Korean Contractors Legal

Guidance Note
FIDIC Book Claims Procedure
Summer Edition 2014

Introduction
Although the current FIDIC Books all reflect a distinct and consistent policy of encouraging the early
determination of claims, the precise actions of the Engineer (or the Employer under the Silver Book and
Gold Book) following the referral of a Contractors claim are unclear.
Korean construction and engineering contractors working outside
Korea still tend to be shy about notifying and claiming additional
time and/or money. So what we often see is the ethos of
engineering before commercial, and so the storing-up of problems
under a contractual regime that actually demands timely
notification and the real-time ventilation of claims to adjust the
Time for Completion and/or the Contract Price.

The seventh paragraph entitles the Contractor to receive payment

for only such part of any claim which he has been able to
substantiate. The eighth paragraph then concludes this procedure
by directing the Engineer (or Employer) to proceed in accordance
with Sub-Clause 3.5 [Determinations] to agree or determine the
extension of time or additional payment (if any) to which the
Contractor is entitled under the Contract.

In an effort to guide Korean contractors through the difficult

terrain of the construction claims process, this seasons CLGN
highlights the typical sequence of actions following a claim under
Sub-Clause 20.1 of the Red, Yellow & Silver Books, together with
the residual uncertainties therein. More specifically, we focus on
the obligations of the Engineer (or Employer) under Sub-Clause
20.1, which might have been more clearly expressed by the FIDIC
drafting committee. Contractors who are familiar with FIDICs
claims process will be better equipped to manage the progression
of any claim through to payment, and where unavoidable, during
any dispute resolution.

It is within these short passages that the risk of confusion arises.

Sub-Clause 20.1 of the Red, Yellow & Silver Books

Sub-Clause 20.1 is referenced in numerous other sub-clauses of the
Conditions as a provision that bears upon the Contractors
entitlement to an extension of time or additional payment . Its
wording is not identical across all the FIDIC Books. The version
used in the Red, Yellow & Silver Books these still being the most
widely used members of the suite is set out in full at Schedule 1.
Paragraphs five to eight of Sub-Clause 20.1 describe the detailed
procedure for the submission, substantiation, and agreement or
determination of each claim (after its notification).
The fifth paragraph requires the Contractor to issue a fully
substantiated claim with further interim claims at monthly
intervals where the claim has a continuing effect.
The sixth paragraph obliges the Engineer (or the Employer under
the Silver Book) within 42 days, or such other period as agreed by
the parties, to (a) respond with approval, or with disapproval and
detailed comments (at least on the principles of the claim) with
respect to any claim or further particulars supporting a previous
claim and/or (b) request any necessary further particulars.

Whereas the sixth paragraph requires the Engineer (or Employer),

within one of three alternative periods, to respond with approval,
or with disapproval and detailed comments, the eighth paragraph
requires the Engineer (or Employer) to follow Sub-Clause 3.5,
which sets out a procedure involving more than that required
under the sixth paragraph. Specifically, Sub-Clause 3.5 states that:
Whenever these Conditions provide that the Engineer shall proceed
in accordance with this Sub-Clause 3.5 to agree or determine any
matter, the Engineer shall consult with each Party in an endeavour to
reach an agreement. If agreement is not achieved, the Engineer shall
make a fair determination in accordance with the Contract, taking
due regard of all relevant circumstances.
The Engineer shall give notice to both Parties of each agreement or
determination, with supporting particulars. Each Party shall give
effect to each agreement or determination unless and until revised
under Clause 2 [Claims, Disputes and Arbitration].
Thus, Sub-Clause 3.5 envisages consultation with a view to
producing a consensus, and if there is no consensus then the
matter must be determined fairly in accordance with the Contract,
taking due regard of all relevant circumstances.
FIDIC has indicated on its website that what is intended is a
preliminary response with one or more possible rounds of further
particulars, prior to consultations commencing under Sub-Clause
3.5. The precise steps and timings of this procedure are however
quite unclear. FIDIC responds to a query on this issue on the
website above as follows:

