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FIDIC 2017: a gap in the fully detailed claim procedure?

Mark Alexander Grimes
Systech Solicitors, Johannesburg

 

FIDIC’s 2017 suite of contracts features a significantly updated Claims framework. This article examines the time-barring procedures and identifies a gap in the fully detailed Claim time-barring procedure. Through contractual analysis, this article examines the potential for stasis in the Clause 20 Claims procedure, created by the drafting of both the definition of the ‘fully detailed Claim’ and of the relevant time-barring criteria. It is submitted that a minor amendment may be appropriate in practice, in order to prevent unnecessary procedural difficulties arising.

 

Introduction

The 2017 FIDIC forms have been significantly updated since the 1999 Rainbow Suite. One aspect of this rewrite, and the subject of this article, is that the new contracts have completely changed the time-barring framework in respect of Claims. The new process has been described by commentators as ‘reciprocal’ because, whereas the 1999 Forms distinguished Contractor and Employer Claims, with no time-barring in respect of the latter, the 2017 suite now has a unified Claims procedure, with time-bars affecting both Contractor and Employer.

A principal change is that time-barring is no longer automatically applied and the Engineer’s Notice engaging the time-bar must itself be within time limits set out in Clause 20.¹ ‘Notice’ is also now a defined term, meaning that the Engineer’s Notice engaging the time-bar could be invalid, even if in time.

Within this framework, there are two opportunities for the Engineer to time-bar a Claim:

1. where the Notice of Claim is submitted more than 28 days from the date of awareness (or deemed awareness) of the relevant event or circumstance, (Sub-Clause 20.2.2); or

2. where the Claiming party fails to submit, within 84 days of the date of awareness, ‘a statement of the contractual and/or other legal basis of the Claim’ (Sub-Clause 20.2.4).²

This article examines the latter and identifies a gap in the contractual procedure, which could cause uncertainty in the application of the time-barring provisions.

The fully detailed Claim

As aforementioned, the time-barring provision in Sub-Clause 20.2.4 relates specifically to the statement of legal basis for the Claim. How a party satisfies this requirement will be dependent on the particular facts of any given Claim, having regard to its legal complexity. What would satisfy this requirement is, therefore, not explored in this article. The fact that this statement singularly forms the basis of time-barring in relation to the fully detailed claim is, however, important.

Unlike ‘Notice’ or ‘Notice of Dissatisfaction’, ‘fully detailed Claim’ (FDC) is not within the Sub-Clause 1.1 defined terms. Sub-Clause 20.2.4, though, is clearly definitional in nature and should be read as such:

‘In this Sub-Clause 20.2, “fully detailed Claim” means a submission which includes:

(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 DNP claimed (in the case of the Employer).’

It is undoubtable that these listed elements must be present for a submission to constitute a ‘fully detailed Claim’.

Statement of legal basis

Despite the FDC being defined by its content, the relevant time-barring provision is explicitly limited to a failure to provide item (b) within the 84-day time limit, rather than the FDC as a whole. Seemingly then, the other parts of the FDC are not as essential:

‘If within this time limit the claiming Party fails to submit the statement under sub-paragraph (b) above, the Notice of Claim shall be deemed to have lapsed, it shall no longer be considered as a valid Notice, and the Engineer shall, within 14 days after this time limit has expired, give a Notice to the claiming Party accordingly.’

The primacy of item (b) is reinforced by subsequent parts of Clause 20. The ‘appeal’ provision of Sub-Clause 20.2.4 refers to ‘circumstances which justify late submission of the statement under sub-paragraph (b) above’. Further, the suggested considerations for the Engineer in exercising its time-bar discretion in Sub-Clause 20.2.5 include, specifically in relation to the FDC, ‘any evidence of the other Party’s prior knowledge of the contractual and/or other legal basis of the Claim’.

The idea that a clear statement of the legal basis would be fundamental to the continuation of the claims process is not surprising. Knowledge of the basis of claim is important in (1) preventing spurious claims; and (2) preventing prejudice to the Respondent in preparing its case.

It is a common requirement in court systems that pleadings must demonstrate the legal basis of the claim. In England and Wales, a civil claim that is deficient in this regard could potentially be struck out under Rule 3.4(2) of the Civil Procedure Rules, though one would expect an application to amend before it got that far. In South Africa, under similar rules in the Uniform Rules of Court, pleadings of this sort are described as ‘vague and embarrassing’.

With regard to the other elements of the FDC, there are also reasons why they may not be as important. With regard to item (a), the Respondent will have already had at least some details regarding the factual circumstances, as required in the Claim Notice per Sub-Clause 20.2.1. The detailed factual circumstances under item (a) are generally of evidential value for the Claimant in proving their entitlement, rather than for the Respondent in preparing their defence. The Claim Notice should also have put both the Engineer and the Employer on notice to gather and review their own factual evidence, if they felt it necessary.

Regarding item (c), the contemporary records provisions under Sub-Clause 20.2.3 give the Engineer a right to inspect the relevant records in connection with the Claim. This gives a degree of equality and reciprocity in respect of these records. As they may not simply be withheld until the submission of the FDC, the Engineer has responsibility for being as involved in this review as it believes necessary to fulfil its duties. In any event, the drafting of this item means that a failure to provide ‘contemporary records on which the claiming Party relies’ would logically lead to the simple conclusion that no reliance is placed on contemporaneous records.

Item (d), in respect of cost or EOT, assists the Engineer’s assessment but it is fundamentally the Claimant’s burden to discharge, so a failure in this regard is to the Claimant’s prejudice.

