It is undeniable that UAE is now facing the onslaught of the global financial crisis. Although UAE’s oil revenue has cushioned the impact of the crisis to some extent, the speed in which the impact of the crisis is spreading across the real estate and construction industries, particularly in Dubai, is unprecedented.
The number of construction projects being scaled back or even suspended is on the rise. Consequently, we have been receiving an increasing number of enquiries and instructions from employers and contractors involving suspension and termination issues. Inevitably, some projects will fall into dispute whenever a party decides to suspend or terminate the contract. A dispute or a chain of disputes may occur at any level, be it between the master developers and sub-developers, sub-developers and its consultants or contractors, or down to the level between the contractors and its sub-contractors and suppliers.
Very often in construction contracts disputes, it is when parties have no choice but to resort to either arbitral or court proceedings to resolve their disputes will they learn (often the hard way) the words of wisdom of Max W Abrahamson when he wrote in his book entitled “Engineering Law and the I.C.E. Contract”:
“A party to a dispute, particularly if there is arbitration, will learn three lessons (often too late): the importance of records, the importance of records and the importance of records.”
This article will point out the importance of documents and records (especially contemporaneous documents and records) in relation to construction contracts claims. The author hopes that it will serve as a timely reminder to employers, contractors and sub-contractors the importance of managing their documents and records during the challenging times ahead.
The role of documents and records
Any astute employer, consultant or contractor will agree that it is crucial to have a good document or record management system in place before running a construction or engineering project. It is an indispensable part of project risk management.
Despite the consensus, many still succumb to the harsh reality of their claims being discounted or thrown aside by an arbitral or judicial tribunal due to the lack of contemporaneous documentary evidence to establish their entitlements. On the other hand, for the party who is defending against a claim or is pursuing a counterclaim, the lack of contemporaneous documentary evidence to support its defence or counterclaim will cause that party to face the prospect of its case being discredited if not thrown out.
Construction claims are notorious for its appetite to involve huge volumes of documents. Sometimes the exorbitant costs and expenses for compiling and preparing a claim deter a claimant from pursuing its claim. It is not surprising to find situations when a claimant would submit huge volumes of documents hoping the sheer volume of the documents would somehow convince the less informed opponent that the claim is bullet-proof, when in fact it lacks the relevant documents to establish its entitlements..
A claimant (or a defendant who asserts a positive defence) is legally obliged to prove its case. To succeed, a claimant needs to be able to produce documents or records to establish one or more of the following key elements required in any claims (the same principles applies to a defendant’s case):
• the historical or factual events which gave rise to a particular claim. And the claimant’s legal rights in relation to the said claim. Such rights can arise from a number of circumstances, for example: – when the other party breaches a term of the contract or an obligation it owes to the claimant under the governing law of the contract; or – when an event specified in the contract or under the governing law which entitles a party to make a claim arises.
• the causal connection between the occurrence of the particular breach or specific claim event and the additional cost and time incurred or loss suffered by the Claimant; and
• the amount of the particular cost or time incurred, or loss suffered by the claimant.
A claimant will fail in its claim if it is unable to produce sufficient evidence to substantiate its legal entitlement (the first element above). However if the claimant is able to prove its entitlement but unable to satisfy one or more of the remaining elements, then its claim would be at risk of being denied or discounted for failing to establish the causal connection between the particular breach or claim event and the particular cost or time incurred or loss suffered. This type of claim is popularly known in the construction industry as a “global claim” or “rolled-up claim”.
