W E L C O M E. CICES & PCE–UAE Contract Workshop

W E L C O M E. CICES & PCE–UAE Contract Workshop
6 July 2010 – Abu Dhabi Contract Workshop Gary Beamish Eng.C, C.Eng, C.Env, C.WEM, MICE, MCIWEM, MQSI M: E:

CONTENTS Parties Roles & Responsibilities Contract Essentials
Letters of Intent / Acceptance Common Delays Entitlements & Variations Claim Document Records & ADR

1. The Parties

Traditional Players The Employer
Designer / Lead Consultant / Architect Sub-consultants/Specialists Contractor Subcontractors / Suppliers / Nominations Engineer (Construction period)

Contractual Links The Employer contracts with Designer / Lead Consultant / Architect Designer / Lead Consultant / Architect contracts with Sub-consultants/Specialists The Employer contracts with the Contractor The Contractor contracts with subcontractors & suppliers The Employer contracts with Engineer (Construction period)

Possible Other ‘Parties’
Master Developer; Employer’s Representative; Employer’s Third party reviewers; Statutory Authorities; Programme Manager; Project Manager; Contracts Consultant; Cost Consultant; Quantity Surveyors (BoQ/Packaging); Dispute Adjudication Board or other ADR; End User, i.e. tenant.

In Times Gone By! Buildings made largely of stone & timber;
Castles, cathedrals etc; Programme; The Employer: (King or a.n.other) Employer’s Representative: (Learned staff) Contractor/Engineer/Architect: (Master Mason) Nowadays a Prime cost reimbursement contract! Client & Trades: Construction Management JCT!

Emergence & Distinction
Agriculture, industrial, services; and later, the Industrial Revolution; The Engineer… Military... then Civil... Structural, roads, bridges, railways, sewerage, water supply etc, etc… The Architect; Aesthetics, spatial use, ID; The QS; Thus was born the modern roles!

2. Roles & Responsibilities

Employer Ensure cash availability;
Appointment of in-house or external Employer’s representative; Appoint Consultants under consultancy agreements; Sign off project brief, design brief and budgets; Decide the duration of works (with Engineer); Accept Tender; Confirm start date & facilitate access; Nominate subcontractors & suppliers; Make payments Non-hindrance & co-operation.

Contractor Estimate costs & risk;
Procure, co-ordinate & manage resources; Manage cash flow; Submittals as per conditions; Comply with instructions; Insure & indemnify; Notify as per conditions of contract, implied or express; Records, records, records! Deliver the ‘product’ (Works) in accordance with the contract/design/time intent, including defects period. Merton V Stanley (1985) 1. Not to hinder or prevent the contractor from carrying out the work in a regular and orderly manner; 2. Employer will take all steps reasonably necessary to enable the contractor to discharge all obligations and to execute the works in a regular and orderly manner.

Engineer Appoint Engineer’s Representative;
Notify delegated authority; Provide technical & managerial expertise; Watch & supervise; Review/consent/approve, (fairly or impartially); Issues further drawings/instructions; Agent for ordering variations; Direction for expenditure under Provisional Sums; Certify (payments/taking over etc); Competent mediator, EOTs & initial disputes; (not usually, 41, 44, 48, 62, 63, 65, 67, 69). Commencement instruction; EoT; Taking-over; DLP Certificate; Default of Contractor & termination; Special risks, (Employers Risks 20.4, war etc) Engineer’s decision, amicable settlement, arbitration; Default of Employer

3. Contract Essentials

Choice of Contract Form
Partnering approach: common goals; collaborative; integrated project team; spirit of trust, good faith, fairness and mutual co-operation, no-blame culture. All ‘use’ KPIs, Value and Risk Management. PPC 2000; Pre-Possession Agreement. Partnering Charter, a multi-party contract relating to a single project through risk management; NEC3 (ECC); Option X12, Programme led contract. Schedule of Partners & Core Group Members; between more than two parties on the same project. Be Collaborative; Client*/Purchaser and Supplier, co-operative and collaborative manner. Supplier is responsible for the risk register. GMP; Ceiling price reached through VE, agreed preliminaries and benchmarking etc Cost +; Mutual agreement on preliminaries and ceiling price. Hybrids; targets, incentives, pain gain etc.

Types of Contract Simple contracts orally or in writing.
Correspondence; Signed document(s) - most common; Implied from conduct, BUT must possess certain essential elements for the formation of a valid contract. Contracts executed as deeds. Always written; Signed, sealed & delivered.

Formation of a Contract
The essentials of a valid simple contract are: 1.1 Offer & unconditional acceptance; 1.2 Consideration; 1.3 Intention to be bound (to create legal relationship); 1.4 Legality of purpose (Contract must be legal); 1.5 Capacity of the parties to contract; 1.6 Reasonable Certainty (Sufficiency) of Terms; 1.7 Possibility of performance; 1.8 UAE Federal Law.

