Law Middle East - May 2024
The recent extreme weather events in the UAE, characterised by unprecedented rain and flooding, serve as a stark reminder of the broader implications such severe weather can have on construction projects. We explore these implications, focussing specifically on extensions of Time for Completion (EOT) and recovery of remedial costs under the FIDIC Red Book editions of 1987 and 1999, the most commonly used standard form contracts for construction projects in the UAE and many other parts of the world.
Contractors’ Entitlement to Extension of Time
EOT claims for “exceptionally adverse climatic conditions”
Both the 1987 and 1999 editions of the FIDIC Red Book give a Contractor the right to claim an EOT in the event of “exceptionally adverse climatic conditions” pursuant to Sub-Clauses 44.1(c) [Extension of Time for Completion] and 8.4(c) [Extension of Time for Completion], respectively. Neither edition defines what constitutes exceptionally adverse climatic conditions. However, some guidance is provided by the FIDIC Contracts Guide (2000), which states:
“In order to establish whether such climatic conditions occurred, it may be appropriate to compare the adverse climatic conditions with the frequency with which events of similar adversity have previously occurred at or near the construction site. An exceptional degree of adversity might, for example, be regarded as one which has a probability of occurrence of 4 to 5 times the Time for Completion of the Works.”
The FIDIC Contracts Guide thus suggests that the frequency with which events of a “similar adversity” have previously occurred at or near the project site is key to determining the exceptional nature of an adverse climatic event, a ‘historical’ approach adopted by other standard form contracts. The guidance further suggests that an “exceptionally adverse event” might be one with a probability of occurrence which is 4 to 5 times the duration of the works.
Applying FIDIC guidance to a 5-year construction contract, for example, a weather event may qualify as “exceptionally adverse” if it has a probability of occurring only every 20 to 25 years. One obvious consequence of this is that for contracts of a longer duration, it may be more difficult to establish that an adverse event has occurred as the applicable timespan taken into consideration would be broader. Despite this, in the case of extreme events like the unprecedented rainstorms the UAE experienced on 16 April 2024, a Contractor may encounter little difficulty in meeting the threshold for ‘exceptional’ climatic conditions (according to the UAE’s media office, the country had not experienced such high levels of rainfall since 1949, when records began).
Regardless of the methodology and frequency parameters used, in order to substantiate an EOT claim, a Contractor will almost inevitably need to produce comparisons between historical climatic data pertaining to the Site and data regarding the “exceptionally adverse climatic conditions” experienced at the Site. This will require examining historical climatic records from the relevant meteorological institution (or, preferably, a weather station close to the Site) as well as any weather data included in the Contract Data.
Moreover, it is important to note that the occurrence of an exceptional weather event does not automatically entitle a Contractor to an EOT. Once it is established that the weather conditions were exceptional, a Contractor is still required to demonstrate their “adverse” impact on the construction timeline as construction projects consist of multiple activities and works, some of which may be unaffected by weather conditions, and not all the delays to the works will be “critical delays”. Contractors will therefore be required to demonstrate that the delay claimed affects the Time for Completion.
Interestingly, the 2017 edition of the FIDIC Red Book requires that the adverse weather event in question must occur at “Site”, which is defined as “the places where the Permanent Works are to be executed and to which Plant and Materials are to be delivered, and any other places specified in the Contract as forming part of the Site”, thus excluding weather events taking place outside the region or country where the Site is located. However, neither the 1987 edition nor the 1999 edition expressly requires that the adverse weather event must occur at “Site”, though the aforementioned FIDIC Contracts Guide (2000) suggests that is the natural inference.
EOT claims for Employer’s Risks
In the event that the provisions permitting an EOT for “exceptionally adverse climatic conditions” have been omitted as an event giving rise to an EOT entitlement through the Special/Particular Conditions, as is sometimes the case, the FIDIC General Conditions provide alternatives routes for relief. These are explained below.
Red Book – 1999 edition
Under the 1999 edition, a Contractor may be entitled to an EOT under Sub-Clause 17.4(a) [Consequences of Employer’s Risks] if the Contractor suffers delays from rectifying any damage or loss due to “any operation of the forces of nature which is Unforeseeable or against which an experienced contractor could not reasonably have been expected to have taken adequate preventative precautions” (Sub-Clause 17.3(h) [Employer’s Risks]).
Based on the wording of Sub-Clause 17.3(h), a Contractor would need to establish one of the following alternative grounds: (i) that the events were “Unforeseeable”; or (ii) that, even if the events in question were not Unforeseeable, the Contractor “could not reasonably be expected to have taken adequate preventative precautions”.
