Lauda Nel

06 March 2024
Forenotes:

The examples provided are given based on my professional experience as Contracts Manager for
Construction and works contracts. Where I have referenced externally, I have included the
reference as a footnote. The bibliography at the end shows all FIDIC books that I have consulted
for my answers.

Task 1
Question 1(a)
Pursuant to sub-clause 13.8, the Engineer attempted to hold consultations to reach agreement
between the Contractor and the Employer, however there could not be an agreement to
mutually agree on the Contractor’s supposed losses (escalation indices). Therefore, the
Contractor submitted a notice of claim with full supporting particulars for Contract Price
Adjustment in reference. Accordingly, the Engineer made a fair determination per contract
requirement and has submitted the following notice of determination to both the Contractor
and Employer:

12 February 2024,
Attention: Contractor [name], Employer [name]
Address: [Contractor Address], [Employer Address]
Ref: Contract No. 0000XXX
Subject: Notice of the Engineer’s Determination pertaining to Contractor’s request for
Contract Price Adjustment

Dear Madam, Sir,

I am writing in regard to the contractor’s request [ref #......] to adjust the Contract Price as
per sub-clause 13.8 of the Particular Conditions of the contract.

We note that the Contractor has claimed for an extension of time (EOT) based on the variations
instructed by the Engineer, the Covid-19 Pandemic and new legislation introduced by the Host
Government that have affected the works of the Contractor and affected the completion date
due to consequent delays.

We also note that prior to the notice of claim, the Contractor submitted a notice of delay [insert
ref nr and date submitted] regarding the said delays. The rationale provided by The Contractor
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is deemed reasonable as the aforementioned reasons for EoT are of no direct fault to the
Contractor and were hence beyond the Contractors control or means to avoid.

Consequently, as per sub-clause 13.8, the Engineer determines that the Contractor is entitled
to have the Contract Price adjusted as per the Agreed escalation Index Methodology and Bill
of Quantities rates.

The adjustment to be applied to the amount otherwise payable to the Contractor shall be [insert
formula to be applied to the Contract Price].

Yours Sincerely,
Engineer
Annexes:
Annex 1: Adjustment data table
Annex 2: Contractor’s notice of claim for EOT [and associated documents]
Annex 3: Notice of delays by Contractor, dated [insert date]

Question 1(b)
Firstly, in the Red Book (2005), the contract price is determined by the appropriate rate or
price for the item shall be the rate or price specified for such item in the Contract [sub-clause
12.3]. This means that the Red book allows for adjustment of the unit rate when the measured
quantity varies a certain amount compared to the original referential quantities included in the
Bill of Quantities.
The Yellow book[1999], however, states that The Contract Price shall be the lump sum
accepted contract amount and be subject to adjustments in accordance with the Contract;
However, both books state that a Contract Price shall not be adjusted for any of these costs
(i.e. taxes, duties and fees…), except as stated in Sub-Clause 13.7 [Adjustments for Changes in
Legislation];and be subject to adjustments in accordance with the Contract.
The adjustments mentioned refer to such as market fluctuations, changes in law affecting cost
of labor and of goods and services and these would still apply in the Red book. Therefore, it
would not have been preferential or have made much of a difference in the outcome or
determination.

Question 1(c)
Upon receipt of the Engineer’s determination, denying the Contractor’s entitlement to an
adjustment of the Contract Amount. I as Contractor would draft a Notice of Dissatisfaction
(NOD) as per sub-clause 3.7.5 [Dissatisfaction with Engineer’s determination] within 28 days
of receipt of the Notice of Determination by the Engineer. The NOD will set out the reasons
for the dissatisfaction.

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The below NOD will be prepared by the Contractor, addressed to the Employer, and copying
the Engineer;

12 February 2024,
Attention; Employer [name]
Address: [Employer Address]
Cc: Engineer[name]
Ref: Contract No. 0000XXX
Subject: Notice of Dissatisfaction with the Engineer’s Determination
Dear Sir/Madam,

We acknowledge receipt of the Engineer’s Notice of Determination dated [insert date]

regarding our notice of claim for adjustment of the Contract Price dated [insert date of
Contractor claim].

We acknowledge the determination made by the Engineer. We would however, like to

respectfully disagree with the determination, noting that we found the basis thereof partial and
lacking some factual accuracy.

Our claim notice was based on sub-clause 13.6 which entitles us to an adjustment in the
Contract Price to take account of any increase or decrease in Cost resulting from the below
mentioned changes we have stated in our notice:

• The host government changed certain laws that impacted the cost of labour as well as
trade procedures for shipping in material [sub-clause 13.6(a)]
• As a result of the above changes in law, we have had to apply for special permits
allowing our shipping to enter the country, as well as apply for new compliance
certificates from the labour department.