Documents that are relevant to a construction claim
Depending on the nature of the claim, documents or records that are needed to establish each of the three key elements discussed above can be made up from various types or forms of documents. The following documents are usually relevant:
• The contract itself including the various attachments that form the contract (conditions of contract, bill of quantities, specifications, drawings, etc)
• Pre-contract documents (tender documents, contractor’s rates build up records, taking-off sheets, etc)
• Works programs (baseline program, current progress program, as-built program, etc)
• Drawings (tender drawings, construction drawings, shop drawings, drawings register, etc)
• Progress records, reports and photographs
• Head office and site office’s correspondence including telephone records, minutes of meetings, etc
• Various written instructions, approvals, requests, confirmations, certificates, notices, claims and etc issued by various parties involved in the project (employers, consultants, contractors and sub-contractors including local authorities and other regulatory bodies)
• Daily records (site diary, plant and manpower records, weather charts, material delivery records, health and safety records, etc)
• Financial or costing records (Daywork records, plant hire records, purchase orders, delivery orders, invoices, petty cash records, site and HQ overheads records and other accounting records)
How documents are used to establish a successful claim
Construction claims often involve complex and convoluted chain of events from the source event which gave rise to the claim down to the resulting effects of the particular claim. Furthermore, a claim based on a single event may, depending on its impact to the works, constitute a number of sub-claims. For example, a claim by a contractor for additional payment and time as a result of design changes instructed by its employer or the consultant could give rise to a number of sub-claims as follows:
• A claim for variation work as a result of the design changes involving additional work and material compared to the original design;
• A claim for disruption as a result of the contractor re-arranging or re-sequencing its works pending issuance of the new design/construction drawings;
• A claim for extension of time and prolongation costs as a result of late issuance of the new design/construction drawings.
Based on the above illustration, in order to succeed, the claimant would need to be able to extricate from a chain of events the factual occurrences that can establish each of the three key elements (discussed in the section above) for each of its claims.
With reference to the first bullet point example above, a claim for variation under the standard FIDIC Red Book (1987 edition) would require the contractor to produce documents and records to establish that the changes to the design fell within the meaning of variation as contemplated under Clause 51 of the Red Book. The claimant then needs to show that the Engineer had issued a variation instruction in respect of those changes.
If assuming the Engineer had only given an oral instruction to the contractor in respect of the design changes, then by reason of Sub-Clause 2.5, the contractor will need to produce document or record to prove it had written to the Engineer to confirm the oral instruction. The contractor would also need to show that its written confirmation had not been contradicted by the Engineer within 7 days of the written confirmation. These documents or records would serve to prove that the oral instruction did in fact occur and the timing of the occurrence, which may become relevant depending on the issue at hand.
As to a claim for extension of time under the Red Book, the claimant in the above illustration would need to be able to produce documents and records to establish that the changes to the design fell within one of the category of events under Sub-Clause 44.1 (which will entitle the claimant to an extension of time). In addition, the claimant would also need to show, again by documents and records, that it has satisfied the claim procedural requirements according to Sub-Clauses 44.2 and 44.3.
Pursuant to the Red Book’s standard conditions, contractors are obliged to produce and maintain contemporaneous documents and records in order to establish their claims for additional payment and time (see Clauses 44 and 53). The fact these documents and records were made during the time in which a particular event took place, if not shortly thereafter, gives credence to the veracity and accuracy of matters stated in those documents and records.
In the absence of contemporaneous documents or records, a claimant would face a challenge in establishing what had happened in the past. Without any other corroborating or supporting evidence, mere reliance on witnesses’ memory to recreate past events may not be convincing or sufficient to discharge a claimant’s burden of proving its claim. Worse still, if the particular witness was not even directly involved in the events that gave rise to the claim or the events that followed.
Conclusion
There remain uncertainties in the near future as to the sustainability of ongoing or even new projects, but one thing is certain, that is, for all industry players alike, it will be challenging times ahead for everyone. In times like these, all parties to a construction contract need to be extra vigilant to ensure good document and record management policy and system are in place.
Construction claims should ideally be managed and resolved during the course of the construction. However, very often such claims escalate into formal disputes between the parties causing the project to be suspended or even terminated because accurate and detailed records of events were not kept thereby neither party could accept or be convinced of the other party’s case. Therefore, meaningful resources should be used to ensure that a good document management policy and system are implemented. It will be money and time well spent in implementing such a policy and system as oppose to the parties engaging in protracted negotiations or litigation to resolve their dispute.
Careful thoughts should be given to formulate a document management system. The Society of Construction Law Delay and Disruption Protocol published in October 2002 (see www.eotprotocol.com) is a good starting point. It provides excellent guidelines and recommendations in relation to keeping of records (see Appendix C of the protocol). In any event, one should always keep in mind of the three key elements of a claim discussed earlier in this article.
www.tamimi.com