“Unforeseeable” is defined in Sub-Clause 1.1.6.8 as “not reasonably foreseeable by an experienced contractor by the date for submission of Tender”. Again, the FIDIC Contracts Guide (2000) suggests a historical approach whereby the question of whether a natural event is “Unforeseeable” may be resolved by reference to the statistical frequency of that event measured against the duration of the Time for Completion. What is “reasonably foreseeable” by an experienced Contractor will also depend on the information and data, if any, made available to the Contractor by the Employer and forming part of the Contract Data. As discussed above, given their unprecedented nature, a Contractor is likely to be able to successfully argue that the severe rain and flooding experienced by the UAE on 16 April 2024 were unforeseeable based on historical records.
Establishing that the Contractor “could not reasonably be expected to have taken adequate preventative precautions” will likely depend on a number of factors, including the likelihood of the event and the preventative measures which were reasonably required to avert the damage suffered, taking into account any advanced warnings the Contractor was or ought to have been aware of. These could include weather warnings issued by national meteorological institutions or local weather stations which may have afforded the Contractor sufficient time to protect the works, assuming protection was possible.
Finally, it is worth emphasising that a Contractor’s right to claim an EOT under Sub-Clause 17.4(a) [Consequences of Employer’s Risks] is limited to the event of the Contractor being instructed by the Engineer to rectify any damage caused by the unforeseeable weather events in question and suffering critical delays as a result. Accordingly, in circumstances where the delay is caused by anything other than executing remedial works, the Contractor will not be able to rely on this provision.
Red Book – 1987 edition
The 1987 edition similarly identifies, among other risks, “any operation of the forces of nature against which an experienced contractor could not reasonably have been expected to take precautions” as an Employer’s Risk (Sub-Clause 20.4(h) [Employer’s Risks]).
Likewise, it contains a requirement that the Contractor must demonstrate that it could not reasonably be expected to have taken adequate preventative precautions in respect of the weather events in question. However, while under Sub-Clause 17.3(h) of the 1999 edition a Contractor may rely on an alternative ground, namely that the weather events were simply “Unforeseeable” — which arguably imposes a less demanding requirement, at least in the context of the 16 April 2024 events — such ground is not available under Sub-Clause 20.4(f) of the 1987 edition.
Unlike the 1999 edition, the 1987 edition does not expressly provide for the Contractor’s entitlement to an EOT in respect of a natural event — there is no provision equivalent to Sub-Clause 17.4(a) [Consequences of Employer’s Risks]. However, this relief is likely to be available under Sub-Clause 44.1(e) [Extension of Time for Completion], which includes a catch-all provision covering “special circumstances”. This provision likely extends to delay or damage stemming from an Employer’s Risk.
Existing Delays
It is also worth pointing out that a Contractor’s entitlement to an EOT may depend on any existing delays to the works. The General Conditions of the 1987 and 1999 editions of the FIDIC Red Book do not address scenarios involving multiple causes of delay. A Contractor’s right to an EOT will therefore depend on the provisions set out in the Special/Particular Conditions and/or the position under the governing law of the contract. In circumstances where, at the time of the occurrence of the adverse weather events in question, the works were already suffering from delays which were the Contractor’s fault, the Contractor may be precluded from claiming an EOT. Contractors will therefore need to assess their contractual position carefully when considering making an EOT claim.
EOT claims – Force Majeure/Special Risks
Red Book – 1999
While a Contractor could also potentially invoke Clause 19 [Force Majeure], this would be of no practical benefit insofar as an EOT claim is concerned given the availability of the same relief under Sub-Clause 8.4(c) [Extension of Time for Completion] and the higher threshold imposed by Clause 19.
Clause 19 provides that a Contractor is entitled to an EOT in respect of critical delays resulting from a Force Majeure event which prevents the Contractor from performing any of its obligations. A Force Majeure event is defined in Clause 19.1 of the 1999 Red Book as an “exceptional” event or circumstance which (a) is beyond a party’s control, (b) such party could not reasonably have provided against before entering into the contract, (c) having arisen, such party could not reasonably have avoided or overcome, and (d) is not substantially attributable to the other party.
When considered on their own terms, these requirements do not appear to be exceedingly demanding, especially considering the exceptional nature of the 16 April 2024 weather events in the UAE. However, Clause 19.1 further states that “Force Majeure may include, but is not limited to exceptional events or circumstances of the kind listed [under sub-paragraphs (i) to (v)]” (emphasis added). Of particular relevance, sub-paragraph (v) refers to “natural catastrophes such as earthquake, hurricane, typhoon or volcanic activity” (emphasis added). While the list of Force Majeure events in sub-paragraphs (i) to (v) of Clause 19.1 is expressly stated to be non-exhaustive, it is likely that the events envisaged by Clause 19 will need to be of a similar severity or magnitude. Accordingly, Employers are likely to argue that, while exceptional, the weather events of last month do not satisfy the threshold of severity or magnitude of a Force Majeure event (such as a “natural catastrophe”) required to trigger Clause 19.
