Changes to the Claims provisions in the 2017 FIDIC Red Book

By Thomas Young, Partner, Fenwick Elliott

In December 2017 at the FIDIC Users Conference held in London, FIDIC released the second editions of its Red, Yellow and Silver books. The first editions of these contracts were released in 1999.

This article addresses the changes, in relation to the Claims provisions, between the first edition of Conditions of Contract for Construction (“the 1999 Red Book”) and the second edition of the same contract (“the 2017 Red Book”). Similar changes are evident in both the Yellow and Silver book updates.

The main changes to the Claims provisions in the 2017 Red Book are as follows:

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. Clause 20 now deals solely with Claims, with dispute resolution being addressed in a new Clause 21.
3. Clause 20 categorises Claims, and the procedures are different depending on the type of Claim.
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 which includes a statement of the contractual and/or other legal basis of the claim within 84 days (or such other time as might be agreed). However, before any rights are lost there is a positive obligation on the Engineer to serve additional notices, absent which the claiming party’s Notice of Claim is deemed to be valid. If the Engineer does serve these further notices the claiming party is permitted to disagree with them and/or explain why the late compliance was justified.

Employer and Contractor Claims addressed in one place

In the 1999 Red 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 2017 Red Book both Employer and Contractor Claims are governed by a single clause.

However, this is more than cosmetic change because under the 1999 Red 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.

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 Red 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.

In contrast in the 1999 Red Book 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.

The obligations and consequences of not complying with those obligations under the 1999 Red Book are considered by many practitioners to be unbalanced in favour of the Employer. The 2017 Red 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

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.

The first category is where a Party has a Claim for additional payment or extension of time1. 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.
The second category is for Claims for any other entitlement or relief not falling into the first category2. 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).

The procedure for Claims falling into the second category is less prescriptive than that for the first category and we address this first. For this second category of Claims, the Engineer or the other Party must first have disagreed with the claiming Party’s requested entitlement or relief. If there is no response within a reasonable time to the claiming Party’s requested entitlement or relief then there is a deemed disagreement. The claiming Party may then give a Notice referring the Claim to the Engineer for agreement or determination in accordance with Sub-Clause 3.7. This Notice needs to include details of the claiming Party’s case and the other party’s or the Engineer’s disagreement and be given as soon as practicable after the claiming Party becomes aware of the disagreement.

The 2017 Red 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.

Whilst the application of Sub-Clause 3.7 is outside the scope of this article, suffice to say if following referral no agreement is reached, and following this a Party disagrees with the Engineer’s 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 set out at Clause 21

Procedure for Claims for additional payment or extension of time

The 2017 Red Book procedure for Employer and Contractor Claims for additional payment or extension of time is more prescriptive than that in the 1999 Red 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 an obligation on the Engineer to point out these failures through the issue of further notices and some increased flexibility for the claiming Party to avoid the severe consequences of not complying with the time limits by explaining why the late submission was justified or explaining why it disagrees with the Engineer.

Obligation to give a Notice of Claim within 28 days

The first step in the 2017 Red Book is for the claiming Party to give a Notice of Claim as soon as practicable and no 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.3 This is essentially the same step as for Contractor Claims under the 1999 Red Book. However, it does represent a change for Employer Claims as the 1999 Red Book did not impose a 28-day notice period on the Employer. 

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 Red Book4. 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 Red Book as this new edition does now make those consequences of non-compliance expressly clear.5

However, there are some further new provisions in the 2017 Red Book which provide some balance against these severe consequences.6 Firstly, there is a new positive obligation on the Engineer to give notice to the claiming Party within 14 days after receiving a Notice of Claim if he considers that the Notice of Claim has been served late, and this notice must include reasons. Importantly, if the Engineer fails to serve such a notice within this 14 day period then the Notice of Claim shall be deemed to be a valid notice. This places a significant degree of further responsibility on the Engineer that was not present in the 1999 Red Book. To balance the position if the other party disagrees with a deemed valid Notice of Claim it is permitted to give Notice of this to the Engineer, and this disagreement is then reviewed as part of the agreement or determination of the Claim.

In addition, in circumstances where the Engineer does serve a notice within the 14 day period, the claiming Party is permitted to explain why he disagrees with the Engineer or why the late submission is justified as part of the submission of the claiming Party’s fully detailed Claim.

Obligation to keep contemporary records

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.7

This basic obligation to keep contemporary records has not changed since the 1999 Red Book. However, in the 2017 Red 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”.

Where the Contractor is the claiming Party 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 Red Book; however, the 2017 Red 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 84 days or another agreed period

Under the 2017 Red Book within 84 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.8

While the basic obligation to submit a fully detailed Claim has not changed since the 1999 Red Book, the time period for doing so has been extended from 42 to 84 days. In addition in the 2017 Red 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) a detailed description of the event or circumstance giving rise to the Claim;

(b) a statement of the contractual and/or other legal basis of the Claim

(c) all contemporary records on which the claiming Party relies; and

(d) detailed supporting 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).”