The procedural gap

A question then arising from Sub-Clause 20.2.4 is whether the Claims procedure may continue without it being submitted within the time limit. Sub-Clause 20.2.5 would appear conclusive against this and states: ‘After receiving a fully detailed Claim under Sub-Clause 20.2.4… the Engineer shall proceed under Sub-Clause 3.7 [Agreement or Determination] to agree or determine…’.

Reading this together with the definition in Sub-Clause 20.2.4, there is a gap in the Claims procedure. Where the Claimant has failed to submit the full FDC, the Engineer lacks contractual jurisdiction to determine a Claim as a result of Sub-Clause 20.2.5. Yet the Engineer also cannot time-bar the Claim where the Claimant has submitted a statement satisfying item (b) of the FDC requirements, as a result of the time-barring provisions in Sub-Clause 20.2.4.

It is, perhaps, a narrow and technical point, but in the face of such a clear definition of the FDC in Sub-Clause 20.2.4, the point is unavoidable. While there has been a steady shift towards commercial, rather than strict, interpretation of contracts in recent times, the reason this is problematic in this situation is because it  involves the conferring of contractual jurisdiction upon a third party. The Engineer is simply not empowered to act and the Claim is in stasis after submission of item (b) – neither barred nor able to progress.

Closing the gap?

It should be recognised that detailed procedural steps, with defined time limits and notice requirements, have been laid down. This shows an intention that should be given effect, in order to maintain the flow of Clause 20. While it is clear from the language of Sub-Clauses 20.2.4 and 20.2.5 that FDC item (b) is intended to have significance above the other required elements, it cannot have been intended that the Claim should enter a procedural stasis.

The simplest reconciliation, in this author’s view, is that the Engineer should be permitted to proceed with whichever elements of the FDC have been submitted at the expiry of the 84-day limit. This would allow the Engineer to proceed to determination, except in the absence of item (b) which allows the Engineer to engage the time-barring provisions. In this way, there is always a route forward for the Engineer: either to determination or time-barring.

The tenor of FIDIC’s ‘Golden Principles’ strongly implies that FIDIC would prefer that bespoke drafting be kept to a minimum. However, a drafting amendment seems appropriate in this instance as this is a minor amendment to rectify what seems like a clear error.

The desired effect could be achieved by relaxing the definition of the FDC in Sub-Clause 20.2.4 to be ‘a submission which may include’ items (a) to (d). The effect of the time-barring provisions would retain the mandatory nature of item (b), but the remaining items would no longer be contractually necessary to create an FDC. It could also be achieved by amending Sub-Clause 20.2.5, but this would require more extensive drafting, with correspondingly greater scope for error or interpretation.

The infamous ‘enforcement gap’ of the 1999 FIDIC forms, which caused procedural uncertainty around the enforcement of certain DAB awards, illustrates the potential for varying international approaches to issues in the drafting of standard form contracts. As a result of that gap, various jurisdictions developed differing approaches to the enforcement of final but not binding DAB awards. Enforcement is obviously a more fundamental legal issue and involves greater legal complexity in comparison to this relatively small procedural issue. Nevertheless, it is foreseeable that Engineers, DABs and even national courts may take differing views on resolving the current drafting, if required to do so. As a result, a bespoke amendment is likely to be appropriate to avoid unnecessary procedural difficulties arising.

 

Notes

1 This article uses the 2017 Red and Yellow book references. See FIDIC (International Federation of Consulting Engineers), Conditions of Contract for Construction, 2nd Edn (FIDIC 2017); FIDIC (International Federation of Consulting Engineers), Conditions of Contract for Plant & Design-Build, 2nd Edn (FIDIC 2017).

2 It is worth noting, athough not directly relevant to this article, that the validity of the Notice of Claim is subject to two deeming processes under Sub-Clause 20.2.4 in relation to this time-bar. The Notice of Claim is first deemed to have lapsed on the expiry of 84 days, if there is a failure to provide the required statement, and then deemed valid again 14 further days after that, provided the Engineer does not issue Notice of time-barring.

 

Mark Alexander Grimes is a trainee solicitor with Systech Solicitors. He is currently based in Johannesburg, South Africa, on secondment and may be contacted at mark.grimes@systech-solicitors.com.

 

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Claims procedure and dispute resolution under the revised FIDIC conditions

 

Introduction

The overall claim and dispute resolution framework has not changed in the most recent 2017 editions of the FIDIC Red Book (Conditions of Contract for Construction), Yellow Book (Conditions of Contract for Plant and Design Build) and Silver Book (Conditions of Contract for EPC/Turnkey Projects) (the ‘revised FIDIC Conditions’). The main steps, as in the editions originally published in 1999, are: (1) notify the engineer of a claim; (2) the engineer’s determination; (3) refer the claim to the dispute adjudication board (DAB) for decision; (4) attempt amicable settlement through negotiations; and (5) as a last resort, International Chamber of Commerce (ICC) arbitration.

However, there have been a number of important changes within this pre-existing framework. Most notably, the revised FIDIC Conditions separate claim provisions from dispute resolution provisions and provide a more detailed procedure for both. What was previously Clause 20 (‘Claims, Disputes and Arbitration’) has been divided into two distinct – and more comprehensive – clauses: a revised Clause 20 (‘Employer’s and Contractor’s Claims’), which addresses the claim process for both employer’s and contractor’s claims; and a new Clause 21 (‘Disputes and Arbitration’), specifically addressing dispute resolution.

The reason for this division is to make clear that submitting a claim does not automatically give rise to a dispute. To put forward a ‘Claim’ (defined in Sub-Clause 1.1.6) is to make a request for an entitlement under the contract; a ‘Dispute’ (defined in Sub-Clause 1.1.29) arises only if that claim is rejected, in whole or in part, or no determination is made. This is intended to avoid an unnecessary escalation of issues, with parties jumping straight to arbitration; instead, they must follow the mechanics of the new Clauses 20 and 21.

