Contractor’s Claims, Remedies and Reliefs

R. Zachary Torres-Fowler, Albert Bates, Jr. and David E. Harrell, Jr. | Global Arbitration Review

Introduction

Construction and engineering disputes continue to make up one of the largest industry sectors for international arbitration institutions around the world. Given the technical complexity and lengthy duration of many construction projects, disputes are almost inevitable. Contractors must understand their rights and how best to protect their interests during an ongoing project. In the often rough and tumble world of international construction projects, a contractor’s failure to carefully enforce its rights may lead to hardship that could have otherwise been avoided.

While a contractor’s rights and remedies are often dictated by the unique features of a project and the precise terms of the operative construction agreement, construction disputes often raise similar themes. This chapter discusses the various issues contractors and their counsel must bear in mind when preparing for and prosecuting their claims during a complex international construction project.

Types of claims

Many construction project disputes revolve around a series of common claims that the contractor may assert against an employer. These claims include variation claims, delay claims, force majeure claims, acceleration claims, claims for payment, termination and completion costs, and global or total cost claims. Understanding the elements of these claims and the contractor’s rights and obligations relating to these claims is crucial for an effective prosecution or defence.

Variation

Given the complexities associated with the planning and design of any complex construction and engineering project, employers or their representatives regularly, whether for convenience or out of necessity, modify a contractor’s original scope of work to ensure that the project satisfies the employer’s long-term objectives. Given this reality, construction agreements often contain contractual provisions that allow the employer to unilaterally amend the contractor’s original scope of work.^[1]

Consequently, most construction agreements – subject to differing limitations – will afford the contractor the right to recover additional compensation and time for any scope changes that the employer directs the contractor to perform. These claims are often referred to as ‘variation’ or ‘change order’ claims, depending on the precise jurisdiction.^[2]

Variation claims commonly raise two core issues: (1) whether the employer’s directions require the contractor to perform out of scope work (i.e., work the contractor did not previously agree to perform) and (2) if so, whether the contractor has appropriately quantified the cost and time impacts associated with this additional scope.

The first question – whether the employer directed the contractor to perform additional work – is typically the most heavily litigated question associated with variation claims. Often, employers may make subtle enhancements to design elements of the project during the work without appreciating the significant ramifications the change may have on the contractor’s designs, procurement and other planning efforts. As a result, what the employer may believe is a de minimis refinement to the contractor’s original scope could have significant time and cost implications for the contractor – therefore leading to a variation claim. In other instances, broadly worded and often vague design and construction scope obligations may make it difficult for the parties to determine when an employer’s request falls outside the scope of the contractor’s responsibility.

Resolving this type of dispute may require a detailed examination of the pricing and technical designs to ascertain precisely what the contractor promised to supply when it executed the contract; however, depending on the level of detail set forth in the contract specifications, tender documents and other materials gathered at the time of contract execution, contractors and employers may struggle to prove that the alleged additional work scope fell within or outside the contractor’s original responsibilities.

Assuming a contractor can establish that an employer’s directive did in fact modify the contractor’s work scope, there is commonly a separate dispute over the cost and time implications associated with the variation. Employers, whether rightfully or wrongfully, often challenge the contractor’s efforts to price the exact cost or time impacts of the variation. This issue can be particularly contentious on projects where the relationship between the two parties is already strained, and the employer may perceive the contractor’s cost and time estimate as overstated.

Once a contractor determines that the employer has sought to modify the contractor’s original scope of work, the contractor should make every effort to present its claim to the employer in accordance with the contract. While the exact approach varies depending on the local jurisdiction and the precise terms of the construction agreement, contractors are commonly required to provide notice to the employer of a potential variation along with an estimate of the potential time and cost implications. Some construction agreements also limit the amount of time a contractor may supplement its original notice with a detailed justification (often with support) for its claim.^[3] Depending on the contract and local jurisdiction, a contractor’s failure to strictly abide by these requirements could cause it to waive its claim.

An additional consideration for many contractors is whether the contractor must progress with the variation in the event the employer disputes the contractor’s right to additional compensation or time. Many construction agreements require the contractor to implement the modified scope in the event of a dispute, regardless of whether there is an agreement over whether the modification constitutes a variation and the extent of relief the contractor is entitled to receive.^[4] These provisions are intended to prevent a scope dispute from impeding the project’s progress but can have significant ramifications for a contractor depending on the jurisdiction, contract and scope of the alleged modification. To the extent the employer directs the contractor to perform numerous modifications with significant financial and scheduling implications but disputes that these modifications constitute variations, the contractor may be required to bear the financial burden of progressing this work before its variation claim is resolved.

