Changes to the Claims provision in the proposed second edition of the Yellow Book

Thomas Young, Partner, Fenwick Elliott

1.    In December 2016 at the FIDIC Users Conference held in London, FIDIC presented a pre-release version of its second edition of Conditions of Contracts for Plant and Design Build (“the Proposed 2017 Yellow Book”) which is due to be published during the course of 2017.1

2.    This article addresses the changes, in relation to the Claims provisions, between the first edition of Conditions of Contracts for Plant and Design Build (“the 1999 Yellow Book”) and the Proposed 2017 Yellow Book. The main changes to the Claims provisions in the Proposed 2017 Yellow Book are as follows:

2.1    The procedure for Employer and Contractor Claims is now addressed in one place under Clause 20, with both Parties being subject to the same procedure and obligations.
2.2    Clause 20 now deals solely with Claims, with dispute resolution being addressed in a new Clause 21.
2.3    Clause 20 categorises Claims, and the procedures are different depending on the type of Claim.
2.4    Clause 20 contains two obligations that may result in a claiming Party losing its right to claim in the event of non-compliance, the first being the obligation to provide an initial Notice of Claim within 28 days, and the second being the obligation to provide a fully detailed Claim within 42 days.
2.5    Clause 20 provides the opportunity for a claiming Party who has not complied with the time limit obligations noted above to obtain a ruling from the Dispute Adjudication/Avoidance Board for a waiver of the obligation to comply with these time limits.

Employer and Contractor Claims addressed in one place

3.    In the 1999 Yellow Book the procedure for Employer Claims is governed by Sub-Clause 2.5, whereas the procedure for Contractor Claims is governed by Sub-Clause 20.1. In the Proposed 2017 Yellow Book both Employer and Contractor Claims are governed by a single clause.

4.    However, this is more than cosmetic change because under the 1999 Yellow Book it is not only the case that Employer and Contractor Claims are governed by different Sub-Clauses but also that the procedure and obligations in respect of those Claims are different.

5.    The most striking difference between the Parties’ respective obligations concerns the obligation to give notice of their Claims and the consequences of not complying with that obligation. In the 1999 Yellow Book the Contractor is under an obligation to give notice of its 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 giving rise to the Claim. In the event the Contractor failed to comply with this notice obligation then the Employer would be discharged from all liability in connection with the Claim. In many jurisdictions the Contractor’s notice obligation has been treated as a strict condition precedent such that non-compliance means that the Contractor loses its right to claim.

6.    In contrast the Employer is under an obligation to give notice of its Claim as soon as practicable after the Employer became aware of the event or circumstances giving rise to the Claim, i.e. there is no equivalent 28-day time limit. There is also no equivalent express provision to the effect that the Contractor would be discharged from all liability in connection with the Claim if the Employer did not comply with its notice obligation. Because the obligations are expressed differently there has been uncertainty as to whether non-compliance by the Employer with its notice obligations would mean the Employer loses his right to claim. 

7.   The obligations and consequences of not complying with those obligations under the 1999 Yellow Book are considered by many practitioners to be unbalanced in favour of the Employer. The Proposed 2017 Yellow Book redresses this balance and sets out the same procedure and obligations for both the Employer and the Contractor within the same Clause.

Different procedures depending on the type of claim

8.    The next feature of the revised Clause 20 is that it categorises Claims into different types and provides for different procedures depending on this categorisation.

9.    The first category is where a Party has a Claim for additional payment or extension of time. These Claims therefore include Contractor Claims for additional payment and extension of the Time for Completion of the Works and Employer Claims for additional payment (or a reduction of the Contract Price) and extension of the Defects Notification Period.

10.    The second category is for Claims for any other relief not falling into the first category. An example of a Claim falling into the second category might be one for specific performance (i.e. to compel one Party to comply with its obligations).

11.    The procedure for Claims falling into the second category is less prescriptive than that for the first category and we address this first. The claiming Party simply gives notice referring the Claim to the Engineer as soon as practicable after the claiming Party becomes aware of the other Party’s disagreement with the requested entitlement. If the other Party does not respond within a reasonable time there is deemed a disagreement. The notice needs to include details of the claiming Party’s case and the other Party’s disagreement (or deemed disagreement). The Engineer then proceeds in accordance with Sub-Clause 3.7 to agree or determine the Claim.2 If no agreement is reached, and following this a Party disagrees with the determination of the Claim, then provided the required notices are served the Claim will become a Dispute that shall be decided in accordance with the dispute resolution provisions.3

12.    The Proposed 2017 Yellow Book does not expressly set out the consequences if the claiming Party fails to give notice as soon as practicable after becoming aware of the other Party’s disagreement. This contrasts with the procedure for Claims for additional payment or extension of time, which we discuss below, where the consequences are made clear.

