in the Appendix to Tender.
Bahraini law recognizes LD clauses under Article 225 BCC which provides that unless the obligation is payment of an amount of money, the contracting parties may determine the compensation in advance in the contract or in any subsequent agreement. Nonetheless, where a dispute arises in relation to LDs, Bahraini courts may exercise judicial scrutiny and intervene in respect of the liquidated damages to be paid by the Contractor. Said discretion is afforded by virtue of Article 226 BCC due to which the liquidated damages may be curtailed if:
- The Contractor establishes that the Employer has not suffered any loss (in these circumstances, the Contractor has the burden of refuting the presumption of harm);
- The Contractor establishes that the amount fixed was grossly exaggerated;
- The principal obligation has been partially performed.
For more insight into LDs in the context of construction contracts and its caveats under Bahraini law, please visit our article “Liquidated Damages and Penalty Clauses in the Construction Industry”.
Establishing harm and quantifying damages as a result of delays, due to the complex and technical nature of construction projects, is an excessively expensive and time-consuming process. Liquidated damages claims therefore relieve the practical and financial burden of determining the compensation to the Employer as the parties have already agreed on the compensation payable and the cap on the same.
Constructive Acceleration
Acceleration occurs where the construction project is being performed at a quicker pace than originally agreed between the parties. This typically occurs when the forecasted completion date falls beyond the contractual completion date and the schedule delay needs to be recovered, or if the Employer determines that the project needs to be completed earlier than originally planned.
The Contractor may claim for additional costs incurred as a consequence of speeding up the progress of the Works on the Employer’s instruction under a ‘constructive acceleration’ claim.
If the Employer declines to grant an EOT that the Contractor believes is owed, the Contractor may: (i) file an acceleration claim and increase the resources allocated to the project to ensure timely completion (to avoid LDs), or (ii) submit a prolongation cost claim requesting both an EOT and compensation for the additional expenses incurred due to the delay, which could result in penalties for the Contractor.
A constructive acceleration claim may be asserted where:
The Contractor incurs a delay resulting from causes which entitle the Contractor to a Time Extension according to the contract (i.e., and excusable delay which may be caused by the Employer or otherwise not attributable to the Contractor);
- The Contractor requests an EOT under the contract;
- The Employer does not grant an EOT;
- The Employer requires the Contractor to complete the work by the original (or current) Time for Completion or LDs will be enforced;
- The Contractor intentionally accelerates by committing additional resources or working additional hours; and
- The Contractor incurs additional costs by carrying out the acceleration efforts.
The Employer’s good faith may be open to question in these circumstances. Unlike common law jurisdictions, many civil law jurisdictions including Bahraini law expressly establish a duty of contracting in good faith. This is exemplified by Article 129 BCC which provides “A contract shall be performed in accordance with its provisions and in such manner consistent with the requirements of good faith and honesty.” An Employer’s breach of good faith may be established if: (i) the delay was excusable (either caused by the Employer or otherwise not attributed to the Contractor), (ii) the Contractor should have been granted its EOT but was denied such right, and (iii) the Contractor was forced to take acceleration measures to avoid the Employer’s threatened sanctions or penalties. This may bolster a Contractor’s claim for damages (additional costs incurred due to accelerating the Works).
Conclusion
The Contractor and Employer may raise a claim during or after the completion of the project in question depending on the nature of the issue. Contractors are mainly concerned with raising delay claims (EOT) to avoid LDs as well as additional costs claims when the Contractors incur additional costs as a result of project accelerations or variations due to the Employer’s instructions. Meanwhile, Contractors ought to be cautious of defect claims which may be raised within three years of discovery falling within the ten-year defect liability period in accordance with prevailing Bahraini law principles.
For more information, please contact us on [email protected].