Depending on the contractor’s financial capabilities, this scenario can be highly detrimental to the progress of the project and the relationship between the contractor and the employer. Often, construction agreements include pre-arbitration dispute resolution mechanisms that afford the contractor a forum (e.g., dispute boards) to quickly and efficiently resolve these disputes on an interim binding basis;^[5] however, the availability of these types of dispute resolution mechanisms can vary greatly between contract and jurisdictions. Accordingly, a contractor must ensure that it carefully manages the risks associated with ‘scope creep’ and has a plan to quickly resolve these claims before they develop into more significant problems.

Extensions of time and liquidated damages

Most construction agreements make it explicit that time is of the essence and that the contractor must substantially complete its work by a set time or risk the assessment of delay liquidated damages.^[6] The reason for such liquidated damages provisions is that a delay to the completion of the works may result in a significant monetary loss to the employer. For example, if a contractor belatedly completes the construction of a manufacturing plant, the employer may not be able to deliver the manufactured goods it promised to buyers on the agreed timeline, increasing the possibility that the employer will lose revenue.

The reality, however, is that project delays are frequently not the contractor’s responsibility. As a result, most construction agreements allocate the risk of delays between the employer and contractor in a variety of circumstances and will excuse the contractor for delays outside the contractor’s control. Given the risk of liquidated damages, contractors have an interest in establishing that any delays to the project schedule are not the contractor’s responsibility and that the contractor is therefore entitled to an extension of time to the guaranteed completion dates. Delays that can give rise to an extension of time often include:

• delays caused by the employer or one of its representatives (including architects, engineers or other contractors engaged by the employer);
• delays that occur owing to no fault of either party and that warrant extensions of time under the contract, such as force majeure events, changes in law, or material or goods shortages; and
• delays owing to variations to the scope of work.^[7]

Typically, if a contractor can prove that a delay to an activity adversely impacted its ability to complete the work by the guaranteed completion date, then the contractor is usually entitled to an extension of time and, therefore, relief from liquidated damages.^[8] Nevertheless, there is significant nuance behind how a contractor measures the impact of a particular event on its work programme and how a contractor quantifies its entitlement to an extension of time. Contractors routinely rely on scheduling experts to help them prepare and justify their extension of time claims.

Prolongation

In addition to a pure extension of time claim that seeks to protect a contractor from the risk of liquidated damages, in the event the contractor experiences project delays for which it is not responsible, it may be able to pursue a prolongation cost or delay damages claim against the employer to recover the additional costs the contractor incurred as a result of the project’s extended duration.^[9] In concept, a prolongation cost claim seeks to compensate the contractor for any time-related costs (e.g., labour costs, equipment rental expenses and overheads) incurred because the contractor remained on the project longer than originally anticipated.

Importantly, to successfully prosecute a prolongation cost claim, the contractor must often demonstrate that the project delays were caused by events for which the employer (or another party) is exclusively responsible and that these delays adversely impacted the project’s critical path (i.e., the longest sequence of activities in a project schedule between project commencement and completion).^[10] To the extent the contractor and employer both simultaneously delay the project’s critical path (i.e., concurrent delay) or if the delays only impact activities that fall outside the project’s critical path (i.e., non-critical delay), a contractor will generally not be able to recover its prolongation costs, although it may be able to obtain an extension of time or other forms of relief.^[11]

Separately, when presenting a prolongation claim, best practices require that a contractor provide detailed evidence of the additional costs incurred during the period of prolongation. While simple in concept, the process of collecting, analysing and distilling the cost information required to establish a contractor’s losses can be complex and requires a detailed accounting of the contractor’s cost information. Often, contractors engage construction cost accounting experts to facilitate the review of the available cost information to quantify the contractor’s prolongation costs.

Force majeure

Closely related to the topic of extensions of time and prolongation cost claims are force majeure claims. Construction agreements commonly allocate the risk of certain delays between the parties based on various considerations (e.g., subsurface condition risk, change of law risk and weather).^[12] One species of these risk allocation provisions are force majeure clauses. A force majeure clause can excuse a party from performing its contractual obligations when certain unforeseen events occur outside the party’s control that adversely impact the contractor’s performance.

