6/22/2016

MANAGEMENT
OF CLAIMS AND
RESOLUTION OF
DISPUTES
EXERCISES
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Session 1 – Contract
Exercises
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EXERCISE 1
WHAT IS A CONTRACT?
WHAT ARE THE ELEMENTS OF A
CONTRACT?

EXERCISE 2:
WHAT IS PROJECT CONTRACTING
STRATEGY?
BASED ON WHAT IS DEVELOPED?

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Exercise 3

IMPORTANCE OF THE LAW

In a country named Q8 exist a law in which it is mentioned that:
“The Employer, before signing a construction Contract has to
employ a specialized company in order to have the field clear from
munitions and bombs.”
The Employer K entered into a contract design and build with
Contractor C and in the Contract it was mentioned:
“Before starting the works the Contractor will employ a specialized
company in order to have the field clear from munitions and bombs
as requested by the law.”
The Contractor did this request.
After the contract started during the excavation an excavator hit an
old bomb not discovered which exploded and 2 peoples died.
The local authorities entered in action, stating that the Contract
was not legal due to the fact that in accordance with the law is the
Employer’s responsibility the clearance for munition and not the
Contractor’s.
Is the Contract legal? 8
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Exercise 4

Above the law? exercise

• You are contractor C from the country N, and you won a DBO contract in
2005 for the execution and operation of a refinery in a country named L.
In the Contract is mentioned that all disputes will be resolved through the
Commercial Court of Country L. The law of the Contract is the law of
Country L.
• You finished the works in 2007 and you started the period for operation.
The contract was for 30 years.
• In 2008 a civil war started in the country L and a military government
took power. The Government of country N together with other
democratic countries expressed their concern regarding democracy
values, peace etc. The new government issued a new law in which the
land occupied by the refinery built by you is nationalized as being of very
important national strategic value, and you, under the new law, as a
foreigner from country N; you are not allowed any more in country L; you
have to leave in 2 days country L; else you will be condemned to be
hanged by your neck until death, as a foreigner intruder.
• What are you going to do? Can you claim your losses?
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Session 2 - Management of claims

Exercises
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Exercise 5
• RISK ALLOCATION IN FIDIC 1999 CONTRACTS

13

•ALLOCATION OF RISKS UNDER FIDIC CONTRACTS

Sub-
Description
clause

1.9
Delayed instruction and drawings
[Red]

1.9
Errors in Employer’s requirements
[Yell.]

2.1 Access to the Site

4.7 Setting out of original points

4.12 Unforeseen physical conditions

E= Employer C=Contractor 14
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•ALLOCATION OF RISKS UNDER FIDIC CONTRACTS

Sub-
Description
clause

4.24 Vestige

7.4 Tests delayed by the Employer

7.5 Rejection of materials

7.6 Remedial works

8.4 Extension of time for completion

E= Employer C=Contractor 15

•ALLOCATION OF RISKS UNDER FIDIC CONTRACTS

Sub-
Description
clause

8.4 Adverse climate conditions

8.5 Delays caused by Authorities

8.6 Rate of progress

8.9 Consequence of suspension

9.4 Failure to pass tests on completion

E= Employer C=Contractor 16
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•ALLOCATION OF RISKS UNDER FIDIC CONTRACTS

Sub-
Description
clause

11.4 Failure to remedy defects

12.1 R Increase quantities during the

14.1 Y execution

12.4 Y Failure to pass tests after completion

13.3 Variation procedure

13.7 Changes in legislation

E= Employer C=Contractor 17

•ALLOCATION OF RISKS UNDER FIDIC CONTRACTS

Sub-
Description
clause

13.8 Changes in costs

14 Payment

15.4 Termination – payment

17.1 Indemnities

17.4 Consequences of Employer’s risk

E= Employer C=Contractor 18
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•ALLOCATION OF RISKS UNDER FIDIC CONTRACTS