In the case of the Red Book, there are 15 such provisions see Sub-Clauses 1.9, 2.1, 4.7, 4.12, 4.24, 7.4, 8.4, 8.9, 10.2, 10.3, 13.7, 16.1, 17.4, 18.1 and 19.4. For the Yellow Book, there are 17 see
Sub-Clauses 1.9, 2.1, 4.7, 4.12, 4.24, 7.4, 8.4, 8.9, 10.2, 10.3, 12.2, 12.4, 13.7, 16.1, 17.4, 18.1 and 19.4. For the Silver Book, there are 13 see Sub-Clauses 2.1, 4.24, 7.4, 8.4, 8.9, 10.3, 12.2, 12.4, 13.7,
16.1, 17.4, 18.1 and 19.4. For the Pink Book, there are 16 - see Sub-Clauses 1.9, 2.1, 4.7, 4.12, 4.21, 4.24, 7.4, 8.4, 8.9, 10.2, 10.3, 13.7, 16.1, 17.4, 18.1 and 19.4. For the Gold Book, there are 15 - see
Sub-Clauses 1.10, 2.1, 4.7, 4.12, 4.24, 7.4, 9.3, 9.8, 10.2, 10.4, 10.7, 13.6, 13.7, 16.1 and 18.4.

Continued on next page >

Firstly, please bear in mind that the Engineers (first 42-day)

response to the Contractors claim will usually be to comment and to
detail what matters the Contractor should take into account in his
further particulars to the Engineer. Thus, there may be quite a few
sequences of Engineers response/Contractors further
particulars before the Engineer can make a determination.
Eventually the Engineer will have no further comment and will be
ready to make a determination in accordance with Sub-Clauses 1.3 &
3.5. Before making a determination, the Engineer consults with both
Parties in an endeavour to achieve their agreement. Consultation
may take such time, so we havent constrained it to six weeks but
merely forbid unreasonable delay (1.3).
One would usually expect the Engineers (final 42-day) response to
express his detailed comments immediately prior to commencing
consultation under Sub-Clause 3.5. If the Engineer commenced such
consultation with the Parties before making his (final 42-day)
response, the Parties wouldnt have his detailed comments and
wouldnt know whether they were agreeable.
One cannot see how the Engineers (final 42-day) response can be
the determination, unless it is the Engineers approval of the claim
and he has obtained the Employers agreement also. The response is
specified to be either approval or disapproval and detailed
comments, but not determination.
Sub-Clause 20.1 sets out a detailed framework for resolving each
claim unless it becomes impossible to do so. However, it should be
regarded as a practical framework, essentially comprising:
Contractors claim/ Engineers response
Contractors further particulars/ Engineers response
maybe another Contractors further particulars/ Engineers
response
possibly another Contractors further particularely, yet another
maybe another Contractors further particulars/ Engineers
response
consultation/agreement or Engineers determination.
Frankly, one would think that competent/experienced personnel
should be adopting such a practical framework without it being
detailed in the General Conditions. FIDIC has put it in so as to assist
others and to discourage procrastination.
In summary, the FIDIC contracts committee anticipates several
rounds of detailed particulars and responses from the Contractor
and the Engineer (or Employer) respectively, followed by the
Engineers approval or disapproval with detailed comments within
42 days, and finally consultation and agreement/determination
under Sub-Clause 3.5, which shall not be unreasonably withheld or
delayed pursuant to Sub-Clause 1.3. Whether any additional time
requested is unreasonable will depend on the circumstances,
including the complexity of the matter2. We have prepared a
diagram showing the procedure above at Schedule 2.

The FIDIC Contracts Guide on the 1999 Conditions for Construction, Plant & DB and EPC/T