Force majeure events are typically those that were not reasonably foreseeable at the time of entering the contract and could not have been avoided.^[13] Often, force majeure clauses list events such as war, government acts and severe adverse weather conditions as force majeure events.^[14]

To obtain relief, a force majeure clause often requires the contractor to prove that a force majeure event exists and that the force majeure event prevented the contractor’s performance.^[15] The contract and the governing law most often dictate how parties and arbitral tribunals must interpret these provisions. For example, under New York law, courts do not always expansively apply force majeure provisions to address any and every unforeseeable event and will seek only to apply those provisions to the extent the actual force majeure event is listed in the provision.

However, force majeure provisions may contain ‘catch-all’ or ‘sweeper’ provisions (e.g., ‘or other similar causes beyond the control of such party’). In these circumstances, to the extent the actual force majeure event was not expressly listed in the provision, the New York courts will apply the catch-all or sweeper provision by ascertaining whether the actual force majeure event was similar in type to the other events listed in the force majeure clause.^[16]

Contractors, however, often risk overestimating the protections a force majeure clause may afford. Most prominently, force majeure clauses commonly only afford the contractor relief from liquidated damages (e.g., an extension of time) but may not afford the contractor the right to recover any prolongation costs stemming from the force majeure delays (i.e., time but not money).^[17] As a result, it may be advisable to rely on force majeure claims only as a last resort because other types of contractual entitlements may afford a contractor greater rights of relief, such as compensation.

Separately, in common law jurisdictions, the concept of force majeure is purely a question of contract.^[18] What constitutes a force majeure event wholly depends on the definition provided in the contract, and contractors cannot look to common law as a basis for this cause of action. Rather, the doctrines of impossibility, impracticability and frustration of purpose – common law defences to contract performance similar to the concept of force majeure – may offer a contractor some relief if the underlying contract does not support a claim for force majeure; however, courts often narrowly apply these doctrines, reducing the protection afforded to contractors.^[19]

By contrast, in many civil law jurisdictions, the civil code may excuse a contractor from performance of contractual obligations, even if the contract does not expressly contain a force majeure clause. There, however, remain limits on how expansively these protections are applied depending on the jurisdiction. As a result, while many civil law jurisdictions may afford a contractor slightly greater protections against force majeure events than common law jurisdictions, the extent of those protections may still greatly vary. ^[20]

Acceleration

An acceleration claim represents a claim for additional compensation caused by a contractor’s need to expedite its work to either make up for project delays for which it was not responsible or to achieve an earlier project completion date.^[21] For example, if an employer delays the project, it may demand that the contractor add resources to ensure it achieves the original completion date, even though the contractor was entitled to an extension of time. In general, acceleration can be either directed or implied.

Directed acceleration occurs when the employer expressly instructs the contractor to complete the work within a shorter time frame than originally required under the contract or requires the contractor to maintain the original contract completion dates, notwithstanding an acknowledgement that the contractor is entitled to an extension of time.^[22] In these circumstances, the contractor’s right to additional compensation is generally undisputed, and the claim principally hinges on the question of quantifying the additional costs the contractor incurred to accelerate its work.

By contrast, claims associated with implied or constructive acceleration are more often disputed among the parties. Implied or constructive acceleration occurs when the contractor experiences a delay that would otherwise entitle it to an extension of time but is nevertheless compelled to accelerate its work to achieve the original contract completion dates because the employer has refused to award or acknowledge the contractor’s right to relief from liquidated damages.^[23] In these circumstances, the contractor must add resources to its work to ensure it achieves the original completion date in an effort to mitigate its possible exposure to liquidated damages.

While the exact elements of a constructive acceleration claim vary depending on the jurisdiction, to the extent the contractor later establishes that it was in fact entitled to an extension of time under the terms of the construction agreement and added resources to accelerate its work, it will typically be entitled to recover the cost of those additional resources.

Disruption and efficiency

A disruption claim, also known as an efficiency claim, generally refers to a claim made by a contractor seeking compensation for reduced productivity or efficiency on a project. These claims typically arise when the employer engages in conduct that prevents the contractor from completing its work scope as efficiently as originally anticipated.^[24] In doing so, the contractor is often required to add resources to complete its original scope of work beyond its original budget or estimates.

An efficiency or disruption claim commonly seeks to recover the cost of these additional resources. For example, a contractor may pursue a disruption or efficiency claim against an employer if the employer fails to appropriately manage the design review process. In these circumstances, as the project progresses, the contractor will discover that it expended large amounts of design hours to complete a single task that it could have avoided but for the employer’s design management practices.

While conceptually straightforward – an employer cannot fundamentally disrupt a contractor’s work without making the contractor whole – disruption and efficiency claims are often a challenge to pursue. Contractors must demonstrate that the increase in costs is caused by the employer rather than the contractor’s inefficient practices.