Changes to notice requirements

The revised FIDIC Conditions include additional notice provisions intended to help the parties address claims promptly in order to avoid disputes as far as possible. The term ‘Notice’ is now specifically defined as a ‘written communication identified as a Notice and issued in accordance with Sub-Clause 1.3’ (Sub-Clause 1.1.56). In addition, notice is now specifically required under numerous Sub-Clauses, which also explain in greater detail how and when such notice must be given (see eg, Sub-Clauses 4.7.2 and 4.12.1).

These provisions are designed to ensure that it is clear when a party is making a claim and to avoid the situation of a party trying to seek a tactical advantage by hiding a claim notice in day-to-day communications or failing to provide timely notice and later searching the project record for any communication that may be construed as notice. To this end, Sub-Clauses 4.20 and 8.3 of the revised FIDIC Conditions even expressly provide that progress reports and programmes cannot constitute notice.

It remains to be seen whether the more extensive notice requirements will encourage parties to address potential claims when they arise or whether these provisions will ultimately lead to more disputes.

Changes to the claim procedure (Clause 20)

The claim procedure, as set out in the new Clause 20, is now aligned for employer and contractor’s claims. Both the employer and contractor are subject to the same time limits and time-bars for claims, including the familiar 28-day time limit for the Notice of Claim (Sub-Clause 20.2.1) and an increased 84-day time limit for submission of the ‘fully detailed Claim’ (Sub-Clause 20.2.4). Both parties must therefore be aware of, and able to manage this procedure, and understand the potential impact on their right to monetary or time-related relief if this procedure is not followed.

Sub-Clause 20.1 expressly distinguishes between three categories of claim, now defined as ‘a request or assertion by one Party to the other Party for an entitlement or relief under any Clause of these Conditions or otherwise in connection with, or arising out of, the Contract or the execution of the Works’ (Sub-Clause 1.1.6): (1) claims for additional payment (or reduction in the contract price); (2) claims for extension of time; and (3) claims for an entitlement or relief other than for money or time.

Claims falling within the first two categories (ie, payment or an extension of time) must follow the procedure set out in Sub-Clause 20.2, consisting of: (1) a Notice of Claim; (2) a fully detailed claim; and (3) the engineer’s agreement or determination. Claims falling within the third category of ‘other’ claims are subject to a much shorter procedure; they are simply referred to the engineer for agreement or determination (pursuant to Sub-Clause 3.7).

Sub-Clause 20.2.2 includes a new requirement for the engineer to notify the claiming party within 14 days of receipt of the Notice of Claim if the engineer considers the claim to be time-barred. If the engineer fails to do so, the party’s Notice of Claim shall be deemed valid. Nonetheless, the other party may, in turn, challenge that decision or indeed challenge the deemed acceptance of the Notice of Claim, in which case the engineer shall review the issue when making a determination with respect to the claim.

Following the fully detailed claim, the next step is the engineer’s determination. The revised FIDIC Conditions require that, if a party is dissatisfied with the engineer’s determination, it must give a ‘Notice of Dissatisfaction’ (NOD) within 28 days. Otherwise, the determination becomes final and enforceable directly through arbitration (Sub-Clause 3.7.5). The filing of a NOD triggers the DAB procedure, which must be commenced within 42 days after service of the NOD.

Changes to the dispute resolution procedure (Clause 21)

The new Clause 21 focuses on dispute avoidance prior to dispute adjudication. Reflecting this priority, the DAB has been renamed the Dispute Avoidance/Adjudication Board (DAAB) (Sub-Clause 1.1.22). In addition, the new DAAB Procedural Rules state explicitly that the first objective of the DAAB is ‘to facilitate the avoidance of Disputes’ (Rule 1.1(a)).

To more effectively prevent claims from becoming disputes, the 2017 editions of the Red Book, Yellow Book and Silver Book all provide for standing DABs, in place for the duration of the contract. The new DAAB Procedural Rules require the DAAB to meet with the parties regularly and visit the site outside the context of any formal proceedings (Rule 3). In addition, the parties may jointly request the DAAB to ‘provide assistance and/or informally discuss’ with the parties in an attempt to resolve issues, that is, effectively exercising a mediation function (Sub-Clause 21.3).

If a dispute is referred to the DAAB, the DAAB must issue a written and reasoned decision within 84 days (Sub-Clause 21.4.3). The DAAB’s decision is binding and immediately enforceable, regardless of whether a party objects (Sub-Clause 21.4.3). Under Clauses 15 and 16, non-compliance with a DAAB decision is a ground for termination by either party or suspension by the contractor (Sub-Clauses 15.2.1(a)(iii); 16.1(d)(ii) and 16.2.1(d)(ii)).

If a party does not accept the DAAB’s decision, it must issue a NOD within 28 days of the decision (Sub-Clause 21.4.4). If a party issues a NOD, the parties must attempt to settle the dispute amicably before the commencement of arbitration; however, the time period for amicable settlement negotiations has been reduced to 28 days
(Sub-Clause 21.5).

The final step is ICC arbitration. The arbitral tribunal has the power to enforce the DAAB decision by issuing interim or provisional measures or a partial award (Sub-Clause 21.7).

Conclusion

Overall, the changes made in the revised FIDIC Conditions provide additional certainty through more detailed and stricter requirements. This is, in principle, beneficial, but places a greater administrative burden on the parties. The revised FIDIC Conditions may require some training, including for contract and claims managers who must understand and be fully aware of the more complex procedure for claims and dispute resolution.