As a result, compliance with the laws has affected the Contractor in the performance of the
obligations under the Contract [ref sub-clause 13.6(d).

We strongly believe that in his determination, the Engineer did not exercise factual accuracy
and consideration in line with sub-clause 13.6. We therefore assert that we are entitled to an
adjustment of the Contract Price and request the Engineer to issue a corrected determination
in accordance with sub-clause 3.7.4. Failing which we would like to proceed under sub-clause
21.4 [Obtaining DAAB’s Decision] within 42 days from the date of this letter.

Yours Sincerely,
Contractor [insert name]

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Question 1(d)
I would advise the Employer that his prospects of success are nominal. Firstly, for an advance
payment to be effected there must have been an advance payment certificate issued by the
Engineer which can only be effected by an advance payment guarantee [sub-clause 14.2] for
which the Contractor should have obtained [subclause 14.2.1]. As there is no advance payment
also stated in the contract data, the Employer cannot effect an advance payment, else he would
be infringing on the contract provisions.

In addition, even if advance payment was included in the contract, the Employer would not be
able to get the full amount from the Contractor as the advance payment is repaid through
percentage deduction in payment certificate, for which the rate of amortization is defined in the
Appendix to Tender, according to sub-clause 14.2 [Advance Payment]. Furthermore, the same
sub-clause provides that the only instances that allows the Employer’s to claim the entire
remaining amount of the advance payment are:
• Taking over Certificate has been issued to the Contractor and the advance payment is
not paid in full.
• The contract has been terminated under clause 15 [Suspension and Termination by
Contractor], clause 16 [Suspension and Termination by Contractor] or clause 19 [Force
Majeure] and the advance payment is not paid in full.

In this situation, the Employer has suspended works, and cannot therefore claim from the
Contractor, especially when the financial difficulties faced by the Employer are of no fault of
the Contractor. Conversely, the Contractor can claim for and be entitled to payment (cost +
profit) for delays and additional costs as a result of complying with an Engineer’s or
Employer’s Instruction [ref. sub-clause 8.10 - Consequences of Employer’s Suspension].

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Task 2
Question 2(a)
Scenario 1: After being aware of the delays and costs incurred the Contractor [within 28
days] submitted the following claim to the Employer, cc’ing the Engineer. The claim
related to the border closures and impact due to the Covid 19 Pandemic and new
legislation enacted by the Host Government that has affected the completion date of the
Works.

12 February 2024,
Attention; Employer [name]
Address: [Employer Address]
Cc: Engineer[name]
Ref: Contract No. 0000XXX
Subject: Notice of Claim - Adjustments for Changes in Legislation.
Dear Sir/Madam,
As you are aware, COVID-19 has caused global instability. In particular, the construction
works for the project have been negatively affected by the closure of the borders which meant
that our materials have not been delivered as planned in the project schedule. In addition, the
laws enacts by the government of Ethiopia to raise the minimum wage and to charge additional
duty fees have meant that the projected costs for the outstanding phases of the contract will not
be sufficient to complete the project per the budget. Cost of labor and human resources have
escalated by 28%.
Therefore, in accordance with sub-clause 13.7[Adjustments for Changes in Legislation], we
hereby notify you of the claim for an extension of time for delays incurred which totals an
additional 65 days and associated costs totalling US$50,000.
Please note that we shall submit full supporting particulars of the circumstances giving rise to
this claim within the specified timeframe indicated in subclause 20.1.
Yours sincerely,
Contractor

Scenario 2: Within 14 days after becoming aware, the Contractor submits a Notice of
Force Majeure

12 February 2024,
Attention; Employer [name]

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Address: [Employer Address]
Cc: Engineer[name]
Ref: Contract No. 0000XXX
Subject: Notice of Force Majeure due to the Covid-19 Pandemic

Dear Sir/Madam,
As you are aware, COVID-19 has caused global instability. In particular, the construction
works for the project have been negatively affected by the closure of the borders which meant
that our materials have not been delivered as planned in the project schedule. This has cause
delays. Additionally, new laws have been introduced by the government - a direct consequence
of the Covid-19 pandemic.
Consequently, as per sub-clause 19.2 [Notice of Force Majeure], we are hereby declaring the
occurrence of an event of force majeure, which will prevent us from performing our obligations
under the afore-referenced contract.
Our project team is assessing the impact of the claimed Force Majeure to the critical path of
the Program and will submit a separate claim for an Extension of Time, in due course, if
deemed needed.
Please note that Pursuant to sub-clause 19.3 [Duty to minimize delay], we have taken all
reasonable endeavours to minimise delays, and even with a contingency plan and mitigation
strategy, the abovementioned events are indeed a force majeure impeding our contractual
obligation.
You are welcome to reach out to our office should you require any clarity regarding the above.
Yours sincerely,
Contractor

