Most construction and engineering contracts require the contractor to give notice to the employer of events or circumstances when they happen as the first step in the process of claiming an extension of time and/or additional cost. It is now becoming more common to see these notice clauses being drafted as conditions precedent to bringing a claim. Even where they are not conditions precedent, non-compliance may still prevent the contractor from recovering its claim in full.
Identifying the relevant notice requirements, and putting in place a system that ensures that correct notices are given on time, is absolutely vital to preserving contractors' claims.
If a notice clause is a condition precedent to a claim, this means that the contractor will lose its right to bring the claim if the notice is not issued in accordance with that clause. It is this Armageddon-effect of conditions precedent that has historically made the courts wary of enforcing notice provisions as conditions precedent to a claim. The traditional approach was that, if a notice clause was to amount to a condition precedent, it had to state a precise time for serving the notice and make it plain by express language that rights would be lost if notice was not given on time1.
More recently, however, the courts have shown a greater willingness to uphold notice provisions in construction contracts as conditions precedent; placing considerable emphasis on the valuable purpose that they serve to employers needing to control time and cost on projects.
In the recent case of Steria v Sigma2, the court considered a contractual notice provision that stated that the sub-contractor would be entitled to an extension of time "provided that the sub-contractor shall have given within a reasonable period written notice to the contractor of the circumstances giving rise to the delay". The clause did not give a precise number of days for service of the notice, nor did it contain an express warning that rights would be lost if notice was not given. The court, however, considered that the notice provision was a valid condition precedent. The judge's view was that the meaning and intent of the clause was not affected by the fact that there may be scope for arguing that the notice was not given within a reasonable period following the event. Further, the judge said that a notice provision does not need to contain an express warning as to the consequences of non-compliance to operate as a condition precedent; this was sufficiently clear from the words "provided that".
Ordinary notice requirements
Even if a notice clause is not drafted as a condition precedent, this does not mean that a contractor can safely disregard the notice obligations. In the case of Merton v Leach3, the court held that the contractor's failure to issue the contractual notice of delay was itself a breach of contract and this could have an effect on the contractor's entitlement to an extension of time. If the employer was not able to avoid or reduce the delay because it had not received the notice of delay in time, then the contractor should not be entitled to an extension of time that was greater than if it had given the notice on time and the employer had thereby been able to avoid or reduce the delay.
Some contracts contain express provisions that reflect the ruling in Merton v Leach. For example, Clause 20.1 'Contractor's Claims' of the FIDIC 1999 standard forms provides that any extension of time and/or additional payment shall take account of the extent to which the contractor's failure to comply with the relevant notice provisions has prevented or prejudiced a proper investigation of the relevant claim.
Effective contract administration
Compliance with notice requirements, whether conditions precedent or not, is therefore essential. Ideally, in-house legal departments should take time at the start of a project to go through the contract with the project (or claims) manager and identify the relevant notice requirements, in particular:
- What matters need to be notified? Matters caused by the employer, or any claim?
- How much detail needs to be given?
- What type of evidence needs to be given in support of the claim4?
- When the notice needs to be given: within a "reasonable period", or a specified number of days, and when is that time to run from?
- The form of notice: oral, or written? If written, does it need to be given in a special or agreed format?
- How often does the notice need to be up dated?
- Who to: the employer, engineer, lenders, or any other interested parties?
Where the contract contains a number of differing notice clauses, it is a good idea to draw up template notices that the project manager can use when a relevant event occurs. By doing this there should be less risk of a notice being held to be invalid because it was not given properly.
In some cases a failure to issue the required notice will result in rights being lost, in others it may limit the contractor's entitlement to extension of time and/or additional cost claimed.
Contracts vary considerably depending on the nature of the works and risks involved. Each contract should therefore be checked in order to identify exactly what the relevant notice requirements are. Procedures should be put in place on site to ensure that the relevant notices are issued as required when events and claims arise.