1.1. Offer & Unconditional Acceptance
Definite offer - accepted unconditionally, the meeting of two minds (consensus ad idem). Qualified (conditional) acceptance, a counter-offer (invitation to treat?) Genuine agreement and consent, i.e. no duress;

1.1.1 Communication of Offer and Acceptance
Time Allowed for Acceptance of an Offer: An offer can be revoked at any time before it is accepted. The offeror may waive or extend the time-limit (promise). The offer, and acceptance of the offer, must be properly communicated by the one party to the other; The contract is brought into existence upon communication of the acceptance; The act of acceptance creates the contract and once communicated the acceptance cannot be revoked;

1.1.2. Offers and Counter Offers (1 of 3)
Always reaffirm the conditions and terms that shall prevail upon acceptance. Beware of the terms and conditions attached to an offer, particularly a final offer! …why? …

Chichester Joinery Co v John Mowlem (1987) The last shot was fired by the sub-contractor with an “Acknowledgement of Order” This effectively re-imposed the terms of their own quotation which had been countered by Mowlem’s Order document Mowlem did not object to the acknowledgement, believing that their order prevailed; unfortunately for Mowlem, it did not.

Agreement terms must be certain or capable of being made certain otherwise no contract; acceptance must be absolute and identical with the offer; offer must be expressed with precision and unconditional acceptance in accordance with requirements and intentions; A definite and unconditional offer becomes a binding promise upon acceptance.

1.1.3. Acceptance by conduct An offer may be accepted by :
Despatching goods in response to an offer Carrying out work on receipt of an order

1.2. Consideration Definition:
“Consideration is some right, interest, profit or benefit accruing to the one party, or some forbearance, detriment, loss or responsibility, given, suffered or undertaken by the other”. • an exchange of an act; • a promise of an act; or, • a forbearance not to carry out an act. Examples of valid consideration would be the payment of money, a promise to pay money, a promise to perform work, or forbearance from deducting damages. The monetary value of the consideration is not material for the formation of a contract as long as it has some value.

1.2.1 When is Consideration needed?
The essential element of consideration should be borne in mind with particular regard to the following: Fairness of the bargain is irrelevant – e.g. AED 5 for a Rolls Royce; Simple contracts (as opposed to contracts by deed) require each party to give consideration for a contract to be binding; A gratuitous promise is not normally enforceable; Hence, the presence of any consideration demonstrates that the promise is not simply gratuitous; In every simple contract each party’s promise is the consideration for the other party’s promise. In other words there is an exchange of promises. Each party must give consideration unless the agreement is made as a deed when consideration will not be necessary. Consideration is necessary as it excludes liability for gratuitous promises, such as in the case of Re Hudson (1885) where after a man died, his earlier promise to pay £4000/year for four years to a religious charity was held to be gratuitous only. His estate did not have to pay the remaining two instalments. The more obvious forms of consideration are money, goods, services, etc. The courts do not concern themselves as the fairness of the bargain as long as some consideration is present eg. AED for a Rolls Royce.

1.3. Intention to be bound (1 of 2)
No binding contract will exist unless it has been made in contemplation of legal consequences; A mere statement of intention made in the course of conversation will not normally constitute a binding promise, though acted upon by the party to whom it was made. 3. Intention An agreement will not constitute a binding contract unless it is one which can reasonably be regarded as having been made in contemplation of legal consequences; a mere statement of intention made in the course of conversation will not constitute a binding promise, though acted upon by the party to whom it was made. Even negotiated agreements do not necessarily give rise to legal obligations. For example, at common law, collective agreements arrived at by the process of collective bargaining between employers and trade unions are not as such enforceable in a court of law because (so it is argued) in the current climate of industrial relations the parties do not intend to enter into legally enforceable contracts.

1.3. Intention to be bound (2 of 2)
In written commercial transactions... intention to create legal relations is presumed, however in social and domestic arrangements it is the opposite, the courts have presumed that the parties did not have intention to create legal relations. 3. Intention In commercial transactions intention to create legal relations is presumed, however in social and domestic arrangements it is the opposite, the courts presume that the parties did not have intention to create legal relations. In Balfour v Balfour (1919), for example: A husband was employed in a government post in Ceylon. He returned with his wife to England on leave, but she was unable to go back to Ceylon with him for medical reasons. He consequently promised orally to make her an allowance of £30 a month until she rejoined him. He failed to make his payment, and she sued him. The Court of Appeal held that, although it was not impossible for a husband and wife to enter into a contract for maintenance, in this case they never intended to make a bargain which could be enforced in law. The wife’s case also failed on the grounds that she had not provided any consideration. (could this be referring to marital relations)