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Question 2(b)
The main question here is related to the time when the Contractor became aware of the issues
and whether the Contractor complied with the timelines for notification as prescribed in the
Contract. Firstly, the issues under discussion i.e., essential team of workers were not be able to
travel to site from abroad due to the closure of the airport are an exceptional event and focus
is on sub-clause 18.2 [Notice of an Exceptional Event] which reads as follows:

“If a Party is or will be prevented from performing any obligations under the
Contract due to an Exceptional Event (the “affected Party” in this Clause),
then the affected Party shall give a Notice to the other Party of such an
Exceptional Event, and shall specify the obligations, the performance of
which is or will be prevented (the “prevented obligations” in this Clause).
This Notice shall be given within 14 days after the affected Party became
aware, or should have become aware, of the Exceptional Event, and the affected Party
shall then be excused performance of the prevented
obligations from the date such performance is prevented by the Exceptional
Event. If this Notice is received by the other Party after this period of 14
days, the affected Party shall be excused performance of the prevented
obligations only from the date on which this Notice is received by the other
Party.”

Since the project is now 2 months behind schedule, In my opinion, the Contractor cannot be
excused of its contractual obligations as it did not notify the Employer nor the Engineer of
occurrence of exceptional event within the minimum time prescribed in the 2017 Yellow Book
[14 days after being aware of exceptional events]. This sub-clause reads as follows,

The particulars related to these exceptional circumstances were readily available, therefore, the
Contractor should have been informed that his essential workers could not travel to site and
should have notified the Employer and Engineer accordingly.

In the defence of the Contractor, one can assume that perhaps the Contractor does have some
form of basis to claim for time by stating that although he failed to inform the other party, i.e.,
the Engineer or the Employer within 14 days of occurrence or knowledge of the occurrence;
he can still notify after 14 days and be excused from performing the affected obligations from
the date of receipt of the notice by the other party. This means that, “the affected Party shall
be excused performance of the prevented obligations only from the date on which this Notice
is received by the other Party…the affected Party shall be excused performance of the
prevented obligations for so long as such Exceptional Event prevents the affected Party from
performing them.”[sub-clause 18.2, 3rd para] The Contractor can rely on this sub-clause to
request an extension of time [sub-clause 18.4] and/or costs, but cannot request for any time
and/or costs for the affected days before the notice was received by the Employer or Engineer.

Conversely, assuming the Contractor did not submit a notice to claim, within 28 days after
being aware that his program has been affected, the Contractor’s attempt to claim for EOT and
additional payment would also be unsuccessful, if it tries to use sub-clause 20.2 [Claims for
Payment and/or EOT]. In Sub-clause 20.2.1 [Notice of Claim], the correct procedure to follow
to successfully claim EOT and/or payment would have been for the Contractor to submit a
notice notifying the Engineer of events giving rise to a claim no later than 28 days after it
becomes aware or should have become aware of the events.
Thus, the Contractor in this instance forgoes its entitlement to claim if did not comply with this
specific requirement. This is applicable to the case in question as “At no point during this time
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did the Contractor advise the Employer or the Engineer about the fact that it is unable to
progress with the execution of the work in accordance with the programme.”

Furthermore, the Contractor would have to provide evidence he was not notified of the essential
workers, hence he could not comply with the required timelines to notify.

Lastly, considering all options at the Contractors disposal [as discussed above], it is my
personal judgment that the Contractor’s failure to advise the Engineer that its program has been
affected, was a serious slippage by the Contractor, which may deem his entitlement to claim
unsuccessful.

Question 2(c)

2(c)(i): According to sub-clause 3.7.3 [Time limits] of the 2017 Yellow and Red Book, if the
Engineer fails to give notice of its determination within 42 days then:

In case of a claim, the claim will be considered rejected by the Engineer, by default.

Whereas, in the 1999 version of the Red and Yellow Book, there is no time limit assigned for
the Engineer to issue its Notice of Determination in Sub-clause 3.5 [Determinations].
However, in Sub-clause 20.1 [Contractor’s Claims], there is a paragraph where it clearly states
that the Engineer shall respond to the claim (either with approval or rejection), within 42 days
after receiving the full substantiated claim. Unfortunately, It does not specify the outcome if
the Engineer fails to do so. As a result, even if the Engineer will be in breach of the contract,
the outcomes are not quite clear if the parties initially entered into the 1999 version of the
FIDIC contracts and if the engineer didn’t submit its NOD within 42 days.

