The last five years have seen a tremendous
change in contractual arrangements, mostly for the good of the construction industry.
There are now signs that Employers have absorbed these changes and are taking the industry
in a different direction by insisting on very onerous terms particularly in the management
of claims. These changes stem from the ideas in the Engineering Construction Contract
forms of contract (ECC) and the provisions of the HGRC Act 1996.
The ECC
One of the successes has been the ECC, with
its different options and new language. It is now in use on a large number of contracts,
particularly in the water processing industry. Although there were initial
misunderstandings which caused problems for contractors, the effect of this new form has
been to increase contractual awareness of Employers and to require better management from
contractors. One area of change has been the need for contractors to make the Employer
aware early of problems on site which may affect the cost and completion of the project
and to resolve differences quickly as compensation events, term used in the ECC for
claims. This willingness of Employers to adopt different contracting arrangements and the
perceived benefits of doing so over the last few years has led Employers to re-examine the
terms of standard forms.
The HGRC Act 1996
The HGCR Act 1996 has only been effective
since 1 May 1998. There are already signs that contractors are adopting the statutory
adjudication procedures as a rapid and welcome means of resolving disputes. However the
adjudication process places pressures on the Employer since he must reply to the
Contractor's submission in a short period, frequently less than one week, whereas the
contractor will have taken considerably longer to prepare his submission. The Employer's
response to this possibility has been to adopt onerous terms in construction contracts,
requiring early notice of claims.
Conditions Precedent to Entitlement
In order for notice to be a condition
precedent to entitlement the wording needs to clearly establish that a failure to serve
proper notice will result in a loss of rights and the condition must state the precise
time within which the notice was to be served Bremer Handelsgesellschaft MBH v
Vanden Avenne Izegem (1978).
Many Employers are now drafting conditions
precedent which require contractors to give notice of intention to claim within days of
the circumstances giving rise to the claim, with a further requirement to provide detailed
particulars within a further short period. Indeed the recently published test edition of
the FIDIC Red Book reflects this approach of the industry. Clause 20.1 requires the
Contractor to give notice no later than 28 days after the event and to submit a fully
detailed claim with full supporting particulars within 42 days of the event. Clause 20.1
also states that if the Contractor fails to comply with the Clause then he will not be
entitled to an extension of time nor to additional payment.
Some Employers have gone further and
require Contractors, as a condition precedent to entitlement, to make their claims for
additional payment in each monthly application for payment. Each application is required
to provide full details of the claim. It is clear that Employers are adopting this
approach to prevent any surprises in statutory adjudication. By requiring Contractors to
submit fully particularised claims shortly after the event, Employers are then in a
position to prepare their response and record necessary facts. Indeed many Employers
require the Contractor to keep contemporaneous records which as necessary to substantiate
the claim, and make this requirement also a condition precedent to entitlement.
One further development is the requirement
for the Contractor to agree the value of the claim with payment on the Contractor's
monthly application, or to provide the Employer with detailed reasons why not. This is a
development of the concepts in the ECC forms of contract requiring claims to be dealt with
under strict timescales.
It is clear that in the next few years
contractors will need to be careful to adopt good commercial management in relation to
claims. They will need to provide Employers with detailed information as events arise in
order to avoid losing their rights.
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