 

Bernd Ehle is a partner at LALIVE in Geneva and can be contacted at behle@lalive.law. China Irwin is counsel at LALIVE in Geneva and can be contacted at cirwin@lalive.law.

 

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Provisions of Unforeseeable Physical Conditions under FIDIC and under Egyptian civil law: a comparative analysis

 

Introduction

As a large proportion of work in civil engineering construction projects is usually carried out underground, contractors face a quite high risk of encountering unforeseeable physical conditions. While it may be possible to investigate and establish the properties of the sub-soil at certain locations and extrapolate from that an overview of the whole site, the actual ground conditions for the whole of the works can only be established when the contractor excavates. If the unforeseeable physical conditions are encountered, the consequences can be enormous in terms of financial costs and time delays.¹

One of the most commonly used standard conditions of contract for international projects are published by the Fédération Internationale des Ingénieurs-Conseils (FIDIC). The FIDIC contracts are based largely on common law principles. Most of the Middle East countries source their law from a mixture of civil and Sharia law, and are most heavily influenced by Egyptian civil law.² It is thus rather ironic that most of the Middle East countries have based their construction contracts on the FIDIC forms. According to a study conducted by Norton Rose, 94 per cent of the contracts used in the Middle East are based on FIDIC (or a modified form of FIDIC).³ The FIDIC contracts have been in use in the Middle East since the 1970s. In fact, FIDIC is the established form of construction contract in the region.⁴

FIDIC published the new suite of standard contracts in 1999. The new suite includes the conditions of contract for construction, which is recommended for building and engineering works designed by or on behalf of the employer, although some elements of design may be given to the contractor, known as the New Red Book or FIDIC (CONS). A second edition was issued in 2017. The FIDIC (CONS) issued in 1999 will be the subject of this research.

The legal concepts in the FIDIC are based on the common law system.⁵ A survey of the FIDIC (CONS) users’ feelings about contract policy in general, and about the FIDIC (CONS) in particular, was undertaken by Reading University in England at the request of the European International Contractors and FIDIC. The final survey report was published in June 1996 and provided, among other data, specific contractual issues relating to the Red Book including applicability to civil law jurisdictions.⁶

The construction industry in the Middle East is the centre for mega construction projects.⁷ Unfortunately, contractors engaging on projects in the region often fail to appreciate that the impact of the interpretation of the contracts in view of the local laws in the Middle East could be drastic. It is suggested that local laws in the Middle East should be carefully considered by both contractors and employers, as part of a proper evaluation of the risk.⁸

In this research, the provisions of the unforeseeable physical conditions of the FIDIC (CONS) will be studied in the context of Egyptian civil law. Similarities and differences between the relevant provisions under the FIDIC (CONS) and Egyptian civil law will be recognised. Finally, recommendations will be made to amend the relevant provisions under Egyptian Civil Code (where the main provisions concerning the Egyptian contract law and provisions of construction contracts are contained). Since Egyptian civil law is heavily influenced by French law, reference will be made in some instances in this research to French law.

Under Egyptian civil law, risks are allocated among the employer and the contractor via the conditions of contract agreed upon between the parties, the provisions of law or both. In this connection, it is of importance to point out that under Egyptian civil law, building and construction contracts do not have separate rules; rather, there are certain rules that apply to all contracts for works (‘Muqawala contracts’) including building and construction ones. Nevertheless, it is of importance to highlight that building and construction contracts differ from other Muqawala contracts in many aspects; for instance, under building and construction contracts, the costs and expenses to execute the works as well as the time for completion thereof are much greater than those under other Muqawala contracts.⁹

The FIDIC (CONS) is recommended for building and engineering works designed by or on behalf of the employer, although some elements of design may be given to the contractor. Furthermore, the FIDIC (CONS) is a remeasured contract. Accordingly, when examining the unforeseeable physical provision under Egyptian civil law, this research will focus on traditional contracts designed by or on behalf of the employer and remeasured contracts. Moreover, the construction contracts in the Egyptian legal system are classified into civil contracts and administrative contracts, which are governed by two different systems of law, depending on the nature of the employer. This research will be limited to the study of civil construction contracts.

The goal of this paper is to study the provisions of the unforeseeable physical conditions under the common law based FIDIC (CONS) within the context of Egyptian civil law. Accordingly, the associated research objectives include:

• highlighting similarities and differences between the relevant provisions under the FIDIC (CONS) and Egyptian civil law; and

• providing recommendations to be made to amend the relevant provisions under the Egyptian Civil Code (ECC).

Methodology

This paper uses a multi-step interdependent research methodology. First, the provisions of unforeseeable physical conditions under FIDIC (CONS) are examined. Second, the relevant provisions under Egyptian civil law are examined. Third, the authors critically analyse and compare the relevant provisions under the FIDIC (CONS) and Egyptian civil law, being the applicable law of the contract. Finally, the authors make recommendations as to the amendments required to the relevant provisions under Egyptian civil law.

Results and analysis

Sharing of risks under FIDIC (CONS)

Primarily, it is important to examine the concept of sharing of risks under the FIDIC (CONS). Construction projects are subject to an extremely large matrix of hazards and risks. Therefore, risk management is essential for efficient and effective completion of a construction project. One important part of the risk management process is the allocation of the risk. The FIDIC (CONS) is drafted on the basis of sharing of risks among the employer and the contractor. The principles of sharing of risks in the FIDIC (CONS) are based on those in the ICE Form and they comprise the following:¹⁰

• the contractor should only price for those risks which an experienced contractor could reasonably foresee at the time of the tender;

• it is the right and the duty of the employer to decide and by his engineer to design and specify the obligations of the contractor, and it is the employer’s duty to allow the contractor to do his obligations without hindrance;

• it is the duty of the contractor to do what the contract requires to be done, as designed and specified by the engineer, but, subject to any specific requirement in the contract. It is further the contractor’s right and duty to decide the manner in which he will do it; and

• if, exceptional to the aforementioned, the contractor is to decide what to do or to design what is to be done, or where the employer or the engineer is to decide how the work is to be done, the contract must expressly provide for this and for the necessary financial consequences for the protection of the contractor.