Procedure for Claims for additional payment or extension of time

13.    The Proposed 2017 Yellow Book procedure for Employer and Contractor Claims for additional payment or extension of time is more prescriptive than that in the 1999 Yellow Book and is a development of the Contractor’s Claim procedure which was set out at Sub-Clause 20.1 of that Book. Further, it is a procedure that includes more time limits which the claiming Party needs to comply with in order to avoid losing its right to claim. However, this is tempered somewhat with some increased flexibility to avoid these severe consequences through the ability to seek a waiver of these time limits.

Obligation to give a Notice of Claim within 28 days

14.    The first step in the Proposed 2017 Yellow Book is for the claiming Party to give a Notice of Claim as soon as practicable and not later than 28 days after the claiming Party became aware, or should have become aware, of the event or circumstance giving rise to the Claim. This is essentially the same step as for Contractor Claims under the 1999 Yellow Book.4 However, it does represent a change for Employer Claims as the 1999 Yellow Book did not impose a 28-day notice period on the Employer.5

15.    The consequences of not giving notice, for the claiming Party, are potentially severe as the Conditions provide that if there is such a failure then the other Party will be discharged from any liability in connection with the event or circumstances giving rise to the Claim. Again this is the same scheme for Contractor Claims as is in the 1999 Yellow Book. These severe consequences attached to non-compliance with the initial Claim notification obligations are arguably a change from the scheme for Employer Claims under the 1999 Yellow Book as this new edition does not make those consequences of non-compliance clear.6

16.    At this point the Proposed 2017 Yellow Book introduces a new procedure. The new procedure provides for the Engineer to give a preliminary response in the form of a notice within 14 days of receiving a Party’s Notice of Claim if it considers that the claiming Party has not complied with its 28-day notice requirement. In the event that the claiming Party considers that there are circumstances which justify late notice it has 14 days to make an application to the Dispute Avoidance/Adjudication Board for a waiver of the 28-day time limit for notice. This ability to apply for a waiver is an entirely new concept and we set out the factors the Dispute Avoidance/Adjudication Board might take into account in deciding whether to grant such a waiver below.

17.    If a party wishes to apply for such a waiver it needs to make sure it complies with this 14-day time limit for the application to the Dispute Avoidance/Adjudication Board, otherwise the claiming Party will be deemed to have accepted finally and conclusively that its Notice of Claim is not valid.

Obligation to keep contemporary records

18.    Following the giving of a Notice of Claim there is an obligation on the claiming Party to keep such contemporary records as may be necessary to substantiate the Claim.

19.    This basic obligation to keep contemporary records has not changed since the 1999 Yellow Book. However, in the Proposed 2017 Yellow Book FIDIC has sought to explain what it means by “contemporary records”. The definition of “contemporary records” is given as “records that are prepared or generated at the same time, or immediately after, the event or circumstance giving rise to the Claim”.

20.    Where the Contractor is the claiming Party the contemporary records are to be kept on site unless otherwise agreed with the Engineer. The Engineer is given the right to monitor this record keeping and/or instruct the Contractor to keep additional records. Further, the Engineer is permitted to inspect these records. These rights and obligations are essentially the same as in the 1999 Yellow Book; however, the Proposed 2017 Yellow Book does go on to make clear that if the Engineer chooses to monitor, inspect or instruct, this shall not imply acceptance of the accuracy or completeness of the Contractor’s contemporary records.

Obligation to submit a fully detailed Claim within 42 days or another agreed period

21.    Within 42 days after the claiming Party became aware, or should have become aware, of the event or circumstances giving rise to the Claim (or such other time period as the claiming Party might agree with the Engineer), the claiming Party has an obligation to submit a fully detailed Claim.

22.    Once again this basic obligation to submit a fully detailed Claim has not changed since the 1999 Yellow Book. However, in the Proposed 2017 Yellow Book FIDIC has sought to explain what it means by a “fully detailed claim”. The definition of a “fully detailed claim” is given as follows:

“(a) detailed description of the event or circumstance giving rise to the Claim;
(b) particulars of the contractual and/or other basis of the Claim;
(c) all contemporary records on which the claiming Party relies; and
(d) detailed particulars of the amount of additional payment claimed (or amount of reduction of the Contract Price in the case of the Employer as the claiming Party), and/or EOT claimed (in the case of the Contractor) or extension of the [Defects Notification Period] claimed (in the case of the Employer).”