The Contractor must decide whether to continue to provide

further particulars in hope of approval or to follow the only other
contractual avenue available to it, namely a reference to the
Dispute Board for resolution under Sub-Clause 20.4 (or other
dispute resolution procedure if no Dispute Board process exists in
the relevant contract), arguing that the Engineer (or Employer) has
sufficient detail to approve or disapprove the claim.
Likewise, without an express time period for determinations, where
Engineers (or Employers) refuse to issue a determination within a
period which is reasonable in the circumstances, the Contractor
must decide whether to continue to negotiate under Sub-Clause
3.5 in hope of reaching an agreement or alternatively to refer the
matter for resolution by the Dispute Board under Sub-Clause 20.4.
For each of these scenarios which risks extending the time it takes
to resolve the claim, a contractor should remain mindful of any
local law statute of limitations (which specify the maximum time
in which a court case or arbitration can be started), some of which
can arise as soon as two years from the contractual breach.
The Pink Books Treatment
FIDICs contracts committee has tried to clarify the procedure it
intends to be provided by Sub-Clause 20 of the Pink Book. The
committee sought to impose a specific time period in Sub-Clause
20.1 for the Engineers (or Employers) consultation and
determination process under Sub-Clause 3.5. Sub-Clause 20.1
expressly provides that the Engineer may request any necessary
further particulars, but shall nevertheless give his response on the
principles of the claim within the above defined time period of 42
days. In addition, the Engineer must within 42 days after reviewing
a claim or any further particulars supporting a previous claim, or
within such other period as may be proposed by the Engineer and
approved by the Contractor, both (1) respond with approval or
disapproval on the principles of the claim, and (2) proceed in
accordance with Sub-Clause 3.5 [Determinations] to agree or
determine on extension of time and/or additional payment to
which the Contractor is entitled.
Although, here, the periods for action are co-extensive, the
sequence by which the Engineer takes the two actions is also
unspecified. Presumably FIDICs website explanation in relation to
the Red, Yellow and Silver Books would hold true to the extent that
the Engineer is expected to request any necessary further
particulars and respond (in the case of a disapproval, with detailed
comments) first, then proceed with consultation in accordance
with Sub-Clause 3.5.

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The issue, of course, with this approval/disapproval and

determination process is that it may be subject to abuse by
Engineers (or Employers) who repeatedly and unreasonably call for
further substantiation, or refuse to issue a determination in a
timely fashion. Indeed the FIDIC Contracts Guide states that there
is no restriction on the number of times the Contractor may
receive and respond to requests for further and better particulars
of a previous claim.

Pinsent Masons | Korean Contractors Legal Guidance Note

While the imposition of a deadline to some extent protects the

Contractor from the unreasonable withholding of approval,
disapproval or determinations, a difficulty arises as to the timing of
this consultation and determination because the FIDIC website
explanation does not envisage both the initial response and action
under Sub-Clause 3.5 being subject to the same period.
Recommendation
FIDIC is unlikely to publish new editions of the Red, Yellow, Silver,
Pink or Gold Books until the Spring of 2015. In the meantime, there
is good reason to straighten-out the procedures for Contractors
claims. This added clarity may avoid any arguments as to the
correctness of the actions taken by the Engineer or Employer (as
the case may be).
In the interim, while expedient submission of full and detailed
particulars is a matter of course for timely resolution of claims
under Sub-Clause 20.1, the Contractor will be wise to insist on the
full compliance with the 42 day period for approval or disapproval
with detailed comments.
Where the Engineer (or Employer) adopts delay tactics or refuses
to make timely determinations under Sub-Clause 3.5, the
Contractor should prepare his claim strategy being fully aware that
often the most powerful course available to him is to indicate an
intention to refer the relevant claim for a Dispute Board decision
under Sub-Clause 20.4.

Schedule 1
Sub-Clause 20.1
1. If the Contractor considers himself to be entitled to any extension of
the Time for Completion and/or any additional payment, under any
Clause of these Conditions or otherwise in connection with the
Contract, the Contractor shall give notice to the [Engineer 3/
Employer4 ], describing the event or circumstance 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.
2. 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. Otherwise, the following provisions of this Sub-Clause
shall apply.
3. The Contractor shall also submit any other notices which are
required by the Contract, and supporting particulars for the claim,
all as relevant to such event or circumstance.
4. The Contractor shall keep such contemporary records as may be
necessary to substantiate any claim, either on the Site or at another
location acceptable to the [Engineer/Employer]. Without admitting
the Employers liability, the [Engineer/Employer] may, after
receiving any notice under this Sub-Clause, monitor the record This applies to the Red Book and the Yellow Book.