While various methodologies exist, contractors often rely on a methodology known as ‘the measured mile method’ to quantify the loss of efficiency. This method compares the productivity of work performed under normal, undisturbed conditions (i.e., the ‘measured mile’) with the productivity of work performed under disrupted or impacted conditions.^[25] The difference in productivity between the undisrupted and disrupted work force is then used to quantify the additional costs the contractor incurred owing to its efficiency losses.^[26]

Payment

Non-payment or late payment claims against the employer are a common reality on international construction projects, and contractors should not underestimate the significant adverse impacts payment disputes can have. While contractors may price their bids to ensure they can sustain some degree of late payment, this buffer can easily be depleted if the employer withholds or delays payment for extended periods. The subsequent lack of a steady cash flow can cause downstream financing problems for the contractor and its subcontractors who are reliant on payment to procure and perform the work.

Construction contracts usually set forth a payment schedule that outlines the dates on which the employer will issue payment or milestones that justify payment. To receive payment, contractors often submit payment applications in compliance with the contract’s specifications. Usually, the payment applications include documentation demonstrating that the contractor is entitled to the requested amount and evidence that the project is progressing on schedule.^[27]

Employers, whether rightfully or wrongfully, may use the payment application process to delay payment to the contractor as a result of the contractor’s failure to strictly comply with the payment application requirements. As a result, payment application procedures are often fraught areas for dispute, and best practices would require contractors to carefully comply with the payment terms of the contract when submitting payment applications to avoid any delays.

Contractors should not underestimate the payment challenges posed by operating in different jurisdictions around the world. Often, bureaucratic requirements or other administrative hurdles imposed by the employer’s internal policies – particularly when the employer is a government entity – can give rise to significant payment delays and impose real financial hardships on downstream contractors and subcontractors.

Notwithstanding the above, the employer must typically pay all undisputed payments, which equals the amount the contractor has requested minus any deductions the employer is entitled to make under the contract.^[28] If the employer does not pay the contractor by the specified deadlines without contractual justification, the contractor may be entitled to financing charges, suspension or, in some cases, termination.^[29] A contractor’s claims for payments are often closely related with an employer’s back-charge claims,^[30] which the employer uses as justification to withhold payment (i.e., withholding payment to cure the contractor’s defective work).

Termination

Construction agreements may vary dramatically, but a contractor’s contractual suspension and termination rights are often limited. Construction agreements typically, but not always, give contractors the right to terminate if the employer:

• unjustifiably withholds undisputed payments for a prolonged duration;
• fails to submit documentation demonstrating the employer’s ability to finance the project;
• materially breaches its obligations;
• suspends the contractor’s work for a prolonged duration;
• engages in fraudulent conduct; or
• becomes insolvent or files for bankruptcy.^[31]

If circumstances, such as the ones above, arise and the contractor wishes to terminate, the contractor should carefully follow the procedure set forth in the contract, including complying with any notice provisions and affording the employer an opportunity to cure.

Construction contracts outline the consequences of a contractor-initiated termination.^[32] Although the precise ramifications associated with a termination event vary from contract to contract, the employer is usually responsible for paying a certain lump sum and returning the performance security to the contractor.^[33] The contractor, on the other hand, must usually turn over all materials, equipment and documents that the employer has paid for and demobilise the project site.

Employers, by contrast, often retain more extensive termination rights, including a right to terminate for convenience or default. Termination for convenience provisions afford the employer the right to terminate the contract at any time and are often used in cases where a project no longer becomes financially viable. In a termination for convenience scenario, the contractor is typically entitled to recover the value of the work performed and, in some instances, at least a portion of the contractor’s lost profit.^[34] Often, termination for convenience scenarios give rise to disputes concerning the precise amount the contractor is entitled to recover – with the employer trying to mitigate its losses as much as possible.

Under a termination for default scenario, the employer has elected to terminate the construction agreement because the contractor is in default pursuant to the terms of the construction contract (e.g., the contractor has refused to perform a material obligation or the contractor is insolvent).^[35] If an event of default exists, then the employer must typically notify the contractor of the employer’s intent to terminate the contract and provide the contractor an opportunity to cure the default.^[36]

If the contractor fails to cure the default, the employer is often entitled to terminate the contract, and the contractor must usually, for example, turn over all project documents, materials and project equipment paid for by the employer and leave the site. While the contractor may recover amounts for work performed, the employer is typically entitled to withhold that payment to set off costs to complete the work and to satisfy the employer’s delay damages.^[37]

If an employer elects to terminate the contractor for default and complete the remainder of contractors’ scope, the contractor will often assert a claim for wrongful termination. In these cases, the contractor may argue that it was not in default, that the employer failed to provide notice and an opportunity to cure or that the employer’s conduct was pretextual. In many cases, to the extent the contractor successfully establishes that the termination was wrongful, the termination will be converted to a termination for convenience through which the contractor will be entitled to recover its losses plus any lost margin on the construction contract;^[38] however, the specific consequences of a wrongful termination claim often depend on the terms of the construction contract.