1.4. Legality of purpose The contract must be legal; Illegal by Law:
An illegal term in a contract will be void and effectively struck out. E.g., any detail or specification which contravenes UAE Law is invalid. If the Contractor or Subcontractor knowingly incorporates the illegal detail then there may be no obligation on the Employer to pay for that work. 4 Illegality Illegal contracts normally fall into two classes Illegal by statute Any illegal term in a contract will be void and effectively struck out. In the construction industry, probably the best example of a potential illegal term is in relation to Building Regulations which fall within the Public Health Acts. Any detail or specification which contravenes Building Regulations is invalid. If the Contractor or subcontractor knowingly incorporates the illegal detail then there may be no obligation on the Employer to pay for that work. Illegal by Common Law Under this heading would fall contracts contrary to public policy, to defraud or to commit a crime or even the “furtherance of sexual immorality”. Ref. Pearce v Brooks (1866).

1.5. Capacity Companies can only contract in accordance with the services allied to their Licence. Minors, drunks and lunatics cannot enter into a contract. That is to say, any purported contract entered into by persons in those or similar categories will be declared void by the courts. 5. Capacity Minors, drunks and lunatics cannot enter into a contract. That is to say that any purported contract entered into by persons in those categories will be declared void by the courts. Companies can only contract in accordance with the objects clause contained within their Memorandum of Association. This is a legal document required by company law. To allow some flexibility the objects clause is often cast in fairly wide terms. This flexibility was increased by the amendment in 1989 of S.35 of the 1985 Companies Act. An example for a construction company could be ‘all manner of construction and civil engineering works’. This operates in favour of persons acting in good faith with the company, deeming any such dealing to be within the powers of the company. It is unlikely that an objects clause would be cast in terms wide enough to allow say a truss manufacturer to enter into a contract to build a boat.

1.6. Reasonable certainty of terms (1 of 2)
It is necessary that the parties agree on its essential terms. The essential terms must not be so vague as to be incapable of ascertainment. Provided the essential terms are agreed, the courts may imply ancillary terms to give what is called “business efficacy” to the contract e.g., where the contract sum and the extent of work are agreed but no contract period has been fixed. The court may determine what is a reasonable time in all the circumstances for completion. 6 Certainty of Terms Before there can be a valid contract it is necessary that the parties agree on its essential terms. The terms must not be so vague as to be incapable of ascertainment. Provided the essential terms are agreed, the courts will often imply ancillary terms to give what is called “business efficacy” to the contract eg. where the contract sum and the extent of work are agreed but no contract period has been fixed. The court will determine what is a reasonable time in all the circumstances for completion.

1.6. Reasonable certainty of terms (2 of 2)
Court of Cassation, Case Study : here the judgment confirmed that when interpreting contracts, the correct approach based on Article 265 of Federal Law No. 5 of 1985 (the Civil Code), is that: ‘if there is scope for interpretation of the contract, an enquiry shall be made into the mutual intentions of the parties beyond the literal meaning of the words, and guidance may be sought in so doing from the nature of the transaction, and the trust and confidence which should exist between the parties in accordance with the custom in such dealings.” 6 Certainty of Terms Before there can be a valid contract it is necessary that the parties agree on its essential terms. The terms must not be so vague as to be incapable of ascertainment. Provided the essential terms are agreed, the courts will often imply ancillary terms to give what is called “business efficacy” to the contract eg. where the contract sum and the extent of work are agreed but no contract period has been fixed. The court will determine what is a reasonable time in all the circumstances for completion.

1.7. Possibility of performance (1 of 2)
A party to a contract is entitled to have the contract performed in the manner described in the contract. That party cannot be compelled to accept a different mode of performance. Whether, what has been done constitutes performance of the contract is a question depending in each case on the construction of the terms of the contract and/or the facts of the situation. The parties may, by agreement or waiver, substitute a different mode of performance for that originally agreed and by so doing create a new contract, providing that valuable consideration is present in so doing.

1.7. Possibility of performance (2 of 2)
Occurs, where the circumstances imply a requirement for performance by an exact time; Failure to perform gives rights to the other party. The general principle is that performance must be carried out within a reasonable time. The exceptions to the general principle for a reasonable completion time arise where time is expressed in writing as “of the essence”; Where time was not originally of the essence in a contract and one party has been guilty of undue delay, the innocent party may give notice requiring the contract to be performed within a reasonable time, in which case time is said to become ‘of the essence’.

1.8. UAE Federal Law Federal Government & Federal Laws: Laws of the UAE; Individual Emirate Government & individual Emirate Laws; Islamic Shar’ia Law: Overall law of the UAE. UAE is largely based on ‘civil’ law, not ‘common’ law, therefore, in theory legal principles apply, NOT history from previously decided cases. Federal Laws with respect to construction includes, Civil Laws and Commercial Laws. Priority of ‘Laws of the land’: Federal law; Emirate laws; Construction industry custom; General custom; Laws pertaining to civil matters.