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 Red Book.9

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 “a statement of the contractual and/or other legal basis of the Claim”, and the Conditions state that if this statement of contractual or other legal basis is 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.

Pausing here, it is apparent that the consequences of not complying with the time limit for submitting a fully detailed Claim in the 2017 Red Book are markedly different from those in the 1999 Red Book. Whilst the 1999 Red Book also contains a 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.

However, as with the initial 28 day time limit the 2017 Red Book provides further provisions which balance the severe consequences of the Claiming party not providing a statement of its contractual or other legal basis within the relevant time limit. Firstly, if the Engineer fails to give a notice within 14 days pointing out the claiming Party’s failure then the Notice of Claim shall be deemed to be a valid Notice. There is again scope for the other party to disagree with the deemed valid Notice of Claim and for this disagreement to be considered as part of the agreement or determination of the Claim.

Once again in circumstances where the Engineer does serve a notice within the 14 day period, the claiming Party is permitted to explain why he disagrees with the Engineer or why the late submission is justified as part of the submission of the claiming Party’s fully detailed Claim.

Obligations if a Claim is of continuing effect

The 2017 Red Book, in a similar manner to the 1999 Red 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.10

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 legal basis of the Claim by giving a Notice to the claiming Party within 42 days (or such other date as might be proposed by the Engineer and agreed by the Parties) of receipt of the interim fully detailed 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

The 2017 Red 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”.11 That is also the position in the 1999 Red Book.

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

Agreement or determination of the Claim

The 2017 Red Book has a specific provision within Clause 20 which is headed “Agreement or determination of the Claim”;12 however, this is not the provision that deals with the procedure by which the Engineer is to agree or determine a Claim.

That procedure is set out in Sub-Clause 3.7 of the 2017 Red Book.13 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.14

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.

In addition it goes on to address the situation where the Engineer has given a Notice to the effect that the claiming Party was late submitting its initial Notice of Claim or was late in submitting a fully detailed Claim which included a statement of the contractual or other legal basis of the Claim. In this regard the 2017 Red Book makes clear that the Claim is still to be agreed to determined, but the agreement or determination shall include whether the Notice of Claim was a valid notice taking into account the details (if any) included in the fully detailed claim of the Claiming party’s disagreement with those notices or why late submission is justified.

In relation to late submission the 2017 Red Book provides a non-exhaustive and non-binding list of some circumstances that may be taken into account and those circumstance include: 

1. The extent to which the other Party would be prejudiced by acceptance of a late submission.
2. In the case of the late submission of the initial Notice of Claim, evidence of the other Party’s prior knowledge of the event or circumstances giving rise to the Claim.
3. In the case of the late submission of the statement of the contractual or other legal basis of the Claim as part of the fully detailed Claim, evidence of the other Party’s prior knowledge of that contractual or other legal basis.

The claiming Party should be mindful of these stated circumstances and the need to provide details of any such circumstances within the supporting particulars to its fully detailed Claim. 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.

Finally the 2017 Red Book, like the 1999 Red 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 legal basis of the Claim.

Concluding remarks

In our view the main change in the 2017 Red Book which users of this form should be mindful of are the two time limit obligations. If a claiming Party does not comply with them and the Engineer issues the appropriate notices, then this may result in the claiming Party 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 are potentially severe.

Further, while there is an opportunity in the 2017 Red Book for a claiming Party to disagree with the Engineer’s notices concerning late submission and the opportunity  to seek to justify why there has been late compliance, it may be difficult to provide an adequate justification to avoid the severe consequence. In short the only way to remove the risks completely is to be careful to comply these both these time limits.

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• 1. See Sub-Clause 20.1(a) and (b) of the 2017 Red Book
• 2. See Sub-Clause 20.1(c) of the 2017 Red Book
• 3. Sub-Clause 20.2.1 of the 2017 Red Book
• 4. Employer Claims are addressed pursuant to Sub-Clause 2.5 of the 1999 Red Book.
• 5. However, Sub-Clause 20.1 of the 1999 Red 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.”
• 6. Sub-Clause 20.2.2 of the 2017 Red Book
• 7. Sub-Clause 20.2.3 of the 2017 Red Book
• 8. Sub-Clause 20.2.4 of the 2017 Red Book
• 9. In relation to the Contractor’s Claims under the 1999 Red 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 Red 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.
• 10. Sub-Clause 20.2.6 of the 2017 Red Book.
• 11. Sub-Clause 20.2.7 of the 2017 Red Book.
• 12. Sub-Clause 20.2.5 of the 2017 Red Book.
• 13. Sub-Clause 3.7 of the 2017 Red Book is the amended form of what was Sub-Clause 3.5 of the 1999 Red Book.
• 14. The relevant time periods are set out at Sub-Clause 3.7.3 of the 2017 Red book.