Avoiding Construction Disputes Pt. 2

Notification of change

It is in the interest of both Parties to a construction contract to maintain an accurate estimate of the cost of completion and likely completion date(s). To achieve this both the Employer and Contractor should notify the other when they need to make changes or become aware of changes or potential changes.

In many construction contracts (standard forms and bespoke contracts) there is an obligation placed on the Contractor to give notice of change, failing which the Contractor will lose entitlement to an increase in the Contract Price and a change to the Completion Date(s). Rarely, similar conditions apply to the Employer’s entitlement to reclaim monies from Contractors (FIDIC Red Book 2017).

Such notice obligations are “conditions precedent” to adjustment to the Contract Price and Program

However, the notice periods vary widely from contract to contract.

The Engineering and Construction Contract NEC4 requires notice “within eight weeks of becoming aware that the event has happened ….. unless event arises from the Project Manager or the Supervisor giving an instruction or notification, issuing a Certificate or changing an earlier decision”. If no notice is given then the Prices, the Completion Date or a Key Date remain unchanged.

FIDIC Red Book 1999 provides “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”.

FIDIC Red Book 2017 provides “If the claiming Party fails to give a Notice of Claim within this period of 28 days, the claiming Party shall not be entitled to any additional payment, the Contract Price shall not be reduced (in the case of the Employer as the claiming Party), the Time for Completion (in the case of the Contractor as the claiming Party) or the DNP (in the case of the Employer as the claiming Party) shall not be extended, and the other Party shall be discharged from any liability in connection with the event or circumstance giving rise to the Claim”.

For bespoke contracts, Employer’s regularly cut the notice period while retaining it as a condition precedent to a change in Contract Price or Completion Date(s).

It is not unusual to see the period reduced to five business days from becoming aware of the change event.

However, there are extreme examples of conditions precedent where Employer’s set a five-calendar day period for notice, require re-notification every five days, and require notice of dispute within specified time limits. In addition, some require any notice to include full details of cost and Work Schedule impact.

Employers and Contractors must note that by imposing such notice requirements there is an obligation on both Parties to increase staff levels to cover the additional workload and for Contractors this additional cost should be included in the Contract Price.

In addition, if notice periods are so short, then it will be difficult if not impossible for contractors to impose back-to-back terms on to Subcontractors that still allow time for the Contractor to receive notification, costs and work schedule impacts from subcontractors and still fulfil the Contractors own notice obligations.

Such extreme notice and condition precedent requirements also increase the risk that contractors may miss the deadline and lose their entitlement to change in Contract Price or Completion Date(s). Where extreme condition precedents are proposed, Contractors should consider valuing the additional risk in any Tender Price, including adding the cost of additional administration or, alternatively providing a tender based on the notice requirements being changed.

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