4. Letters of Intent

Letters of Intent There are more varieties of wording in letters of intent than stars in the sky which makes it difficult to generalise as to their effect. Many give rise to disputes because there is no standardisation and each one has to be dealt with on its merits. When the parties fall out, usually in relation to payment, the court has to decide whether the wording is sufficiently explicit to form a contract. Beware: The inclusion of the words “subject to formal contract” in a letter of intent became the subject of a dispute in the case of Stent Foundations v Carillion Construction (Contracts) LTD (2000). It was held that as all the essential term of a contract had been agreed by the parties a contract came into being even though a formal contract was never signed. Where the words “subject to contract” appear in a letter of intent it does not always signify that the drawing up and signing of a formal contract is essential before a contract comes into force. To establish that a contract has been concluded not only requires evidence of agreement by the parties on all the terms they consider essential, but also sufficient certainty in their dealings to satisfy the requirement of completeness. Letters of intent as traditionally drafted fail on both counts since they are usually incomplete statements preparatory to a formal contract coming into operation. For example having received tenders the employer would send a letter of intent to the contractor who had submitted the lowest price and whose tender was to be accepted in the following terms: We are pleased to inform you that your tender has been successful. Our lawyers are currently drawing up the contract which will be sent to you for signature within the next two weeks His Honour Judge Fay said in the case of Turriff Construction Ltd v Regalia Knitting Mills Ltd (1971) A letter of intent is no more than the expression in writing of a party’s present intention to enter into a contract at a future date. Save in exceptional circumstances, it can have no binding effect. With the passage of time however commercial procedures changed and the legal effect of letters of intent due to time pressures can as currently drafted have a binding effect depending on the completeness of essential terms, hence, the words or His Honour Judge Fay thirty seven years after they were made are no longer so relevant. Includes a statement of intention that a formal binding contract exists or, does not, exist…. With limits of time and money and clear agreement to specific written terms and conditions including manner of payment, LD’s, termination, start, finish, variations, etc To avoid common expensive or litigious mistakes, a letter of intent contains a statement of intention, identifies the contract terms that will be used and all special conditions such as amount of penalties and maximum extent thereof to be included in the main contract, clear work scope, limit of expenditure and commitment for procurement, prescribed maximum overheads & profit payable in the interim period without a signed contract, mechanisms and frequency of payment, contract period, phase completions, requirements for domestic or nominated sub-contractors, warranties and guarantees required, quality, design, materials standards/international standards to apply, defect obligations and a set of basic conditions giving rights to be included in the main contract such as extensions of time, variations, safety obligations, costs of permits and the like, insurances, bonds, testing and disputes. In some cases a letter of intent or agreement may represent only one of the documents which make up a contract. The case of Twintec Ltd v GSE Building and Civil Engineering Ltd (2003) is illustrative of a complex situation involving a quotation, letter of intent, acceptance letter and the minutes of a meeting, all of which when put together was held to constitute a contract. Avoid letters of intent wherever possible “a dangerous vehicle to rely on for the formation of a contract”

Letters of Acceptance (1 of 4)
Includes a statement of intention that a formal binding contract exists or, does not, exist…. With limits of time and money and clear agreement to specific written terms and conditions including manner of payment, LD’s, termination, start, finish, variations, etc To avoid common expensive or litigious mistakes, a letter of intent/acceptance contains a statement of intention, identifies the contract terms that will be used and all special conditions such as amount of penalties and maximum extent thereof to be included in the main contract, clear work scope, limit of expenditure and commitment for procurement, prescribed maximum overheads & profit payable in the interim period without a signed contract, mechanisms and frequency of payment, contract period, phase completions, requirements for domestic or nominated sub-contractors, warranties and guarantees required, quality, design, materials standards/international standards to apply, defect obligations and a set of basic conditions giving rights to be included in the main contract such as extensions of time, variations, safety obligations, costs of permits and the like, insurances, bonds, testing and disputes. In some cases a letter of intent or agreement etc may represent only one of the documents which make up a contract. The case of Twintec Ltd v GSE Building and Civil Engineering Ltd (2003) is illustrative of a complex situation involving a quotation, letter of intent, then an acceptance letter and minutes of a meeting, all of which when put together was held to constitute a contract. In most instances it should be possible to negotiate and compile a comprehensive formal Contract Agreement: hence, a scantly written Letter of Acceptance should be the exception, not the standard approach

