Exclusion clauses in your terms and conditions could save your business, reports Thomas Eggar LLP senior associate Kim Teichmann. In Allen Fabrications Limited v ASD Limited the defendant avoided a £7m claim due to a term that limited its liability to £705. A large saving for such a little clause! …
By Azzam Messaykeh
Today, with intense competition, high costs of operation and still-struggling economies, businesses are seeking ways to become leaner, more agile and increase operational efficiencies.
Concentrating efforts on cutting costs makes sound business sense, and that is where the importance of energy performance contracting comes in, making it a viable financial strategy. …
By Katie Liszka
Direct agreements are used in project finance transactions to provide lenders with protection should the project get into difficulty. These are contractual mechanisms that enable the lenders to step into the shoes of the project company (the borrower) and take over the project and/or find a substitute entity to continue the project. The parties to the direct agreement include the project company itself and the counterparty to the project document to which the direct agreement is collateral to. …
FIDIC’s 4th Middle East Contract Users’ Conference
The essential annual review of the latest developments in the FIDIC suite of contracts From FIDIC for FIDIC users
Main Conference: 26th & 27th February – Workshops: 25th & 28th February – Dubai
We’re delighted to announce that Samer H. Skaik the founder & principal for Construction Management Guide will be speaking at the 4th FIDIC Middle East Contract Users’ conference. …
CMGUIDE Founder to Speak at FIDIC Middle East – CMGUIDE Readers get a 20% saving!Read More »
This EPC Forum 2013 will address the challenges faced by owners and EPC contractors from scope of work to delivery of project without compromising other aspects such as handling construction risk and cost management throughout the years. Take a step further to hear it from other key speakers around the globe and exploring new working opportunities around the world. …
By Dr. Chandana Jayalath
The term construction contract involves not only contractors and employers but also consultants from different disciplines, sub contractors, investors, insurers, bankers, and so on. The international nature lies in both the facts that the parties come from different countries and so is the source of supply of works, goods and services. The forms of contract also differ upon for whom the work is being carried out.
Although the principles governing the construction contracts are basically identical in terms of how rights and obligations have been defined, we come across that the international arena is bit of comprehensive. There may be two or more different national systems of law capable of qualifying as the substantive law of the contract. It could be the law of the country where the contract is made or where the project is constructed. It could also be the law of the state where a significant part of the contract works is manufactured, or where the contract is financed or simply the law which the parties regard as well suited to govern the particular contractual relationship.
It is therefore common in the construction industry for individuals, corporations or governmental agencies to join together in a joint venture or consortium. It is also common in non-contractual matters such as product liability, to have multiple potential parties involved in the manufacture, sale and installations of the product, i.e., windows, doors, roofing, siding etc with each of these parties being a potential defendant.
When there is an issue on a construction project, it is not unusual for the employer to take that issue with the work of both the consultant and the employer. An employer may consider that the defects in the project are attributable to two or more factors including poor design, bad workmanship and lack of supervision. The employer can not begin a single arbitration procedure with both the consultants and the contractor without an agreement on all parties, as the arbitration clause of the contracts do not usually provide for tripartite approach. If there is no general agreement the employer will have no recourse other than to sue both the consultant and the contractor. It would be unwise to commence separate arbitrations against the consultant and the contractor as these arbitrations would perhaps involve the same issue of defect. Separate arbitration hearings by different tribunals would open up the possibility of two inconsistent findings on the same issue.
Although arbitration is frequently preferred to litigation (as it is seen as a more private means of resolving disputes and allows the parties to choose arbitrators with the relevant expertise to preside over their dispute), it becomes no longer applicable when the matter is connected with many parties who are not parties to the arbitration. For instance, FIDIC Red book has no mechanism for a third disputant to occupy in the dispute process although it stipulates a gauntlet for the parties to strictly comply with.
Let us consider a case where the employer joined the contractor as a co-defendant. The contractor applied for a stay of proceedings in favor of arbitration, as there was an arbitration clause in the contract between the employer and the contractor. It would therefore be undesirable to have two proceedings before two different tribunals which might reach inconsistent findings. There are cases that courts dismissed applications by the disgruntled parties.
The court may however take the view that, as both disputes are related to the same project, it would be unsatisfactory for the dispute to be arbitrated while the other was litigated because of the possibility of again inconsistent findings and decisions.
Another example is where the contractor submits a claim for loss and expense based on late instructions by the architect. The architect may maintain the position that whilst the instructions could have been issued a little earlier, the contractor’s claim is grossly exaggerated and submitted malafide with a view to recover some of its costs that were incurred on its own inefficiencies. If the employer accepts the claim, it will need to obtain recourse from the architect. If the employer fights the claim, it will need the architect’s assistance to do so but will also need to obtain recompense from the architect if its challenge was to prove unsuccessful.