2(c)(ii) : In case the parties entered into the 2017 version of the FIDIC contracts and If the
Contractor wishes to proceed with its claim, even after the Engineer failed to submit its notice
of determination within 42 days (effectively rejecting its claim by default), the Contractor
should submit its NOD (notice of dissatisfaction) within 28 days after those 42 days have
elapsed, stating its disagreement with the default determination and should immediately refer
the case to the DAAB (Dispute Avoidance and Adjudication Board) to either seek its
informal assistance to resolve the issue under sub-clause 21.3[Avoidance of Disputes] or
directly seek its binding decision, by referring to sub-clause 21.4[Obtaining DAAB’s
Decision].
In case the parties entered into the 1999 version of the FIDIC contracts, then the Contractor
shall send a reminder to the Engineer to submit its NOD. In case the Engineer, fails again to
submit the NOD in due course, then the Contractor shall directly refer the case to the DAB,
citing the Engineer’s failure to submit its Notice of Determination in a timely manner.

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Question 2(d)
In the instance that the Contractor has relied on ‘force majeure’, under sub-clause 19.2 it states
that, “…the notice shall be given within 14 days after the Party became aware, or should
have become aware, of the relevant event or circumstance…”
Since the notice was not given within the abovementioned timeframe, the Contractor cannot
claim under sub-clause 20.1[Contractor Claims] and cannot therefore benefit from sub-clause
19.4 which gives provision for the Contractor’s entitlement to claim time and/or costs.
Consequently, in failing to issue the notice of Force Majeure within due time, it is assumed that
the Contractor also failed to issue the notice of claim within 28 days after it became aware of
the event giving rise to claim; at that point the Engineer can respond by stating that the
Contractor does not have a right to claim any extension of time [EOT] or additional costs for
delays/incurred, as per sub-clause 20.1 [Contractor’s Claims].
The Contractor may however, have some leeway based on sub-clause 18.2 [second paragraph]
where it states that, ““the affected Party shall be excused performance of the prevented
obligations only from the date on which this Notice is received by the other Party…the
affected Party shall be excused performance of the prevented obligations for so long as such
Exceptional Event prevents the affected Party from performing them.”[sub-clause 18.2, 3rd
para]
All in all, under sub-clause 18.2 of 2017 Form a notice is mandatory, as well as under sub-
clause 19.2 [in the 1999 Form]. This said, as the Engineer, I would reject the Contractor’s claim
entirely.

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Question 2(e)

The fundamental differences between the 1999 and 2017 version of the Red Book when it
comes to Employer’s Claims are as follows:

In the 1999 version of the Red Book, Employer’s Claims has one separate Sub-clause (Sub-
clause 2.5 [Employer’s Claims]. Whereas in the 2017 version, both the Contractor and
Contractor Claims are governed by a single sub-clause (sub-clause 20.1 [Claims]).

Another fundamental difference between the two versions is directly related to the procedure
that the Employer needs to follow to claim payment or extension of DNP. In the 1999 version,
the Employer must issue a notice of its claim and particulars “as soon as practicable” after the
Employer becomes aware of the event; there is no definite time limit for the Employer’s toit
does not specify an exact timeframe by which the Employer needs to fulfil its contractual
obligations of issuing a notice to claim (the equivalent of 28 days’ time limit for the Contractor)
and its full substantiated claim (the equivalent of 42 days’ time limit for the Contractor in the
1999 version). Some Practitioners have argued that this difference is in favor of the Employer,
thus it ‘demonstrates an unfair imbalance’ compared with the case of claims from Contractor.1

In the 2017 version of the Red Book, it sets out the same procedure and obligations for both
the Employer and Contactor when it comes to Claims (submission of notice of claim within 28
days, then submission of fully detailed claims within 84 days of becoming aware of events and
circumstances giving rise to claim); thus, addressing any biases perceived in the 1999 form.

Lastly, another difference is in the submission of a claim. In the 1999 version of the Red book,
a claim notice can be given by either the Employer or the Engineer[(sub-clause 2.5)…the
Employer or Engineer shall give notice and particulars to the Contractor…], whereas in the
2017 version of the Red book, it is the Employer who give notice of a claim against the
Contractor to the Engineer [sub-clause 20.2.1].

Bibliography and References:

2. “FIDIC RED BOOK 1999”
3. “FIDIC RED BOOK 2017”
4. “FIDIC YELLOW BOOK 1999”
5. “FIDIC YELLOW BOOK 2017”
6. https://fidic.org/sites/default/files/14%20wade_emp_claims_2005.pdf

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https://fidic.org/sites/default/files/14%20wade_emp_claims_2005.pdf

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