Different letter types, ‘Acceptance’, ‘Confirmation’, ‘Agreement’, etc, check the purpose and content: A simple statement of intention is uncertain; British Steel Corporation v Cleveland Bridge (1984) A request for work to be carried out may be binding depending on parties conduct; Beware: A statement confirming that contract terms and conditions will be FIDIC etc … does not necessarily invoke those conditions. Bryen and Langley v Martin Rodney Boston (2004) Does the Letter of Intent/Acceptance etc Create a Contract? Courts are often called upon to decide whether or not the wording in a particular letter of intent is sufficient to create a contract. In the case of British Steel Corporation v Cleveland Bridge (1984), Lord Justice Goff said: Now the question is whether in a case such as the present one any contract has come into existence must depend on a true construction of the relevant communications which have passed between the parties and the effect (if any) of their action pursuant to those communications. There can be no hard and fast answer to the question whether a letter [of intent] will give rise to a binding agreement; everything must depend on the circumstances of the particular case. The judge went on to say that if work is done pursuant to a request contained in a letter [of intent] it will not matter whether a contract did or did not come into existence because if the party who has acted on the request is simply claiming payment his claim will usually be based on a quantum meruit. Unfortunately this does not introduce certainty as there is no hard and fast rule as to what constitutes a quantum meruit payment and hence uncertainty will still exist. It is of limited advantage to a contractor or subcontractor to learn that he is entitled to a payment if there is no agreement as to how much the payment will be. From this decision it can readily be seen that even if a letter [of intent] includes a specific instruction to undertake work it does not necessarily mean that a contract has come into being. It was decided in the case of Monk Building and Civil Engineering Ltd v Norwich Union Life Assurance Society (1993) that no contract had come into being since inter alia several of the contract terms, including the liquidated damages provision had not been resolved. IMPORTANT: In the case of Bryen and Langley v Martin Rodney Boston (2004) a letter [of intent] included the following words: The contract will be executed under the Standard Form of Building Contract 1998 Edition Private With Quantities. Whilst a contract was drawn up it was never signed by the employer. The works were carried out but a dispute arose. It was held by Judge Seymour that despite the wording in the letter of intent the terms in the Standard Form of Building Contract did not apply. His reasoning was that the wording “the contract will be executed” in the letter implied that the execution of the Form was anticipated as a separate future event. Further there were blanks to be completed in the Appendix to the Form without which there could not be a workable agreement.

An expression in writing of a party’s present intention to enter into a binding contract with clearly stated scope, agreed terms and conditions including clearly identified terms and conditions yet to be finalised. A Letter of Acceptance might be used where we want work to commence before the full scope, terms and/or conditions are settled, i.e.: Scope of Works yet to be fully designed; Pressure on immediate start; Long lead-in period for materials; Contract sum yet to be finalised, etc; To avoid common expensive or litigious mistakes, a letter of intent (etc) contains a statement of intention, identifies the contract terms that will be used and all special conditions such as amount of penalties and maximum extent thereof to be included in the main contract, clear work scope, limit of expenditure and commitment for procurement, prescribed maximum overheads & profit payable in the interim period without a signed contract, mechanisms and frequency of payment, contract period, phase completions, requirements for domestic or nominated sub-contractors, warranties and guarantees required, quality, design, materials standards/international standards to apply, defect obligations and a set of basic conditions giving rights to be included in the main contract such as extensions of time, variations, safety obligations, costs of permits and the like, insurances, bonds, testing and disputes. The concept of expiry is very important as is the payment formula and the financial limit on payment. There are two variants to letters of intent, one comprises an instruction to proceed and is essentially intended as a form of limited short-term contract and the other stresses the lack of future obligation on either side in order to preserve flexibility. In the latter case, the letter of intent must clearly state that is not a contractual instruction and performance will not create a contractual relationship.

The letter should include clear details of: final offer and acceptance letters/documents and terms; back-to-back conditions of main contract, attach copies etc; payment terms and procedures; authorization to proceed with specific defined activities; defined limit of expenditure and subsequent arrangement; defined period of letter validity and subsequent arrangement; termination & winding down clause; Bonds, advance payments; time for submittals, programme, insurances/indemnity etc; intellectual property rights, warranties; liquidated damages and/or penalties, per day, limit; start and completion/section dates; provisions for variations and instructions; applicable Law, no privity of contract, time is of the essence, etc; signatures to confirm acceptance of the terms and conditions A signature on a letter of intent (etc) will therefore signify that the signor agrees to the contents of the letter but does not in itself indicate the letter constitutes a contract. In the case of AC Controls Ltd v British Broadcasting Corporation (2002) where the contractor was required by a letter [of intent] to undertake essential survey work and a financial cap on expenditure was fixed at £250k. Work proceeded beyond this figure and the contractor claimed a sum of £411k. The employer insisted that the capped figure only was payable. It was held that as the employer was entitled to determine the arrangement with the contractor when the cap was reached and failed to do so the contractor was entitled to be paid the full amount. However, In the case of Mowlem PLC v Stena Line Ports Ltd (2004) which arose out of the construction of a new ferry terminal at Holyhead in Anglesey. In this case the employer sent 14 letters [of intent] the last one dated 4th July The final letter [of intent] included a cap on expenditure of £10m but no formal contract was entered into. Due to the discovery of rock in the excavation and instructions for extra work being given by the Employer after the 4th July 2002 expenditure was incurred which well exceeded the £10m limit. The court held that the contractor was entitled to payment of only £10m as once this expenditure cap had been reached the contractor could have stopped work. Hence, it can readily be seen that a cap on expenditure included in a letter [of intent] does not provide certainty that if the value of work undertaken exceeds the cap that payment will be limited to the capped amount.