Examples in international construction are basically group-complaints that the work had not been done properly and contained one or more defects. An employer may find himself in a position of having to choose between the parties responsible: a contractor or a consultant. What it does not wish is to find, having launched an arbitration, that it fails (e.g. the defect is one of design and the contractor is not liable) and it has to start a further arbitration against the consultant designer. Similarly, a prospective defendant may wish to bring in another party so as that the finding is made which correctly apportions responsibility for the damage the subject of the arbitration, e.g. one consultant liable along with another consultant. All this can be done in courts but can it be done in arbitration?
A sub-contractor loses money for having to comply with an instruction which derives from the Employer. It claims against the contractor. The Contractor does not, ideally, want to be risk being liable to the sub-contractor and have to start off all over again pursuing a claim against the Employer. This is particularly the case if the employer’s defence is that completion was delayed because of matters for which the Contractor would say was the responsibility of the sub-contractor. So too with questions of the interpretation of the provisions common to more than one contract or sub-contract.
Questions might therefore arise such as how to extend arbitration for third parties, may an arbitration tribunal hearing a dispute arising from a specific contract decide issues arising from connected agreements entered into by the same parties, how separate arbitration proceedings can be commenced, may these different proceedings be consolidated and under what conditions; if they cannot be consolidated, how and to what extent can one overcome the inconveniences that arise from having several parallel proceedings; may a party to the complex contractual structure intervene voluntarily in the proceedings; when there are several defendants that have divergent interests and do not therefore want to appoint the same arbitrator, how does one go about constituting an arbitration panel, and so on.
This is why the author believes that Multi-party arbitration should have a satisfactory regime in international construction disputes. It will tie all the parties together in a dispute thus avoid them operate in the shadow of contract privity. It won’t be a real ‘alternative’ to litigation if there is no ability to bring in other parties who were related to the dispute or to allow other parties to intervene.
By Dr. Chandana Jayalath
The whole idea of interpretation is to dig out the intention of the parties had in their minds at the time they entered into the contract. There are rules of interpretation that have been based on common sense connected with the ordinary life. It is the philosophy of language that provides material for interpretation. In contract law, it is now well-established that the context is important in interpreting documents, which is often referred to by the label ‘matrix of facts’, ‘surrounding circumstances’, or ‘factual background’. Courts must place itself in thought in the same position as the parties to the contract were placed, in fact, when they made it. Accordingly, those involved in contract interpretation should not try to make a bargain for the parties, but instead seek to understand what the parties meant by reference to the words which they chose. …
By Dr. Chandana Jayalath
Suspension usually occurs on a construction project when an employer requires a contractor to temporarily stop work on all or a portion of the project. Contractually, the contractor shall suspend the progress on the engineer’s written notice if it is only provided for in the contract, due to contractor’s default, due to climatic conditions, on safety reasons, necessary for proper execution of work or in excepted risks. A mandatory requirement is cast on the contractor to give a written notice of his intension to claim for any additional cost or time within a specified period from the date of receiving the engineer’s order to suspend the work. This clause specifically permits the engineer to authorize extension of time or payment of extra cost, whose decision is final and binding. …
By Dr. Chandana Jayalath
The topicality of claims has been accentuated by the fact that contractors keep chasing extras, and clients keep pursuing cost savings, particularly in lump sum contracts where the majority has been locked into. The trend is that claims specialists are reported mobilize on such contracts even before construction commences, to locate loopholes in the documentation and look for lapses in the process of contract administration that will altogether facilitate ‘juicy’ claims. This situation has jerked the entire Gulf region into awareness on the importance of good contract administration and the supreme importance of documentation. …
By Dr. Chandana Jayalath
Any standard form of contract is a generic product applicable under ‘typical’ circumstances subject to amendments in the Particular Application section in order to cater locally specific project requirements where necessary. Importantly, the Contractors therefore recognize the differences and know how to act upon those amendments in the contract. All in all, everyone ‘knows the deal’ if presented with a standard form. The other significant advantage is that the wording of many standard forms has been subject to interpretation over the years by courts. But at least with standard forms both employers and contractors know roughly where they are standing. There are always those who wish to go down the bespoke route but even in bespoke contracts there are vast chunks of texts copied straightway from standard forms. Even though on most occasions what the standard form gives with one hand the amendments take back with the other. …
Amendment, Deletion or Silence – Which One is Better?Read More »
By Dr. Chandana Jayalath
It is common practice that time extension claim comes before the claim on prolongation costs. Once an extension of time has been granted, the evaluation of the additional prolongation costs is often related to the period between the contract completion date and the extended completion date. Prolongation cost is also calculated on time related preliminaries. The author contends that this line of thinking is illogical. …
By Dr. Chandana Jayalath
Majority of construction contracts in the Gulf region maintain the principle features of the FIDIC forms of contract, yet there are many subtle changes from the FIDIC forms of contract. These changes will eventually imbalance the even risk allocation between the parties. Many contracts drafted in one sided language biased towards the clients are a result of cut and paste exercise, for instance, sometimes; there is no provision for price escalation and variations exceeding 10 or 15 per cent. The message to contractors entering into contracts on the basis of these forms is to review them very carefully without being fooled into thinking they are simply the FIDIC versions. …
