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the importance of observing notice requirements in terms of sub-clause 20.1 of the FIDIC DBO Contract | 28 Feb 2011

 

 

This article examines the effect of the notice requirements contained in sub-clause 20.1 of the FIDIC's standard form contract for design-build and operation ("FIDIC DBO").

By way of background, the FIDIC DBO is a new contract which was first published in 2008 and is meant for projects which require design, construction and a long operation period. One of the contract's advantages is that the parties to the contract do not need to enter into separate contractual arrangements to deal with the various stages of the project.

Sub-clause 20.1 (a), which applies exclusively to contractor's claims, provides as follows:

"The Contractor shall give Notice to the Employer's Representative, describing the event or circumstance giving rise to the claim as soon as practicable, and not later than 28 days after the Contractor became aware, or should have become aware, of the event or circumstance. The Notice shall state that it is given under this Sub-Clause.

If the Contractor fails to give Notice of a claim within such period of 28 days, the Time for Completion of Design-Build shall not be extended, the Contractor shall not be entitled to additional payment, and the Employer shall be discharged from all liability in connection with the claim..."

Sub-clause 20.1(a) requires the contractor to give a notice in terms of sub-clause 20.1(a) to the ER no later than 28 days after the contractor becoming aware of the event entitling it to a claim. Failure to comply with this requirement is potentially fatal to the claim.

On the other hand, in terms of sub-clause 20.2 of the FIDIC DBO, the employer is not subject to the strict requirements of sub-clause 20.1 when it has a claim for payment against the contractor. In terms of sub-clause 20.2 the employer's representative ("the ER") is required to give notice as soon as practicable after becoming aware of the event entitling the employer to payment.

The provisions of sub-clause 20.1 are a condition precedent to a contractor's claim to recover either time or money. Sub-clause 20.1(a) however provides a remedy to a time-barred contractor by allowing the contractor to request the Dispute Adjudication Board ("the DAB") established under the contract to rule whether the circumstances justify the late notice.

Once the contractor submits a compliant notice to the ER, the contractor is required in terms of sub-clause 20.1(c) to submit a fully detailed claim to the ER within 42 days. If the contractor fails to submit a fully detailed claim within the 42 day period, then the notice given under sub-clause 20.1(a) shall be deemed to have lapsed and shall no longer be considered a valid notice. Again, if there are circumstances which justify a late submission of the detailed claim, the contractor may approach the DAB for a ruling.

Sub-clause 20.1(c) makes special considerations in circumstances where the claim has a continuing effect. In relevant material parts, the sub-clause provides

"If the event or circumstance giving rise to the claim has a continuing effect:

  1. the fully detailed claim shall be considered interim.

  2. the Contractor shall send further interim claims at 28-day intervals...

  3. the Contractor shall send a final claim within 28 days after the end of the effects resulting from the event or circumstance..."

It is important for contractors to note that even if a claim has a continuing effect, the contractor is nonetheless still required to submit a fully detailed claim within the 42 day period. This detailed claim will be regarded as an interim claim.

The Scottish appeal court decision of City Inn Ltd v Shepherd Construction Ltd [2010] CSIH 68 CA101/00 provides useful guidance when analysing time bar clauses in construction contracts. One of the defences raised by the employer was based on clause 13.8 [a clause similar to clause 20.1] of the contract. The said clause, in summary, stated that when an architect's [the ER] instruction is liable to delay the completion date, the contractor is not to execute the instruction without following certain defined procedures. If the contractor fails to do so, he is not entitled to any extension of time. The employer submitted that the contractor did not follow the procedures specified in clause 13.8, and is accordingly, for that reason alone, not entitled to any extension of time.

The terms of clause 13.8 were considered by Lord Macfadyen when the matter was in the lower court. Lord Macfadyen commented as follows:

"In my opinion the architect's power under clause 25.3.3 [to grant extensions of time] must be read subject to the special provision of clause 13.8.5. Clause 13.8.5 defines the effect of failure to comply with the provisions of clause 13.8.1 as being that ‘the Contractor shall not be entitled to any extension of time under clause 25.3' .... The contractor's right to [an extension] is, therefore, in my opinion, removed, in terms of clause 13.8.5, if the contractor fails to comply with the provisions of clause 13.8.1".

The Scottish appeal court confirmed that the employer's right to invoke clause 13.8 is properly characterized as immunity; the contractor has a power to use that clause to claim an extension of time, and the employer has immunity against that power if the contractor does not fulfil the requirements of the clause.

The appeal court also agreed with the lower court's finding that immunity can be the subject of waiver. The court relied on the decision of Lord Eassie in E & J Glasgow Ltd v UGC Estates Ltd, [2005] CSOH 63, where the following was stated with regard to waiver of contractual terms:

"In a contractual context, waiver of a contractual term may necessarily imply that something which does not satisfy all the contractual conditions is yet to be treated as being within those provisions because the party having an interest to insist on full satisfaction has either expressly, or by implication arising from the factual circumstances, waived his right to insist on one or more of the contractual conditions being duly fulfilled. In ordinary usage, waiving a contractual term is indeed to say that one is not insisting on one's right to require due observance of the term ... [T]he authorities illustrate that a contractual term which is definitive of a contractual entitlement may be waived".

In conclusion, the following practical observations are made:

  • The contractors should not regard the notice requirements in clause 20.1 as mere procedural requirements. Clause 20.1 affects substantive rights under the contract, such as the contractor's right to obtain extension of time and additional payment.

  • Providing a notice under a construction contract is a serious matter requiring a pragmatic and disciplined approach from the contractor's perspective. Contractors must be vigilant in issuing notices that comply with the sub-clause.

  • In certain circumstances, the contractor will have to issue a notice only to protect its rights.

  • The ER's reaction to notices needs to be observed with vigilance in order to determine whether certain rights, for example to insist on strict compliance with the notice requirements, have been waived.
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the importance of observing notice requirements in terms of sub-clause 20.1 of the FIDIC DBO Contract

by and dean ehrlich