Sub-
Description
clause

19.4 Consequences of Force Majeure

20.1 Contractor’s claim

2.5 Employer’s claim

E= Employer C=Contractor 19
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Exercise 6

21

• We are the Employer in the process of building

the new house. FIDIC 99 Red Contract.
• We found a significant mistake ( one of our floor
the ceiling is 20 cm thick instead of 35). The
Contractor accepted that they made a mistake
and claimed that it's too late to be fixed and offer
a compensation. However, we can't tolerate this
and consider termination of the Contract.
• Please advise us how to do it and if we can
recover our payments done

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Exercise 7
• What are the Contractor’s entitlements under
FIDIC 1999 Red and Yellow Book

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CLAIMS PROCEDURE - CLAUSES REQUIRE NOTICE BY THE CONTRACTOR

Sub-clause Entitlement

1.9 Delayed Drawings or Instruction (Red)

1.9 Errors in Employer’s Requirements (Yellow)

2.1 Right of Access to the Site

4.7 Setting Out

7.4 Testing

10.3 Interference with Tests on Completion

11.8 Contractor to search

EOT = Extension of Time Cost Profit 24

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CLAIMS PROCEDURE - CLAUSES REQUIRE NOTICE BY THE CONTRACTOR

Sub-clause Entitlement

12.2 Delayed Tests (yellow)

12.4 Failure to pass Tests after Completion (Yellow)

16.1 Contractor’s Entitlement to Suspend Work

17.4 Consequences of Employer’s Risks (in some cases)

EOT = Extension of Time Cost Profit 25

CLAIMS PROCEDURE - CLAUSES REQUIRE NOTICE BY THE CONTRACTOR

Entitlement
Sub-clause

4.12 Unforeseeable physical conditions

4.24 Fossils

8.9 Consequences of Suspension

12.4 Omissions (Red )

13.7 Changes in Legislation

17.4 Consequences of the Employer’s risk (in some

cases)

EOT = Extension of Time Cost Profit 26

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CLAIMS PROCEDURE - CLAUSES REQUIRE NOTICE BY THE CONTRACTOR

Entitlement
Sub-clause

19.4 Consequences of Force Majeure

19.6 Optional Termination and Release

EOT = Extension of Time Cost Profit 27

CLAIMS PROCEDURE - CLAUSES REQUIRE NOTICE BY THE CONTRACTOR

Entitlement
Sub-clause

8.4 Extension of Time for Completion

8.5 Delays caused by Authorities

19.4 Consequences of Force Majeure

EOT = Extension of Time Cost Profit 28

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CLAIMS PROCEDURE - CLAUSES REQUIRE NOTICE BY THE CONTRACTOR

Entitlement
Sub-clause

12.3 Evaluation (Red )

14.8 Delayed Payment

16.4 Payment on Termination

18.1 General Requirements for Insurance

20.1 Contractor’s Claim Procedure

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Exercise 8

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On a FIDIC red book Contract the Contractor has to install a water

pipe in an important city.
In the Contract Documents it is written that he is not permitted to
block the traffic and where and if it is needed the Contractor shall
make a road deviation during the installation of the water pipe.
On boulevard 34 the Contractor decided to make a deviation of the
traffic and during the execution of the provisional road the
Contractor found a very old treasure.
The Contractor claimed for an EOT+costs of 2 months and 200,000
USD in accordance with Sub-clause 20.1 and 4.24.
The Engineer acted in accordance with 3.5 and due to the fact that
the Parties could not agree he issued a determination and accepted
the Contractor’s claim and calculated an EOT of 1.5 months and
financial compensation of 150,000 USD.
The Employer did not agree stating that the archaeological risk is
not an Employer’s risk event and asked for the DAB’s decision.
You are the DAB – give a decision – Is the archeology an Employer’s
risk event? Discuss the contractual merit. 31