Global, total cost and modified total cost claims

Often, in cases of severely distressed projects, contractors may face significant losses but struggle to isolate and attribute specific cost overruns to individual causes because of the complex and intertwined nature of project disruptions. Under a traditional breach of contract analysis, where a contractor must establish breach, causation and damages, contractors may find themselves unable to recover their losses under these scenarios because of an inability to establish causation.

To address this challenge, and while approaches vary between jurisdictions, a contractor may bypass the traditional causation requirement in favour of a simplified analysis known as the total cost claim or total cost methodology. This approach calculates damages by measuring the difference between the contractor’s original estimate or tender to the actual cost of performance. While total cost claims are more accurately a theory of damages rather than a specific entitlement claim,^[39] they are typically pursued when an employer’s numerous material breaches – very often in connection with disruption or loss of efficiency claims – make it nearly impossible for the contractor to link individual breaches to specific losses.

Some jurisdictions, however, recognise a contractor’s right to assert a claim known as a global claim, which permits a contractor to recover compensation on a total cost basis for multiple issues or events that have collectively impacted the project.^[40] In simplified terms, under a global claim, the contractor presents the claim as a single, overarching demand for compensation, arguing that the combined effect of these issues has led to significant financial or time-related losses.

Notwithstanding the above, global claims and total cost claims, are generally disfavoured and subject to stringent requirements. For example, to assert a total cost claim in the United States, contractors must typically demonstrate the impracticability of proving actual losses directly, the reasonableness of their bid and actual costs, and the absence of responsibility for additional costs (depending on the applicable US jurisdiction).^[41] Similarly, in Australia, claimants must often show that they reasonably expected to perform the work for a specific sum, that the employer’s breaches caused additional costs, that the actual reasonable cost exceeded the expected cost, and that the employer’s breaches were the sole significant factor for the cost difference.^[42]

While variations exist, the challenge associated with these standards is that they largely require the contractor to demonstrate that it did not contribute to its additional costs, in any way. This can be a significant hurdle, particularly in the case of complex, years-long construction and engineering projects.

Given these challenges, contractors often advance what is known as a modified total cost claim, which follows the total cost methodology but seeks to adjust for inaccuracies in the original estimate or costs not attributable to the employer. Modified total cost claims are, in general, more favourably received by courts and arbitrators for their attempt to correct inherent inaccuracies in the total cost approach. Nonetheless, contractors must still satisfy a high burden to assert a modified total cost claim, and contractors must carefully calibrate their claims to accurately capture only the losses for which the employer is responsible.

Evidence in support of a party’s claims

The process of advancing a claim during a complex international construction dispute requires the party to collect and present various forms of evidence in support of its claims. While the weight of this evidence depends on the parties, the local jurisdiction and the preferences of the arbitrators, evidence in a construction dispute typically falls into three different categories: documentary, fact witness and expert evidence.

Documentary evidence

Documentary evidence – including project correspondence, project reports, accounting information, project schedules, meeting minutes and emails – are all critically important pieces of contemporaneous evidence that a contractor must collect and present to support the various facets of its case. Effective and careful project management and document control systems are critical to ensuring that the contractor or employer has access to the information and data it needs to present its narrative and quantify its losses.

As a result, it is imperative that parties implement project and contract management procedures that ensure it will have the necessary cost, schedule and project records needed to prosecute a claim if and when a claim arises. Very often, a party’s failure to fastidiously maintain project documentation can mean the difference between successful and unsuccessful prosecutions of a claim.

Fact-witness evidence

If documentary evidence is unavailable or context is lacking, fact-witness evidence may become necessary to fill in any factual gaps and explain the relevance of the available documentary evidence. Contractors and employers must take care to ensure they maintain access to key witnesses, including project managers, contract managers, schedulers and other members of the project team who have direct personal knowledge of the underlying disputes before those individuals leave the project and potentially become inaccessible.

