It is common for construction contracts to require a party to give timely notice of claims to the other. Most standard form contracts provide some mechanism to regulate the giving of such notices and the likely consequences that will arise if notices are not given as stipulated in the contract. This article analyses some of the implications that flow from the insertion of notice provisions in construction contracts, with anecdotal references to the impact of these clauses in Southeast Asia.
Notification Requirements – the rationale
Parties usually insert notice requirements in their contracts so that they are informed of any impending claims that may be made against them. This enables the parties to keep track of the various issues that arise under the contract, consider their financial implications and issue instructions, as appropriate. Timely notification of claims also gives the parties the greatest time possible to deal with these issues. More generally, long-standing experience suggests that potential claims are most effectively tackled quickly, when the facts are still fresh in the minds of the parties and before positions have hardened.
The requirement to notify also has some disadvantages. Issuing a formal notice at an early stage of the contract could serve to entrench the position of the parties at a time when informal discussions may have been sufficient to completely solve the issue. Also, a contractor who properly complies with the notification requirements may be unfairly branded as being claims-oriented or confrontational. This could in turn affect the relationship between the employer and the contractor during the life of the contract.
There are some differences in the way various standard form contracts treat this issue – some forms of contract are more prescriptive as to form and content and possible consequences, while others adopt a more flexible approach. But most standard form contracts – both globally and regionally – have resolved the competing benefits associated with notification obligations in favor of recognizing the need for issuing notice of claims.
Construction contracts generally require that notice be given in writing. The degree of detail required in the notices may sometimes be specified in individual contracts but at the very least a notice must contain such information as clearly outlines the purpose of the notice and what is required out of the other party. In each case, it is important to consider the requirements stipulated under the respective contract – some of which may be unusual. For example, the PAM Standard Form of Contract, which is routinely used in building contracts in Malaysia, requires acknowledgement of receipt as evidence of delivery, even where a notice is delivered by hand. This is to avoid situations where non-receipt is alleged.
These requirements may be considered 'directory' rather than 'mandatory', and non-compliance may not be fatal. But the effect of such clauses can only by ascertained by considering the exact wording of the contract and the governing law. To avoid the need to consider these issues, parties must aim to comply with any formal requirements imposed under the contract.
Time Limits and Continuing Losses
Often construction contracts will require that notice of an intention to claim or notice seeking an extension of time be given within a certain number of days of the event giving rise to the default. By way of example, Clause 20.1 of the FIDIC Red Book provides that contractors are required to give notice of claims "as soon as practicable, and not later than 28 days after the Contractor became aware, or should have become aware, of the event of circumstance."
These requirements could sometimes even be imposed by statute. For example, Decree No.48/2010/ND-CP that was recently passed in Vietnam to regulate construction contracts governing projects with greater than 30% state funding provides: "Within 30 days after detecting matters incompatible with the signed contract, the detecting party shall promptly notify the other party of such contents and complain about these matters. Past that time limit, if no party lodges a complaint, the parties shall comply with signed agreements."
These requirements can sometimes cause difficulties. For example, a party may not be aware of the event giving rise to a claim until sometime after they occur. In contracts which require notice within a short period after the contractor should have become aware of those events, this could be potentially problematic.
Also, in circumstances where an event or delay is continuing, or where the contractually prescribed time limit is short, it may not be possible to give the level of detail required within the prescribed period.
Unfortunately, these problems cannot be easily tackled. However, experience suggests that provided a party has done its utmost to comply with any notice requirements, an arbitral tribunal or court is likely to be sympathetic to the party making a claim.
Notices as Condition Precedent
A construction contract quite often provides for a notice as a condition precedent to an entitlement to a claim or extension of time. If successful, such a clause could potentially disentitle a party to make a claim if it fails to comply with the notice requirements stipulated in the contract. An illustration is afforded by the case of Ho Pak Kim Realty Co Pte Ltd v Revitech Pte Ltd,  SGHC 106 that was decided by the High Court in Singapore. The relevant clause in the case provided:
"It shall be a condition precedent to an extension of time by the Architect under any provision of this Contract including the present clause (unless the Architect has already informed the Contractor of his willingness to grant an extension of time) that the Contractor shall within 28 days notify the Architect in writing of any event or direction or instruction which he considers entitles him to an extension of time, together with a short statement of the reasons why the delay to completion will result."
The court upheld the plain meaning of the clause and held that compliance with the requirements of this clause was a condition precedent and failure to comply with the requirements disentitled the contractor from an extension of time.
However, failure to comply with notice requirements is not always fatal. The effect of non-compliance depends largely on the wording of the respective contract. For example, the Infrastructure Conditions of Contract provide that in case of failure to give proper notice, the contractor is entitled to payment "only to the extent that the Engineer has not been prevented from or substantially prejudiced by such failure in investigating the said claim."
Disputes over Compliance
It is quite usual in complex and intensive construction projects for contractors and employers to overlook requirements for formal notice or to provide sufficient particulars. This is sometimes the result of contractors/employers not employing sufficient contract managers to pay full attention to these issues. Arguments about compliance with notice requirements are therefore commonplace in construction disputes.
It is not possible to generalize the consequences of a failure to comply with notice requirements. Much will depend on the terms of the contract, the facts of the case and the law applicable. However, in our experience, courts and arbitral tribunals, in many jurisdictions, have often been willing to uphold notice requirements as conditions precedent to claims. Therefore, as discussed in the previous section, failure to comply with the requirements stipulated in the contract could potentially be fatal. At the same time, these clauses are also often interpreted quite restrictively so that they only apply to cases that fall squarely within the ambit of the clause.
There are various arguments contractors and employers world over run to avoid the rigors of such notice provisions. In common law countries such as Singapore and Malaysia, concepts of waiver and estoppel are frequently used, while in civil law countries such as Indonesia and Thailand, the duty of good faith, is often resorted to. Other remedies may also be prescribed in the respective civil codes – for example, the Thailand Civil and Commercial Code provides at Section 597: "if the employer has accepted the work without reservation, the contractor is not liable for the delay in delivery." This can potentially be used by a contractor who has failed to strictly conform with notice requirements where the employer has accepted the work.
The remedy available in each case will depend largely on the legal system and the facts of the case and will require specialist advice. It is not possible to traverse all remedies available within the limitations of this article.
Contractual notice requirements are among the most common clauses that give rise to disputes in construction contracts. Failure to strictly comply with these requirements results in significant resources being devoted to deal with disputes arising out of such non-compliance. These requirements are usually quite straight-forward and can be implemented quite easily by a competent internal program of contract management. It is in the interest of all parties that these requirements are strictly adhered to.