It should not be overlooked that while risks generally imply undesirable consequences, in certain circumstances, desirable as well as undesirable consequences may occur. In such case, both negative and positive aspects must be assessed and allocated. Under the FIDIC (CONS), if a risk was allocated to a certain party, then both the positive and negative aspects shall be allocated to that party, unless explicitly stated otherwise. For example, under the FIDIC (CONS), the risk of unforeseeable physical conditions is allocated to the employer and if, during the execution of the works, the contractor encounters adverse unforeseeable conditions, which result in additional costs, then the additional cost of encountering such conditions is borne by the employer. On the other hand, should the unforeseeable physical conditions result in a more favourable and cost-saving operation for the contractor, then the effect would principally be credited to the employer rather than to the contractor, subject to the relevant provisions of the contract.¹¹

It is worth mentioning that the most cost-effective method of allocation of risks from the point of view of controlling the occurrence of the risk and mitigating or eliminating its adverse effects is based on the ability to exercise such control. Risks allocated to the contractor on the basis of this method would have a cost implication if they are not their own fault, since a prudent contractor would include in his original price an element relating to this additional risk he is asked to carry. If such risk does not eventuate, the employer would have paid a larger sum than necessary. In certain circumstances, after adding such element of risk, the contractor’s price for accepting a particular risk may be extremely high in comparison with the adverse effect on the employer should the risk eventuate. However, in some cases, this may be more advantageous to the employer than to assume the risk themselves and be exposed to the possibility of having to make an additional payment should the risk eventuate.¹²

Unforeseeable physical conditions under the FIDIC (CONS)

The term ‘unforeseeable’ is defined in Sub-Clause 1.1.6.8 of the FIDIC (CONS) as not reasonably foreseeable by an experienced contractor by the date for submission of the tender. For example, for a contract with time for completion of three years, an experienced contractor might be expected to foresee an event that occurs on average once every six years, but an event that occurs once every ten years might be regarded as unforeseeable.¹³

‘Physical conditions’ are explained in Sub-Clause 4.12 (Unforeseeable Physical Conditions) of the FIDIC (CONS) to mean natural physical conditions and man-made and other physical obstructions and pollutants, which the contractor encounters at the site when executing the works, including sub-surface and hydro-logical conditions but excluding climatic conditions. Thus, unforeseeable conditions off-site do not meet this criterion.¹⁴

Sub-Clause 4.12 of the FIDIC (CONS) allocates the risk of encountering unforeseeable adverse physical conditions to the employer. If such risk is allocated to the contractor, the employer would have to pay for risks that might not eventuate through contingency sums that the contractor would be forced to include in their tender to take account of such unforeseeable risk. The allocation of such risk to the employer is mainly based on the criteria that the employer has more control over the risk; since the employer is the one who selected to construct the project on this particular site, the employer has control over the design of the works and the timing of commencement of construction and the employer has the opportunity to carry out whatever investigations it thinks necessary to safeguard against the unknown and to identify the hazards and risks inherent in the ground conditions of a particular site. Once such hazards and risks are identified, if unacceptable, they can be mitigated or eliminated by the employer either directly through the selection of an alternative site or indirectly by changing the design of the project.¹⁵

According to Sub-Clause 4.10 (Site Data) of the FIDIC (CONS), the employer is required to make available to the contractor for their information all relevant data in the employer’s possession on sub-surface and hydrological conditions at the site, including environmental aspects. The contractor shall be responsible for interpreting all such data. The burden of proof lies with the contractor who must demonstrate successfully, not only that the reasonable contractor would not have foreseen the physical condition which caused the delay, but also that the experienced contractor would not have included the risks of encountering such a physical condition in preparing his programme and tender.¹⁶

If the contractor encounters physical conditions which are both unforeseeable and adverse, the contractor is required to give notice to the engineer as soon as practicable. However, the contractor needs to consider if he should give notice under other clauses; such as Sub-Clauses 8.3 (Programme), 8.4 (Extension of Time for Completion), 13.2 (Value Engineering), 19.2 (Notice of Force Majeure) and 20.1 (Contractor’s Claims) of the FIDIC (CONS).¹⁷

The contractor is required to continue executing the works, and not await instructions from the engineer, unless the physical conditions constitute force majeure and notice has been given under Sub-Clause 19.2 of the FIDIC (CONS). When an experienced contractor encounters adverse unforeseeable physical conditions, they are expected to use their expertise; overcome the conditions, and execute and complete the works using such proper and reasonable measures as are appropriate for the physical conditions. Although an experienced contractor should typically not require guidance on construction techniques; the engineer should consider whether there is any need for variations or other instructions. The contractor should comply with any instructions given by the engineer, including an instruction for variation.¹⁸

If the contractor suffers delay to completion and/or incurs cost as a result of encountering unforeseeable physical conditions, the contractor shall be entitled to extension of time and payment of such cost, subject to Sub-Clause 20.1 (Contractor’s Claims) of the FIDIC (CONS). It is noted that the contractor shall not be entitled to profit.

The engineer may also review whether other physical conditions in similar parts of the works were more favourable than could reasonably have been foreseen when the contractor submitted the tender, before additional cost is finally agreed or determined.