5. Common Delays

Typically… Access/logistics problems;
Issue of variations expanding the scope of the contract; Late issue of drawings or instructions (including design details etc); Late return of submittals; Misinterpretation of the contract; Late nominations for sub-contractors/suppliers; Subcontractors and/or supplier delays; Market shortages, Materials, Labour and Plant; Poor procurement schedules/planning; Disruption or lost productivity; Late or re-inspections sign-off; Additional rigorous testing; Third parties (or other contractors etc).

Excusable and Non-excusable delays
Excusable delays, two categories: Entitlement to an extension of time thus relieving the obligation to pay liquidated damages and, delays which provide a right to both more time and financial compensation.

Excusable and Non-excusable delays
usually those due to some fault of the contractor (or faults of those for whom he is responsible) that do not have relief from liquidated damages.

Force Majeure - FIDIC Red Book
19.1 Definition of Force Majeure In this Clause, "Force Majeure" means an exceptional event or circumstance which prevents or impedes the due performance of the contract by that party : (a) which is beyond a Party’s control, (b) which such Party could not reasonably have provided against before entering into the Contract, (c) which, having arisen, such Party could not reasonably have avoided or overcome, and (d) which is not substantially attributable to the other Party.

Other delays Neutral event: the fault of neither party;
E.g. external strikes and other forms of industrial unrest, riots, delays by local authorities and statutory undertakers, and if the contract is silent as to delays by a neutral event then the contractor may take the risk.

Other delays Concurrent delay:
Employer & Contractor delays at the same time… applying only to the period of overlap. The Shorter Oxford Dictionary also gives ‘concurrent' a wider meaning with 'contributory cause‘. Disputes arise not so much on how long was the period of the overlap, but to what cause should it be attributed and to what extent is it permissible to consider the knock-on effects.

Delay response Best Endeavours:
Contractor to prevent or mitigate the potential delay and mitigate its loss; usually by re-programming the works; the proviso does not contemplate the expenditure of substantial sums of money. [Keating on Building Contracts 5th Edition]; Hence, residual consequences may occur due to out of sequence working or loss of efficiency, etc.

6. Entitlements & Variations

Notices Advance notice? Has the Engineer or Employer been prevented from or substantially prejudiced by the failure to investigate the claim? Contractor must identify the entitlement provision(s), cause and effect; Send an interim claim providing full and detailed particulars of the amount claimed and the grounds on which the claim has been made; Further particulars… Contractor must maintain contemporary records;

Notices Additional payment under contract provisions :
Due to variations; Due to re-measure; Miscellaneous provisions/other entitlement clauses. Damages for breach of contract: Breaches affecting performance; Breaches resulting in termination or rescission of contract; Breach of Employer’s payment obligation.

FIDIC Entitlement Clauses
The 1999 edition of the Red and Yellow Books each contain over 20 sub-clauses specifying events which may give rise to entitlement; The Silver Book, which places greater risk on the contractor also contains 20 + such sub-clauses; The sub-clauses in the new Red and Yellow Books giving entitlement for additional money or time are listed in the following slides (an asterisk indicates that it is also contained in the Silver Book):