In addition, depending on the legal traditions of the arbitrators, parties should be sensitive to the fact that not all tribunals will place significant weight on fact-witness testimony, and parties may be better served to avoid an over-reliance on fact-witness testimony when contemporaneous documentation is available.^[43]

Expert evidence

Construction arbitrations typically involve many experts, and whether a party is successful in presenting or defending against claims often turns on expert evidence. It is relatively common for parties to engage cost and delay experts during the work, before any claims have been submitted or an arbitration has been commenced, as a precautionary measure to ensure that they have carefully vetted and compiled their claim materials. Expert witnesses should work closely with the project team and legal team early in the dispute process to help inform legal strategy and case development.

Construction projects involve a wide range of technical trades and expertise, and the types of experts can greatly vary. Typically, the contractors in a construction arbitration will proffer three types of experts – delay, quantum and specialised or technical trade experts:

• Delay experts: delay experts have a crucial role in large-scale construction projects, particularly in the context of project delays disputes. Delay experts analyse project schedules to identify the causes and impacts of delays.
• Quantum and cost accounting experts: quantum experts are specialists who assess and quantify a party’s damages. In construction cases, these experts typically assist the contractor to develop and validate the damages stemming from the most complex damages elements associated with claims like prolongation and efficiency claims and typically assist the parties to conduct a complete project accounting to explain any outstanding payment claims.
• Technical experts: technical experts are individuals with specialised knowledge and insights into construction practices, standards and technologies. Technical experts assess whether construction work was performed according to industry standards, project specifications and contractual obligations. These individuals are often asked to assess construction defects or deficiencies, determining their causes and impacts on the project, including material failures or non-compliance with regulations.

Dispute resolution

While there are various unique features associated with construction project disputes, among the most prominent are the long-term nature of the underlying project itself and the risks of creating serious financing shortfalls that jeopardise the ability to complete the project. This scenario can arise in connection with nearly any of the contractor claims discussed above. As a result, the ability for the contractor to efficiently resolve these disputes in a timely manner can be a significant advantage, and many, though not all, construction agreements include dispute resolution mechanisms that help to address this issue.

Project claims and disputes

Construction agreements commonly include various forms of step-up clauses that require the parties to either engage in executive level negotiations, mediation or other pre-dispute resolution procedures that encourage the parties to resolve the disputes before escalating the dispute to litigation or arbitration. The precise type and extent of these step-up provisions varies depending on the nature of the construction agreement and preferences of the parties.

Construction contracts typically require contractors to first submit their project level claims to a third-party engineer for a preliminary evaluation and interim determination of the merits.^[44] Although the engineer is appointed by the employer, the engineer is expected to act impartially when making decisions.

The engineer must provide decisions within a specified time frame, as outlined in the contract, to prevent financing shortfalls caused by protracted project-level disputes. This documentation is important for transparency and can be used if the dispute is escalated to a dispute board or arbitration.

Dispute boards

In addition, or as an alternative to an engineer’s determination, many construction contracts (e.g., the International Federation of Consulting Engineers’ suite of form construction agreements) include an interim dispute resolution mechanism known as a dispute board.^[45] Although there are various forms of disputes boards, these bodies usually comprise one to three individuals (often with extensive construction industry experience) that hear the parties’ disputes and render interim-binding or non-binding determinations on the merits or even mediate the dispute between the parties.

A dispute board is often appointed at the outset of the execution of the contract, remain engaged for the entire life of the project and, as a result, become very familiar with the parties and the work. The adjudication board process is designed to be quicker and less formal than arbitration proceedings, reducing costs and delays, and may even help to mitigate or resolve issues before they evolve into intractable disputes.^[46]

Arbitration

International arbitration is the most prevalent dispute resolution method for international construction disputes and regularly serves as the final and binding dispute resolution mechanism in international construction agreements. International arbitration allows, among other things, the parties to present their case before a neutral arbitral tribunal, ensures the parties can tailor the procedures to suit the needs of their case, and generates arbitration awards that can be enforced in numerous jurisdictions around the word under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards.^[47]

While the nuances associated with the prosecution of claims within a complex international arbitration may be beyond the scope of this chapter, parties must be aware that arbitration, while faster and more efficient than litigation before the local courts of a particular jurisdiction, is still a time-consuming and costly process. An international arbitration proceeding can take months if not years to complete and, depending on the complexity of the case, can give rise to millions of dollars in legal, expert and arbitration-related expenses.

As a result, to the extent the parties require a more rapid means of resolving their dispute, arbitration may not always be the most suitable mechanism and may be best reserved as a last resort. Nevertheless, compared to other forms of dispute resolution, the advantages of international arbitration as the final method of dispute resolution for a complex construction dispute cannot be understated.