Unforeseeable physical conditions under Egyptian civil law

Delays

In relation to the unforeseeable physical conditions under Egyptian civil law, Article 215 of the ECC states the following:

‘When specific performance by the debtor is impossible, he will be ordered to pay damages for non-performance of his obligation, unless he establishes that the impossibility of performance arose from an external cause beyond his control. The same principle will apply, if the debtor is late in the performance of his obligation’.

According to the aforementioned article, if the contractor was delayed in the performance of his obligations, the contractor will be under the obligation to compensate the employer for his consequent damages, unless the contractor proves that the delay in performance was due to an external cause beyond their control.¹⁹

It is submitted that if the building was totally or partially destructed or if damages occur to the building due to problems in the soil on which the building was constructed and the appropriate measures were not taken by the consultant and the contractor, then the consultant and the contractor will be responsible for the destruction or damage, as the case may be, unless the problems in the soil could not have been discovered by precise technical inspection or tests by experienced engineers. In the latter case, the problems in the soil would be considered a force majeure event and the consultant and the contractor would not be responsible for the destruction or the damage.²⁰

Thus, Article 215 of the ECC will be applicable if the contractor encounters unforeseeable physical conditions that delay performance. As a result, the contractor shall not be held responsible for the delays, if such event results in delays to completion. Consequently, the contractor will be exempted from paying damages for failure to fulfill his commitments.

It is noted that generally, under civil law jurisdictions, there is no clear system of claims for extension of time. Time extension is usually not claim based. Usually, at the end of the project, the parties will discuss each event which prevented the contractor from completing within the contract duration, in order to reduce the total time overrun.²¹ It is thought that this also applies to Egyptian civil law.

Furthermore, it is noted that although the general principles of contract law of the ECC provide that the debtor (in the case at hand, the contractor) would be exempted from paying damages for their delay in performance, if they prove that the delay in performance was caused by an external cause beyond their control, yet the ECC does not provide any express provision for the contractor’s entitlement to extension of time and a mechanism for such extension, either in the Muqawala contracts section or in the general principles of contract law. Thus, although the contractor is relieved from the damages for delay by means of a judicial award, yet, at the time of execution of the works the time for completion is unclear neither to the employer nor to the contractor, which could result in disputes between the parties.²²

Additional cost

The FIDIC (CONS) is a remeasured contract. It is noted that remeasured/unit price contracts under Egyptian civil law are subject to the provisions of Article 657 of the ECC. Accordingly, the said Article needs to be examined in this context.

Article 657 of the ECC states:

‘1. When a contract is concluded in accordance with an estimate drawn up on a unit price basis and it becomes apparent, during the course of the work, that it will be necessary, in order to complete the works according to the agreed design, to tangibly exceed the estimated price, the contractor must immediately notify the employer accordingly and inform him of the anticipated increase in price; if the contractor fails to give such notice he forfeits his right to recover the expenses incurred in excess of the estimate.

2. When the increase in the price for the execution of the designs is considerable, the employer may rescind the contract and stop the work, provided that he does so without delay and pays the contractor for the value of the work he has executed, estimated in accordance with the terms of the contract, without the employer being liable to compensate the contractor for the profit he would have earned if he had completed the works.’

In order for the contractor to be entitled to increase in costs under unit price contracts resulting from the increase in executed quantities that was not perceived at the date of entering into the contract, Article 657 of the ECC provides the following three conditions.²³

Condition 1: The contract is entered into in accordance with an estimate on a unit price basis. This excludes contracts entered into on a lump sum basis and contracts entered into without agreement between the parties on the price. That is because contracts entered into on a lump sum basis are regulated in Article 658 of the ECC, whereas contracts entered into without agreement between the parties on the price shall be determined by the judge, thus there is no increase to a pre-agreed contract price.

Condition 2: The estimated contract price shall be tangibly exceeded for a reason that was not foreseeable at the time of entering into the contract.

It is intended in Article 657 that the estimated contract price is exceeded due to a tangible increase in the actual quantities compared to the estimated quantities in the bill of quantities. It is not intended that the estimated contract price is exceeded due to a tangible increase in the costs. So, for example, if there was a specific estimated quantity for excavation in the bill of quantities and, upon execution, it turned out that the actual quantities exceeded the estimated quantity, and such excess was tangible, so the second condition will be fulfilled. However, if the cost of excavation to the contractor has increased, the second condition will not be fulfilled. That is because it is considered that the contractor has taken into consideration before pricing the tender all the reasonable factors that could lead to changes in costs.

It is noted that for the second condition to be fulfilled the tangible increase in quantities should not have been foreseeable at the time of entering into the contract, as the Article states that:

 ‘… and it becomes apparent, during the course of the work, that it will be necessary, in order to complete the works according to the agreed design, to tangibly exceed the estimated price’. [emphasis added]

Condition 3: The contractor should give notice to the employer of such increase as soon as the contractor has been aware of the increase.

Such condition needs to be fulfilled for the contractor to be entitled to an increase in the estimated contract price as the Article states that ‘the contractor must immediately notify the employer accordingly and inform them of the anticipated increase in price; if the contractor fails to give such notice they forfeit their right to recover the expenses incurred in excess of the estimate’. It is noted that no specific form of notice is mentioned; thus the notice could be written or oral, with the burden of proof on the contractor to prove that the notice has been given. Yet, the notice should be given immediately; otherwise it is deemed that the contractor has waived their right to be reimbursed the increase in price and the contractor price shall remain as provided in the bill of quantities. It is further noted that the notice should include the expected increase in quantity and the consequent expected increase in price. If the actual increase exceeded the expected increase stated in the notice, the contractor shall be only entitled to the expected increase stated in the notice. Accordingly, it would be of the contractor’s benefit to include, in the notice, only the basis of the expected increase, not a specific figure for the increase, leaving the actual increase to be determined upon executing the works.

