The presence of condition precedent type clauses in contracts can turn a claim situation on its head
I am often asked to advise on extension of time/loss and expense claims. It usually starts with a call from a contactor client. We talk about what has happened on site, how the works have been delayed as a result and what additional costs have been incurred. It sounds like a good claim – all the facts stack up and it looks a pretty strong case. I then follow up with a request for a copy of the contract, and after a brief perusal I am forced to reconsider the situation.
The presence of condition precedent type clauses in contracts can turn a claim situation on its head. These clauses contain the procedural hurdles to be met by a contractor which crystallise its entitlement under the contract. For example, in the FIDIC form of contract the contractor is to give notice of its time claims within 28 days of whenever he becomes aware or should have become aware of the delaying event. Failure to comply with this requirement means the contractor loses any entitlement to an extension and/or money.
What never ceases to amaze me is the relaxed approach parties take to these types of clauses. I understand that parties want to focus on getting the job done and there is, understandably, no desire to “get contractual” from the start. However, in the case of a clause that can reduce a perfectly good claim to nothing for want of meeting a procedural step, this should focus one’s attention pretty quickly.
Going beyond the standard forms, these types of clauses come in all shapes and sizes and that is why contractors need to be on their toes
I get the impression this attitude is driven by a misconception that such clauses couldn’t possibly operate that way because it would be unfair….an injustice. Whilst I sympathise with this sentiment, the brutal truth is that the law isn’t always about “fairness”: it comes down to what two parties have agreed. The court will be loath to interfere with the bargain the parties struck. This is especially the case for B2B contracts. As long as the clause is clearly worded as to what it is, i.e. a condition precedent, then it will provide an absolute defence to a claim, in the event there is failure in complying with it.
The rationale for these clauses is that the employer can use such procedures to project manage a job. It may be able to reprogramme its own affairs or rescind a variation but it is denied these options if the contractor fails to notify it of its claims within a prescribed period of time. It is not open to a contractor to store up a load of claims and provide a nasty surprise at the end. Yes, requirements such as the NEC’s early warning provisions may seem onerous to operate, but the intention is that the earlier matters get dealt with, the easier it is for all concerned.
Going beyond the standard forms, these types of clauses come in all shapes and sizes and that is why contractors need to be on their toes. I know it will not surprise you that with the involvement of lawyers these clauses can become pretty lengthy and onerous, even if they appear quite anodyne.
The upshot is that if the contractor has not looked at the correct pages of its contract it could face the double whammy of losing its entitlement to loss and expense and being hit for prohibitively high liquidated damages (or delay damages) – even in circumstances where the delay is caused by the employer issuing a variation. Now that’s unfair!
For this reason, if I am a contractor with no option but to accept the inclusion of this type of clause, I would have what I had to do and when I had to do it burned into my mind. There would then be no chance that these clauses – fair or unfair – could halt me at the very first hurdle.
Steven Carey is head of construction and engineering at Speechly Bircham LLP