FIDIC Entitlement Clauses

7. Claim Document Contractors who find themselves with contracts which have been the subject of extensive change and where they are consistently losing money often look for a quick way out of the dilemma. One route which has found limited success is to argue that due to extensive extra work or all of the work carried out being so fundamentally different from what the contractor contracted to undertake then either the extra work or all of the work represents a new contract. This being the situation the contactor, if the argument succeeds, will be entitled to payment on a quantum meruit basis and not be tied to the rates referred to in the variation clause. Standard Forms of Contract The standard forms of contract try to circumvent this argument before it is raised. The ICE conditions state that no variation shall vitiate or invalidate the contract. Similar wording exists in the JCT Forms which state that no variation required by or subsequently sanctioned by the Architect shall vitiate the contract. The intention behind the wording is that no variation will have the effect of creating a separate contract. Whilst this may be the intention, in the final analysis it will be the court or tribunal who decides whether or not a separate contract arises out of the varied work Legal Precedence There have been a number of cases where this matter has been placed before the court for a decision. Thorn v London Corporation (1876) In this case the judge said “if the additional or varied work is so peculiar so unexpected and so different from what any person reckoned or calculated on, it may not be within the contract at all” A mere increase in the quantities of the work will not invalidate the original contract even though substantial. The work ordered must be totally different from that contracted for and this being the case the contractor will be entitled to payment on a quantum meruit basis and not the contract rates. Bush v Whitehaven Trustees (1888) In this case a contractor undertook to lay a water main and divert certain streams on the understanding that the work would be carried out in the month of June, Due to delays on the part of the employer the contractor was unable to proceed before the winter when wages were higher and the works more difficult due to the weather conditions. The court held that these changed circumstances were such that the contractor became entitled to payment on a quantum meruit basis. Blue Circle v Holland Dredging (1987) A contract was let under the ICE 5th Edition for dredging work in Lough Larne. The dumping of the dredged material was to be in areas agreed with the local authority. A variation was issued to facilitate the dumping of the dredged material to form a bird island. It was held that as the island construction was completely outside the original dredging Holland was not obliged to accept the work as a variation. Hence the island became the subject of a separate agreement.

The Claim Document 1 EXECUTIVE SUMMARY 1.1 Time Related Matters
Covering letter; The Document, Appendices … contents. 1 EXECUTIVE SUMMARY 1.1 Time Related Matters 1.1.1 Extension of Time 1.1.2 Acceleration Measures 1.1.3 Disruption and Out of Sequence Working 1.2 Cost Related Matters 1.2.1 Loss and/or Incurred Damages 1.2.2 Negation of Liquidated Damages/Penalties 1.2.3 Payment of Financing Charges Accruing 1.3 Summary

The Claim Document 2 INTRODUCTION 3 ABBREVIATIONS & CLARIFICATIONS
3.1 Abbreviations and Terms Used 3.2 Clarifications 4 CONTRACT PARTICULARS 4.1 The Parties, Period and Contract Price 4.2 The Contract Documents and Order of Precedence 4.3 Relevant Contract Agreement Particulars 4.3.1 The Contract Price 4.3.2 The Completion Period 4.3.3 Penalties 4.3.4 Claim Notification and Submittal Period 4.3.5 Substantive Law 4.4 The Works Generally 4.5 Programme of Work

The Claim Document 5 CONTRACT CLAUSES GIVING RISE TO ENTITLEMENT
6 STATEMENT OF CLAIM 6.1 Introduction 6.2 Matters Relating to Cost 6.2.1 Concurrency as it relates to compensation for prolongation 6.2.2 Float as it relates to compensation 6.2.3 Mitigation of loss 6.3 Matters Relating to Time 6.3.1 Generally [from the SCL Protocol] 6.3.2 Concurrent and Culpable Delays 6.4 Matters Relating to Negation of Penalty for Delay 7 PREVENTION AND BREACHES OF EXPRESS OR IMPLIED TERMS BY THE EMPLOYER, OR THE ENGINEER ACTING AS THE EMPLOYERS AGENT 7.1 Prevention By the Employer/Engineer Generally 7.2 Provision of Information by the Employer/Engineer 7.3 Employer/Engineer's Approval 7.4 Employer/Engineer's Procedural Breaches

The Claim Document 8 CONDITIONS PRECEDENT TO ENTITLEMENT
8.1 Introduction 8.2 Conditions Precedent to the Deduction of Damages by the Employer 8.3 Notification as a Condition Precedent to the Award of an Extension of Time 9 CAUSES OF DELAY AND THEIR EFFECT ON THE WORK 9.1 Delay Event No. xxxx 9.1.1 Introduction 9.1.2 The History of the Event (the "Cause") 9.1.3 The Impact of the Event (the "Effect") 9.1.4 Conclusion 10 COMPOSITE EFECT OF EVENTS 10.1 Delays Giving Rise to Extension of Time 10.2 Disruption of the Works

The Claim Document 11ASSOCIATED COSTS 11.1 Prolongation Costs
Site Overheads Head Office and Other Overheads FORMULAE COMPARISON (Hudson, Emden, Eichleay) Plant Costs Finance Costs Loss of Profit Summary of Prolongation Costs 11.2 Acceleration Costs Supervision Additional Resources Disruption and Uneconomic Working Exceptional Costs (e.g. Air Freight) Summary of Acceleration Costs 11.3 Disputed Costs Variations Other Issues 11.4 Summary of Associated Costs