Conclusion

Much more could be said about the nuances of a contractor’s rights, remedies and reliefs and how contractors can successfully prosecute its claims in a complex construction project. The reality, however, is that given challenges associated with the execution of complex construction projects, disputes are inevitable, and a contractor’s ability to understand, manage and present its claims is a critical facet to modern construction and infrastructure projects around the world.

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Endnotes

^[1] See, e.g., AIA A201–2017, Section 7.3; International Federation of Consulting Engineers (FIDIC) Conditions of Contract for EPC/Turnkey Projects (FIDIC Silver Book), Clause 13.1.

^[2] Construction Financial Management Association (ed.), Financial Management and Accounting for the Construction Industry (Matthew Bender, 2025), Chapter 4, Section 4.02.

^[3] See, e.g., FIDIC Silver Book, Clause 13.3.

^[4] See, e.g., FIDIC Conditions of Contract for Plant & Design Build (FIDIC Yellow Book), Clause 13.3.

^[5] See, e.g., FIDIC Silver Book, Clause 3.5; 13.3.

^[6] See, e.g., FIDIC Yellow Book, Clause 8.8.

^[7] See, e.g., id., Clause 8.5.

^[8] In addition to extension of time claims, though outside the scope of this chapter, contractors may also seek to mitigate their risk to liquidated damages or other delay-related claims through limitation of liability or limitation of consequential damages provisions. See, e.g., FIDIC Silver Book, Clause 1.14. Different jurisdictions enforce exculpatory clauses with varying degrees of strictness, often depending on factors such as the clarity of the contract language, the presence of unconscionable terms and other public policy considerations.

^[9] See, e.g., Claire King, ‘Contractor claims for prolongation costs: a comprehensive guide’, Lexology (16 December 2021),www.lexology.com /library/detail.aspx?g=d7387b12-5408-49ed-8c9c-9036814634c4 (accessed 10 June 2025).

^[10] See, e.g., Craig Enderbury, ‘Prolongation Claims: The Basic Principles’, HKA (13 December 2023), www.hka.com/article/prolongation-cost-claims-basic-principles (accessed 10 June 2025); ibid.

^[11] See, e.g., Philip Lane Bruner and Patrick J O’Connor, Bruner & O’Connor Construction Law (Clark Boardman Callaghan, 2024), Ch. 15 § 15:68 (providing that ‘proof of a concurrent cause of delay outside of the other party’s ‘control’ precludes recovery of damages’); Enderbury (see footnote 10) (explaining that the employer will likely reject ‘[a]ny prolongation cost claim that includes costs attributable to [contractor delays], concurrent delays [or] the occurrence of [c]ontractor’s risk events’, such as weather or force majeure events).

^[12] See, e.g., Ellis Baker, Richard Hill and Ibaad Hakim, ‘Allocation of Risk in Construction Contracts’, in Stavros Brekoulakis and David Brynmor Thomas KC (eds.), The Guide to Construction Arbitration (12 October 2023), www.globalarbitrationreview.com/guide/the-guide-construction-arbitration/fifth-edition/article/allocation-of-risk-in-construction-contracts (accessed 10 June 2025).

^[13] See e.g., FIDIC Conditions of Contract for Construction (FIDIC Red Book), Clause 18.1.

^[14] See e.g., FIDIC Red Book, Clause 18.1.

^[15] id., Clause 18.1.

^[16] See e.g., Kel Kim Corp. v. Central Markets, Inc., 70 N.Y.2d 900 (1987).

^[17] See, e.g., Chris Cazenave, Bill Shaughnessy and William Underwood, ‘COVID-19’s Impact on Construction: Treatment of Force Majeure Under Standard Form Contracts’, American Bar Association (30 August 2020), www.americanbar.org/groups/construction_industry/publications/ under_construction/2020/summer2020/covid19-impact-on-construction (accessed 10 June 2025).

^[18] See, e.g., Andrew C. Smith, et al., ‘Tour de Force: Force Majeure in Civil Law Jurisdictions – A Superior Force Majeure Doctrine?’, Pillsbury Winthrop Shaw Pittman (2 December 2020), www.pillsburylaw.com/en/news-and-insights/force-majeure-civil-versus-common-law.html (accessed 10 June 2025).

^[19] See, e.g., Kelly J Bundy, ‘Impossibility, Impracticability and Frustration of Purpose in the Age of COVID-19’, American Bar Association (3 August 2020), www.americanbar.org/groups/construction_industry/publications/under_construction/2020/summer2020/impossibility-impracticability-frustration-of-purpose-in-the-age-of-covid19 (accessed 10 June 2025).