This applies to the Silver Book and the Gold Book.

keeping and/or instruct the Contractor to keep further

contemporary records. The Contractor shall permit the [Engineer/
Employer] to inspect all these records, and shall (if instructed)
submit copies to the [Engineer/Employer].
5. Within 42 days after the Contractor became aware (or should have
become aware) of the event or circumstance giving rise to the
claim, or within such other period as may be proposed by the
Contractor and approved by the [Engineer/Employer], the
Contractor shall send to the [Engineer/Employer] a fully detailed
claim which includes full supporting particulars of the basis of the
claim and of the extension of time and/or additional payment
claimed. If the event or circumstance giving rise to the claim has a
continuing effect:
(a) this fully detailed claim shall be considered as interim;

(b) the Contractor shall send further interim claims at monthly
intervals, giving the accumulated delay and/or amount
claimed, and such further particulars as the [Engineer/
Employer] may reasonably require; and

(c) the Contractor shall send a final claim within 28 days after

the end of the effects resulting from the event
or circumstance, or within such other period as may be

proposed by the Contractor and approved by the [Engineer/
Employer].
6. Within 42 days after receiving a claim or any further particulars
supporting a previous claim, or within such other period as may be
proposed by the [Engineer/Employer] and approved by the
Contractor, the [Engineer/Employer] shall respond with approval,
or with disapproval and detailed comments. He may also request
any necessary further particulars, but shall nevertheless give his
response on the principles of the claim within such time.
7. Each [Payment Certificate/interim payment] shall include such
amounts for any claim as have been reasonably substantiated as
due under the relevant provision of the Contract. Unless and until
the particulars supplied are sufficient to substantiate the whole of
the claim, the Contractor shall only be entitled to payment for such
part of the claim as he has been able to substantiate.
8. The [Engineer/Employer] shall proceed in accordance with
Sub-Clause 3.5 [Determinations] to agree or determine (i) the
extension (if any) of the Time for Completion (before or after its
expiry) in accordance with Sub-Clause 8.4 [Extension of Time for
Completion], and/or (ii) the additional payment (if any) to which
the Contractor is entitled under the Contract.
9. The requirements of this Sub-Clause are in addition to those of any
other Sub-Clause which may apply to a claim. If the Contractor fails
to comply with this or another Sub-Clause in relation to any claim,
any extension of time and/or additional payment shall take account
of the extent (if any) to which the failure has prevented or
prejudiced proper investigation of the claim, unless the claim is
excluded under the second paragraph of this Sub-Clause.

Schedule 2
Deadline 1
As soon as reasonably practicable, and not
later than 28 days after the Contractor
became aware, or should have been aware,
of the event or circumstance (20.1, [1])

Deadline 2
42 days after the Contractor became aware
(or should have become aware) of the
event or circumstance giving rise to the
claim, or within such other period as may
be proposed by the Contractor and
approved by the Employer (20.1, [5])

Contractor submits notice of

claim (20.1, [1])

Contractor submits (first)

fully detailed claim including
full supporting particulars
(20.1, [5])

Yes

Engineer requires
further particulars?
No

Contractor submits further

particulars (20.1, [5])

Deadline 3
42 days after receiving a claim or any
further particulars supporting a previous
claim, or within such other period as may
be proposed by the Employer and approved
by the Contractor (20.1, [8])

Engineer responds with

approval or disapproval and
detailed comments
(20.1, [6])

A Party is dissatisfied with

the Engineers response?

Yes

Engineer consults with each

Party in an endeavour to
reach agreement
(20.1, [8] & 3.5)

No

Yes

Parties agree on the claim?

No

Deadline 4
Not unreasonably delayed (1.3)

Engineer gives notice of the

agreement on the claim (3.5)

Engineer makes a
determination and gives
notice of his determination
of the claim with supporting
particulars (3.5)

Payment process

Dispute Board process

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Pinsent Masons | Korean Contractors Legal Guidance Note

For further information please contact:

Vincent Connor
Partner
T: +852 (0)2294 3490
E: vincent.connor@pinsentmasons.com

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Partner
T: +44 (0)20 7418 7000
E: andrew.denton@pinsentmasons.com

Jon Howes
Partner
T: +65 (0)63 050 913
E: jon.howes@pinsentmasons.com

Mark Raymont
Partner
T: +971 (0)4 373 9630
E: mark.raymont@pinsentmasons.com

Nicholas Turner
Senior Associate
T: +852 (0)2294 3393
E: nicholas.turner@pinsentmasons.com

Mohammed Talib
Solicitor
T: +852 (0)2294 3453
E: mohammed.talib@pinsentmasons.com

This note does not constitute legal advice. Specific legal advice should be taken before
acting on any of the topics covered.

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