23.    This definition provides some further clarity as to what a Party is expected to provide as part of a fully detailed Claim. However, it is unlikely that this additional definition will increase the scope of what should have been provided under the 1999 Yellow Book.7

24.    As with the submission of the initial Notice of Claim, the consequences of not complying with the time period for submission of the fully detailed Claim are potentially severe. However, here FIDIC focuses on sub-paragraph (b), being the obligation to provide “particulars of the contractual and/or other basis of the Claim”, and the Conditions state that if these particulars are not provided within the relevant time period then the Notice of Claim shall be deemed to have lapsed, and it shall no longer be considered as a valid Notice. In these circumstances the Engineer shall give a notice to this effect within 14 days after this time limit has expired.

25.    Pausing here, it is apparent that the consequences of not complying with the time limit for submitting a fully detailed Claim in the Proposed 2017 Yellow Book are markedly different from those in the 1999 Yellow Book. Whilst the 1999 Yellow Book contains the same time limit for the submission of a fully detailed Claim, a failure to comply with this obligation does not result in the Notice of Claim lapsing.

26    However, once again the Proposed 2017 Yellow Book provides a process for a claiming Party to seek a waiver of the time limit through an application to the Dispute Avoidance/Adjudication Board. The procedure is the same as that for seeking a waiver of the 28-day time limit which we  discuss in more detail below.

Obligations if a Claim is of continuing effect

27.    The Proposed 2017 Yellow Book, in a similar manner to the 1999 Yellow Book, provides for the possibility that Claims may be of continuing effect and as such there is a procedure for submission of an interim fully detailed Claim, followed by further monthly interim updates and a final fully detailed Claim within 28 days of the end of the effects or circumstances of the Claim.

28.    Where a Claim with continuing effect is made the Engineer is nevertheless still obliged to consider the first interim fully detailed Claim and give his response on the contractual or other basis of the Claim. On receipt of the final fully detailed Claim the Engineer is obliged to proceed with the agreement or determination of the Claim in accordance with Sub-Clause 3.7.

The payment position pending agreement or determination of the Claim

29.    The Proposed 2017 Yellow Book provides for the possibility that the claiming Party is able to receive payment in each Payment Certificate in the period between the initial Notice of Claim and the agreement or determination of that Claim. In this regard the Engineer is obliged to include the amounts that have been “reasonably substantiated as due to the claiming Party”. That is also the position in the 1999 Yellow Book.

30.    As regards Claims by the Employer, the Proposed 2017 Yellow Book makes clear that the Employer will only be entitled to claim any payment from the Contractor, or set off/deduct from any Payment Certificate, by complying with the Clause 20 claims procedure. This is consistent with the more balanced approach between the Contractor and the Employer in the Proposed 2017 Yellow Book that provides for both Parties to comply with the same Clause 20 procedures.

Agreement or determination of the Claim

31.    The Proposed 2017 Yellow Book has a specific provision within Clause 20 which is headed “Agreement or determination of the Claim”; however, this is not the provision that deals with the procedure by which the Engineer is to agree or determine a Claim.

32.    That procedure is set out in Sub-Clause 3.7 of the Proposed 2017 Yellow Book.8 A detailed discussion of Sub-Clause 3.7 is outside the scope of this article but in summary it provides for consultation to take place in a period in which the Claim might be agreed, followed by a further period in which the Engineer must determine the Claim if not agreed, together with prescribed time limits for these actions.9

33.    So far as Clause 20 is concerned the sub-clause headed “Agreement or determination of the Claim” contains the basic obligation for the Engineer to proceed to agree or determine the Claim in accordance with Sub-Clause 3.7.

34.    It also provides that where the Engineer has given a notice to the effect that the claiming Party is late in submitting either its Notice of Claim or particulars then the obligation to proceed is subject to the provisions dealing with waivers of time limits. As discussed further below, it is possible that the result might be that the Engineer does not have to agree or determine the Claim because the claiming Party does not challenge the Engineer’s notice that it has been late.

35.    The Proposed 2017 Yellow Book, like the 1999 Yellow Book, gives the Engineer the option to ask for additional particulars concerning the Claim before it is obliged to agree or determine the Claim, but makes clear that in these circumstances where the Engineer is awaiting those additional particulars, it is obliged to make its response on the contractual or other basis of the Claim.

DAB procedure regarding waiver of time limits

36.    As discussed above, there are two circumstances where a claiming Party may be barred from making what might otherwise be a genuine Claim. The first is if the claiming Party does not serve its initial Notice of Claim within the prescribed 28-day time limit.10 The second is if the claiming Party does not provide particulars of the contractual and/or other basis of the Claim as part of its fully detailed Claim within the prescribed 42-day time limit (or such other time as might be agreed).11 In both of these instances the Engineer is obliged to give a Notice to this effect within 14 days after the relevant time limit has expired.