Further, the Contractor must also demonstrate that it is actually “prevented” from performing its obligations (mere disruptions, however severe, or performance becoming more expensive, are not sufficient) which may not be applicable or are difficult to prove. By contrast, Sub-Clause 8.4(c) [Extension of Time for Completion] only requires the Contractor to prove an adverse impact on the construction schedule.
Red Book – 1987
Similar considerations apply to the 1987 edition of the Red Book, although this does not include an express clause dealing with Force Majeure events, but similar provisions can be found in Clause 65 [Special Risks].
Liability for Damage Resulting from Adverse Weather Events
Adverse weather events also raise questions regarding parties’ liability for damage to the works.
Employer’s Liability
Employers will be liable if the Contractor is successful in establishing that the adverse weather events in question constitute an Employer’s Risk for the purposes of Sub-Clause 17.4(b) [Consequences of Employer’s Risks] (1999 edition) or Sub-Clause 20.3 [Loss or Damage Due to Employer’s Risks] (1987 edition) (for which see Section “Contractors’ Entitlement to Extension of Time — EOT claims for Employer’s Risks” above). As discussed above, the severity and unprecedented nature of the weather events would need to be taken into account.
Neither the 1987 edition nor the 1999 edition of the FIDIC Red Book imposes on the Employer liability for costs incurred by the Contractor in respect of Force Majeure events amounting to “natural catastrophes” or events of a similar kind — both Sub-Clause 19.4(b) (1999 edition) and Sub-Clause 65.2 [Special Risks] (1987 edition) omit “natural catastrophes” or events of a similar kind from the list of risks entitling the Contractor to financial compensation for damage. Accordingly, even in the event that a Contractor were to establish that the weather events of 16 April 2024 constitute a Force Majeure event, it would not be able to claim any related costs.
Contractors’ Liability
A Contractor will be responsible for the costs associated with damage to the works and goods unless it can successfully prove an Employer’s Risk. However, even if the Contractor establishes an Employer’s Risk, the Employer may still contend that damage coinciding with the adverse weather events in question was, in fact, due to defects in the works, for which liability falls on the Contractor, not the Employer. For instance, an Employer may argue that damage or loss caused by leaks was the result of defective workmanship or materials employed in the construction of the roofing system.
A Contractor is responsible for rectifying defects and resulting damage itself from the Commencement Date through to the issuance of the Taking-Over Certificate, and until the end of the Defects Notification Period/Defects Liability Period (DNP/DLP) (Clause 11 [Defects Liability], 1999 edition; Sub-Clause 49.1 [Defects Liability Period], 1987 edition) which may range from six months to two years. Failure by the Contractor to comply with the Employer’s instructions to carry out remedial works gives the latter the right to carry out remedial works (or instruct a third party to carry out such works) and seek compensation for the same (Sub-Clause 11.4 [Failure to Remedy Defects], 1999 edition; Sub-Clause 49.4 [Contractor’s Failure to Carry Out Instructions], 1987 edition).
Of course, a Contractor’s liability for defective works continues after the expiry of the DNP/DLP and will be prescribed by the applicable statutory limitation period or any longer contracted period. If a completed project suffered damage as a result of leaks then, on the face of it, the Employer will have a viable claim for damages against the Contractor for defective workmanship.
Conclusion
Extreme weather events have significant legal implications for construction contracts, particularly in relation to Contractors’ entitlements to EOTs and liabilities for damages. Contractors seeking an EOT will want to rely on Sub-Clauses 44.1(c) (1987 edition) and 8.4(c) (1999 edition) and seek to establish that these events amount to “exceptionally adverse climatic conditions”. In the case of extreme weather incidents, such as the unprecedented rainfall experienced in the UAE on 16 April 2024, Contractors may face little difficulties proving their exceptional nature. Nonetheless, Contractors will still be required to clearly substantiate their claims, including by carefully evaluating the relevant weather data and demonstrating how those events in fact delayed the construction schedule.
Additionally, extreme weather events may qualify as an “Employer’s Risk”, in which case the Employer could be held liable for the resulting costs, unless damages can be attributed to pre-existing defects or inadequate workmanship by the Contractor. While this article deals only with the legal position of parties under the General Conditions of the 1987 and 1999 editions of the FIDIC Red Book, given the complexities associated with these claims, both Contractors and Employers would be well advised to thoroughly assess their contractual rights and obligations under the specific terms of their contracts.