The Claim Document Prolongation overhead elements might include:-
Staff Costs; Salaries + bonuses + benefits Site Staff Directors' emoluments and expenses Medical Expenses / Medical Insurance Staff Site Overheads; Audit Fees Contractor's & Engineer’s Printing & Photocopying Progress reports & photos Travel Visits from HO / Others Vehicles, fuel, maintenance, hire Tel/Fax/Postage & Courier/Books/Other expenses Security & Site boundary maintenance Road and pavement maintenance Site Expenses & Depreciation of Assets; Contractor's & Engineer’s Site offices Maintenance of warehousing and yards Rental charges for areas outside the site boundary Contractor's welfare facilities & rubbish clearance Stores, Canteen, stationary, refreshments Depreciation; vehicles, computers, FF&E, plant & tools Plant, Tools & Other Requirements; Scaffolding, PPE, plant & tools; rental, maintenance, fuel Heat, light, power, water and housekeeping Repairs to buildings, plant and equipment Transport and mobilisation costs Financial Liabilities; Insurances & Bonds

‘Causation’... Leyland Shipping Co v. Norwich Union Fire Insurance Society (1918) : a torpedoed ship in harbour, towed to a breakwater, then due to a gale towed out to an anchorage where she sank. It was held that the cause was the torpedoing and that the unsuccessful attempts to save the ship did not break the chain of causation.

Linkage to Effect It is often not difficult to prove the facts of the occurrence which are often well-known by all parties to a contract. It is equally often not difficult to demonstrate that certain effects were felt by the claiming party, additional costs incurred, delay, and so on. What is more difficult, but is essential, is to link the two. The value of detailed programmes and as built records cannot be overstated in this regard. Contemporaneous records in the form of reports and diary entries, correspondence and meeting minutes, can also be extremely useful in establishing the causal nexus.

Competing causes (a) the Devlin approach. If a breach of contract is one of two causes of a loss, both causes co-operating and both of approximately equal efficacy, the breach is sufficient to carry judgment for the loss. (b) the dominant cause approach. If there are two causes, one the contractual responsibility of the defendant and the other the contractual responsibility of the plaintiff, the plaintiff succeeds if he establishes that the cause for which the defendant is responsible is the effective, dominant cause. Which cause is dominant is a question of fact, which is not solved by the mere point of order in time, but is to be decided by applying common sense standards. (c) the burden of proof approach. If part of the damage is shown to be due to a breach of contract by the plaintiff, the claimant must show how much of the damage is caused otherwise than by his breach of contract, failing which he can recover nominal damages only. (not usually, 41, 44, 48, 62, 63, 65, 67, 69). Commencement instruction; EoT; Taking-over; DLP Certificate; Default of Contractor & termination; Special risks, (Employers Risks 20.4, war etc) Engineer’s decision, amicable settlement, arbitration; Default of Employer

8. Records & ADR

Records, Records, Records:
Records of records: in/out logs, distribute, track, response; Monitoring records: resources, measurements, programme; Conformity records: inspection, testing, defects; Event records: instructions/variations, notices, delays, additions; Costs records: planned and unplanned costs; Contemporaneous records: site diary, submittal registers, photos.

ADR Techniques include: (slide 1 of 2)
Negotiation: the most common form of dispute resolution where the parties themselves attempt to resolve the dispute. An express provision in a contract for good faith negotiations to take place can be enforced; Mini Trial: this is a formalised settlement procedure at which representatives of the parties make short presentations to a panel which comprises at least one senior member from each party and usually a neutral adviser who assists the parties in reaching an agreement. The outcome of the mini trail is not binding unless an agreement is reached, committed to writing and signed; Mediation: (including Conciliation), a private and structured form of negotiation assisted by a third party that is initially non-binding. If settlement is reached it can become a legally binding contract; Neutral evaluation: a private and non-binding technique whereby a third party, usually legally qualified, gives an opinion on the likely outcome at trial as a basis for settlement discussions; opinion is non binding;

ADR Techniques, cont’d (slide 2 of 2)
Expert determination: a private process involving an independent expert with inquisitorial powers who can give a binding decision but it depends upon the terms of the contract; Adjudication: an expert is instructed to rule on a technical issue and the decision is binding until finally determined by arbitration, litigation or agreement; Arbitration: a formal, private and binding process where the dispute is resolved by the decision of a nominated third party. The arbitrator or arbitrators ‘awards’ are final and binding and enforceable in court with rights of appeal being limited and then only in respect of errors of law; Litigation; the odd one out!! The formal process whereby claims are taken through the civil courts and conducted in public. The judgments are binding on parties subject to rights of appeal.

SUMMARY ... For discussion
Parties Roles & Responsibilities Contract Essentials Letters of Intent / Acceptance Common Delays Entitlements & Variations Claim Document Records & ADR

The End … Thank you!

W E L C O M E. CICES & PCE–UAE Contract Workshop

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W E L C O M E. CICES & PCE–UAE Contract Workshop

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