37.    Thereafter the Proposed 2017 Yellow Book introduces a wholly new procedure whereby the claiming Party has the opportunity to seek a waiver of these time limits, and avoid the contractual consequences of not complying with them which are potentially severe.12

38.    The new procedure is as follows:

38.1    The claiming Party must make an application to the Dispute Adjudication/Avoidance Board within 14 days of receiving the Engineer’s Notice setting out particulars of why late submission of a Notice of Claim or particulars is justified.
38.2    The other Party may make a response within 7 days of receiving the application.
38.3    The Dispute Adjudication/Avoidance Board must give its ruling with reasons as to whether the time limit is waived within 28 days of receiving the application.

39.    It is therefore important that the claiming Party complies with this initial 14-day time period, because if he does not he is deemed to have accepted finally and conclusively that the Notice of Claim is not valid and the Engineer shall have no obligation to proceed to agree or determine the Claim.

40.    In the event that the claiming Party has made an application for waiver, the Proposed 2017 Yellow Book provides a non-exhaustive list of some circumstances that may be taken into account in deciding whether it is fair and reasonable that a late submission of a Notice of Claim or particulars should be accepted. Those circumstances include:

40.1    The extent to which the other Party would be prejudiced by acceptance of a late submission.
40.2    In the case of the late submission of a Notice of Claim, evidence of the other Party’s prior knowledge of the event or circumstances giving rise to the Claim.
40.3    In the case of the late submission of particulars of the contractual or other basis of the Claim as part of the fully detailed Claim, evidence of the other Party’s prior knowledge of that basis.
40.4    The extent to which the Engineer may have already proceeded with the agreement or determination of the Claim.

41.    The claiming Party should be mindful of these stated circumstances when making its initial application. However, it is also important to note that the claiming Party is not limited by the stated circumstances and it will be prudent for the claiming Party to provide particulars of as many circumstances as it reasonably can to justify its late submission.

42.    Upon receipt of the Dispute Adjudication/Avoidance Board ruling the Engineer shall proceed with the agreement or determination of the Claim, taking due regard of it.

Concluding remarks

43.    In our view the main change in the Proposed 2017 Yellow Book which users of this form should be mindful of are the two time limit obligations which, if a claiming Party does not comply with them, may result in it losing its entitlement to claim. It is important to ensure that users have in place robust contract administration processes to ensure that they comply with both of these time limit obligations as the consequences of non-compliance may mean that a claiming Party loses its right to make a Claim.

44.    Further, while there is an opportunity for a claiming Party to seek a waiver of both of these time limit obligations from the Dispute Adjudication/Avoidance Board, it may be difficult to persuade the Board that such a waiver is justified. In addition the period for making such an application is short and so the claiming Party needs to be alert.

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• 1. It may be that the second edition of the Yellow Book that is eventually published contains some differences compared with the Proposed 2017 Yellow Book discussed in this article and so this article should be read with this possibility in mind.
• 2. Consideration of the application of Sub-Clause 3.7 of the 2017 Proposed Yellow Book is outside the scope of this article.
• 3. Clause 21 of the Proposed 2017 Yellow Book is the provision which addresses dispute resolution. Under the 1999 Yellow Book the dispute resolutions are incorporated into Clause 20
• 4. Employer Claims are addressed pursuant to Sub-Clause 2.5 of the 1999 Yellow Book.
• 5. Pursuant to Sub-Clause 2.5 of the 1999 Yellow Book the Employer is obliged to give notice “as soon as practicable after the Employer became aware of the event or circumstances giving rise to the claim”.
• 6. However, Sub-Clause 20.1 of the 1999 Yellow Book states that “If the Contractor fails to give notice of a claim within such period of 28 days, the Time for Completion 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.”
• 7. In relation to the Contractor’s Claims under the 1999 Yellow Book there was an obligation to provide a “fully detailed claim” which includes full supporting particulars of the basis of the Claim and of the extension of time and/or additional payment claimed. In relation to the Employer’s Claims under the 1999 Yellow Book the language used was different, in that the obligation was to provide “particulars” which shall specify the Clause or other basis of the claim, and shall include substantiation of the amount and/or extension to which the Employer himself is entitled.
• 8. Sub-Clause 3.7 of the Proposed 2017 Yellow Book is the amended form of what was Sub-Clause 3.5 of the 1999 Yellow Book.
• 9. The relevant time periods are set out at Sub-Clause 3.7.3 of the Proposed 2017 Yellow Book.
• 10. Sub-Clause 20.2.1 of the Proposed 2017 Yellow Book.
• 11. Sub-Clause 20.2.4 of the Proposed 2017 Yellow Book.
• 12. Sub-Clause 20.3 of the Proposed 2017 Yellow Book.