It should be noted that if the aforementioned three conditions of applicability of Article 657 of the ECC were fulfilled, the tangible increase in price could be considerable or inconsiderable. Article 657 of the ECC did not tackle the case of inconsiderable increase in price, however, by visiting paragraph 2 of Article 657, which states that ‘When the increase in the price for the execution of the designs is considerable, the employer may rescind the contract and stop the work’. Thus, it could be concluded that if the increase in price was inconsiderable, the employer would not be entitled to rescind the contract and the employer shall be under the obligation to increase the contract price in proportion to the inconsiderable increase. It is up to the judge to determine if the increase in price was considerable or not; if the increase is about ten per cent, this could be treated as an inconsiderable increase in price and is not onerous to the employer. On the other hand, if the increase in price was considerable, Article 657/2 of the ECC entitles the employer to:

‘… rescind the contract and stop the work, provided that he does so without delay and pays the contractor for the value of the work he has executed, estimated in accordance with the terms of the contract, without the employer being liable to compensate the contractor for the profit he would have earned if he had completed the works.’

It is, therefore, apparent that if the increase in price was considerable, the employer would have two options:

• either instruct the contractor to continue execution of the works and the contract price would be increased as detailed earlier; or

• rescind the contract if the considerable increase in price is onerous to the employer. In such case, the employer should, without delay, instruct the contractor to stop the work.

Thus, if the employer is delayed in giving such instruction, the contractor would proceed with the works and assume that the employer has selected the first option and has decided to continue with the works. However, if the employer rescinds the contract in such case, they shall be under the obligation to pay the contractor for the value of the work they have executed, estimated in accordance with the terms of the contract, without the employer being liable to compensate the contractor for the profit they would have earned had the contractor completed the execution of the works.

Finally, it is worth noting that, as provided in this section, when a contract is concluded in accordance with an estimate drawn up on a unit-price basis, if the estimated contract price is exceeded due to a tangible increase in costs, the price cannot be modified. It is intended in Article 657/1 of the ECC that the estimated contract price is exceeded due to a tangible increase in the actual quantities, not due to a tangible increase in the costs. However, the Article does not explicitly stipulate the above. According to legal jurisprudence writings, it is considered that the contractor has taken into consideration before pricing the tender all the reasonable factors that could lead to the increase in the contract price.²⁴ It is up to the parties to include provisions contrary to the above and to allow for fluctuation in prices. However, Egyptian civil law exceptionally allows the parties in certain situations to request an adjustment to their agreement through the application of the theory of unforeseen exceptional circumstances, ‘Théorie de l’imprévision’, provided in Article 147/2 of the ECC. The Article states:

‘If, however, as a result of exceptional and unpredictable events of a general character, the performance of the contractual obligation, without becoming impossible, becomes excessively onerous in such a way as to threaten the debtor with exorbitant loss, the Judge may, according to the circumstances, and after taking into consideration the interests of both parties, reduce the onerous obligation to reasonable limits. Any agreement to the contrary is void.’

In order for the above theory to be applicable, the following conditions must be fulfilled:

• the existence of a contractual relationship stretched over time;

• the occurrence of an exceptional event that has a general character after the conclusion of the contract, for example, occurrence of war or sudden strike or flood;

• the exceptional event should have not been foreseen at the time of conclusion of the contract;

• the event is inevitable and unavoidable;

• the event renders the performance of the contractual obligation excessively onerous and threatens exorbitant losses; and

• the event should not render the performance of the contractual obligation impossible, otherwise this would be considered a force majeure event.

If the above conditions were fulfilled, the theory would apply and the judge may reduce the onerousity of the exorbitant obligation to reasonable limits. The judge has a wide discretion in this regards; they may reduce the obligations of the party suffering from the exceptional event, increase the contract price, or suspend the works until the exceptional event has stopped. If the judge increases the contract price, they would only decrease the losses of the party suffering from the exceptional event, but shall not reimburse them for all the losses incurred due to the event. It is further noted that the judge may not rescind the contract. Further, the theory of unforeseen exceptional circumstances, as stipulated under Article 147/2 of the ECC, is mandatory and is applicable to contracts entered into both on a unit price basis and lump sum basis.

If the contractor encounters unforeseeable physical conditions and this results in additional costs to the contractor (ie, there is an increase in the price of the execution of the works), it is important to differentiate in such a situation between the case when the increase in price is due to an increase in the quantities caused by unforeseeable physical conditions and the case when the increase in price is due to increase of costs of executing the same quantities by reason of unforeseeable physical conditions.

In the first case, if the increase in price is due to an increase in the quantities caused by unforeseeable physical conditions and such increase in quantities was intangible, then the contract price shall increase in proportion to that increase in quantities and the employer has no other option in such situation.²⁵ However, if there is a tangible increase in the actual quantities compared to the estimated quantities in the bill of quantities at the time of entering into the contract, for example, if there was a specific estimated quantity for foundation in the bill of quantities and, upon execution, it turned out that the actual quantities exceeded the estimated quantity due to encountered unforeseeable physical condition, and such excess was tangible, then the contractor’s entitlement to the increase in price, if a contract is entered into in accordance with an estimate on a unit-price basis, as per Article 657 of the ECC, will be fulfilled. Thus, if the contractor gives notice to the employer of such increase as soon as the contractor has been aware of it, the contractor should be entitled to the increase in the contract price, as a result of such tangible unforeseeable increase in the quantities attributed to the encountered unforeseeable conditions.²⁶ Furthermore, if the increase in the price is considerable, the employer may rescind the contract, in accordance with the provisions of Article 657/2 of the ECC.

