NOTICE CLAUSES IN THE FIDIC YELLOW BOOK CONDITIONS

Under the FIDIC Yellow Book Conditions, a contractor must give notice of a delaying event
within 28 days or risk losing its entitlement to an extension of time. This reflects standard
practice for international EPC contracts. A properly drafted notice condition precedent will be
enforceable (under English law) and can have dramatic consequences for a contractor in some
circumstances leaving the contractor liable for delay liquidated damages even where the project
owner is responsible for the delay.
Under the relevant notice clauses in the FIDIC Yellow Book Conditions, notice must be given
within 28 days of any event the result of which is that the date for completion is or will be
delayed.
This has traditionally been understood to place the burden on a contractor to notify not only an
event which has an immediate and measurable impact on the completion date, but also one which
will, at some time in the future, have such an impact.
A recent English High Court case has offered an alternative interpretation of this notice
obligation which is more accommodating to contractors and may permit a valid notice to be
served at a later date than previously thought.
Legal advisers to both contractors and owners should take note; the former to take full advantage
of an approach which reduces the risk of losing an entitlement and the latter to consider drafting
amendments to clarify the intention that notice must be given at the earliest possible stage.

The case
The English High Court (Technology & Construction Court) judgment, Obrascon Huarte Lain
SA v Her Majesty's attorney General for Gibraltar [2014] EWHC 1028 (TCC), decided a dispute
concerning a road and tunnel project in Gibraltar. The dispute arose under a contract based on the
FIDIC Conditions of Contract for Plant and Design-Build (known as the Yellow Book).
The primary issues were allocation of ground conditions risk and the lawfulness of the
termination of the contract. However, Mr Justice Akenhead also expressed an interesting view on
the interpretation of the notice requirements contained in Clauses 20.1 (Contractors claims) and
8.4 (Extension of time for completion) of the FIDIC Conditions of Contract.

FIDIC notice requirements a condition precedent

Clause 20.1 of FIDIC Yellow Book provides as follows:

If the Contractor considers himself to be entitled to any extension of the Time for Completion
and/or any additional payment the Contractor shall give notice to the Engineer, describing
the event or circumstances giving rise to the claim. The Notice shall be given 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.
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.
Clause 20.1, which is identical in the FIDIC EPC/Turnkey Contracts (Silver Book), is a well
drafted condition precedent clause. This means that (under English law, at least) a failure to
give the required notice will result in the Contractor losing its entitlement to an extension of time
and/or additional payment in respect of an otherwise valid claim.
It should be noted that the law in some jurisdictions will limit the effectiveness of notice
conditions precedent, the Arabic Civil Codes in the Gulf Region, for example.
Clause 8.4 of the FIDIC Yellow Book (again identical to the Silver Book) outlines when an
entitlement to an extension of time arises as follows:
The Contractor shall be entitled to an extension of Time for Completion if and to the extent
that completion is or will be delayed by any of the following causes:
Clause 8.4 then lists the events which entitle the Contractor to an extension of time.

Is or will be delayed notify now or in the future?

Clause 8.4 defines when, for the purposes of Clause 20.1, the Contractor could consider himself
entitled to an extension of time and, therefore, when the 28 day window for notice starts
running. The trigger is where completion is or will be delayed by one of the listed events.
Similar formulations of this language are commonly found in international EPC contracts. For
example:
The Contractor must without undue delay give notice of all events affecting or likely to
affect the progress of the Works such that the achievement of the Guaranteed Completion Date
for the Plant will or is likely to be delayed.
[Extracted from the EPC contract for a project financed process plant in the Middle East.]
Language linking a notice obligation to both the occurrence of an event having an immediate
impact, and also to one which 'will' or 'is likely to' have an impact, was introduced into EPC
contracts to offer greater protection to an owners interests.

Earlier EPC contracts only required that notice be given of events which caused a delay. This
caused difficulties where project owners wished to make the giving of notice within a fixed (and
short) time period a pre-condition to any entitlement. For example, where it was not immediately
clear to the contractor whether a particular event would cause a delay or not, or where an event
had no immediate impact, but caused a delay to a future activity which may not have been
critical at the time of the original event.
Problematic situations like this led to interpretative difficulties which left some conditions
precedent unenforceable or construed against the owners on the basis that the notice obligation
was uncertain.
Language of the type used in Clause 8.4 of the FIDIC Conditions was thought to eliminate this
problem by requiring a contractor to give notice of both actual and potential delay events. This
has placed an additional burden on contractors to consider whether notice is required even where
an event does not immediately impact activities which are on the critical path at the time of its
occurrence.

The decision
In the case cited above, Akenhead J noted that the contractors entitlement to an extension of
time can arise when the completion date is or will be delayed by a particular event. He
concluded that the extension of time can be claimed either when it is clear that there will be
delay (a prospective delay), or when the delay has been at least started to be incurred (a
retrospective delay).
In reaching this conclusion, Akenhead J noted that the wording of Clause 8.4 does not say that
notice is to be given when completion is or will be delayed, whichever is the earliest; the
absence of this express requirement leaving it open to the contractor to notify at either point.
Given the serious effect of vitiating a partys contractual right to claim, Akenhead J considered
that the clause should be strictly construed against the owner.

An illustration
Lets briefly consider the implications of this interpretation by reference to a scenario where a
variation is instructed to a part of the works which is programmed to fall on the critical path, but
which at that time of the instruction, has not been commenced.
On the interpretation offered in this case, the contractors obligation to notify is triggered either
at the point of the instruction when it is known that the event will cause a delay, or at the later
point when work commences on the variation and delay is being caused.

In the absence of clear language requiring the contractor to give notice at the earlier of these two
points, Akenhead J decided that the contractor can, in effect, choose which point to treat as the
trigger.

Key point to take away

Akenhead J either did not consider that the requirement in Clause 20.1 that notice be given as
soon as practicable altered this interpretation, or was not directed to consider this point.
However, these words are, arguably, insufficiently express to detract from his interpretative
approach.
It remains good practice for contractors to serve notices at the earliest possible date to avoid the
risk of losing an entitlement and there are good commercial reasons for a project owner to
require this. However, this interpretation may provide greater flexibility to contractors to
retrospectively notify events the impact of which was not fully understood at the time.
Legal advisers for owners, on the other hand, may wish to consider amending such clauses in the
future to clarify that the notice condition is triggered by the earlier of the dates on which delay is
caused or will or is likely to be caused.
This article was also published by Practical Law Construction as part of our regular
construction blog series in which we share our practical experiences of working in construction
and engineering and give our opinion on the current and future legal developments that shape
and will shape the industry. To read more from the series, visit the Practical Law blog.