Exercise 9
• Employer’s entitlements under FIDIC 1999
Conditions of Contract

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EMPLOYER’S CLAIMS

Entitlement
Sub-clause

2.5 Employer’s Claim Procedure

4.19 Electricity Water and Gas

4.20 Employer’s equipment and free issue of materials

7.5 Rejection

7.6 Remedial Work

8.6 Rate of Progress

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EMPLOYER’S CLAIMS

Entitlement
Sub-clause

8.7 Delay Damage

9.4 Failure to pass Tests on Completion

11.3 Extension of Defects Notification Period

11.4 Failure to remedy Defects

12.3 Retesting (Yellow)

12.4 Failure to pass Tests after Completion

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EMPLOYER’S CLAIMS

Entitlement
Sub-clause

13.7 Adjustment for Changes in Legislation

15.3 Valuation at Date of Termination

15.4 Payment after Termination

17.1 Indemnities

18.1 General requirement for Insurance

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Exercise 10
• Extreme climatic conditions

37

`
I am a contract manager for a contractor on an African project for
which we are using un-amended FIDIC Red Book 1999 form. We’ve
recently been plagued by weather which I and my colleagues think is
completely out of the ordinary and which has delayed our work on
site to a degree. In the last couple of project meetings I mentioned
that the rain is causing us some problems and that was recorded in
the minutes. I notified a claim in accordance with sub-clause 8.4 and
20.1 in 28 days from the last rainy day in order not to lose my
entitlement. I also made sure that in our last progress report I put in
a reference to the weather under the “Causes of Delay” section. In
our last project meeting the engineer on the project told me that
rain like this at this time of year isn’t exceptional – we strongly
disagreed on the point.
We’re thinking of putting together the details of the claim in any
event for extension of time, as we have liquidated damages on the
project for late completion.
Have you got any tips about what we should be keeping in mind to
give us the best chance of success?

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Exercise 11

39

We are working under FIDIC 99 Red Book. To calculate Price Adjustment using Pn
formula Contractor has to use statistical data provided by State Agency for
Statistics.
Recently Client have forwarded a letter from State Agency for statistics, where it
says that all previously data has to be changed since they were not correctly
calculated.
Now Client wants to recalculate all previously certified IPCs.
State Agency for Statistics explains situations as follows: “the Agency calculated
indices based on the Data provided by companies which are involved in Project and
companies manipulated situation to their advantage. Having understood this lately
the Agency now decided to recalculate indices using data provided by neutral
companies not involved the Project.”
Now Contractor put a Claim against Client for changing indices, specially Base
Indices in Contract.
1) Can Contractor put a Claim against Client in such a situation?
2) Is Sub clause 19.1 of FIDIC ( Force Majeure ) applicable in such situation?
3) Client insisting that overpaid Price Adjustment must be recovered from the
Contractor. Employer is saying that Engineer has to calculate PA himself and then
include to IPC & recover. Is this ok ?
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Exercise 12

41

Concurrent delays
• A Contractor Risk Event will result in five weeks
Delay to Completion, delaying the contract
completion date from 21 January to 25 February.
Independently and a few weeks later, a variation
is instructed on behalf of the Employer which, in
the absence of the preceding Contractor Risk
Event, would result in Delay to Completion from 6
February to 20 February.
• What EOT is due to the Contractor?

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Exercise 13

43

• The Employer and the Contractor signed a FIDIC 99 Red Book Contract for the
execution of a railway. The completion date is 1 April 2016.
• The Contractor did not finish on time due to the fact that he did not mobilize
on time, there were no requests for an Extension of Time for Completion.
• The Employer claimed delay damages and the Engineer issued a
determination on this aspect giving a determination in the favor of the
Employer.
• We are on 1 June 2016 and the Contractor find an archeological vestige on
Site. On 1 June 2016 the works are not completed (only 70% of the works are
done) and there is no Taking Over Certificate.
• The Contractor is claiming Extension of Time for Completion and Costs.
• The Employer stated that he is outside of the Completion date and the
Contractor has no entitlement for an Extension of Time for Completion
• Is the Contractor entitled to an Extension of Time for Completion?