In the second case, under Egyptian civil law, when the increase in price is due to increase of costs of executing the same quantities of work by reason of unforeseeable physical conditions encountered, the contractor, in such case, shall not be entitled to increase in the contract price, even if the increase in price is tangible. That is because it is considered that the contractor has taken into consideration before pricing the tender all the reasonable factors that could lead to price increase.²⁷

It is interesting to note in the above connection that the scholars differ in their legal basis of the case when the contractor encounters unforeseeable physical conditions that result in increase in their costs, that such increase is unforeseeable, of a general character, is inevitable and unavoidable and the event renders the performance of the contractual obligation excessively onerous and threatens exorbitant losses.

Some scholars argue that, under Egyptian civil law, the theory of unforeseen exceptional circumstances does not apply to the case when the soil on which the building is to be constructed includes groundwater table, which entails using foundation that would result in additional costs than estimated. Such opinion submits that the legal basis in such a case is that the contractor may request annulment of the contract on the basis of the commitment of a material mistake. That is because the contractor accepted to enter into the contract at the estimated contract price, based on the material conditions of the soil. Thus, if the conditions turned out to be different, the contractor is considered to have committed a material mistake. If the employer was willing to continue performing the contract, they can negate such annulment by increasing the contract price by an extent proportional to the increase in costs as a result of such mistake. That is in accordance with the provisions of Article 124/1 of the ECC which provides that: ‘A party who has committed a mistake cannot take advantage of the mistake in a manner contrary to the principles of good faith’.²⁸

The aforementioned argument coincides with the provisions of French law, where Article 1147 of the FCC stipulates that: ‘If the debtor does not prove that the non-performance/the delay in performing is due to an external cause, he shall be ordered to pay damages even in absence of bad faith’. It is contended that the corollary of this rule is that damages should not be due if the debtor was prevented from performing by reason of force majeure or of a fortuitous event, as provided in Article 1148 of the FCC. However, it is submitted that:

‘[T]he concept of force-majeure does not include the unforeseeable physical conditions, eg, those related to the ground (risque du sol). The most important consequence of this rule is that in the case of lump sum contracts (marché à forfait), the contract price is quasi-untouchable, as additional works caused by unforeseeable conditions have to be carried by the contractor as long they are necessary and do not affect the object and general economy of the contract’.²⁹

In addition, the employer does not have to bear the additional costs related to unforeseeable physical conditions of the soil, under French consumer law. That is in accordance with the Code de la Construction et de l’Habitation (CCH), where the responsibility for unforeseeable physical conditions related to the ground shall be borne by the contractor, who has a general duty of inspecting the site while working in the so-called secteur protégé.³⁰

On the other hand, some scholars argue that, under Egyptian civil law, if the contractor encounters unforeseeable physical conditions that result in increase in his costs, then the theory of unforeseen exceptional circumstances will be applicable. For instance, if the soil on which the building is to be constructed includes ground water table, which entails using foundation that would result in additional costs than estimated, then this would be considered an exceptional event, subject to the theory of unforeseen exceptional circumstances. It is further an event of general character, as it is not related to this contractor in specific. It is noted in this regards, that there is no difference if the event did not occur after entering into the contract, but existed before entering into the contract, yet was not foreseeable; both cases are considered not to have been taken into consideration at the time of entering into the contract. This opinion further states that, under French law, the first opinion is the one applicable, however, that is because the theory of unforeseen exceptional circumstances does not exist in French law, thus, the theory of material mistake provides a fair solution in the absence of an express provision, yet, under Egyptian law, there is an express provision in the law, thus there is no need to find another legal basis.³¹

It is thought that the second opinion is the one more applicable to Egyptian civil law. That is because first, there is an express provision related to unforeseen exceptional circumstances. Second, if it is well accepted, under Egyptian civil law, that the case if the building was totally or partially destructed or if damages occur to the building due to problems in the soil that could not have been discovered by precise technical inspection or tests by experienced engineers, is a force majeure event,³² and since such event is considered not to have been taken into consideration at the time of entering into the contract, then it is envisaged that such event would be exceptional, as per the provisions of the theory of unforeseen exceptional circumstances, if the remaining conditions of the theory are fulfilled. Thus, the second opinion will be adopted in this research.

It is worth noting that the provisions of Sub-Clause 4.12 (Unforeseeable Physical Conditions) of the FIDIC (CONS) are to a large extent echoed in a theory under the administrative law, known as the ‘theory of unforeseen physical obstructions’ or ‘Théorie des sujétions imprévues’;³³ however, the said theory is out of the scope of this article, as it applies only to administrative contracts.

The provisions of the unforeseeable physical conditions under the FIDIC (CONS) and under Egyptian civil law – comparative analysis

As aforementioned, Sub-Clause 4.12 (Unforeseeable Physical Conditions) of the FIDIC (CONS), provides that if the contractor encounters physical conditions which are both unforeseeable and adverse and provided that the contractor gives a notice to the engineer under this Sub-Clause 4.12, and if the contractor suffers delay to completion and/or incurs cost as a result of such event, the contractor shall be entitled to an extension of time and payment of such cost, subject to Sub-Clause 20.1 (Contractor’s Claims) of the FIDIC (CONS).

By checking this provision against the provisions of Egyptian civil law, being the applicable law of the contract, it is noted that according to the provisions of Article 215 of the ECC, if the contractor proves that the performance of their obligation was delayed by an external cause beyond his control, the contractor would be exempted from paying damages for the delay in performance. The external cause in such event is the contractor encountering unforeseeable adverse physical conditions. Thus, under both the FIDIC (CONS) and Egyptian civil law, the contractor is relieved from the damages for delay, noting that the claim could be time barred under Sub-Clause 20.1 of the FIDIC (CONS), which 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,