9/1/2018 Liquidated Damages: FIDIC Red Book 1999 | Archer & Marks

Liquidated Damages: FIDIC Red Book 1999

Sometimes the best defence is a good offense

Even the simplest project has the inherent risk of being delivered after the time for completion stipulated at the conclusion
of the contract.

Contractors’ whose contract completion dates have come and gone should keep the following contractual defences and
challenges in mind when faced with claims for delay damages.

In terms of sub-clause 8.7 of FIDIC conditions of contract for construction (red book) 1999 the contractor is obliged to pay
delay damages for the period of time that elapse between the “time for completion” and the date stated in the taking over
certificate.

Time for Completion Achieved Earlier than Certified

A contractor would be entitled to dispute a taking-over certificate that reflects an inaccurate completion date. The basis of
such a dispute would be that the works were either taken over by the employer or completed in accordance with the
contract on a date that was earlier than the completion date certified. Unless settled amicably, the dispute would have to be
settled through the dispute resolution provisions of the contract (i.e. dispute adjudication board followed by arbitration). The
adjudicators and/or arbitrators would have the jurisdiction to revise the date of completion in the taking-over certificate. By
revising the certificate, the date upon which the liquidated damages may be levied would be adjusted and the delay
damage payable would be reduced accordingly.

Payment Neither Due nor Payable

In terms of sub-clause 14.7 the employer is obliged to pay the contractor the full amount certified by the engineer. In terms
of FIDIC ’99, the employer has no right to summarily set-off delay damages from any payment due to the contractor unless
the engineer has certified an amount due as delay damages.

Accordingly, if the employer considers himself entitled to delay damages then he is obliged to comply with the procedure
set out under sub-clause 2.5 by delivering a notice and particulars in writing to the contractor setting out the basis of the
claim with the relevant clause numbers and substantiation of the delay damages claimed. Following the notice and
particulars, the engineer should consult with both parties in order to reach an agreement and if no agreement is reached,
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the engineer should issue a fair determination in terms of the sub-clause 3.5. The amount of delay damages determined
would then have to be included in a payment certificate otherwise the amount would neither be due nor payable to the
employer.

Extensions of Time due

There is no obligation under the FIDIC suite of contracts stipulating that the engineer is obliged to determine each and
every claim for extension of time before the employer becomes entitled to levy delay damages. In terms of sub-clause 8.7
delay damages will be due from the time for completing the works as stated in the appendix to tender adjusted for any
extensions (see sub-clause 1.1.3.3) until the date stated in the taking over certificate.

In other words, if completion is reached on a date later than the date stipulated in the appendix to tender then the
contractor would only be relieved from liability for delay damages (for any period prior to the extended ‘time for completion’)
if the engineer determined that the contractor was entitled to an extension to the time for completion.

Sub-clause 8.4 provides the contractor with an entitlement to claim an extension of the ‘time for completion’ in the event
that the progress is delayed by any one of the following causes:

A variation;
A cause of delay giving an entitlement to an extension of time under a sub-clause of the contract;
Exceptionally adverse climatic conditions;
Unforeseeable shortages in the availability of personnel or goods caused by epidemic or governmental actions; or
Any delay, impediment or prevention caused by or attributable to the employer, the employer’s personnel, or the
employer’s other contractor’s on site.

The aforesaid entitlement is not automatic but subject to the provisions of sub-clause 20.1 in terms of which the contractor
is obliged to:

Issue a notice to the engineer describing the event or circumstance as soon as practicable and not later than 28 days
after the date on which the contractor became aware, or should have become aware, of the relevant event or
circumstance;
Submit any other notices required in terms of the contact and supporting particulars of the claim;
Keep contemporary records to substantiate its claim
Submit to the Engineer a fully detailed claim which includes full supporting particulars of the basis of the claim and the
extension of time claimed within 42 days after the date on which the contractor became aware, or should have become
aware, of the relevant event or circumstance;
Alternatively, when the event or circumstance giving rise to the claim has a continuing effect, submit interim claims at
monthly intervals and a final claim within 28 days after the end of the effects resulting from the event or circumstance.

As is evident from the above, the best approach to avoid delay damages is to have the contractual time for completion
extended in accordance with the contract – that much should be obvious. What is not so obvious, but far too common in
Dubai, are those instances where the contractor was not responsible for the delay to completion but was still legally obliged
to paid delay damages, by virtue of its failure to affect the proper notices and claims in terms of the provisions of clause
20.1 This is so because clause 20.1 (as read with clause 8.4) is the only mechanism in the contract that affords the parties
the right to extend the original completion date. No extensions mean the original date stands, and if exceeded, delay
damages automatically apply. Unfair yes, illegal no!

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