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Exercise 14

45

Delay damages – Concurrent delays

• Is the Employer entitled to claim delay
damages in case of concurrent delays of the
project?

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Exercise 15

47

A construction Contract started in 2010 and suspended in July 2012 because of the
change of the government and lack of funds.
An addendum to the Contract has been signed in which the Contractor agreed to
continue the works without payment during 2012, and for the works executed in
2012 the payment shall be done in February 2013.
After resuming the works in September 2012, the contractor took a credit from the
bank for 180 day periods, however IPC submitted in December 2012 was not paid in
accordance with the addendum exceeding the bank 180 day period of
reimbursement.
The government decided not to allocate funds for this project in 2013 and asked the
Contractor to sign the same amendment, meaning to continue the works and for
2013 the payment shall be done in 2014. The Contractor was willing to agree to the
addendum and went with it to his Bank.
The bank is now concerned about continued financing because of lack of guarantee
and ask for a Bank Guarantee from the Employer in order to continue financing the
Contractor. The Employer cannot give guarantee as state enterprise because it
depends on government funding.
The Contractor requested additional credit from the Bank but it was refused.
Because the Contractor did not reimburse the credit on time the Bank asked the
Contractor’s insolvency
What best action the contract affords to the contractor? 48
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Session 3 - The Resolution of disputes

Exercises
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Exercise 16 – Orange book

51

• A FIDIC 99 Yellow Book has been signed between a Contractor

and an Employer.
The employer sent a claim regarding a reduction in quantities of
excavation works due to different soil conditions.
The employer claim was calculated in this way:
45 000 m3-750 000 $-that's the schedules provided by the
Employer in Employer’s requirements
15 000 m3-250 000 $- valuation of claim.
The determination was done but now the contractor came up
with proofs of his loss (increased cost per unit; unabsorbed
overheads) and the engineer thinks that the contractor really
suffered this loss.
• Can the engineer overcome the situation using the contract
procedure to reimburse the contractor for the costs incurred?

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Exercise 17 – 28 days notice

53

Exercise

On a FIDIC Red Book Contract the Contractor has to build a motorway. During the
excavation process the Contractor becomes aware that the soil is much harder
than foreseen. For the execution of the works the Contractor need drilling and
blasting equipment. In the BOQ there were no items for this kind of works.

During the Monthly Progress Meting the contractor raised this issue but there was
not recorded in the minute.

The Contractor stopped the work, and mobilized the additional equipment
required.

He gave notice of a claim under 20.1 but the Engineer rejected because the notice
was too late (more than 28 days) from the event.

Prepare your case as Contractor /Employer

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Exercise 18 - Virus

55

Exercise

On an isolated site a virus hit the Contractor’s and the Engineer’s camp. The effect
of the virus was for 15 days. The Contractor made a claim under Sub-clause 20.1
and 8.4(d) and requested 15 days Extension of Time. The Engineer’s representative
on site, who was also affected, gave an Extension of Time of 15 days in accordance
with the sub-clause 3.5 and 8.4.

The Employer rejected the extension of time given.

The Contractor declared a dispute and address it to the DAB.

You are DAB
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Exercise 19 Change in legislation

57

In a FIDIC Red Book Contract the Contractor had to build a motorway.

After 2 years the Contractor substantially completed the works and
requested the Taking-Over Certificate.

The Engineer prepared the Taking-Over Certificate and mentioned the

outstanding works to be done during the Defect Notification Period.
During the Defect Notification Period a change in the law/technical norms
occurred regarding installation of additional guardrail.
The Employer requested the installation of additional guardrail on the
motorway Sub-clause 13.7.
The Engineer issued an instruction to the Contractor but the Contractor
refused to do the works.
The Engineer made a notification in accordance with the provisions of the
Sub-clause 15.1, and the Employer terminate the Contract in accordance
with Sub-clause 15.2 and claimed the Performance Security.
The Contractor went to DAB. You are Dispute Adjudication Board – what
are the Employer’s entitlements?
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DAB Workshop

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