^[20] Smith, et al. (see footnote 17).

^[21] See, e.g., Richard J Long, ‘Acceleration Claims on Engineering and Construction Projects’, Long International (modified 22 January 2025), www.long-intl.com/articles/acceleration-claims (accessed 10 June 2025).

^[22] ibid.

^[23] ibid.

^[24] See, e.g., W Stephen Dale and Robert M D’Onofrio, ‘Disruption, Inefficiency & Loss of Productivity On Construction Projects’, Construction Briefing Papers, Issue 16-10 (September 2016).

^[25] ibid.

^[26] One difficulty in resolving measured mile claims is identifying which period of performance represented normal, undisturbed circumstances.

^[27] FIDIC Silver Book, Clause 14.3.

^[28] FIDIC Silver Book, Clause 14.6.

^[29] id., Clause 14.8.

^[30] An employer’s back-charge or counterclaims are typically affirmative claims asserted by the employer against the contractor for work that the employer performed on the contractor’s behalf. Back-charge claims, much like variation claims, often hinge on questions of whether the work at issue fell within or outside the contractor’s original scope of work.

^[31] FIDIC Silver Book, Clause 16.2.

^[32] See, e.g., FIDIC Silver Book, Clause 16.3, 16.4; AIA A201–2017, Section 14.1.

^[33] See, e.g., NEC4 Engineering and Construction Contract, Clause 90.2.

^[34] See, e.g., FIDIC Silver Book, Clause 15.6.

^[35] See, e.g., id., Clause 15.2.1.

^[36] See, e.g., id., Clauses 15.2.1 and 15.2.2.

^[37] id., Clause 15.4.

^[38] See, e.g., id., Clause 15.4; Edward Garber, ‘Converting the Dreadful Termination for Default into a Termination for Convenience’, Florida Construction Legal Updates (5 October 2014), www.floridaconstructionlegalupdates.com/converting-the-dreadful-termination-for-default-into-a-termination-for-convenience (accessed 10 June 2025).

^[39] Total cost claims often arise in connection with disruption or loss of efficiency claims.

^[40] Often parties use the terms ‘global claim’ and ‘total cost claim’ synonymously; however, global claims refer more broadly to cases involving multiple breaches of contract, and total cost claims broadly refer to the damages methodology. Global claims often rely on a total cost claim methodology, but there is no requirement that a global claim must rely on a total cost methodology or that a total cost methodology can only be used in connection with a global claim.

^[41] See, e.g., Servidone Const. Corp. v. United States, 931 F.2d 860 (Fed. Cir. 1991).

^[42] See John Holland Pty Ltd v. Kvaerner RJ Brown Pty Ltd [1996] 8 VR 681, 689 [15] (Bryen J); Nathan Sexton, ‘Proof in Global Claims and Total Cost Claims’, Building and Construction Law Journal, Vol. 39, No. 2 (April 2024).

^[43] See, e.g., Alex Johnson, ‘The Impersistence of Memory – Fact Witness Evidence in International Arbitration’, Freeths (21 September 2021), www.freeths.co.uk/insights-events/legal-articles/2021/the-impersistence-of-memory-fact-witness-evidence-in-international-arbitration (accessed 10 June 2025).

^[44] See, e.g., FIDIC Red Book, Clause 3.7.

^[45] See, e.g., id., Clause 20.2; Jeremy Glover, ‘FIDIC Dispute Adjudication Boards’, Fenwick Elliot (11 April 2017), www.fenwickelliott.com/research-insight/articles-papers/contract-issues/fidic-dispute-adjudication-boards (accessed 10 June 2025); ‘FIDIC Dispute Resolution Mechanism’, Aceris Law (2 January 2022), www.acerislaw.com/fidic-dispute-resolution-mechanism (accessed 10 June 2025).

^[46] See generally Albert Bates Jr and R Zachary Torres-Fowler, ‘Dispute Boards: A Different Approach to Dispute Resolution’, in Christian Campbell (ed.), Comparative Law Yearbook of International Business, Vol. 42 (Wolters Kluwer, 2020), pp. 237–64.

^[47] Report, ‘International Arbitration Survey – Driving Efficiency in International Construction Disputes’, Queen Mary University of London & Pinsent Masons (2019), www.qmul.ac.uk/arbitration/research/2019 (accessed 10 June 2025), pp. 8–9, 23–24.

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